The number of delinquent housing loans underlying Australian prime residential mortgage-backed securities (RMBS) in March fell to 1.16% from 1.23% a month earlier, according to a recent report by S&P Global Ratings.
Home loan arrears rose from 1.13% the same time a year earlier, but remained below the decade average for March of 1.32%.
We attribute part of the improvement to an increase in outstanding loan balances, but arrears fell in percentage and dollar terms in March. Mortgages 31-60 days past due recorded the greatest improvement in March, a trend that was broadly consistent for all originator types, according to the “RMBS Arrears Statistics: Australia” report.
Nonbank originators recorded the largest improvement in mortgages more than 30 days in arrears, falling 18 basis points to 0.87% from 1.05% the previous month. We believe the improvement partly reflects an increase in outstanding loan balances. Tasmania recorded the largest improvement in arrears, which fell 22 basis points to 1.29% from 1.51% a month earlier, despite a fall in outstanding loan balances.
Arrears fell in New South Wales, Victoria, and Queensland, which collectively account for about 80% of total outstanding loan balances. New South Wales recorded the largest decrease, with loan arrears declining to 0.85% from 0.95%, against a backdrop of rising outstanding loan balances.
Arrears in earlier categories are showing signs of improvement, but are rising in the more advanced categories, albeit from low levels. Mortgages more than 90 days in arrears, which have averaged around 0.50% for the past decade, were 0.62% in March. We believe this trend partly reflects a greater alignment in hardship reporting in recent years. Nonbank originators have bucked the trend, with mortgages more than 90 days in arrears in March at 0.43%, which is around half the average for the past decade of 0.88%.
Nonconforming mortgages in arrears declined in March to 6.17% from 6.19% in February against a backdrop of a decline in loans outstanding. The greatest improvement was recorded for loans 31-60 days in arrears, which fell by 0.38%. Mortgages more than 90 days in arrears increased to 2.59% from 2.36% a month earlier, but remain below the average for the past decade.
Normal seasonality would have arrears still rising at this point so it’s a positive sign for debt servicing. That said, Moody’s arrears are currently going the other way…
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
