One quarter of Aussie property investors underwater – MacroBusiness

Martin North from Digital Finance Analytics has released new mortgage stress data, which reveals that more than one quarter of Australian property investors are losing money on a cash flow basis:Digital Finance Analytics has released the results of our rolling 52,000 household surveys to the end of June, which reveals that mortgage stress rose to 39.1%, compared with 37.5% in May. In addition, rental stress was 39.4%. Moreover, a larger number of property investors with a mortgage (51.3%) are underwater from a cash-flow perspective. This is new analysis which suggests investors are caught in the financial crisis headlights…
June Mortgage Stress Update
We measure stress in cash-flow terms, money in, money out, rather than a set percentage of income dedicated to paying mortgage or rental payments. If the net income flows are lower than the net payment outflows, households are classified as stressed. These households will cut back on expenditure, put more of credit cards, or tap into deposits. While, they may have access to other assets for example investment properties or share portfolios, negative cash flow remains a significant challenge.
This equates to 1.47 million owner occupied mortgage holders under financial pressure, and 1.7 million households in rental accommodation. More than 820,000 property investors are in difficulty.
The complex interplay of higher unemployment, JobSeeker and JobKeeper, together with the 490,000 mortgages with payment deferrals provides the backcloth for our analysis. However, by examining the financial flow status of households we have noted some realignment of households in the past month, with more casual and part-time workers able to return to work, but a significant rise in structural unemployment as larger companies, such as larger retailers, big consulting firms, and finance firms, make reductions in staff. These permanent cuts reflect the rightsizing of businesses in reaction to the economic downturn. Then we have the new Melbourne lock-down.
Turning to the detailed analysis, across the states, Tasmania has the highest proportion of households in mortgage stress, at 49.4%, followed by the NT and Victoria. However, the largest counts of stressed mortgage holders are in NSW, with 408,540 and VIC with 406,958. The highest risk of default rates are found in WA at 4.7%, VIC at 2.6% and SA at 2.6%…
Property Investor Stress
For the first time we are also reporting on property investors, and their property holdings. Across Australia, there are around 3.2 million properties available for letting (including short-term AirBnB type rentals as well as longer term residential). This excludes motels and hotel accommodation.
These properties are owned by around 2.8 million entities, including households and businesses. Around half the property available is covered by investment mortgages, which equates to around 1.65 million borrowers.
Of these 2.8 million entities, around 830,000 on a cash-flow basis, are not making sufficient to recover the costs of owning and letting their properties (stressed investors) of which 126,000 are severely stressed, most often because of low occupancy, or high repair costs. This is around 25.9% of all investment property, and 51.3% of mortgaged properties…

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