australian mortgage delinquencies surged q1

Mortgage delinquencies point to property market chill, Fitch Ratings survey shows

May 26, 2011 3:03PM
Dow Jones Newswires


AUSTRALIAN mortgage delinquencies surged in the first quarter to a record, the latest sign of cracks in what used to be booming property market.

More home borrowers were a month or more behind on payments as of March 31 than as of December 31, Fitch Ratings said today.

The firm's 30+ Day Dinkum Index, a measure of 30-day arrears, rose to 1.79 per cent from 1.37 per cent at the end of the fourth quarter last year. Moreover, 90+ day delinquencies rose to 0.79 per cent from 0.54 per cent.

Fitch said it expected this to mark a peak in the current cycle, but qualified the statement by saying this expectation was subject to other factors, such as "the impact of any further interest-rate rises as well as the recent increase in the cost of living".

Several recent reports have shown that growth in housing prices in Australia is starting to either slow, or turn negative. First-quarter prices in the country's eight capital cities were down 2.1 per cent from the previous quarter. Brisbane, Perth and Darwin suffered the biggest declines, according to a report by property analyst RP Data-Rismark late last month.

More recently, weekend auction clearing rates - an often-used barometer for the local housing market - have declined, with Sydney clearing about 55 per cent of homes on auction in May, compared with 59 per cent in February, according to Australian Property Monitors.

Overall, prices in Australia have quadrupled in a little more than 20 years, and the average home in Sydney now costs about $US200,000 ($190,170) more than one in greater New York and nearly as much as one 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.

Research from the International Monetary Fund late last year concluded that homes in Australia were 5-10 per cent overpriced. Still, local economists and even the country's central bank have dismissed claims there is a property bubble, saying the market is well supported by strong local income growth and an unemployment rate of below 5 per cent.

On the other hand, several of the country's largest banks - including Westpac and Commonwealth Bank of Australia - warned about the impact of rising delinquencies on both their earnings and the mortgage market generally, even as they posted surging profits in recent weeks.

"What we see from now on is...house prices going sideways," Westpac chief executive Gail Kelly told reporters earlier this month.

Fitch partly blamed the uptick in arrears on the November decision by the Reserve Bank of Australia to lift its key cash rate by one-quarter of a percentage point to 4.75 per cent, as well as a series of natural disasters that wreaked havoc on NSW and Queensland earlier this year.

Earlier this week, fellow ratings firm Standard & Poor's said Australian residential-mortgage backed arrears greater than 30 days rose to 1.79 per cent in February from 1.64 per cent in January, near the record high of 1.84 per cent in January of 2009.

Credit market experts largely shrugged off Fitch's downbeat report as a signal to sell bank stocks or debt, given prospects for the country's banking industry are so closely tied to the fortunes of the housing market.

In addition, the improving market for residential mortgage-backed securities is unlikely to be damped much by the rise in arrears, a key development for the country's smaller financial firms that regularly use the RMBS market as a source of funding.

Said Mark Bayley, a credit strategist at AquAsia: "I think this is less a factor (of) house prices, and more about higher interest rates and higher energy and food prices squeezing consumer budgets.

"Whether it's your mortgage payment, food or gas prices, the cost of living is going higher here."

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