Mortgage Delinquencies Increasing, Inflation at Zero, Rate Cut Imminent

Mortgage Delinquencies Increasing, Inflation at Zero, Rate Cut Imminent. Best Mobile Mortgage Broker Favona Auckland

Mortgage Delinquencies Increasing, Inflation at Zero, Rate Cut Imminent video duration 7 Minute(s) 25 Second(s), published by Daily Rant Australia on 02 05 2019 - 02:54:35.

The Australia and New Zealand Banking Group (ANZ) released their half-year results yesterday, and the picture was pretty bleak with regard to Australian Top Mobile Mortgage Broker Auckland
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The Australia and New Zealand Banking Group (ANZ) released their half-year results yesterday, and the picture was pretty bleak with regard to Australian property and mortgage stress. ANZ boss, Shayne Elliott, spoke of the deepening mortgage crisis that is sweeping across Australia.

If we take a look at the data, it certainly looks like a trend to me. This is a chart of Australia Home Loan 90+ Day Delinquencies. It shows that over the past three or so years, delinquency rates have been stepping up in pretty much every state and territory. In Western Australia, it certainly looks like a very worrying trend. Thanks to a slowdown in mining, WA’s economy has been slowing over recent years. This has led to rising unemployment and mortgage stress.

Using Western Australia as a guide, it doesn’t take much imagination to realise what would happen if unemployment rates increased in the eastern states.

In the three months to April, ANZ home lending has fallen 3%. However, it’s not the cost of borrowing that is causing people to become delinquent. Looking at this chart, we can see that mortgage rates have been travelling along at historic lows. The RBA’s cash rate has been sitting at 1.5% since August 2016 — that’s more than two-and-a-half years! It’s not lack of cheap mortgages that is hurting Australians — it’s falling house prices.

The RBA have recently raised “negative equity” as a growing concern. Negative equity is a big problem for both the borrower and the lender. If borrowers are forced to sell when they can’t repay their mortgage, they’ll remain in debt even after the sale. Lenders will probably be selling at a loss thanks to falling property prices. It’s not ideal for anybody (except for new buyers, of course).

There’s lots of evidence suggesting that a sudden loss of income in households will lead to a huge increase in defaults. We can see in this chart, that unemployment edged back up to 5% in the March quarter. Is this just a blip, or is this a growing trend as well?

When it comes to interest rates, many economists are predicting that the RBA will be forced to cut the interest rate to historic lows this coming Tuesday, 7 May 2019. Why do people think that they will they be forced to cut interest rates? Because Australian Bureau of Statistics data shows that inflation ground to a halt in the March quarter. The consumer price index (CPI) was 0.0%. Prices have not risen this year.

Cameron Kusher, head of research at CoreLogic, said that persistently low inflation is what will force the RBA’s hand.

The Biggest Problem with Rate Cuts

Their only purpose is to encourage people to either get into more debt (because lending rates are low), or to save less of their income and spend more (because it’s not worthwhile keeping your money in the bank). But the RBA have no other tools at their disposal. The only thing they can come up with, is to encourage people to do the wrong thing — that is, get into more debt, or to spend more money. It’s a worrying trend.

There is an alternative, however (apart from dismantling the entire financial system). The big investment bank Citi argues that the RBA would be better off embracing the unconventional policy of “helicopter money”.

Basically, helicopter money is used by a central bank to drive up inflation and a stagnant economy's output.

Where would this money come from? Citi suggest that the money could be raised by the RBA “buying” perpetual bonds from the Federal Government that would not need to be repaid and the proceeds would then be given to households.

It’s not a new concept. It has been used before in Australia. In 2008 and 2009, the Federal Government made cash handouts totalling $20.8 billion which helped households through the Global Financial Crisis.

What are your thoughts? Are we doomed to another interest rate cut? Are savers, like myself, being punished for not spending enough? Should we all become less frugal and spend all of our earnings and get into more debt, just so the government can say that the Australian economy is doing well? Are the RBA running out of options? Is helicopter money a viable option? Will people actually spend the helicopter money, or stick it in the bank like I did back in 2008? Are more flat-screen TVs really what the Australian public need? Is our system broken?

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