CFR watching financial hardship rise

Arrears to rocket

The Council of Financial Regulators has duly taken note of increasing hardship applications, and the rising risks of a swathe of mortgage defaults. 

Source: CFR

The national accounts showed household mortgage repayment rose another 5 per cent in the December quarter and more fixed rate mortgages continued to reset to much higher mortgage rates.

Sally Auld of JB Were noted that rising interest rates have impacted the interest rate sensitive sectors of the economy - as intended - but notably this has included dwelling investment.

The latest ABS figure suggest that population growth peaked at around +690,000 late last year, but the current settings (including the cash rate target of 4.35 per cent and the 3 percentage points lending assessment buffer) are seeing far too few dwellings being built. 

Interestingly some project developers are receiving interest from cash buyers of new apartments, particularly at the Gold Coast, but overall new developments aren't stacking up in the current environment. 

Separately the devastating global crash in office values was touched upon in this morning's Statement, but the risks to Australia remain "contained" in the Council's view. 

Despite the comments to the contrary, the inflation battle is basically won in Australia, with comparatively very little movement in consumer prices since August 2023 i.e. 7 months ago. 

Looking ahead, now it's largely a question of fine-tuning the soft landing without sending too many households into mortgage default.

Most labour market indicators are also weakening significantly, so there are some risks ahead to be managed. 

Australia's 3-year bond yield has ticked down to 3.59 per cent as markets position for lower interest rates ahead. 

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