NSW is least risky property market

THE proportion of residential mortgages more than 30 days in arrears is growing with the national delinquency rate at the highest level in five years. But delinquencies have been in decline in NSW given good economic conditions.

Eight of the 10 regions with the lowest mortgage delinquencies in Australia were in Sydney, where housing market and economic conditions have combined to be highly supportive for borrowers.

Sydney’s eastern suburbs headed the list followed by North Sydney and Hornsby, city and inner south, Ryde, the northern beaches, Baulkham Hills and the Hawkesbury, the inner west and inner southwest.

Mortgage borrowers in these best-performing regions are most likely to be employed in professional services industries, Moody’s Investor Services noted. “These occupations tend to pay higher wages and are more stable than mining and construction-related employment,” it said.

Moody’s also noted rising Sydney house prices had supported mortgage performance, giving borrowers at risk of arrears the easier option to sell quickly for a good price to repay their loans. However, as house prices continue rising without a corresponding increase in incomes, housing affordability decreases and the risk of delinquencies and defaults rises.

Moody’s forecast continued weaker conditions in outlier states reliant on the mining industry, with high underemployment, and less favourable housing markets and income dynamics. Six of the 10 regions across Australia — the Western Australia outback, Queensland outback, Mackay, Western Australia wheat belt, Mandurah and Fitzroy — have been among the worst performing regions in the country for the past four years.

The NSW state economy grew 3.8 per cent over the year to March 2017, well above the national average of 1.6 per cent. NSW also has the lowest unemployment rate in the country.

Although NSW’s large and diverse economy shields us, we are sensitive to a slowdown in the housing market because our high household leverage poses a downside risk.

The large differential between house price and wage growth, particularly in Sydney where house prices have increased the most, means that households have had to take on more debt to fund home purchases.

While house prices in Australia have increased by an average of 30 per cent over the three years to July 2017, average weekly earnings have increased just 4.99 per cent.

Higher debt levels make households more vulnerable to economic or housing market shocks, Alena Chen, the Moody’s senior analyst said. She noted households had accumulated record levels of mortgage-related debt in the past few years.

But it should be noted the price growth ensured the proportion of people who have very high exposure to a fall in house prices, those with loan to valuation ratios above 90 per cent, has also been declining.

The basic picture is one of prudent households, rather than people gambling on house price rises.

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