90-day arrears creeping higher

Interest-only cliff update

First the good news: 30 plus day mortgage arrears ticked down from 1.53 per cent to 1.52 per cent in May 2019, though they were still 13 basis points higher year-on-year, according to S&P's latest figures. 

Notably, though, 90 plus day arrears were still rising in May, albeit modestly. 

New South Wales saw arrears decline from 1.28 per cent to 1.24 per cent in May, and there were also declines for Victoria, Queensland, Western Australia, South Australia, and the Northern Territory (with only Tassie and the ACT recording increases from a low base, each to just 1.20 per cent). 

Here S&P Global puts together its usual neat pictorial representation.

There's been a lot of excitable reporting and scaremongering in the usual quarters, but an objective reading of the figures suggest that up until May arrears (not non-performing loans or defaults) remained in surprisingly good nick in most states. 

In Western Australia there have been more cases of serious arrears, both for residential and commercial exposures. 

Arrears pause for breath in winter

The deterioration dissipated in May according to S&P, but overall the recent trend has been marginally worse for investors, partly reflective of the interest-only mortgage reset.  

The interesting thing about recent arrears has been that it's not a non-conforming loans issue.

Instead mortgage arrears have largely been hiding in plain sight at the major banks, where 90 plus day arrears have continued their climb. 

Arrears are very low at the non-banks, but regionals have also seen 90+ day arrears climbing.

Normally mortgage stress is felt most acutely in the period around and following Christmas rather than in winter, so there will be a further test then.

The wrap

The mechanical interest-only reset no longer applies, but some borrowers are struggling with their transition.

Jobs growth has been very strong, but crunching through the numbers it seems difficult to get a trimmed mean reading for inflation next quarter much above 0.3 per cent, so core inflation may drift further below the 2 to 3 per cent target.

Real wages are at least rising - and on the plus side there is ample room to cut rates without stoking too much inflation - but it's hardly a ringing endorsement of an economy operating near its capacity either. 

Of course, mortgage rates have been falling significantly, and significant tax cuts are set to be delivered, in turn relieving mortgage stress at the margin. 

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UK wages +3.6pc

Cool Brittania

Punchy monetary policy, very low unemployment, and a lower pound are finally working some magic on UK pay packets.

Including bonuses wages growth is now +3.6 per cent, while the inflation rate has been running at around target. 

Source: Bloomberg

That's the fastest rate of wages growth in 11 years, possibly ushered along by some Polish and other European workers returning to the continent. 

England are the cricket world champions too...we just need a Prime Minister now. 

Vacancy rate 2.3 per cent in June

Winter rentals

There was the expected seasonal uptick in vacancy rates to 2.3 per cent in June 2019, according to SQM Research.

The prior year figure was also 2.3 per cent.

Sydney ticked back up to 3.5 per cent - the Sydney vacancy rate was marginally higher over Christmas, but for this time of year it's the highest since the last cyclical peak of construction around 2003/4. 

Vacancies can rise because of a lot of units completing at the same time, or because of weak demand.

It's definitely not the latter in Sydney - in fact demand for rentals has never been as high as it is today - rather it's just the new blocks of apartments hitting the market all at the same time. 

The result has been a 3 to 4 per cent decline in asking rents in Sydney. 

The 6-month moving average vacancy rate shows that Brisbane continues to tighten. 

Asking rents are now rising in Brisbane and Perth, as well as in Hobart and Adelaide. 

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Macquarie Bank announced a new floor rate of 5.30 per cent with a 250 basis points buffer, which could add up to $75,000 to servicing on a $1 million mortgage (after accounting for the newly revised HEM tables).

This more than offsets changes to household expenditure measures, and ANZ now sees housing prices rising this year.

Domain forecasts Brisbane house prices to rise 20 per cent over the coming three years. 

Out of stock

Listings well down

The cobweb model in action.

New property listings are down 32 per cent in Sydney and 32 per cent in Melbourne respectively from a year earlier.

Brisbane's new listings are down 22 per cent, and in Perth the equivalent figure is 18 per cent. 

Even the total of unsold inventory is now down by 10 per cent in Sydney, and 6 per cent in Perth.

Source: CoreLogic

There remains a big chunk of unsold inventory in in south western Sydney and in the Hills District. 

But stock levels are becoming very tight on the lower north shore and on the northern beaches. 

Sydney Sunday

Another quiet Sunday...

Dusting off the cobwebs

Cobweb model

Read my Sunday blog here (or click the image below).

Long-term arrivals hit record high

Population acceleration

A very timely subject for a post having given I spent a punishing amount of time sitting in south-east Queensland traffic yesterday in the new Holden.

I took the chance to catch up on a lot of great podcasts, at least!

The annual number of permanent and long term arrivals into Australia increased by 5.7 per cent over the past year from 802,830 to an all-time high of 848,570.

That, is a big, big number. 

Throw in increased life expectancy and I expect we'll see population growth accelerating towards a record high of about 450,000 per annum. 

In round numbers that would comprise more than 100,000 per annum in Sydney and Melbourne respectively, and about 100,000 per annum into Queensland, which would be the highest figure since the mining boom. 

Tourism powers on

The long drawn out surge in short-term arrivals hit a new record in May 2019, with the recent growth driven largely by Victoria.

Growth in Queensland petered out, despite the boost from the Commonwealth Games. 

This boom has resulted in record visitor and tourism spend.

What happens next is likely to be driven by the trajectory of the Aussie dollar.

Some of the commentary on Chinese visitors has spoken of numbers being 'off a cliff'.

They are down, certainly - for various reasons - but some context is germane here: to date they're down a little bit from a very high base. 

Similarly the multi-year boom in international student numbers may or may not be peaking, and this could be reflected in a recent plateau education arrivals. 

Overall, Chinese travel is a bit out of favour at the moment, but this hasn't yet slowed aggregate trip expenditure, while permanent and long term migration into Australia is at the highest level on record.

The wrap

A bit of noise from month to month, then but Australia's population will nudge 25½ million over the September quarter, and one might expect to see population becoming a political issue again as growth accelerates towards record high levels.

Westpac eases floor rate

Relaxing

Following on from ANZ yesterday, Westpac will update its floor rate for mortgage serviceability, while maintaining a wide buffer of 250 basis points. 

St. George has also mirrored Westpac's moves. 

ANZ's announced changes could lift borrowing capacity by up to 20 per cent for some borrowers according to experienced brokers. 

Welcome to the recovery!