Financial stress is not something you would wish upon anybody, whether it’s due to loss of a job, business failure or unmanageable debt.
Mortgage stress falls within its own special category given that the family home is often the single largest asset held by many Australians and embodies so many of the values we cherish most – family, shelter and security.
Sadly, mortgage stress has been a feature of life and real estate since time immemorial and will be with us long into the future. The Four Corners program brought us the experience of several investors and home owners dealing with mortgage stress.
The truth is that at any time in the past several decades, spanning many property cycles, Four Corners could have found ample evidence of mortgage stress. It is not unique to where we are today at the height of a property market bull run that forgot to change into a lower gear.
The bigger question is whether the great majority of Australia’s property owners face a similar plight. While not diminishing the hardships of individuals struggling to hang on to their homes or investments, evidence suggests that most are in good shape to ride out the next phase of the cycle.
On the eastern seaboard where prices have soared to levels that frequently defy common sense, resulting in a concentration of larger mortgages, supply is still struggling to catch up with demand. That in itself, along with strong population forecasts, puts a cushion under property valuations, providing comfort to both mortgagor and mortgagee, provided they are able to service their debt.
In this regard there are two major risk factors – a significant rise in interest rates and job security. The Reserve Bank has indicated no appetite to shift the cash rate to a level that would shock the market. And it’s not just mortgagees that they are seeking to protect. A tightening of household spending flows through to retail while a flight from property has the potential to undermine construction, the industry that is keeping the economies of NSW, Queensland and Victoria ticking over nicely but showing early signs of a slowdown. The economy overall is in fair shape and there are no indications of a surge in wages or inflation that might force the Reserve Bank’s hand.
Of course the banks have shown that they are willing to adjust rates independent of the central bank but to do so in a way that hurts their millions of mortgage holders would not only be a foolhardy action against their own interests but invite the wrath of government.
Employment figures have been trending upwards and there is every reason to be confident that current and future infrastructure investment will underpin the creation of more jobs, particularly in the price sensitive mortgage belts of new growth areas of Western Sydney, Victoria and Queensland.
There is perhaps a third risk that should be canvassed, something that is more difficult to measure but no less potent. And that’s loss of confidence which can in turn lead to panic selling and ultimately a crash.
There are many commentators and “experts” who have warned long and loud of impending doom. They shouted it throughout the boom and you can be sure they will keep on shouting it, particularly when provided with a platform such as Four Corners.
History tells us that there will indeed be some pain as the cycle moves into its next phase but a soft landing can best be achieved if we resist the urge to over-dramatise.