Citizens Electoral Council of Australia

Media Release Tuesday, 8 August 2017

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au

Bubble watch: mortgage delinquencies and investor losses on the rise

Each new report relating to Australia’s housing market indicates the inevitable, near-term collapse of the property bubble, and the banks that are intertwined in it. The government and banks must treat these reports like gasping canaries in a mine, and act to get the Australian economy out of danger, starting with a Glass-Steagall separation of banking from speculation.

Mortgage insurer Genworth Mortgage Insurance Australia, which has about 30 per cent of the mortgage insurance market, has revealed in its latest half-year results a distinct rise in mortgage delinquencies—borrowers falling behind or defaulting on their payments. Genworth pays out to the banks when borrowers are delinquent on mortgages it insures.

The insurer has experienced a sharp rise in the number of paid claims, and an even sharper rise in the amount of those claims. In the first half of 2017, Genworth paid out 711 claims, up from 566 claims in the first half of 2016, and 633 claims in the second half of 2016. The average dollar value of those paid claims shot up from $72,600 in the first half of 2016, to $102,300 in the first half of 2017.

This rise in delinquencies is shocking, considering that interest rates in Australia have been at record lows for a long time. It demonstrates how even a modest rise in interest rates will cause carnage among overstretched borrowers—as foreshadowed in April by Finder.com.au, which revealed that 57 per cent of mortgage holders would not handle even a $100 per month increase in their mortgage payment.

Genworth connects the rise in delinquencies to the increase in real unemployment, even though that increase is not showing up in official statistics. Delinquencies rose in every state, but official unemployment increased in just two states—Queensland and Victoria. The biggest rise in delinquencies were in Queensland (0.72 per cent of mortgages) and WA (0.86 per cent), where the collapsed mining boom has left many jobless.

While the overall delinquencies are still relatively low, the increase is marked. Most ominous is the increase in the manufacturing areas of Victoria that have started to suffer job losses from the collapse of manufacturing, such as the closure of Ford in Broadmeadows. Manufacturing is a much bigger employer than mining, and is concentrated in the big cities, particularly Melbourne, which are the centre of the property bubble. For every job lost at a factory like Ford, there are multiple job losses in the supply industries. Ford is already closed, but in October 2,600 Toyota workers at Altona and 1,000 Holden workers at Elizabeth in South Australia will lose their jobs when those factories finally close; it is estimated that for every job at Holden there are at least 12 jobs in the supply industry in South Australia.

Big losses on the western front

A new study by ratings agency Moody’s shows a rise in losses on house sales in Australia: nationwide, 7 per cent of owner-occupiers and 12 per cent of investors have sold at a loss. In a timely reminder to reckless investors on the east coast that property markets can and do fall, the Moody’s study shows that the problem is most acute in Western Australia: 20 per cent of Perth owner-occupiers and 26 per cent of Perth investors sold at a loss, while in rural WA 27 per cent of owner-occupiers and 45 per cent of investors sold at a loss.

ABC business reporter Stephen Letts wrote on 4 August: “And there’s little good news for investors under duress about cutting their losses and heading for the exits in a downturn. Judging by results from the west in the first three months of the year, if you’re thinking of bailing out it may already be too late.” (Emphasis added.)

With all signs pointing to a near-term housing bubble implosion, the Australian government must take immediate steps to avert a full-scale crisis among Australia’s Big Four banks, which each have more than 60 per cent of their business in home loans. The Citizens Electoral Council has laid out what to do in its “Proposal for a Glass-Steagall separation of Australia’s banking system”, which it prepared for the Commonwealth Parliament to explain why and how Australia should separate commercial banks with deposits from all other financial services and all forms of speculation.

The USA’s Glass-Steagall Act of 1933 was the most successful banking regulation in history, under which there were no systemic banking crises in the USA. Its repeal in 1999 led to an explosion of financial speculation, subsidised by deposits, under the weight of which the US and global banking systems melted down nine years later. There is a big push in the USA, UK, Europe and Japan to restore the commonsense Glass-Steagall banking separation, because it clearly works; China, the word’s strongest economy, already has it.

If the Australian government acts on Glass-Steagall and breaks up the banks now, before the crash, the separation will provide a firewall that protects everyday Australians and their savings from the meltdown; if, however, the government waits for the crash, the Australian people will be forced to suffer unnecessary financial and economic chaos, to which the only solution will be Glass-Steagall anyway.

What you can do

The CEC is calling on all concerned Australians to join the fight for Glass-Steagall. Deliver a copy of the Glass-Steagall “Proposal” to your local MP with the message that that they must read it and give you, their constituent, a response. You can either order a printed copy to mail or deliver in person, or download an electronic copy to email, from the following links.

Click here to order one or more printed copies of “Proposal for a Glass-Steagall separation of Australia’s banking system” to take to your local MP or Senators.

Click here for a PDF copy of “Proposal for a Glass-Steagall separation of Australia’s banking system”, which you can download and email to your MP as an attachment.

Click here to join the CEC as a member.

Click here to refer others to receive regular email updates from the Citizens Electoral Council of Australia.