Get ready for some really nasty data on home loan mortgage difficulties and, with it, popular television and print items showing family devastation. The combination will cause panic among Federal Government press secretaries, which could conceivably cause some desperate policies to be put up for consideration. FuelWatch had better work.
Also, we’ll see a major impact in Australia’s minor version of the US sub-prime experience, where a lot of under-performing housing loans in problem regions have been sold as parcels of mortgage debt to our superannuation funds.
Crazy as it must seem to many Australians, I am reliably told that ALP press secretaries believe that Howard’s battlers in western Sydney and similar regions turned on their hero and delivered government to the ALP.
The ALP cleverly gave the battlers the name “working families”. Given that Canberra believes that what’s happening in western Sydney and similar regions is crucial to maintaining government, the press secretaries follow events in these areas very closely. And it is these politically sensitive areas that are in serious mortgage trouble – and their situation is set to get a lot worse.
The Fitch Ratings survey of Australian securities mortgages covers about 17% of Australian housing loans or about $160 billion worth of debt – so it’s really meaningful data. The survey, released late last week, found that the proportion of mortgages that were more than 30 days overdue in the six months to 31 March was only 1.9% overall. However, some of the disaster areas are about to take on American proportions.
The Fitch data was not influenced by the last two official interest rate rises and the extra amounts the banks have added, so in the current half-year the upward spiral in problem loans will accelerate, as will the fall in house values in the distressed areas. Fitch says the most pronounced property price declines occurred in south-west Sydney, where property prices fell as much as 30%.
“In these circumstances, highly geared borrowers have few options when they get into difficulty, as refinancing or sale of the security property becomes more difficult,” Fitch says. “This pattern appears to be evident in Western Australia over recent months, where property prices are falling, leading to distressed borrowers being unable to refinance or sell the property to repay the loans in full.”
The WA data does not show up in the 31 March half year results. Nine of the 10 postcodes where mortgage loans are more than 30 days in arrears more than 5% of the total, are in the western region of Sydney plus Wollongong – Wetherill Park (6.7%); St Marys (6.3%); Kurrajong ( 6.1%); Guildford (6%); Punchbowl (5.3%); Lake Illawarra (5.2%); Greenacre (5.2%); Rooty Hill (5.1%); and Fairfield (5%).
The other very bad postcode is Helensvale in the Gold Coast West region, which (with nearby Caboolture) ranks in the top bad mortgage regional areas.
Melbourne does not have an entry in the worst postcodes, but has some problem regions including the outer south-eastern suburbs; Hume; Melton-Wyndham and the outer northern suburbs. All these Australian areas have the same characteristic – people bought houses on low deposits, paid too much relative to their realistic long-term sustainable earning ability, and completely underestimated the potential rise in interest rates, fuel and other costs.
Most of the areas are not well served by public transport, so since March these residents have been hit really hard by the interest-rate/petrol/food hikes.
Combine that with increasing repossessions and house price falls and we have a very nasty social and political situation that was made even more politically dangerous by the FuelWatch public service leaks.
Of course the next election is a long way away, but if the current interest rates and other higher costs were to extend into the second half of 2009, Kevin Rudd would find the battlers also turning on him. If that happens, then Rudd will begin to look like John Howard did in the year before his defeat.