DFA has released our mortgage stress survey results to the end of November. And after a couple of months going sideways, thanks to some rate cuts and tax refunds, the trajectory has gone sharply higher again this month.
One factor which is now biting is the switch from interest only loan to principle and interest loan repayments, which has lifted average monthly repayments by more than 20% for some. In addition the underemployment and unemployment factors are playing in, as is the drought. In fact, the drought now appears to be right up there in terms of directly hitting regional unemployment as well as lifting food prices more generally. This all suggests that even more stress is baked in ahead.
The proportion of households now in mortgage stress, based on an assessment of their cash flow (money in, compared with money out, including mortgage repayments where appropriate), has now lifted to 32.5% of households.
This equates to 1,082,000 households, the highest ever measured in our surveys. Worse, more are slipping into risk of mortgage default, according to our forward modelling*. More are also in sever stress, reaching over 80,000 for the first time. These households are more likely to default ahead.
Household debt to income remains at an all-time high. In addition, more continue to raid deposits to make ends meet.
Across the DFA household segments we continue to see some variations between cohorts. Young Growth families have the highest stress, and many first time buyers are represented in this group. The largest counts are located on the urban fringe, and many of these households are living on newly build high density estates. However, stress continues to spill over into more affluent groups, and here the impact of the IO loan switch is quite strong. Some of these are living in the high rise sector, where construction issues are also biting.
Across the states Tasmania has the highest proportion in stress, thanks to low wages, and recent price hikes, but the largest number of households in any one state is in Victoria. However, the default rates look to be rising faster in Sydney, where values are more extended relative to incomes.
At a regional level, the largest counts are in the main urban centres of Melbourne and Sydney as expected, although stress is spilling out more widely into regional centres.
And our top post codes continues to centre in on the urban fringe, with Cambelltown, Toowoomba and areas around Melbourne including Berwick and Narre Warren all showing the largest counts of stressed households. Cranbourne 3977 has the highest count of potential defaults this month. Postcodes in WA are still under pressure as the economic grind continues.
Our surveys are based on a rolling 52.000 household sample, which equates to around 0.5% of households.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
rents are falling in Sydney so landlords are very stressed, not to mention it takes months to find a tenant these days
Dominic
I’ve experienced rental stress before – but it was because my landlord was a total c0ck.
GavinMEMBER
Haha yep..
zaxxonMEMBER
+1.
HadronCollision
It’s Setka’s fault!
Libs! Ah we have legislation for that!
Is it now the place for me to hoist the standard MB comment “lower teh rates to fix thing” canard?
JohnRMEMBER
canardly hurt
Peachy
Superb
rob barrattMEMBER
@JohnR
Don’t duck the question. Mind you, every time I think of it I feel down…
haroldusMEMBER
For whom the bell teals.
gballardMEMBER
Too much quackery here.
jimboMEMBER
Suppressing real, official inflation was always going to be the killer. Just had car insurance, rego, home and contents and land rates hit all at the same time. The increases in all have been mind blowing. But plastic widgets for your old 1989 Teac sound system out of Asia are falling in price so that makes it all OK.
Penguin4
I think food inflation due to drought will break a lot of people financially in the new year. Last straw and that camel ain’t getting back up.
GrahamMEMBER
Spot on – it’s coming:
– Australian drought
– major US crop failures in the mid-west
– Chinese pig disease
– Brazilian crop failures
Janet
Not to worry. You’ll be getting Rates notice from the Council any day now, showing you that the value of your house has gone up 25% in the last year. That will ease your concern. (Oh, and if you have a read of the full notice, your Rates just went up as well….)
Dominic
Unbelievable how all that mandatory stuff just goes up by 5%+ every year and there’s really not a lot you do about it. You’re trapped. This is why working in Govt right now is the top gig. Your employer will just keep raising taxes to ensure all the bills (and your salary) are paid. Meanwhile the rest of us, are tea-bagging in the private sector with little or no pay increases. Squeezed at both ends.
Arrow2MEMBER
Just a footnote, to be safe you need to be “frontline” staff or one of the more competent 50% of back office staff (not always a high bar 😉). Public service is already in a staffing freeze in many departments and cuts are a dead set certainty if the surplus doesn’t materialise. This government will very happily slash the public service if it needs to.
Recession proof = lol.
If you really want to be recession proof I suspect you should become a doctor.
Dominic
My understanding (at State level, at least) is that there have been very few additions to the permanent workforce but contractors are the main engine in the workforce. That way the State can claim they’re keeping a lid on costs etc.
I know a number of people working as contractors in Govt who have been trying to go permanent for ages. Presumably when things get tough the contractors will be terminated. Although what that’ll mean for the general functioning of local gubbermint I couldn’t say.
Yes, doctors look pretty recession proof.
rob barrattMEMBER
Absolutely correct.
I was one of virtually the entire contract force who had to go from Queensland Health when Campbell Newman got in. I had been working on statistics using Excel pivot charts and complex SQL (Structured Query Language driving results from a Microsoft database for the non technical) using tables I had loaded from normalized data.
I left behind a QH permanent employee (a payroll clerk) sitting at my desk who had never had a day’s IT training… He was totally lost.
Arrow2MEMBER
Yes Don I think that is right. I’ve met plenty of parents at our primary school who are contractors here in Canberra. Almost all renting, many looking to become permanent. If they get the boot the difference should be significant.
Rob – yep – cuts like that are idiotic, a false economy perpetrated by those misguided ideologues who think government services and spending are by definition bad and useless (eg Newman) and thus that cutting them is always possible and good.
Arrow2MEMBER
^Dom not Don
darklydrawlMEMBER
Agreed. Both car rego and insurance up by circa 40% each this year (from $700 to $1000+). Low inflation? hah!
Penguin4
Watching unemployment and stress move higher in tandem is like watching a fuse burn or a guillotine drop on the housing bubble. At what exact point it breaks will be interesting.
Pass the popcorn.
Mega65MEMBER
The banks do accommodate the recently unemployed as much as they can. IIRC you could put mortgage payments on hold for while even. So there will be a delay before the unemployed start bailing.
BruceMEMBER
Wages are going nowhere with 13.8% slack in the labour market.
Jumping jack flash
Wages are going nowhere while there is still an insatiable need for taking on economy crushing mountains of debt to buy the things that are essential.
All wage capacity is stolen and attached to debt, leaving nothing left to actually pay out as wages.
boomengineeringMEMBER
I wonder if the person who just bought 20 Stewart Ave Curl Curl will be in mortgage stress $15+K /mth.
Mining BoganMEMBER
Is that a noose in the sixth photo?
That place has everything for the overextended homeowner!
Dominic
Lol
Mega65MEMBER
Holy sh1t! 4 million, for 600m block and a poorly built house. How is that place 4 mil? what is it that makes it that price.
Arrow2MEMBER
Well every 6 weeks or so some cvnt wins the powerball. Why not someone from Curl Curl? 😁
Mega65MEMBER
That seems to be the only explanation that makes sense.
boomengineeringMEMBER
Maybe they just like the toxic lagoon it backs onto. A century of Brookvale industrial waste.
GavinMEMBER
Wife’s boss bought in Manly for $2.2M recently, house similar to that. Not as nice an area and smaller place, less “polish”. So not surprised about the price, the people buying these houses don’t need to “borrow” money. May even be money laundering, who knows?
Peachy
I’ll jusy chime in to say that this stuff (even if it is “data”) is meaningless. Numbers on a page.
Maybe it will take 20% higher “stress” levels to cause any discernible effect in mortgage demand or servicing. Or maybe the levels need to be 3 times higher. Or 45 times higher, who knows?
Dominic
Perhaps the [email protected] economic data is the clue here? Retail being dead and what not.
Tradies out of work etc
The Penske FileMEMBER
I tend to agree with you on the numbers being well, just numbers. I think word on the street is a better indication of our pain and I was advised yesterday by an industry player that the insolvency industry is currently having their best quarter ever. I also see nothing but pain come across my desk in finance however….. I watched 2 developers fight for this property https://www.realestate.com.au/sold/property-house-vic-port+melbourne-132358002 on the weekend…… I don’t get it.
Also, it was called on the market circa $2.8M. Is it sign of the times that if the agent actually lists the purchase price rather than “contact agent” the purchaser is a “victim”?
reusachtigeMEMBER
There’s no need for anyone to be stressed with all the massage girls on offer!
Ian Harb
and depending on your level of stress, there is a price range to suit.
rob barrattMEMBER
And I thought you weren’t related to well known members of the Royal Family. tsk tsk
HadronCollision
Whoah whoah whoah
Now hold up
Resusa pays, homeboy
None of this trafficking underagers scummery the playboy prince is alleged to have received
rob barrattMEMBER
Prince? What Prince? OH – You mean THAT Prince…
Jumping jack flash
It’s just that tme of year. Everyone is compelled to buy useless [email protected] right about now, and wages arent rising again ever for about 30 years after the debt stops being created.
They need to smooth the data across 2 years and then take the average of that average. I’m sure the ABS guys have had plenty of practise.
NelsonMuntz
Ha Ha! They should just get a better job that pays more. Simples.
What about rental stress?
rents are falling in Sydney so landlords are very stressed, not to mention it takes months to find a tenant these days
I’ve experienced rental stress before – but it was because my landlord was a total c0ck.
Haha yep..
+1.
It’s Setka’s fault!
Libs! Ah we have legislation for that!
Is it now the place for me to hoist the standard MB comment “lower teh rates to fix thing” canard?
canardly hurt
Superb
@JohnR
Don’t duck the question. Mind you, every time I think of it I feel down…
For whom the bell teals.
Too much quackery here.
Suppressing real, official inflation was always going to be the killer. Just had car insurance, rego, home and contents and land rates hit all at the same time. The increases in all have been mind blowing. But plastic widgets for your old 1989 Teac sound system out of Asia are falling in price so that makes it all OK.
I think food inflation due to drought will break a lot of people financially in the new year. Last straw and that camel ain’t getting back up.
Spot on – it’s coming:
– Australian drought
– major US crop failures in the mid-west
– Chinese pig disease
– Brazilian crop failures
Not to worry. You’ll be getting Rates notice from the Council any day now, showing you that the value of your house has gone up 25% in the last year. That will ease your concern. (Oh, and if you have a read of the full notice, your Rates just went up as well….)
Unbelievable how all that mandatory stuff just goes up by 5%+ every year and there’s really not a lot you do about it. You’re trapped. This is why working in Govt right now is the top gig. Your employer will just keep raising taxes to ensure all the bills (and your salary) are paid. Meanwhile the rest of us, are tea-bagging in the private sector with little or no pay increases. Squeezed at both ends.
Just a footnote, to be safe you need to be “frontline” staff or one of the more competent 50% of back office staff (not always a high bar 😉). Public service is already in a staffing freeze in many departments and cuts are a dead set certainty if the surplus doesn’t materialise. This government will very happily slash the public service if it needs to.
Recession proof = lol.
If you really want to be recession proof I suspect you should become a doctor.
My understanding (at State level, at least) is that there have been very few additions to the permanent workforce but contractors are the main engine in the workforce. That way the State can claim they’re keeping a lid on costs etc.
I know a number of people working as contractors in Govt who have been trying to go permanent for ages. Presumably when things get tough the contractors will be terminated. Although what that’ll mean for the general functioning of local gubbermint I couldn’t say.
Yes, doctors look pretty recession proof.
Absolutely correct.
I was one of virtually the entire contract force who had to go from Queensland Health when Campbell Newman got in. I had been working on statistics using Excel pivot charts and complex SQL (Structured Query Language driving results from a Microsoft database for the non technical) using tables I had loaded from normalized data.
I left behind a QH permanent employee (a payroll clerk) sitting at my desk who had never had a day’s IT training… He was totally lost.
Yes Don I think that is right. I’ve met plenty of parents at our primary school who are contractors here in Canberra. Almost all renting, many looking to become permanent. If they get the boot the difference should be significant.
Rob – yep – cuts like that are idiotic, a false economy perpetrated by those misguided ideologues who think government services and spending are by definition bad and useless (eg Newman) and thus that cutting them is always possible and good.
^Dom not Don
Agreed. Both car rego and insurance up by circa 40% each this year (from $700 to $1000+). Low inflation? hah!
Watching unemployment and stress move higher in tandem is like watching a fuse burn or a guillotine drop on the housing bubble. At what exact point it breaks will be interesting.
Pass the popcorn.
The banks do accommodate the recently unemployed as much as they can. IIRC you could put mortgage payments on hold for while even. So there will be a delay before the unemployed start bailing.
Wages are going nowhere with 13.8% slack in the labour market.
Wages are going nowhere while there is still an insatiable need for taking on economy crushing mountains of debt to buy the things that are essential.
All wage capacity is stolen and attached to debt, leaving nothing left to actually pay out as wages.
I wonder if the person who just bought 20 Stewart Ave Curl Curl will be in mortgage stress $15+K /mth.
Is that a noose in the sixth photo?
That place has everything for the overextended homeowner!
Lol
Holy sh1t! 4 million, for 600m block and a poorly built house. How is that place 4 mil? what is it that makes it that price.
Well every 6 weeks or so some cvnt wins the powerball. Why not someone from Curl Curl? 😁
That seems to be the only explanation that makes sense.
Maybe they just like the toxic lagoon it backs onto. A century of Brookvale industrial waste.
Wife’s boss bought in Manly for $2.2M recently, house similar to that. Not as nice an area and smaller place, less “polish”. So not surprised about the price, the people buying these houses don’t need to “borrow” money. May even be money laundering, who knows?
I’ll jusy chime in to say that this stuff (even if it is “data”) is meaningless. Numbers on a page.
Maybe it will take 20% higher “stress” levels to cause any discernible effect in mortgage demand or servicing. Or maybe the levels need to be 3 times higher. Or 45 times higher, who knows?
Perhaps the [email protected] economic data is the clue here? Retail being dead and what not.
Tradies out of work etc
I tend to agree with you on the numbers being well, just numbers. I think word on the street is a better indication of our pain and I was advised yesterday by an industry player that the insolvency industry is currently having their best quarter ever. I also see nothing but pain come across my desk in finance however….. I watched 2 developers fight for this property https://www.realestate.com.au/sold/property-house-vic-port+melbourne-132358002 on the weekend…… I don’t get it.
Also, it was called on the market circa $2.8M. Is it sign of the times that if the agent actually lists the purchase price rather than “contact agent” the purchaser is a “victim”?
There’s no need for anyone to be stressed with all the massage girls on offer!
and depending on your level of stress, there is a price range to suit.
And I thought you weren’t related to well known members of the Royal Family. tsk tsk
Whoah whoah whoah
Now hold up
Resusa pays, homeboy
None of this trafficking underagers scummery the playboy prince is alleged to have received
Prince? What Prince? OH – You mean THAT Prince…
It’s just that tme of year. Everyone is compelled to buy useless [email protected] right about now, and wages arent rising again ever for about 30 years after the debt stops being created.
They need to smooth the data across 2 years and then take the average of that average. I’m sure the ABS guys have had plenty of practise.
Ha Ha! They should just get a better job that pays more. Simples.