No systemic mortgage default risk from JobKeeper end
05 Apr 2021

Co-founder of Pete Wargent said that the end of the JobKeeper payment program will not represent a systemic risk for mortgage defaults in the housing market.

"At the individual level there might be the potential for mortgage stress and a modest increase in unemployment resulting from the ending of the JobKeeper program, and as many are switched onto the JobSeeker income support package" Mr Wargent said.

"However, the risks of widespread mortgage default have thankfully materially subsided for a number of reasons". 

Mr Wargent noted that most importantly, the latest update from APRA on loan deferrals showed a huge swing towards the resumption of repayments, to the extent that only $11.7 billion of housing loans remained deferred, or approximately 0.7 per cent of housing loans by value. For context, new housing lending is running at close to $30 billion per month.

Mr Wargent said "in addition, housing prices are now rising almost across the board, significantly reducing the willingness to default, and lenders have more flexibility to offer interest-only terms or work with borrowers in hardship. Notably, lenders have effectively been the ‘shock absorbers' of the housing market during the pack of the pandemic, trying to mimimise reputational damage and keep forced sales to a minimum".

"Best of all, there were about 290,000 job vacancies by the end of February, by far the highest figure we've seen in Australia, and this at a time when immigration is effectively switched off".

"Overall the government's stimulus packages have been successful in limiting the fallout from the 2020 disruptions, and most of those urgently seeking work will thankfully find it in the current environment" Mr Wargent said.  

Figure 1 – Record high job vacancies

 Doron Peleg, CEO of RiskWise Property Research reported that job vacancies at more than 2 per cent of the labour force was a record high, and this pointed to a lower unemployment rate ahead, despite the end of the JobKeeper payment program.

Figure 2 – Job vacancies versus unemployment rate

Mr Peleg said, "the pace of the employment recovery, with total employment hitting a record high of more than 13 million, has been such that there are already some signs of labour shortages, notably in the accommodation and food services sector, even though overall there is still slack in the labour market".

The ABS reported that private sector job vacancies have increased by 29 per cent since February 2020, to comfortably exceed pre-pandemic levels, while public sector vacancies were also up by 13 per cent over the past year.

The have been significant increases in vacancies in construction, driven by the successful HomeBuilder stimulus package, accommodation, and food services, as consumers return to socialising, and sundry services roles. 

Mr Peleg noted that the most adversely impacted employees through the coronavirus recession had often been casual staff or lower paid employees in industries such as hospitality and retail, rather than the more indebted borrowers most likely to be at risk of mortgage stress.

"The highest risk sector of the market remains the high-rise rental apartments in the central business districts of Sydney and Melbourne, as there has been a general shift away from density over the past year, while the absence of international students and tourists has exacerbated the trend" he said. 

Still, Mr Wargent of maintained that there was no systemic risk of mortgage default arising from the JobKeeper program being phased out. 

"Unit rents have fallen in the inner cities, but so too have mortgage rates. And, as workers return to offices in the most populous cities, vacancies have generally begun to fall as reduced rents are luring tenants back in."

"Property investors are also turning their attention to units, in search of bargains, which is supporting prices. Analysts are always looking for mortgage stress, but at the macro level, it's not much in evidence" Mr Wargent said. 

Mr Wargent said "the risks are generally higher in Melbourne's high-rise unit market, with more loans remaining deferred than elsewhere in Australia after the state's extended lockdown period, and higher vacancy rates for units in the CBD".

"However, since most of these properties are owned by investors, overall, the risk of widespread forced selling is low. Local buyer's agents are already reporting that unit prices are rising ex-CBD, so the mortgage default risks are declining all the time" Mr Wargent said. 

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