Mortgage Stress

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<p>An estimated 828,000 mortgage holders were in ‘mortgage stress’ as Australia entered shutdown in March, according to new research from Roy Morgan.</p>
<p>This equates to roughly 18.2% of all mortgage holders, and  is a significant improvement on those considered to be in mortgage stress 12 months ago and represents the second-lowest level of mortgage stress in over a decade.</p>
<p>The findings were part of Roy Morgan’s latest Single Source Survey, which is based on in-depth interviews conducted with 50,000 Australians each year, including over 10,000 owner-occupied mortgage-holders.</p>
<p>The strong employment market leading up to the COVID-19 related shutdown in mid-March had kept incomes strong while at the same time the decline in interest rates to record lows over the past year has reduced mortgage repayments for many mortgage holders.</p>
<p>A large concern for Australia’s banks will be the impact of COVID-19 on the employment market.</p>
<p>Just over 2-in-3 mortgages rely on more than one income and the mortgage risk is typically very low for these mortgages.</p>
<p>The biggest driver of increased mortgage stress is a sudden drop in income – most often caused by the loss of a job and analysis shows that the impact of the loss of one income quadruples the level of risk for these mortgage holders.</p>
<p>Even a reduction in work caused by being stood down, or cuts to work hours, can have an effect.</p>
<p>A special survey undertaken by Roy Morgan shows that 10.5 million Australians have already reported a change to their employment status caused by COVID-19.</p>
<p>These impacts include having work hours reduced, being stood down, not having any work offered, being made redundant or having pay reduced for working the same number of hours – all of which clearly have a negative impact on income.</p>
<p>The proportion of mortgage holders classified as ‘At Risk’, or ‘Extremely at Risk’, is down on a year ago but those classified as ‘Extremely at Risk’ have increased after hitting a low in October.</p>
<p>In the three months to March 2020, 18.2% of mortgage holders were ‘At Risk’ (828,000), which is down from 21.5% (903,000) in March 2019.</p>
<p>Over the same period those ‘Extremely at Risk’ also decreased from 14.5% (594,000) to 12.6% (559,000), a drop of 35,000.</p>
<p>However, the number ‘Extremely at Risk’ hit a low of only 425,000 (10.7%) in October, following an RBA interest rate cut, and has since increased.</p>
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wdavis-8cCN98p7xp

Almost 20% of all mortgage holders suffered ‘mortgage stress' during March: Roy Morgan

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<p><span>The economic hit during the coronavirus pandemic will cause more severe stress in Australia's mortgage market than that experienced in the GFC, says S&amp;P.</span></p>
<p class="p1"><span class="s1">Mortgage holders are likely to struggle to keep up with their repayments the ratings agency has warned.</span></p>
<p class="p1"><span class="s1">Given the sudden and wide-ranging halt to economic activity, the number of borrowers who fall behind on their mortgages is set to rise.</span></p>
<p class="p1">The move by the big banks to expand hardship provisions for borrowers will mean some relief, the agency said.</p>
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<span class="s1">“We currently expect increases in arrears to be higher than during the 2008 global financial crisis, </span><span class="s1"><span class="s1">given the wide-ranging effects on the economy stemming from the sudden disruption to economic activity,”</span></span> S&amp;P Global Ratings analyst Erin Kitson wrote in a note to clients.
<p class="p1"><span class="s1">She highlighted self-employed borrowers and those directly exposed to the disruption in economic activity.</span></p>
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j.ballantyne1990-6AQqhLzZaK

Coronavirus to cause more mortgage stress than the GFC: S&P

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<p> Nearly one million Australians are suffering from ‘mortgage stress’, according to the results of a new survey.</p>
<p>However, the results of Roy Morgan’s Single Source Survey (Australia) are a slight improvement from 12 months ago.</p>
<p>The survey classified 20.8% (949,000) of mortgage holders as in ‘mortgage stress’, compared to 21.3% (974,000) last year.</p>
<p>The report said these people would be in difficulty if there were an increase in mortgage rates, an increase in costs, or an increase in unemployment.</p>
<p>Roy Morgan’s calculations accounted for household income, costs, and mortgage repayments.</p>
<p>The survey is based on face-to-face personal interviews with more than 50,000 Australians per annum, including over 10,000 owner occupied mortgage holders.</p>
<p>The level of mortgage holders at risk varied across the country, with Sydney and Western Australia the most ‘at risk’ areas at 26.4% and 23.8% respectively.</p>
<p>Click here <a href="https://www.propertyobserver.com.au/images/2018/10/22/Mortgage%20stress.jpg" target="_blank">to enlarge.</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/22/Mortgage%20stress.jpg" alt=""></p>
<p>Norman Morris, Industry Communications Director, Roy Morgan Research said:</p>
<p>“Our research shows that although fewer people have a home loan compared to 12 months ago, the average balance of their loans hasn’t declined. This indicates that loans aren’t being paid off quickly, potentially as a result of low interest rates and the use of redraw facilities to use funds for other purposes.</p>
<p>“The decline in the level of mortgage stress over the last 12 months is due to a marginal increase in the after tax household income as a result of reduced tax rates and a small reduction in the average standard variable rate from the RBA.</p>
<p>“With the potential for a number of major events to impact mortgage stress levels, such as the Finance Royal Commission, interest rates and declining home prices, the future direction of mortgage stress has considerable uncertainty.</p>
<p>“When rates eventually rise, existing mortgage holders who have borrowed in a low interest rate environment are likely to face increased levels of mortgage stress. The final impact however will also be determined by what happens to household incomes, which are currently showing very modest growth."</p>
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Nearly one million Australians experiencing 'mortgage stress': Roy Morgan

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<p>With subdued and stagnant incomes, more Australians are feeling strapped for cash, and are being forced to dip into their savings to cover the rising cost of living expenses, ME’s latest Household Financial Comfort Report (HFCR) has revealed.</p>
<p>Empty nesters (50 years old and over) reported a record low in financial comfort.</p>
<p>“You may think that empty nesters would have fewer financial worries – most have paid off their mortgage, their kids have flown the coop, the majority are still working and some have voluntarily retired," consulting economist for ME, Jeff Oughton said.</p>
<p>"However, many are still concerned about current finances as well as worried about their life after work, expressing an 8% drop in comfort with their expected standard of living for retirement, as well as a 7% fall in their ‘comfort with savings’.</p>
<p>"Recent changes to superannuation in the past year appear to be significantly impacting this life stage."</p>
<p>The report also pinpointed students reporting a substantial decline in financial comfort of 15% to 4.18 since the last report.</p>
<p>“Students are always among those with the lowest financial comfort in each HFCR due to a lack of comfort with cash savings, investments, net wealth and their reduced ability to manage a financial emergency," Oughton said.</p>
<p>"However, this recording is a major negative spike and can be attributed to falls across most components that make up the Household Financial Comfort Index, in particular ‘level of debt’, ‘comfort with living expenses’ and ‘confidence in the handling a financial emergency’.</p>
<p>Oughton said more households are overspending to cover necessary living expenses and are drawing down on savings, with mortgage and rental stress remaining high.</p>
<p>“Comfort with short-term cash savings was the most notable component of the Household Financial Comfort Index to decline, seeing a 3% decrease to 4.93 out of 10 during the first half of 2018 – its lowest level in a couple of years.”</p>
<p>The report showed that households’ confidence to raise money for an emergency dropped three points below the average since the survey began, and fewer households reported they are saving. The estimated amount that Australians are saving each month decreased by just over 10% during the first half of 2018.</p>
<p>More Australians are also overspending – households who ‘typically spend all of their income and more’ increased 3points to 11% during the six months to June.</p>
<p>“Clearly, this is a potential tipping point. At the moment, Australians generally can dip into their savings to get by. However, some households may get to a point where there’s no more savings to draw from.</p>
<p>"Currently, around a quarter of Australian households have less than $1000 in cash savings,” Oughton said.</p>
<p>“If we see big negative shocks in the coming year, whether they are higher loan rates or an international trade war, then a lot more families will suffer increased financial stress.”</p>
<p>The latest report found that the cost of necessities continues to be the major financial concern for households, with more than half of households reporting it as their ‘biggest financial worry’, up seven points to 53% in June 2018.</p>
<p>Similarly, when asked why their financial situation worsened during 2017– 18, 44% of households said it was due to the cost of everyday items, an increase of four points since the previous report.</p>
<p>Consistent with ABS wage data, the latest HFCR data found nearly half of households (42%) still had the same income as a year ago, while a quarter (24%) reported income cuts and 34% received a raise. Unsurprisingly, ‘comfort with income’ declined in the past year by 2% to 5.61.</p>
<p>Oughton said similar to strengthening in the ABS jobs data, the report revealed increased confidence in people’s ability to find a job; however, high levels of job insecurity and underemployment remain. Around 23% of casual and part-time workers said they would prefer to undertake full-time work if they could.”</p>
<p>In the six months to June 2018, the report’s overall Household Financial Comfort Index went sideways from 5.49 to 5.44, once again indicating that the financial comfort of Australian households is not advancing.</p>
<p>Mortgage and rental stress still high, despite the housing market cooling.</p>
<p>The report revealed housing stress is still prevalent among Australian households.</p>
<p>For those with home loans, a broadly unchanged 45% of households reported to be contributing more than 30% of their disposable income towards mortgages during the past six months – a common indicator of financial stress</p>
<p>"The good news for renters is that financial stress has lessened somewhat during the past six months, thanks to thehousing market cooling and rents falling. While almost three-quarters (72%) of renters were previously contributing over 30% of their disposable income towards rent, this number dropped significantly to two-thirds (67%) in the most recent survey,” Oughton said.</p>
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Empty nesters feeling financial discomfort: ME report

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<p>Casula, Liverpool and Warwick Farm are among the Greater Sydney suburbs with the most number of households in stress, according to a blog update on Digital Finance Analytics (DFA).</p>
<p>In its October Mortgage Stress update, DFA had estimated more than 910,000 households across Australia to be now in mortgage stress, up from 905,000 in September.</p>
<p>Of these, more than 21,000 were in severe stress, up by 3,000 from the previous month. This equates to 29.2% of households. </p>
<p>“We see continued default pressure building in Western Australia, as well as among more affluent household, beyond the traditional mortgage belts across the country,” said the Martin North blog.</p>
<p>The top 10 most stressed post codes in the region identified by DFA are: </p>
<ol>
<li>2170: Casula, Chipping Norton, Hammondville, Liverpool, Liverpool South, Lurnea, Moorebank, Mount Pritchard, Prestons, Warwick Farm. The sum of households in mild stress is 6,384.<br><br>
</li>
<li>2560: Airds, Ambarvale, Appin, Bradbury, Blair Athol, Bradbury, Campbelltown, Englorie Park, Gilead, Glen Alpine, Kentlyn, Leumeah, Rosemeadow, Ruse, St Helens Park, Wedderburn, Woodbine<br><br>
</li>
<li>2770: Bidwill, Blackett, Dharruk, Emerton, Hebersham, Lethbridge Park, Minchinbury, Mount Druitt, Shalvey, Tregear, Whalan, Willmot<br><br>
</li>
<li>2567: Currans Hill, Harrington Park, Mount Annan, Narellan, Narellan Vale<br><br>
</li>
<li>2171: Cecil Hills, Horningsea Park, Hoxton Park, Middleton Grange, West Hoxton<br><br>
</li>
<li>2800: Borenore, Cargo, Lucknow, March, Mullion Creek, Nashdale, Orange, Spring Hill<br><br>
</li>
<li>2570: Camden, Camden Park, Cawdor, Cobbitty, Elderslie, Ellis Lane, Grasmere, Mount Hunter, Nattai, Oakdale, Orangeville, The Oaks, Werombi<br><br>
</li>
<li>2259: Chain Valley Bay, Dooralong, Durren Durren, Gwandalan, Halloran, Hamlyn Terrace, Jilliby, Kanwal, Lake Munmorah, Lemon Tree, Mannering Park, Mardi, Ravensdale, Summerland Point, Tacoma, Tuggerah, Tuggerawong, Wallarah, Warnervale, Watanobbi, Woongarrah, Wyee, Wyong, Wyongah, Yarramalong<br><br>
</li>
<li>2768: Glenwood, Parklea, Stanhope Gardens<br><br>
</li>
<li>2176: Abbotsbury, Bossley Park, Edensor Park, Greenfield Park, Prairiewood, St Johns Park, Wakeley </li>
</ol>
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South-west suburbs of Greater Sydney top households with housing stress: DFA

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<p>The proportion of residential mortgages more than 30 days in arrears is increasing with the national delinquency rate at the highest rate in five years.</p>
<p>But delinquencies have been in decline in New South Wales given good economic and labor market conditions.</p>
<p>Eight of the 10 regions with the lowest mortgage delinquencies in Australia were in Sydney, where housing market and economic conditions have combined to be highly supportive for borrowers.</p>
<p>Sydney's Eastern Suburbs headed the list followed by North Sydney and Hornsby, City and Inner South, Ryde, the Northern Beaches, Baulkham Hills and Hawkesbury, the inner west and inner South West.</p>
<p>Mortgage borrowers in these best-performing regions are most likely to be employed in professional services industries, Moody's Investor Services noted.</p>
<p>"These occupations tend to pay higher wages and are more stable than mining and construction-related employment."</p>
<p>Moody's also noted rising Sydney house prices had supported mortgage performance, giving borrowers at risk of or already in arrears the easier option to sell quickly for a good price to repay their loans.</p>
<p>However, as house prices continue rising without a corresponding increase in incomes, housing affordability decreases and the risk of delinquencies and defaults rises.</p>
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<p>Moody's forecast continued weaker conditions in outlier states reliant on the mining industry, with high underemployment, and less favourable housing markets and income dynamics.</p>
<p>Six of the 10 worst regions across Australia — the Western Australia outback, Queensland outback, Mackay, Western Australia wheat belt, Mandurah and Fitzroy — have been among the worst performing regions in the country for the last four years.</p>
<p>The NSW state economy grew 3.8 percent over the year to March 2017, well above the national average of 1.6 percent.</p>
<p>NSW also has the lowest unemployment rate in the country since June 2015.</p>
<p>Although NSW's large and diverse economy shields us, we are sensitive to a slowdown in the housing market.</p>
<p>Our high household leverage poses a downside risk.</p>
<p>The large differential between house price and wage growth — particularly in Sydney where house prices have increased the most — means that households have had to take on more debt to fund home purchases.</p>
<p>While house prices in Australia have increased by an average of 30 percent over the three years to July 2017, average weekly earnings have increased just 4.99 percent.</p>
<p>Higher debt levels make households more vulnerable to economic or housing market shocks, Alena Chen, the Moody's VP senior analyst said.</p>
<p>She noted households had accumulated record levels of mortgage-related debt in the past few years.</p>
<p>But it should be noted the price growth ensure the proportion of people who have very high exposure to a fall in house prices – those with loan to valuation ratios above 90% – has also been declining over time.</p>
<p>The basic picture is one of prudent households, rather than a community of people gambling on house price rises, Rodney Maddock, Adjunct Professor of Economics, Monash University recently noted.</p>
<p>Retaining well paid jobs will be crucial to Sydney home owners.</p>
<p>This article first appeared in the Saturday Daily Telegraph.</p>
<p><span style="font-size: 12.16px;"> </span></p>
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jchancellor-FAypfDUnLy

Sydney jobs ensure it escapes the Moody's mortgage stress 

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<p>Leading mortgage insurer Genworth has cautioned that rising home lending rates may further increase mortgage stress in mining-focused regions such as Queensland and WA.</p>
<p>The insurer sounded the caveat at a presentation of its half-yearly results, which showed a sharp 34.7% fall in its net profit after taxes at $88.7 million</p>
<p>Banks have been making out-of-cycle rate increases amid tighter regulatory conditions and efforts to rein-in investor lending.</p>
<p>CEO Georgette Nicholas noted the “challenging market dynamics, including elevated mortgage delinquencies in resource-exposed regional economies and a smaller high loan-to-value ratio (LVR) market” while reaffirming its full-year outlook.<span style="font-size: 12.16px;"> </span></p>
<p>The latest Census data showed that mortgage stress had eased, but even a <a href="https://www.urban.com.au/expert-insights/finance/72852-mortgage-stress-eases-in-the-city-but-future-rate-rises-will-impact-the-fringe-households" target="_blank">small interest rate rise </a>could send many households, and even the economy, back onto struggle street.</p>
<p>Mortgage stress is defined as spending 30 per cent or more of household income on home loan repayments.</p>
<p class="p5"><a href="https://www.propertyobserver.com.au/images/2017/08/03/GenworthProfit.png" target="_blank"><span class="s1">Click to enlarge</span></a></p>
<p class="p5"><span class="s1"> <img src="https://www.urban.com.au/images/2017/08/03/GenworthProfit.png" alt=""></span></p>
<p>Genworth, which has about 30 per cent share of the mortgage insurance market, said there was an increase in the number of delinquent loans relative to a year ago.<span style="font-size: 12.16px;"> </span></p>
<p>An increase in new delinquencies, particularly in Queensland and Western Australia, although in a slower pace, lifted its overall delinquency rate.</p>
<p>It said the “performance in Queensland and Western Australia remains challenging and delinquencies are elevated due to the slowdown in those regional and metropolitan areas that have previously benefited from the growth in the resources sector”.</p>
<p>However, New South Wales and Victoria continue to perform strongly, although job losses in Victoria's manufacturing industry had contributed to a slight rise in mortgage delinquencies there as well.</p>
<p class="p6"><a href="https://www.propertyobserver.com.au/images/2017/08/03/GenworthDeliquency.png" target="_blank"><span class="s4" style="font-size: 12.16px;">Click to enlarge</span></a></p>
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<p class="p6"><img src="https://www.urban.com.au/images/2017/08/03/GenworthDeliquencyState.png" alt=""></p>
<p>While economic conditions have moderated recently as the economy continues to transition away from the mining investment boom, the insurer expects house price growth to moderate in 2017 following regulatory measures to slow the growth in investment lending and limit the flow of new interest-only lending.<span style="font-size: 12.16px;"> </span></p>
<p>Mortgage interest rate increases, particularly for investor and interest only loans, and recent changes to minimum bank equity requirements may also impact price growth this year, it said.</p>
<p class="p8"><a href="https://www.propertyobserver.com.au/images/2017/08/03/GenworthInterestRates.png" target="_blank" style="font-size: 12.16px;"><span style="font-size: 12.16px;">Click to enlarge</span></a></p>
<p class="p8"><span style="font-size: 12.16px;"><span><span><img src="https://www.urban.com.au/images/2017/08/03/GenworthInterestRates.png" alt=""> </span></span></span></p>
<p class="p8"><a href="https://www.propertyobserver.com.au/images/2017/08/03/GenworthInvestor.png" target="_blank"><span style="font-size: 12.16px;">Click to enlarge</span></a></p>
<p class="p8"><span style="font-size: 12.16px;"><img src="https://www.urban.com.au/images/2017/08/03/GenworthInvestor.png" alt=""></span></p>
<p>It said weaker activity in Queensland and Western Australia was continuing to offset growth in New South Wales and Victoria. </p>
<p>"The national unemployment rate remained steady at 5.6 per cent in June 2017 and key labour market indicators remain mixed. The underemployment rate continues to be elevated, implying a greater degree of spare capacity in the economy than indicated by the unemployment rate alone," Genworth said in a note to investors.</p>
<p>"Wage growth is also subdued, especially due to the transition away from mining-led activity and low actual and expected inflation. These labour market dynamics are increasing the instance of mortgage stress in certain regional economies and Genworth expects these trends to drive elevated mortgage delinquencies in these regions in 2017."</p>
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jonathanchancellor-7SQnKwU6yx

Insurer Genworth says rate hikes could increase mortgage stress in mining-fed economies

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<p>Half of the top 20 suburbs in Australia that are under mortgage stress are in Victoria, which is a "serious problem", according to a report by the Grattan Institute.</p>
<p>The report's data, which was based on the latest census, found Wollert, which is about 27 kilometres north of Melbourne's CBD, had the highest percentage of houses under mortgage stress in the nation, at 23 per cent. But sales appear to be humming along nicely.</p>
<p>Roxburgh Park is a close second at 20.9 per cent.</p>
<p>Wollert's median house price sits at $478,000, with listings and sales showing no signs of stress. </p>
<p>A three bedroom house at <a href="https://www.realestate.com.au/property-house-vic-wollert-125667318">39 Pine Park Drive</a>, Wollert (below) was listed for July auction with hopes between $470,000 to $515,000.</p>
<p>It was sold earlier for a stronger $540,000.</p>
<p>Built in 2013 the block of land was sold in 2011 for $212,000.</p>
<p>A four bedroom house at <a href="https://www.realestate.com.au/property-house-vic-wollert-125419758">30 Vanin Street</a>, Wollert (above) has been listed for $525,000.</p>
<p>It was last sold in 2012 for $192,000.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/07/11/39%20Pine%20Park%20Drive.jpg" alt=""></p>
<p>A five bedroom house at <a href="https://www.realestate.com.au/sold/property-house-vic-wollert-125694010" target="_blank">13 Pine Park Drive</a>, Wollert (below) was sold this month for $695,000. The agent's pre-auction estimate of its selling price was $680,000 to $740,000.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/07/11/13%20Pine%20Park%20Drive.jpg" alt=""></p>
<p>A four bedroom house at <a href="https://www.realestate.com.au/sold/property-house-vic-wollert-125698470" target="_blank">7 Ludeman Drive</a>, Wollert (below) was sold earlier this month for $601,000.</p>
<p>Built in 2012, it was last sold in 2014 for $365,000 and the block of land was sold in 2010 for $193,000.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/07/11/7%20Ludeman%20Drive.jpg" width="700" height="425"></p>
<p>Mortgage stress is defined as any household that spends 30 per cent or more of its income on loan repayments.</p>
<p>"Mortgage stress is particularly acute on the suburban fringes of our major cities, especially Victoria," Grattan Institute Fellow Brendan Coates said.</p>
<p>"Places like Roxburgh Park in the north, Cranbourne West, Burnside Heights and so on, have quite significant mortgage stress.</p>
<p>"I do think this is a serious problem," he told the ABC.</p>
<p>The top 10 most stressed suburbs are:</p>
<ol>
<li>Wollert, VIC (23%)</li>
<li>Roxburgh Park – Somerton, VIC (20%)</li>
<li>Upper Yarra Valley, VIC (20%)</li>
<li>Chullora, NSW (20%)</li>
<li>Mickleham – Yuroke, VIC (20%)</li>
<li>Cranbourne West, VIC (19%)</li>
<li>Burnside Heights, VIC (19%)</li>
<li>Lawson, ACT (19%)</li>
<li>Byford, WA (19%)</li>
<li>Forrestdale – Harrisdale-Piara Waters, WA (19%)</li>
</ol>
<p>The report goes on the say that across the nation, many households could find themselves in trouble if the economic environment changes even slightly.</p>
<p>Just a two percent rate rise "would create more stress than 17pc rate in 1989," the institute has suggested.</p>
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Melbourne suburb, Wollert the most mortgage stressed in the country

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<p><img src="https://counter.theconversation.edu.au/content/64293/count.gif" alt="The Conversation" width="1" height="1"></p>
<p>GUEST OBSERVER</p>
<p>Newly released analysis from Roy Morgan reaffirms that it is the lowest-income households that face the highest mortgage stress. And, contrary to what many might expect, the worst stress is not in Sydney and Melbourne, where property prices have hit record highs.</p>
<p>The Roy Morgan report estimates that 18.4 percent of Australian households are experiencing mortgage stress, a situation where over one-third of their income goes towards servicing a home loan.</p>
<p>Mortgage stress can lead to many complex social issues. It is considered one of the underlying causes of the Global Financial Crisis.</p>
<p>For many households affected by mortgage stress, defaulting is the last resort. Yet, as the mortgage-servicing pressure increases, so does mortgage risk.</p>
<p>Mortgage risk, the chance of a borrower defaulting, has increased to 83.2 percent for households earning under $60,000 per year. It is, however, virtually non-existent for households earning more than $150,000.</p>
<h2>Income is more important than interest rates</h2>
<p>The Roy Morgan report highlights the importance of income, more so than house prices and borrowing costs, to mortgage stress. In fact, interest rates would need to more than double to match the impact of a loss of income on housing stress.</p>
<p>The previous peak in mortgage stress was in 2008-09, a period of high interest rates and bubble-like price growth in Sydney and Melbourne.</p>
<p>This time around, record low interest rates appear on the surface to be counter-balancing the default rate. Yet this is tied to a stagnation in income levels.</p>
<p>House prices and income levels moved in step until 2013. While house prices have continued to increase, household income levels have flattened since then, when the cash rate dropped to a historic low of 2.75 percent. The cash rate is now even lower at 1.50 percent, with further cuts forecast.</p>
<p>The troubling prediction from this is that mortgage stress among Australian households is set to remain high, despite the current low interest rates.</p>
<h2>Widening inequality</h2>
<p>As home ownership concentrates among wealthier households, this report also shows that higher-income households are more resilient to increases in interest rates. This means, too, that home ownership increasingly requires a dual income.</p>
<p>The owner-occupied home is often referred to as the largest single asset that most households own. In countries like Australia and the USA, home ownership is promoted by government and linked to many aspects of future wellbeing. However, as recent HILDA analysis shows, owner-occupied households are becoming far less common.</p>
<p>The “Great Australian Dream” is expected to apply to only a minority of households next decade. With those in the already most marginalised parts of society most affected by mortgage stress, a change in the structures that incentivise home ownership is required to minimise the growing inequality gap.</p>
<h2>Pockets of pain</h2>
<p>The limitation with national averages is that pockets of pain are brushed over. The report drills into state-by-state analysis and metro vs regional comparisons.</p>
<p>While the largest mortgages across the country, averaging over $300,000, are in Sydney, mortgage stress is highest in Tasmania and South Australia.</p>
<p>Mortgage stress in Tasmania and South Australia sits well above the national average, as do their unemployment figures, 6.5% and 6.9% respectively, against a national average of 5.7%. Households in regional areas are also facing more acute mortgage stress than their city counterparts.</p>
<h2>The housing market underpins the Australian financial sector</h2>
<p>Regulators aren’t taking any chances. With nearly $1 trillion in outstanding mortgage debt, double the pre-GFC level, the 2014 Financial Systems Inquiry identified that mortgages are now a significant systemic risk. In a recent speech on the prudential regulator’s outlook, APRA general manager Heidi Richards stated that “the housing market now underpins our financial sector”.</p>
<p>APRA has been tightening the lending standards of the big banks. Effective from July 1, the big banks have been required to apply higher “risk weightings” to residential mortgages. These determine the amount of capital held against assets to limit the likelihood of insolvency.</p>
<p>The silver lining to this otherwise depressing analysis is that the risks to financial stability are relatively low. Home ownership concentrated amongst wealthier households actually means there is a high degree of aggregate resilience to changes in future interest rates and incomes.</p>
<p>However, the report’s focus is on current incomes. To brace for a true housing market downturn, the key will be monitoring employment and income statistics – unemployment rates as well as hours.</p>
<p><em><span class="fn author-name">Danika Wright is l</span>ecturer in finance, University of Sydney and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/danika-wright-121868" target="_blank">here</a>.</em></p>
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