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Australian Mortgage Stress Climbs, Rental Vacancies Decline

Australian Mortgage Stress Climbs as Rental Vacancies Declin
A pedestrian walks past property listings displayed in the window of a real estate agency in Sydney. Photographer: Ian Waldie/Bloomberg

A quarter of Australian homeowners are experiencing mortgage stress and rental vacancies remain “tight,” driven by higher interest rates, rising costs and a shortage of rental properties in some cities.

The number of homeowners facing mortgage stress has jumped from 21 percent in March, mortgage insurance provider Genworth Financial Inc. said in its September Homebuyer Confidence Index, based on surveys conducted from July 30 to Aug. 5, and released today. Rental vacancies slipped to 1.8 percent from 1.9 percent in the previous month and below the equilibrium 3 percent rate, according to data from SQM Research Pty.

“As the market slows, people just take their properties off the market and delay their decision to move, rather than renting it,” said Matthew Hassan, senior economist at Westpac Banking Corp. in Sydney. “We see a significant rise in unemployment in the next 12 months, so in the near term, we’re likely to see more stress in the mortgage belt.”

While reports published since July show dwelling price growth has slowed, rents have continued to climb, rising 2.9 percent across the country in the three months ended June 30 from a year ago, according to real estate researcher RP Data. Rising consumer prices, even after seven interest rate increases by the Reserve Bank of Australia, are putting more pressure on homeowners with mortgages in the market with the most unaffordable homes in the English-speaking world.

Rising Unemployment

Unemployment in August rose for a second straight month, reaching a 10-month high of 5.3 percent, statistics bureau data showed.

Australian capital city’s home prices fell 3.4 percent in the first seven months of 2011, RP Data said in August, and a government report showed dwelling starts dropped 4.7 percent in the second quarter.

Homebuyer confidence fell 2 percent from March, while 36 percent think now is a good time to buy a home, the Australian unit of Richmond, Virginia-based Genworth, said in today’s statement.

About 85 percent of borrowers are still managing to make mortgage payments on time, and more than 45 percent have overpaid their mortgages over the past year, Genworth said. First-time homebuyers in particular are cutting back on luxury goods, clothes and groceries to own their homes, the group said.

Housing Affordability

“Despite 40 percent of recent first-home buyers putting more than half their monthly income towards servicing debt, we found just 15 percent expect to have difficulties paying their mortgage in the year ahead,” Ellie Comerford, chief executive officer of Genworth, said in the statement.

Australian homes cost 6.1 times gross annual household income, the highest among English-speaking nations, compared with 3 times in the U.S., Belleville, Illinois-based consulting company Demographia said in January.

The number of properties available for rent was highest in Melbourne, at 2.8 percent, up from 2.1 percent a year ago, and lowest in the capital Canberra, at 0.6 percent, unchanged from last year, SQM said in an e-mailed statement.

Sydney saw a decline to 1.4 percent from 1.6 percent in July, and Perth’s vacancies fell to 1 percent from 1.2 percent.

The drop in vacancies nationwide comes as the number of properties listed for sale jumped 23.6 percent in August from a year ago, according to an SQM report last week.

“To date there is no significant trend of vendors, having failed in selling their properties, offering up for rent instead,” SQM Managing Director Louis Christopher said in today’s release. “So, the rental market remains largely a landlords’ market for now.”

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