Once again, it’s the continuing story of pressure on households as ongoing wages growth is not offsetting costs of living, and mortgage repayments as total debt continues to rise. Moreover, the trends have continued post the election.
Across Australia, more than 1,071,829 households are estimated to be now in mortgage stress (last month 1,050,450), another new record. This equates to more than 31.9% of owner-occupied borrowing households. In addition, more than 33,427 (30,413 last month) of these are in severe stress. We estimate that more than 70,502 (last month 70,149) households’ risk 30-day default in the next 12 month. This is as the impact of flat wages growth, rising living costs and higher real mortgage rates hit home. Bank losses are likely to rise a little ahead…
Martin North, Principal of Digital Finance Analytics says that now the election results are known, and the dust has settled, we are still seeing the pressures on households are rising, thanks to an accumulation of larger mortgages compared to income whilst costs are rising, and incomes remain static. Housing credit growth is still running significantly faster than incomes and inflation and continued rises in living costs – notably child care, healthcare costs, school fees and electricity prices are causing significant pain. Many households are depleting their savings to support their finances or are trying to refinance.
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 297,995 households in stress (284,014 last month), VIC 290,581 (292,114 last month), QLD 193,155 (184,037 last month) and WA has 140,950 (140,836) last month). The probability of default over the next 12 months rose, with around 13,222 (13,135 last month) in WA, around 12,948 (12,936 last month) in QLD, 17,773 (17,611 last week) in VIC and 18,822 (18,703 last month) in NSW.
The largest financial losses relating to bank write-offs reside in NSW ($1.1 billion) from Owner Occupied borrowers) and VIC ($1.54 billion), though losses are likely to be highest in WA at 3.1 basis points, which equates to $1,107 million.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
