Rising Unemployment to Double Mortgage Stress in Australia

As rising unemployment threatens to almost double the number of Australian households at risk of forced sale or foreclosure, the effects of falling interest rates and petrol prices will be erased, a study by Fujitsu Australia and New Zealand warns. With unemployment forecasted to rise to five per cent by July and seven per cent by the end of 2009, the number of borrowers under mortgage stress is expected to increase significantly. This is likely to have severe consequences for property values, as the larger numbers of people forced to put their houses on the market could lead to a decline in property prices.

Key Takeaways:

• The number of borrowers under mortgage stress is expected to rise by 46 per cent to 929,000 by July, from 635,000 in January.
• Those under severe stress, who are behind in repayments or trying to sell or being foreclosed, will increase 87 per cent to 302,000 by July.
• Unemployment is forecasted to rise to five per cent by July and seven per cent by the end of 2009.
• Property values are likely to fall due to the larger numbers of people who are forced to put their houses on the market.
• The Reserve Bank of Australia reduced the cash rate to 4.25 per cent, from 7.25 per cent, between September and December, and petrol prices also fell due to the decline in oil prices.
• Fujitsu interviews 2,000 households by phone each month and uses a rolling sample of 26,000, with the most recent respondents given a greater weighting in the study.

Statistics:

• 46% increase in mortgage stress to 929,000 by July
• 87% increase in severe mortgage stress to 302,000 by July
• 5% unemployment rate by July
• 7% unemployment rate by the end of 2009
• 4.25% cash rate
• 7.25% cash rate (previous)
• 15% decrease in households facing severe mortgage stress in January
• 6% decrease in households facing mortgage stress in January

Sources:

• "Fujitsu Australia and New Zealand"
• "Asia Pulse"
• "Australian Associated Press"