Mortgage stress spreads to 1.4m Aussie households

From Martin North at Digital Finance Analytics:

The latest DFA mortgage stress data, derived from our rolling household surveys reveals than an additional 100,000 households joined the cash-flow stressed in April, bringing the percentage of households to more than 38%, which equates to more than 1.4 million.

The trajectory is still set to reach more than 41% by August. Our estimates take account of the enhanced JobSeeker, JobKeeper and Bank mortgage repayment holidays. Given the ABS reported around 650-700,000 employed people have lost work since mid-March, we expected these increases to track close to our estimates.

A reminder, we define mortgage stress in cash flow terms, rather than a set proportion of income. One other factor in play is that many households relied on multiple incomes and the loss of just one is sufficient often to push people into stress. Defaults are likely to follow, but not immediately, as people draw on savings, put more on credit, or simple hunker down for a time.

Across our segments, young growing families, at more than 70%, are at risk, follower by those battling on the urban fringe. But we continue to see a growth in more affluent households also being hit.

Across the states, Tasmania contains the highest levels of mortgage stress, thanks to the over-reliance on tourism and recent price rises relative to income. Some lenders have become more cautious here, with many investors unable to secure a mortgage repayment holiday.

Across the regions we see pockets rising in regional areas, as well as the main urban centres. Mortgage stress is not just a big-city disease.

By postcode, Melbourne post code 3806, Berwick and Harkaway now leads the way with more than 7,000 households in the district under pressure. VIC figures strongly with the top 5, with 3350 Ballarat, 3030 Werribee and 3037 Sydenham all impacted. Second though behind 3806 is WA code 6030 which includes Clarkson and Tamala Park. Most of these areas are high growth development corridors, where prices and incomes are above average. Within these areas there are also a sizable number of property investors.

Finally, there are 1.7 million households in rental stress – defined again in cash flow terms. This equates to nearly 40% of all renting households. The regional variations are again quite stark with stress peaking in Canberra and the South Coast (where bush fire damage remains).

Melbourne post code 3000 recorded the highest count of rental stress, thanks to large numbers of high-rise units being built there, the loss of student and AirB&B clients and simple oversupply. But post codes in Queensland and NSW are also badly hit.

Given the trajectory of the economic downturn, we expect stress to continue to build. The most significant question is the impact of the “cliff” in September where mortgage repayments and rental default freezes, at the time when Government support schemes all are expected to terminate. Given that the June unemployment figure will likely to 10% (the true figure much higher) and according to the RBA unemployment will remain elevated through 2021, there is little prospect of the trends reversing anytime soon, even at current low interest rates.

Individual households will need to consider cutting their losses in these circumstances and as a result we expect the supply of rental property will rise, and a hike in property to list will follow later.

This has the hallmark of a long slow” U” not a “V” shaped recovery.

Too right. The rubber will really hit the road when mortgage and rent holidays end and government welfare support is wound back. That’s when mortgage and rental stress will really ratchet higher.

Unconventional Economist


  1. And there you have it, data and all. Thanks Martin and MB.

    Investors should be well and truly worried.

    • The amount of investment property relative to the country’s total housing stock has always been the ‘skunk in the woodpile’.

      • Which is why we can’t afford for house prices to go down. Our economy will collapse if house prices fall, so expect the RBA and government to do everything they can to keep house prices from falling.

        I expect the RBA to announce a new QE “quantitative easing property”, where they print money to buy residential property, either directly or through agencies.

        Shorting Aussie property is a widow-maker trade.

        • For every policy action there is a negative impact elsewhere in the economy. You can bank on it. But, in the presence of too much one dimensional thinking (or wilful negligence) this fact is ignored. Always ask what the consequences will be.

          If the Gubmint started physically buying residential homes – never been done before- the Aud will be obliterated. To the extent the economy would just get sucked into the abyss.

          So it won’t happen.

  2. If I was thinking of selling I certainly wouldn’t be waiting untill September. However I think people mindset will be to just hang on as long as possible.

    • boomengineeringMEMBER

      I was thinking of selling but the missus didn’t want to rent again which I thought was the best strategy and in any case where safe to put the cash, nowhere. It may well be that the proceeds may lose value just as fast as the property downturn. Now with my tons of machines and tools at home and the op in a week I along with Gavin am riding it down.

      • what would happen to the value of money? What would drive that? higher wages? import cost surge? lower AUD?

        If houses prices fall as you expect you will definitely be able to buy more for the same money after some time so money would be gaining value

        if you are referring to almost meaningless CPI your money will lose some value but only in terms of stuff included into CPI

        I remember in 2015 people saying how inflation was low while in reality thanks to rampant house/rent price rises money was losing value quickly

        • It might not be rational but there is a lot of stress in having cash sitting in bank accounts v a roof over your head in an environment like this. There is always the worry of bail ins, negative rates, cash taxes, etc. If your home is seen as shelter then the reality of it going down in value is less stressful. Not sure I have explained it well but there is a mental benefit of not selling your home and just being happy.

          • Well put. We thought exactly the same thing, recently sold but were too worried about money in the bank for all the reasons you stated so, rightly or wrongly, bought back in for the security of a home.

        • Doc, ever since the GFC, Govts round the world (except ours) have been printing money hand over fist — and now the printers have been turned up to 11 (and we’ve joined the party). This won’t stop. In 2011 Ben Bernanke swore that QE was just ‘temporary’ and look where we are today. Once you go down the rabbit-hole of printing money to pay your bills, you’re on the road to ruin. History is replete with examples of gubmints who did the same and it always ended the same way: with the purchasing power of money being decimated. Slowly at first, then suddenly.

          • money is being given to the rich to buy and sell shares and other gambling chips, not to plebs to drive CPI
            after all of that fed printing wages are lower than they were so many didn’t lose any value as long as people will put as much effort for the same money

            and that’s what I said, we had inflation prior to GFC and prior to coronavirus when same money was buying less life necessities like housing. Now with house prices falling money is worth more because less is needed to get the same life necessities

            don’t confuse inflation with CPI

        • doc, I never confuse inflation with CPI, which is, in any case, a nonsense construct as a ‘general price level’ does not exist.

          Yes, traditional QE pumps up financial assets primarily but there is inevitable trickle down as bankers pend their QE gains in motor dealerships, property and Gucci handbags. The fact is that QE and other such interventions pump the overall money supply up and inflation is a direct function of the quantity of money — price increases are simply a symptom of inflation and price effects are not distributed evenly despite the crappy CPI insisting otherwise.

          As for the value of money increasing, delivering standard of living improvements, this is total garbage. Everyone and their dog will attest that the cost of living has been going through the roof these past few years. Now, with Govts delivering trillions of Covid dollars directly to the masses, you can expect some man-sized inflation to appear later this year.

          As someone who does the weekly grocery shop I’ll tell you for nothing that food manufacturers are on the gouge

      • Too much stress trading your place of residence, boom. Best be comfortable and not worry. On the other hand, if you had 5 IPs as well, I would definitely be putting some of those on the market.

        • boomengineeringMEMBER

          No IP’s, but no dept either, the factory costs me strata fees which are a rip off though.

      • Diogenes the CynicMEMBER

        If you ignore money for a minute – is the location where you are living, really where you want to live? If it is and the house isn’t falling down then that isn’t that too bad. The alternative is to rent in your desired location and buy an industrial place to store all your gear/work.

        • boomengineeringMEMBER

          Dio, thanks, did the sums a while ago at the peak and it didn’t add up then to try to find a place that accepted all her animals , the extra cost of a rented factory on top of the residential, moving costs, loss of income while moving, extra taxes when another RE is found and general pita.

    • Col
      That’s what nearly everyone does in every market
      That’s why most buy at the high and sell at the low
      The problem with property it’s illiquid
      For most there won’t be a buyer
      They’ll be the ones holding at the end
      And guess who will be paying……. for their mistakes

      • Display NameMEMBER

        When the big four banks in Aus at times have made up 24% or more of the ASX200, they Are the economy. They cannot collapse (they will be bailed out). And when the banks loan books average at 62% or so of resi mortgages, they are a stupendous risk particularly when the regulators encourage the stupidity that has gone on. I am not sure the government will to bail out investors as well as the banks. They may well try.

        • Easier to bail out the property punters, than try to bail out the banks after the property market collapses

          A small amount goes a long way at the first stage

          But realistically it will be both: tax breaks and handouts for the punters, and extend and pretend and RMBS purchases for the banks
          In fact, they’re already doing all those things

          • It still boggles my mind that you think it’s in the Govt’s power to bail out the property market. Sure, they can create various incentives to either buy property (or stick with what you have) but these are all meaningless if a meaningful proportion of adults / families in the country is in dire financial straits. Buying RMBS just keeps mortgage rates anchored and creates additional lending capacity but again, you need motivated punters to buy — perhaps you legislate that every adult in the country MUST own a property by law, or go to jail? Lol

          • negative interest rates, real or nominal would go a long way to achieving that

            In fact we’ve probably had negative real interest rates for a long time now

          • I tend to agree the government, RBA and APRA will do all they can to save the property market. They may have a lack of motivated buyers due to travel bans but they will come up with a scheme to protect the bank’s losses by guaranteeing the worst of the worst mortgages. I am thinking the government will be buying distressed stock under the cover of providing new public housing.

          • two plus twoMEMBER

            To what end though, Coming? Permanently high plateau? That’s the market ‘saved’ but without kicking back into growth, it’ll need constant ‘saving’ in ever increasing amounts.

          • asset prices rise inexorably because money supply increases inexorably

            That’s all you really need to know – there will be fluctuations about the trend line, but ultimately it goes up

          • Dom, what if Coming/Peachy et al are right

            You keep saying it’s not possible for X Y Z reason
            What if they’re right

            I am not smart enough to know either way

            TBTF sticks out like the proverbial though

          • Jim's Central Banking

            They’re both right. People continue to ignore the obvious because it goes against what they want to happen.

          • fitzroyMEMBER

            They are both right. The RBA bails out the bondholders and the taxpayers proceed to serfdom, which is what was wanted.

          • +1 agreed. Extend and pretend all the way, until it’s someone elses problem in the next business cycle…

        • It’s actually worse than that – the Big 4 plus Macquarie have at times made up 30+% of the ASX200. And banks are every retiree’s favourite income stock. The banks will be bailed out, of course, recapitalised by taxpayer (printed) money but the Debt/GDP ratio will go through the roof – we’ll join the 100+ club in a millisecond. During a Govt recapitalisation, investors in banks stocks will be decimated – you can’t save those guys. They’ll end up with a small percentage of the equity.

          • darklydrawlMEMBER

            Don’t forget the ‘Bank of Mum and Dad’ is the 4th (5th?) largest lender in Oz. So some of those properties are ‘double dipped’ in debt. Hmmmmm….

          • All of the above is really a discussion about ‘where’ the adjustments in the economy will take place and the involvement will influence that. However the recession is a return to lower wealth and living standards in aggregate this is a given, so the adjustment will be in the exchange rate and the resultant interest rate will have people deeply regret not having taken their medicine.

  3. I’ll say it again over and over and over again. “”THE AUSTRALIAN GOVT WILL NOT LET HOUSING FAIL AND WILL THROW EVERYTHING INCLUDING THE KITCHEN SINK TO KEEP IT AFLOAT” . I dont think it’s right but they are not going to allow a crash. They will bail it all out. Watch and see

    • No one disagrees with you but it has a tipping point a critical mass where it’s not salvageable. It’s like T said the other day there’ll also be the game of the landed talking up real estate while they rapidly sell. We won’t know which game wins until the day it crumbles.

        • Australian housing walking a tight rope. Population forced to sit at home stewing in fog of alcohol & anti depressants (Cos everyone needs something right) relying on Hopium to ride through profound, deeply unsettling feeling of not knowing what is going to happen and when.
          Even with bank holidays or whatever fancy name you give it mortgage statements for one or multiple properties (PPOR or investor rentals for ‘retirement’) continue to appear as usual in email inbox.
          Money still has to be paid. Airbnb trashed & your whining rental scum tenants up stocks or request as directed by gubbermint a rent reduction.
          Crash into abyss. How sus tain able is it really? Not very:)

          • Why?

            Think back to the old DeepT articles – nice polemics and all – but of what practical use have they been? Did Ddep T correctly forecast the mega boom?

      • Yep. LBS is right that they will throw the kitchen sink at the property market but he, and several others on this blog, are wrong that they will succeed — the property market is way too big for an organisation with the Govt’s resources to prop up.

        They could try money printing to absolutely decimate the AUD and prop up prices in nominal terms – but that would have foreign investors heading for the hills and selling every AUD denominated financial asset, as well as usher in eye-watering levels of inflation. Price worth paying? There’d be revolution in this country.

        • totally yes on this comment. The adjustment is a given. Will you take nominal house prices at a lower AUD? With net foreign debt at a trillion interest rates may recover to double digit.

          Then what

        • This really invokes the question of whether the property (and stock for that matter) market is really a free market. It isn’t, it’s highly manipulated, ergo prices will do what the government wants (mostly).

          How about intervention via direct property purchases to maintain liquidity in the market?State govts could do that to prop up public housing stock, re-buy lots then re-zone and on-sell, heck just buy them to rent back out to tenants again. Nationalise a bank or two whilst you’re at it and just write down the bad debts with government money.

          When the government (i.e. rulemaker) wants to do something, never discount the ability to just write new rules to enable it to do so.

          • Manipulation / interference is what Govts do all the time to a greater or lesser extent, intentional and unintentional. My point is that there are inherent limits before the damage becomes too great.

            For example, the Gubmint can print money hand over fist to pay their bills but eventually the users of that money realise there’s so much of it that they question it’s real worth and that’s how you end up on the road to hyper inflation.

          • I agree with you academically Dom – but the situation at present is that if the housing market would crash it would generate the following outcomes:

            1). Greatest destruction of national wealth ever seen
            2). Incumbent government wouldn’t be re-elected in a decade
            3). Nationalisation of banks
            4). Massive government debt from #3
            5). Many SMEs going to the wall off the back of negative equity on business loans, on and on it goes

            Versus if it is saved by massive government stimulus:
            1.) No immediate wealth destruction
            2) Incumbent government saved the status quo – no unhappy campers, besides the mostly quiet – but slowly becoming woke youth
            3). No nationalisation of banks
            4). Massive government debt via stimulus programs anyway – such as what is happening right now
            5). SMEs carry on – but paying high profit crushing rent

            Which would you prefer? Which causes more ‘damage’? The fall out is worse than saving it… Both options lead to a huge increase in government debt, but at least under the second scenario there is offsetting assets for all of those liabilities incurred.

    • I remember hearing S Keen saying that mortgage stress skyrockets once the refinancing game ends
      We are at that point
      It’s going to be very hard to refinance now
      You’ll see these numbers grow exponentially over next 12 months
      The crash has already started

      • Seems the second wave of the virus is baked in late September-early October. Will be timed with no jobkeeper, end of bank’s allowing postponing payments. Matching your expectations .. Still hoping for a soft landing on
        the social front

      • I spoke to my mortgage broker yesterday. He was a bit more upbeat than a month ago, but not much.

        He said work is “picking up” but still well below normal level – back to around 20% of normal volumes (from zero a month ago).

        Said banks are checking applications forensically, including re-checking that the applicant is (still) employed just a few days prior to contract settling, even if loan previously approved.

        Some off the plan purchases are not settling either due to the buyer having lost job (meaning no finance – buyer will lose deposit) or valuation coming in low (buyer will need to find cash to make up the shortfall in loan amount).

        Some lower bank valuations are also starting to happen for houses, especially impacting refinancing.

        • I went out to get coffee this morning and the streets seemed to be buzzing — much more traffic, many more kids going to the local State school as well. This whole talk of easing the lockdown has everyone of a mindset of: okay, danger’s over let’s get back to it.

          Even the brand new gym that opened up a day before the lockdown was declared is now having further fit-out work done to it.

          Curious to see what happens from here.

          • Drop off at Pre School

            There was a loud dad there – you know the ones – sartorial splendor out the wazoo – tatts everywhere, faux denim elastic leg cuffs, Havainas [spelling], v-neck long-length tshirt – spouting off about the stupid rules (in a good natured way, or, he intended to sound good natured , but he instead sounded like a right fkwit) blah blah, man, he just could keep the cakehole shut. Just had to say his piece to the poor teacher.

            I rrrreally felt like saying well, chief, they’re there to protect you, your kids, your teachers, your community and the health system. So shut your trap and keep your drivel to yourself.

            *** Judgemental Swampy Alert [JSA]

        • Re: deposit loss if settlement not completed

          (Not talking OTP here, talking buying established)

          Don’t forget that although contractually the seller is entitled to the deposit if the buyer does not complete, it sits in a trust and can’t be released without an order (I think from court) to release to you, or, unless the buyer agrees to release (and who is going to do that)

          So, you’ll need to sue for what is contractually yours…I wonder how the courts will treat non completions en masse? Is it a Force Majeure or contract frustration such that they rule your entitlement invalidated and give the deposit back?

          If so, that complicates things for a seller as you now have settlement risk everywhere….if it were me, I’d be looking for cash buyers…

      • Marty Mulgrew

        So what is the sensible thing to do with cash in bank? Im at a loss where is a safe haven..matress??

      • Diogenes the CynicMEMBER

        That is the Minksy endgame. The Ponzi relies on ever higher property prices and refinancing, when the latter stops due to the former looking shaky then endgame.

        • Jumping jack flash

          Not even that will be required to kill this ponzi.

          The problem is that the entry fee into the ponzi just keeps getting higher and higher and wages aren’t rising as a result of the debt.

          Conversely, Bernie’s ponzi probably didn’t keep raising the price to get in and it still failed.

      • darklydrawlMEMBER

        Excactly. The inability to refi also killed the US housing market back in 2007/8

    • I agree – governments all round the world a propping up markets that are systemically important – in Australia that is property, in the USA stocks. The question is how much further can they go. Are we at the point of a reset/debt jubillee or are we still a crisis or two away from that? If you own your house outright I would not be selling because if the government lose control you could lose a large chunk of your cash and if they don’t you may lose because the property market keeps levitating higher.

    • Goldstandard1MEMBER

      See how GENERAL your statement is? It’s this mission statement that keeps dumb people (not say you are dumb) believing in property no matter what.
      Gov won’t let it crash, fall, fail or support it with policy?
      We all agree the gov will do everything to keep prices going up, but at some point they are out of ammo then not only will they not be able to keep it rising, it crashes because of people realising the gov can’t keep prices rising.
      You see, its not the fear of prices crashes that scares people, it the fear of ever RISING prices stopping that paralyses people from buying.
      That’s where we are. So you get a stand off between buyers and sellers. Sellers lose this time.

      • I think “sellers lose this time” is much too general.

        Forced sellers, yes.

        But there are a lot of people who own outright, or have really, really low LVRs, or have secure jobs – those that don’t have to sell – who could wait this out (and I’m talking 5 yrs plus).

        Talking to a local regional bank manager – gave me some stats on some towns. Town A, 60% stock owned outright, 30% LVR under 30%, etc etc.

        I’m not saying what will happen either way, but this notion that every sale is forced/desperate is unfounded or unproven. I’m also not saying there won’t be price drops or forced sales, I’m saying (I believe) it’s probably not accurate to think every seller is in the same position (price taker)

        • Rorke's DriftMEMBER

          Swampy those who can hold will hold. Those needing to sell or those wanting to get ahead of curve will sell. Price will be set by transactions not holders.
          1890s crash took 70years for prices to recover. At some point holders will have to mark to market.

          In five years time the holder will simply own a lot lower valued asset.

      • Goldie, I was implying that house prices are systemically important in Australia and if they crash, rather than negative sideways movement the whole economy which is already in a recession/depression, will get very ugly with bank failures and bail ins. So I would not recommend one of the posters above’s suggestions of selling their house in the hope of buying back in cheaper.

  4. No modern-day Government will let its property market collapse.
    And yet for a variety of reasons, against all political and financial resistance, it still happens.
    There are too many examples in the very recent past for us to not expect similar here.
    It’s not a matter of when, but why.

    • darklydrawlMEMBER

      Yes. This. No government wants it to happen on their watch. They will try to prevent it. Does anyone here seriously think the RBA can outgun the US Fed? Nope. We all know what happened in the US back in 2007/8. No reason it won’t happen here. Actually if you look at the data, there are more reasons it WILL happen here.

  5. Alright, 40% in stress!

    Look forward to when we have 80% in stress and prices are still high.

    Then 120%, perhaps?

    • Apologies for not remembering the poster’s name who kept saying “show me the money ” for real estate prices drop in the advertised listings not just anecdotally.. time will tell coming October me think

    • Super Phoenix

      Martin North has been banging about record mortgage stress for ages now. So what is new?

      • +1 this. Show me the money (asset price movements). Has Martin ever back checked his analysis against prior house price movements? Is there any correlation between stress and house prices? If not or if yes and there is a low correlation, I’m not sure what value there is in this information other than something to read over for passing amusement. It’s not actionable.

        • I don’t think he claims it correlates to house prices.

          I expect it correlates quite well to retail spending or savings rates or something, and so is a useful predicted of something else, not necessarily housing. Probably also a leading indicator for defaults if cross referenced with interest rates or something.

          If you ask him respectfully he’ll probably answer.

          • Sure, but the very first chart in this blog post combines some housing metrics, along with general economic indicators, and the rest of the charts then go into stress data only. Why provide a housing stress metric if it cannot provide any inferences about housing market prices? Unless you are running a bank and are worried about bad debts, who cares?

            In fact, in his last forecast I think a year ago we’re currently tracking on most of the doomsday metrics thanks to COVID, where he said prices would crash 30-45%. We’re 12 months into his 24-36 month forecast, albeit only 2 months into this COVID nightmare. Time will tell I guess where we end up.


  6. reusachtigeMEMBER

    This is what happens when no one can go for a massage to get stress relief! This lock down must end fully now!! Meanwhile, check out Locanto if you are in need.

    • Super Phoenix

      Wait a sec, I thought only the ugly ones have anything to do with stress that requires a massage?

  7. ** PSA ***
    you guys have linked to the same image for most of those images

    Click to expand and it goes to the same image
    eg everything after the a href before the img src

  8. One of the potential supports / stimulus for property that has been mentioned a number of times on this site is allowing access to Super – possibly for FHB only. We’ve seen a willingness for the government to allow early access to super with the $10k withdrawals.

    Anyone care to speculate on how this might work if they did somehow allow access for FHBs?