Growing mortgage delinquencies add to the property bubble debate

As the great property debate continues to rage, with some predicting an impending crash due to over-inflated prices and ongoing affordability issues, a new report reveals that mortgage delinquencies are on the rise as more Australian home owners struggle to keep up with repayments and the rising cost of living.

According to the Fitch Ratings 30-plus day Dinkum Index, which measures 30-day arrears, more home borrowers fell one or two months behind on payments in the last quarter of 2010 and have been unable to cure their delinquent status into the first quarter of this year.

In an article published in The Australian, associate director in Fitch’s Structured Finance team James Zanesi said, “Mortgage performance is also expected to worsen in (the first quarter) driven mainly by the usual impact that the Christmas spend has on first quarter mortgage performance.”

He added that the November rate hike by the country’s central bank and the impact of a series of flooding in Queensland might also impact delinquencies.

The index rose to 1.37% in the December quarter, up from 1.30% for the previous quarter, while 90-plus day delinquencies rose to 0.54%, up from 0.48%.

The report has added fuel to the International Monetary Fund’s fire, which has made suggestions that home prices in Australia are 5 to 10% overpriced.

Overall, prices in Australia have quadrupled in a little more than 20 years, with the average Sydney house now costing around US$200,000 more than its counterpart in greater New York and nearly as much as in Honolulu or San Jose, California, according to a calculation from data drawn from the National Association of Realtors in the US and the Real Estate Institute of Australia.

Despite these claims though, local economists and the Reserve Bank have dismissed claims there is a property bubble in Australia, noting the gains don’t stem from a “credit-fuelled speculative boom” in local prices.

I’ve given my reasons why I don’t think our property market is in for a crash in a recent comprehensive article. Click here to find out my thoughts on why we won’t be seeing a crash.