Mortgage Stress Intensifies In May
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Mortgage Stress Intensifies In May

Rental stress also heightened throughout the month.

By Terry Christodoulou
Wed, Jun 9, 2021 11:54amGrey Clock < 1 min

The proportion of households experience mortgage stress has increased in NSW and Canberra during May according to analysis by Digital Finance Analytics (DFA).

It comes as sky-high home prices continue to stretch family finances with 41.3% of NSW households now in mortgage distress – a rise from 38.2%. Mortgage stress is when an average home buyer is using more than 30% of their income to cover repayments.

Elsewhere, 42% of Canberra families struggled, a rise from 38.3% over the same period.

The rise in mortgage stress can be likely attributed to the ending of JobKeeper in March.

This was acutely felt in Tasmania, where 56.8% of households were in mortgage stress.

The market was not any more accommodating in the rental segment with rental stress also surging across all states except the Northern Territory.

Rental stress in may jumped by 4.59% in Canberra, 3.46% in NSW, 3.46% in Victoria and 3.29% in Queensland.

“There was a significant rise in rental stress, as the fallout from the removal of renter protections hit, and the JobKeeper and JobSeeker support ended,” Mr North, Director of DFA said.

Rental stress, similar to mortgage stress, occurs when a person pays more than a third of their income on rent.

The number of households in rental stress nationwide rose from 1.78 million in April to 1.95 million in May.

“Until incomes rise, the conditions are set for more pressure on household finances,” Mr North forewarned.

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House values continued to fall last month, but the pace of decline has slowed, CoreLogic reports.

In signs that the RBA’s aggressive approach to monetary policy is making an impact, CoreLogic’s Home Value Index reveals national dwelling values fell -1.0 percent in November, marking the smallest monthly decline since June.

The drop represents a -7.0 percent decline – or about $53,400 –  since the peak value recorded in April 2022. Research director at CoreLogic, Tim Lawless, said the Sydney and Melbourne markets are leading the way, with the capital cities experiencing the most significant falls. But it’s not all bad news for homeowners.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3 percent,” he said. “That has now reduced by a full percentage point to a decline of -1.3 percent in November.  In July, Melbourne home values were down -1.5 percent over the month, with the monthly decline almost halving last month to -0.8%.”

The rate of decline has also slowed in the smaller capitals, he said.  

“Potentially we are seeing the initial uncertainty around buying in a higher interest rate environment wearing off, while persistently low advertised stock levels have likely contributed to this trend towards smaller value falls,” Mr Lawless said. “However, it’s fair to say housing risk remains skewed to the downside while interest rates are still rising and household balance sheets become more thinly stretched.” 

The RBA has raised the cash rate from 0.10 in April  to 2.85 in November. The board is due to meet again next week, with most experts still predicting a further increase in the cash rate of 25 basis points despite the fall in house values.

Mr Lawless said if interest rates continue to increase, there is potential for declines to ‘reaccelerate’.

“Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Mr Lawless said.

Statistics released by the Australian Bureau of Statistics this week also reveal a slowdown in the rate of inflation last month, as higher mortgage repayments and cost of living pressures bite into household budgets.

However, ABS data reveals ongoing labour shortages and high levels of construction continues to fuel higher prices for new housing, although the rate of price growth eased in September and October. 

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