Don’t fear the financial cliff.
We were initially told that Australia’s economy is heading for a financial cliff when government subsidies were to be cut back from September.
Remember...home loan repayment holidays were also set to stop in September but then the banks have extended them to March for customers still suffering a cash crunch.
And now some of the property pessimists are saying we've just kicked the can down the road and the housing market will be in trouble next year.
Not so according to ANZ Senior Economist Felicity Emmett in the latest research bulletin by the ANZ Bank which suggests the housing sector looks to be turning a corner according to
Here's what the research bulletin said:
Housing debt is up, but so are savings
While high housing debt may pose a risk next year in light of expected higher unemployment rates, the spike in household savings in Q2, particularly by indebted owner occupiers, suggests many households have increased their mortgage buffers.
On average, owner occupiers were less likely than renters to lose income and employment through the pandemic downturn.
Mortgage deferrals are falling
The number of deferred mortgages is falling quickly.
At the peak, 11% of mortgages (by value) were on deferred payments.
As of September, APRA reports that this had fallen to 7%.
With the bulk of loan deferrals expiring in October, this number has fallen further.
Victoria has the highest rate of deferral, while NSW is closer to the national average.
Housing arrears have risen, but only a little
Housing arrears in Australia have risen to around 1.2%.
This is only 0.2ppt higher than September last year.
ANZ 90+ day arrears data show that Victoria and NSW arrears rose modestly between March and September, but arrears rates in other states have declined through the same period.
RBA research suggests that housing arrears could rise to 2% as mortgage deferrals expire and unemployment continues to rise.
Our view is that accommodative lender measures and a lower peak in the unemployment rate will mitigate this risk.
Lower servicing costs will reduce stability risks
The very low cash rate (0.1%) and increasing use of lower fixed rates for mortgages has eased mortgage servicing costs for many households.
Low interest rates, combined with deferrals and fiscal support including tax cuts, is likely to mitigate the labour market risks for financial stability in 2021.
Owner occupiers have increased their buffers
Strong increases in saving rates by indebted owner occupiers suggest that many households now have significant buffers.
The bulk of mortgage deferrals are likely to have already expired.
Lenders are likely to offer further support for owner occupier mortgage holders, and significant forced selling is unlikely.
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- Also read:This week’s Australian Property Market Update – Latest Data, State by State April 16th 2024
- Also read:Melbourne property market forecast for 2024
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Arrears rates outside Vic and NSW have fallen
Fiscal support, monetary easing and mortgage deferrals have mitigated the arrears risk through the pandemic downturn.
While average arrears rates in Vic and NSW have risen this year, arrears in other states have fallen.
Vic has the highest share of deferred mortgages, but NSW is closer to the average across the states.
Arrears rates are up modestly to date
Housing arrears in Australia have risen to around 1.2%, only 0.2ppt higher than September last year.
Fiscal and monetary support, alongside mortgage deferrals has helped limit the rise in arrears rates to date.
More deferred mortgages are held by “riskier” customers
Borrowers who work in pandemic-hit industries were more likely to defer mortgages than other types of households.
RBA research suggests that housing arrears may rise to 2% as these mortgage deferrals expire and unemployment continues to rise.
However, we think it is more likely that loan restructures and other lender forbearance measures could mitigate this risk.
How risky is Australian household debt? High debt largely reflects high ownership, but risks to the consumption outlook remain.
Source: ANZ Research – Housing: A strong 2021 -16th November 2020
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