One quarter of Aussie property investors underwater

Martin North from Digital Finance Analytics has released new mortgage stress data, which reveals that more than one quarter of Australian property investors are losing money on a cash flow basis:

Digital Finance Analytics has released the results of our rolling 52,000 household surveys to the end of June, which reveals that mortgage stress rose to 39.1%, compared with 37.5% in May. In addition, rental stress was 39.4%. Moreover, a larger number of property investors with a mortgage (51.3%) are underwater from a cash-flow perspective. This is new analysis which suggests investors are caught in the financial crisis headlights…

June Mortgage Stress Update

We measure stress in cash-flow terms, money in, money out, rather than a set percentage of income dedicated to paying mortgage or rental payments. If the net income flows are lower than the net payment outflows, households are classified as stressed. These households will cut back on expenditure, put more of credit cards, or tap into deposits. While, they may have access to other assets – for example investment properties or share portfolios, negative cash flow remains a significant challenge.

This equates to 1.47 million owner occupied mortgage holders under financial pressure, and 1.7 million households in rental accommodation. More than 820,000 property investors are in difficulty.

The complex interplay of higher unemployment, JobSeeker and JobKeeper, together with the 490,000 mortgages with payment deferrals provides the backcloth for our analysis. However, by examining the financial flow status of households we have noted some realignment of households in the past month, with more casual and part-time workers able to return to work, but a significant rise in structural unemployment as larger companies, such as larger retailers, big consulting firms, and finance firms, make reductions in staff. These permanent cuts reflect the rightsizing of businesses in reaction to the economic downturn. Then we have the new Melbourne lock-down.

Turning to the detailed analysis, across the states, Tasmania has the highest proportion of households in mortgage stress, at 49.4%, followed by the NT and Victoria. However, the largest counts of stressed mortgage holders are in NSW, with 408,540 and VIC with 406,958. The highest risk of default rates are found in WA at 4.7%, VIC at 2.6% and SA at 2.6%…

Property Investor Stress

For the first time we are also reporting on property investors, and their property holdings. Across Australia, there are around 3.2 million properties available for letting (including short-term AirBnB type rentals as well as longer term residential). This excludes motels and hotel accommodation.

These properties are owned by around 2.8 million entities, including households and businesses. Around half the property available is covered by investment mortgages, which equates to around 1.65 million borrowers.

Of these 2.8 million entities, around 830,000 on a cash-flow basis, are not making sufficient to recover the costs of owning and letting their properties (stressed investors) of which 126,000 are severely stressed, most often because of low occupancy, or high repair costs. This is around 25.9% of all investment property, and 51.3% of mortgaged properties…

DFA also reports that rental stress is growing:

Turning to rental stress, the patterns are somewhat similar. The highest stress among renters is found in TAS at 6.3%, followed by VIC at 40.5% and SA at 39.7%. Whilst on a percentage basis the lowest levels of stress are in QLD (36.8%) and NSW, 37.9%, in fact the largest count of stressed households in also in NSW, as here the proportion of households renting is the highest (reflecting the poor affordability of housing in the state, despite rents falling in real terms.

Full report here.

Leith van Onselen

Comments

  1. Strange EconomicsMEMBER

    So this years surprise negative gearing loss subsidy for high wealth investors will be much higher than the govt has expected, and bigger hit to the budget than the “stimulus” package?
    Wealthkeeper?

    • kannigetMEMBER

      You can only write off losses against other earned income, and its only the taxable portion. How many of these poor suffering investors make enough money to have paid enough tax to cover all the costs of the investment?

      The army of investors with a “true” below $80K income wont have paid enough tax in the first place to write off the losses…

    • happy valleyMEMBER

      SFM and Josh Rainbowberg will just have to suck up the hit to the budget from the IP losses, as IP specufestors are among the LNP’s “chosen ones” as are excess franking credit “refund” zero taxpayer leaners.

      SFM and Josh can however, put a smile on their dials – at least franking credit “refund” leaners may not be as big a drain ($6bn pa) on the budget for the just completed tax year. That drain will restart next tax year when our unquestionably strong banks recommence the flow of those juicy fully franked dividends.

    • Display NameMEMBER

      Plenty left. We want lemming mode. Over the default cliff, the forced sale slide, the IO capitulate cuesta, the investor linn. No stopping now. FOMO until we have a good chunk of the market airborne and with zero support.

      We are a bees priapism from that now. Only YAGH (Yet Another Government Handout) will stop it

      • Lord Winchester EntwhistleMEMBER

        My most eminent self takes issue – this nefarious fellow appears to be an imposter.

        Allow me to ask my Burn-at-the-Stake-master to warm his fire and oil his bellows in preparation for suitable chastisement.

  2. SoMPLSBoyMEMBER

    If the note holders are this stressed at loan rates that have never been lower, it’ll be a proper mess when they do rise.
    Just because rampant inflation (boo) has not been seen for 30+ years doesn’t mean it won’t return.
    With central banks expanding the money supply to infinity to fund the gigantic deficits brought by Covid, significant inflation is on the horizon and we’re speeding towards it.

    • Reus's largeMEMBER

      It is ok the RBA will “look through” any inflation so that they can save the specufestors ….

    • China has been exporting defation to the world for the last 30 years since it entered the world economy.
      Will goods inflation now return given China’s impending exit from global supply chains?
      China has been a super cycle event in one direction thus far, will it also be a super cycle event in the other direction too?

      • Know IdeaMEMBER

        I have held for some time a sneaking suspicion along those lines. Let’s see to what extent the de-coupling with China occurs. It may take a little more to convince the capitalists to move on given the benefits that can be perceived from remaining coupled. In this regard, companies like Tesla come to mind.

      • nexus789MEMBER

        Not going to happen. It’s very costly to re-orientate supply chain operations and in this climate budgets will be tight. I suspect lots of weasel words about relocating supply chain management but not much to change otherwise. Besides a lot of supply chains, particularly in high tech, are already distributed across multiple countries.

  3. buttzilla 266MHz

    just reading this s**t gives me anxiety, def not cut out for mega mortgage. I seriously don’t get how these people aren’t a wet puddle of goo by now?… strength in dissonance??

    • Of course they are. It’s behind closed doors (of a mega mortgaged house) now but sadly the stats will testify to it eventually.