Investor arrears rise
S&P Prime SPIN mortgage arrears ticked up to 1.35 per cent in October 2018.
This was a notch higher than September, but also lower than in March, April, May, June, July, or August (just for a grain of perspective).
Note, however, that October is normally a benign month for mortgage arrears, which then can rise after the lengthy Xmas break.
Prime SPIN arrears remained low in New South Wales (1.12 per cent) and elevated in Western Australia (2.58 per cent).
30 plus day arrears are tracking some way higher here than a year earlier, when arrears were just 1.04 per cent.
At the state level New South Wales is now routinely creeping higher as the housing market softens, accounting for most of the year-on-year increase.
The New South Wales arrears, in my best estimate, likely relate to vacant high-density apartments (e.g. Chatswood, Epping, Ryde, Hills District) and over-leveraged households on the city fringe.
More pertinently, the increase in arrears largely relates to interest-only mortgage resets, with 30 plus day investor arrears up to 1.25 per cent in October from just 0.86 per cent two years earlier.
Would you like some QE with that?
Incidentally, herein lies another unintended consequence of Labor's proposed negative gearing and capital gains tax policies.
The Reserve Bank successfully negotiated the resources investment cliff by teeing off what has been by far the greatest high-rise apartment construction boom Australia has ever seen.
High-rise apartments are, in the main, bought off-the-plan by investors, and the ALP policy proposes to clobber the resale market by erasing two of the three major tax benefits that made new units just about attractive enough for investors to buy in the first place.
ScoMo has already wiped out the third one, being plant and equipment depreciation under Division 40.
Statistically speaking new high-rise apartments already carry a worryingly high risk of loss at resale for investors, but under the proposed changes that percentage will be runnin' sky-high.
How high you ask?
Very high!
Insane timing, but apparently it's all going to wash through just fine.
