Moody's Investors Service says that the delinquencies on Australian home mortgages will rise slightly over 2016 from current low levels, owing to below-trend economic growth and a slower pace of house price growth in some cities. Arrears will be highest in those states whose economies are most dependent on the resources sector.
“We expect the Australia-wide delinquency rate for mortgages showing more than 30 days in arrears to increase in 2016, but remain at a low level,” says Alena Chen, a Moody's Assistant Vice President and Analyst.
“We also expect that Australia's GDP growth will likely be towards the upper end of our 1.5% to 2.5% forecast range for 2016, but this will be below the long-term average of 3.5%. We believe this economic backdrop will prompt a slight increase in the Australia-wide mortgage delinquency rate in 2016,” adds Chen.
Moody's conclusions were contained in its just-released report on residential mortgage backed securities in Australia, “Residential Mortgage Delinquency Map: Improving NSW Underpins Steady Performance”.
Moody's report notes that mortgage delinquencies in New South Wales (NSW) declined significantly over the past year to reach the lowest level since 2005, while delinquencies increased in most other states.
Moody's expects economic and labor market conditions in NSW to remain healthy, which will be supportive for the mortgage market. However, it also expects the pace of house price growth in Sydney, which was a key driver of the significant decline in delinquencies in NSW over the past year, to slow.
In fact, house price growth in Sydney and Australia overall has already started to temper in recent months.
Overall, Moody's expects the negative influence of slowing house price growth and the positive effect of healthy economic and labor market conditions to balance each other out in NSW, keeping mortgage delinquencies in the state steady at current levels in 2016, in contrast to the significant improvement over the past year.
Across most of the others states, Moody's expects weaker housing, economic, and labor market conditions to continue to weigh on mortgage delinquency performance in those states. States more reliant on resources — including Western Australia, the Northern Territory, and to a lesser extent, Queensland — will be most impacted.
“With delinquencies in NSW remaining steady and those in other states set to continue to edge higher, we expect that the Australia-wide delinquency rate will increase slightly over 2016 but remain low,” says Chen.
Looking back over 2015, the Moody's report says that the proportion of Australian residential mortgages more than 30 days in arrears was 1.20% in November 2015, compared with 1.19% in November 2014.
A high proportion of the worst performing regions were in areas where employment is highly reliant on industries directly or indirectly related to mining and resources, a sector which has been adversely impacted by low prices and falling investments.
In Western Australia, the rate rose by a significant 0.48 percentage points over the year, and at 1.71%, it had the highest delinquency rate out of all the states and territories. The Western Australian economy is heavily reliant on the resources sector and has begun to slow as a result of falling commodity prices and weaker demand for iron ore from China.
During 2015, six of the 10 worst performing regions in Australia were located in Western Australia (4 regions) and Queensland (2 regions). These six regions are exposed to industries directly or indirectly related to mining and resources.
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