Heard on the Street: Housing-Mkt Strains Lurk In Australia Shadows (From THE WALL STREET JOURNAL ASIA) By Cynthia Koons In Australia, the glow of upbeat jobs and growth data is blinding. Gross domestic product numbers and employment figures have both surprised on the upside. But there are points of weakness lurking in the shadows. Housing is a particular concern. In a report on Australia's residential mortgage-backed securities, Moody's notes that delinquencies rose in the first quarter from the fourth. The deterioration is widespread, but it's most acute in the riskiest mortgages. Delinquencies in so-called low-doc loans, for borrowers without proof of income, have risen to 5.03% from 4.58%. Nonconforming loans, another type of risky loan with high loan-to-value ratios, jumped to 12.06% from 10.63%. Meanwhile, construction of new homes is faltering. A leading index of housing industry construction showed a reading of 34.7 for May, well below the 50-point level that indicates expansion in activity. Julie Toth, an economist at the Australian Industry Group, said the index "remains deeply entrenched in negative territory" and that forward-looking indicators like building and credit-application approvals point to a prolonged downturn in construction activity. Affordability is also an issue. House prices in Australia's major markets, with populations over a million, are 6.7 times median income. That's more than twice the rate in the U.S. All of the major markets in Australia fall into the "seriously" or "severely" unaffordable categories, according to a Demographia report on global house prices. The Reserve Bank of Australia has knocked a cumulative 0.75 percentage point off its benchmark interest rate this year already. In light of a spate of optimistic economic data, the cuts may seem ill-advised. But in the darker corners of Australia's housing market, there are signs borrowers need some help, regardless of the country's top-line economic boom.
