Monday, February 04, 2008

No worries rate

According to FT Alphaville,
Australia has the world’s fourth largest RMBS market, with total outstanding issues of A$173bn.

The real level of loans in arrears in Australia actually fell marginally in October, notes Reuters, citing the latest S&P figures. Loans with arrears greater than 30 days were a tiny 1.04 per cent in October, according to S&P. Unlike in the UK or the US, Australian prime RMBS are insured by mortgage insurers, giving investors greater security but also a lower return.

Australian government data out Monday showed house prices in Australia’s major cities rose by 12.3 per cent in 2007, in contrast to the US where prices are falling at record rates

So, no worries, right?

Maybe not, according to this story in the SMH:
UP TO 300,000 Australians risk losing their homes this year as rising interest rates and the credit crunch fuel severe debt.

As the Reserve Bank prepares to meet on Tuesday to consider another rate rise, analyst Martin North of Fujitsu Consulting predicted a dramatic escalation in defaults on home loans.

Joint research by JPMorgan and Fujitsu Consulting, due to be published next month, predicts that 750,000 owners will be hit by "mortgage stress" in the coming months, meaning more than 35 per cent of their income will be swallowed by home-loan repayments.

Of those, between 250,000 and 300,000 will suffer from severe mortgage stress, where they begin defaulting and risk having their homes repossessed.

"This is a problem that is now hitting Middle Australia. I don't think that the full impact of the credit crunch has yet been disclosed and it will get worse," Mr North said.
It's the inflation bogey that's getting them, according to this SMH article:
A rate rise looks all but certain after an independent gauge out this morning confirmed inflation was racing ahead of the Reserve's comfort zone.

The survey, by TD Securities and the Melbourne Institute, showed inflation was up 3.9 per cent in the year to January, on the back of rising prices charged for petrol, education, and utilities bills.

It was also the second highest recorded in the gauge's history.

Contributing most to the overall increase in January were price rises for utilities, financial services, automotive fuel and education.

The rises were partially offset by falls in the prices of holiday travel and accommodation, and fruit.

The price of fuel for the year to January rose by 25 per cent, while the price of rental accommodation rose by 9.1 per cent.

Adding to the woes is this report from Reuters, which suggests it is perhaps bigger than an inflation issue:
Moody's Investors Service may downgrade A$83 billion ($75.5 billion) worth of Australian mortgage-backed debt, in the latest spillover from the U.S. subprime crisis.

Still, market participants emphasized Moody's action did not reflect a weakness in the Australian housing market, which in fact remains strong.
In the US, and then later in the UK, the same story developed over the course of the last year. "Fear mongers" warned that housing was overheating and credit was overextended and contracting. Nobody much paid any attention as house prices soared and flipping the house outpaced flipping the bird. Now they are very aware of the circumstances, and they are not happy.

Not happy, Jan.

Remember that, Australia.

More things that are going bump in the day:
Tricom slashes securities lending to assure market
Warning bells ring on profits
Spectre of corporate defaults rises amid tight lending
How many exceptions break the rule?

PS: The Australian Reserve Bank today (Feb 5th this side of the dateline) raised its official rate to 7%. With the possibility of more to come (and this) before a late year reprieve. No worries.


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