Aussie household mortgage stress hits new all-time highs

Via Martin North:

Digital Finance Analytics (DFA) has released the December 2018 mortgage stress and default analysis update.

The latest RBA data on household debt to income to September fell a little to 188.6, but still remains highly elevated. The housing debt ratio continues to climb to a new record of 139.6, according to the RBA.  This shows that household debt to income is still increasing.

This high debt level helps to explain the fact that mortgage stress continues to rise. Across Australia, more than 1,023,906 households are estimated to be now in mortgage stress (last month 1,015,600), another new record. This equates to 31% of owner occupied borrowing households. In addition, more than 22,000 of these are in severe stress. We estimate that more than 62,000 households risk 30-day default in the next 12 months. We continue to see the impact of flat wages growth, rising living costs and higher real mortgage rates.  Bank losses are likely to rise a little ahead.

Our analysis uses the DFA core market model which combines information from our 52,000 household surveys, public data from the RBA, ABS and APRA; and private data from lenders and aggregators. The data is current to the end of December 2018. We analyse household cash flow based on real incomes, outgoings and mortgage repayments, rather than using an arbitrary 30% of income.

Households are defined as “stressed” when net income (or cash flow) does not cover ongoing costs. They may or may not have access to other available assets, and some have paid ahead, but households in mild stress have little leeway in their cash flows, whereas those in severe stress are unable to meet repayments from current income. In both cases, households manage this deficit by cutting back on spending, putting more on credit cards and seeking to refinance, restructure or sell their home.  Those in severe stress are more likely to be seeking hardship assistance and are often forced to sell.

The accumulation of larger mortgages compared to income whilst costs are rising and incomes static explains the issues we are now seeing. Continued rises in living costs – notably child care, school fees and fuel – whilst real incomes continue to fall; and underemployment are causing significant pain. Many are dipping into savings to support their finances. The latest ABS GDP numbers confirmed the falling savings ratio.

Indeed, the fact that significant numbers of households have had their potential borrowing power crimped by lending standards belatedly being tightened, and are therefore mortgage prisoners, is significant. More than 49% of those seeking to refinance are now having difficulty. This is strongly aligned to those who are registering as stressed.  These are households urgently trying to reduce their monthly outgoings”.

The next question to consider is which households are being impacted. In fact, negative equity is touching “lots of different segments” of the market for different reasons, but collectively it is an “early warning sign” for what is to come.

Probability of default extends our mortgage stress analysis by overlaying economic indicators such as employment, future wage growth and cpi changes.  Our Core Market Model also examines the potential of portfolio risk of loss in basis point and value terms. Losses are likely to be higher among more affluent households, contrary to the popular belief that affluent households are well protected.  This is shown in the segment analysis below:

Stress by the numbers.

Regional analysis shows that NSW has 278,959 households in stress (281,275 last month), VIC 285,723 (283,395 last month), QLD 180,794 (181,156 last month) and WA has 135,548 (132,135 last month). The probability of default over the next 12 months rose, with around 11,650 in WA, around 11,600 in QLD, 15,600 in VIC and 16,600 in NSW.

The largest financial losses relating to bank write-offs reside in NSW ($1.1 billion) from Owner Occupied borrowers) and VIC ($1.48 billion) from Owner Occupied Borrowers, though losses are likely to be highest in WA at 3.6 basis points, which equates to $1,022 million from Owner Occupied borrowers.  

A fuller regional breakdown is set out below.

17 our of 20 tosspots still see rate hikes.

Houses and Holes
Latest posts by Houses and Holes (see all)


  1. It would be interesting to overlay households in stress and bank lending behavior. If the correlation that I suspect is also causational then banks will self regulate toward greater tighten ing.

    The end of the beginning is nigh !

    • Good point. RC is not the only reason behind the credit crunch. Risk is up and bank employees now also know we are not different and property doesn’t alway go up.

      • proofreadersMEMBER

        And they’ve had their lightbulb moment that the mortgage brokers that loaded up their books with dodgy loans have left IEDs everywhere that are about to go off?

    • Exactly. The huge rise in rents is the smoking gun of the housing shortage.

      The huge rise in rents has justified the huge to-buy prices..
      “Look how much money we are saving in rent”

      The huge rise in rents has made many investments change from negatively geared, to positively geared.

      The huge rise in rents has arguably done more damage to the wellbeing of ordinary people than the outrageosly high to-buy prices.

      The huge rise in rents has forced rich renters into middle-class areas, middle-class renters into lower-class areas.
      The huge rise in rents has forced poorer renters into rental stress and homelessness.

      For years housing shortage-deniers denied that rents had risen. They could always find a statistic to misuse for that purpose. But now even the most stubborn shortage-denier is struggling to deny the rise in rents.

    • A few items here from observations in Newcastle:
      There appears to be more properties for rent in my driving around then anytime in the last 10 years,
      There will be a significant increase in properties available to rent over the next 6 months as large scale unit blocks complete
      I asked the guys on the corner that moved out before Christmas (4 bedroom house and 2 people living in it) they said they where moving back to live at parents place which was a 5 bedroom house to save money – my take lots of empty rooms to absorb population growth
      Heard from a glassier that his boss gave him an extra 2 weeks off this Christmas as work was quiet.

      • Despite all the endless ‘revitalisation’ and spruiking that comes across as desperate, Newcastle well and truly appears to be going down the sh1tter.

        Insane amounts of apartment construction, housing estates in outer suburbs, and crazy amounts of commercial RE for lease or sale. I started to document it there a while ago:[email protected]/sets/72157695293660360/

        As those photos show, it’s not just the CBD that’s struggling (which has been an existing issue exacerbated by light rail construction), but the suburbs seem sick too..

        I’m Islington/Hamilton area.. no anecdotes of rentals here, but quite possible there’s a tonne and signs are not going up for fear of showing how dire it actually is.

        Plenty of properties going up for sale though, languishing on the market for months, quietly being pulled down and rented out..

        Or, For Sale signs removed, but listing still online.

        My couple of anecdotes are local business owners saying around xmas time it was the quietest it’s been for many years… But other factors at play.. e.g. online shopping

  2. 430,000 borrowing households in WA and 140,000 of them in stress.

    But REIWA says the bottom is in.

  3. interesting bit is how many of those 65000 will default in the next 12 months. If only 20000 go under then prices will drop at least 15%.

    • Edwin Almeda said one day with Martin North that 50 houses in an area would crash the local market

  4. It’s at times like when I see that yellow line, that I am glad to be a scumbag renter.

    • Lol yep, I cannot imagine the level of stress, frustration, fighting and arguing etc.. plus that debt that won’t budge week on week, year on year. I’d want out before it began.

      Only borrow what you can comfortably afford to. For me about $200k is ideal. That way even on 1/4 of my current wage I can survive. Need to prepare for the worst case, not hope for best case.


        Heard from a friend over the weekend who just pulled the inner city MEL apartment pin. Was more than happy to eat the $80k all up loss to avoid a bigger loss which seemed inevitable. Interesting thing that surfaced was the inverse of the happy, chatty, let’s make some money, agent who drove the sale 3 years ago. Dr Jekyll became Mr Hyde to elicit and encourage the ‘get out now’ sentiment which like the original sale, was a pretty easy close.
        Losses terrify folks more than gains thrill.

  5. I have no problem with mortgage stress – imho it will be the easiest way to purge Australia of the ill effects of mass migration and opportunistic migrant that it is suffering under.

    Why deport when a financial fire will have the opportunist voluntarily leave – young Australians will have nowhere else to go, and with their parents equity an eventual opportunity to rebuild. But the opportunist immigrant with massive debts and no prospect of inherited equity will be driven away, especially if it is accompanied by social unrest and recession.

    • Many young talented Australians now leave permanently for greener shores. 30,000 a year can move to the USA on E3B visas.

      It is the dull and the lazy who are left behind, along with the new immigrants.

      • “Dull and Lazy”

        Sounds like bigotry to me – those left behind are mainly Australians without opportunity, either via their parents or meaningful, gainful employment, after being squeezed out by aforesaid opportunistic migrant.

        Besides, the same anti-migrant forces are at work overseas as they are here – those escape hatches are increasingly likely to close (although I will agree that for the opportunistic young progressive Australian, the migration window will hold some appeal while it lasts).

    • Considering the wide spread use of the Bank of Mum & Dad, many might not even have family homes once the ashes settle.

    • Stewie,
      I tried to work out what you are talking about.
      I consulted my approved neoliberal dictionary but it seems the words “loyalty” and “honour” aren’t in it.

      • What edition do you have? My first edition has them as archaism, see “price” and “markets”

      • Why aren’t you in South Africa?

        Aren’t Multicultural societies like South Africa, Zimbabwe and Brazil the best places in the world to live? Surely all the vibrancy and cultural enrichment has result in societies as strong and sparkly as diamonds?

  6. TailorTrashMEMBER

    That yellow line is ticking up nicely….and it’s only to September …..the Christmas credit card binge should tick it up a bit more …..getitintaya straya !

  7. I doubt rate cuts are going to do much considering the facts in front of us now. A rate cut may take things from dire to bleak. All because greed and lack of checks and balances got the better of this ponzi asset – that sucked in those who genuinely needed a home for fear of missing out. The game is just about up… one can only hope it is not as bad as some are forecasting.

    • one can only hope it is not as bad as some are forecasting

      Debt, borrowings, interest, repayments and owings are merely accounting entries in an arbitrary monetary realm. A owes B X dollars. These owings can be changed by law in an instant.

      When you net it out, increasing or decreasing debt does not make society overall richer or poorer.

      To find out how bad things are you need to look at the physical realm…
      Is there enough stuff? enough houses, hospitals, food, etc
      If there is enough, is it being used effectively or wasted?
      What is the trajectory? Are we getting more good stuff per person or less?
      Then what about the bad stuff like pollution, extinction, climate, etc?

      Are physical things improving or getting worse?

      What is your forecast?

      • I would say standards of living are NOT improving. GDP per capita proves that – not that it should all be about money. You have both parents working these days and sticking little Johnny into daycare 5 days a week. Some nights little Johnny only gets home at 9pm thanks to traffic and the stress Mum and Dad are under to pay their ridiculous mortgage. So on that front, no – things are not getting better. I had it much easier as a kid – Mum stayed at home to raise us kids as ONE income was more than enough. Now it is not. Property should never have been a speculative asset class.

      • Agree Russell, I remember mum at home looking after me as a kid. Good times. Poor little Johnny doesn’t have that these days.

      • The huge rise in prices for homes follows exactly credit availability. The horror of both parents working to pay the mortgage and the kiddy in childcare all hours is a result of deliberate bank policy.
        And re mortgage brokers? As a pregnant newly wed with 90% equity in a Paddington home, nab logon street refused a loan on land in Kerry but quicksmart the nab manager referred us to his friend the mortgage broker 4 doorsup, and in ten minutes on payment of $1000 a $32k was approved. Obviously the nab bank manager got his cut. Our loan to equity was about 30%. Many stories of fraudulent evil from banks. Refusal to give cash withdrawal greater than 5k after saying it would take 5 days to transfer 30k to my credit union affiliated with them. My answer was I will take it in cash and deposit to my credit union round the corner at the post office. I was loudly treated like scum to the amazement of the clients present.

  8. Martin, do you ask about debt connected to post secondary education debt? My boss just in her own sphere of influence has encouraged hundreds of students into university courses (inappropriate ly in MHO) I fear this will mean they will be renters no matter the extent of the correction

  9. Is there any good analysis of the commercial property market? Can’t imagine that being immune to speculation, bad loans etc.

    • Been very quiet on that front. Must be a bloodbath here in Perth. Yet strangely they decided now was a good time to expand half the shopping centres here.

  10. Locus of ControlMEMBER

    That uptick in the yellow line seems to align nicely with the time period over which people have been transitioned from interest only to principal and interest loans.