From Martin North, comes data showing that Australian mortgage stress has surged to new record highs, driven by the bubble/bust epicentres of NSW and VIC:
The number of households in severe stress continues to rise. 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 1,026,106 households are estimated to be now in mortgage stress (last month 1,023,906), another new record. This equates to more than 31% of owner occupied borrowing households.
In addition, more than 25,750 of these are in severe stress (last month 22,000). We estimate that more than 63,000 households risk 30-day default in the next 12 months, up 1,000 from last month. 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 January 2019. 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.
Despite the popular view that household finances are fine, in fact the continued accumulation of larger mortgages compared to income whilst costs are rising and incomes static explains the issues we are now seeing. Housing credit growth is running significantly faster than incomes and inflation, and continued rises in living costs – notably child care, school fees and electricity prices are causing significant pain, this despite some relief at the bowser. Many continue to dip into savings to support their finances. We are seeing a rise in households seeking help with their finances, including access to debt counsellors and other advice channels. WA is seeing very strong growth in cries for help!