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Mortgage Defaults Will Increase in Australia After Rate Rises, Fitch Says

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Sorry I don't have a link, I've emailed it to myself from the bloomberg app.

Australian Mortgage Defaults to Climb, Fitch Says

Feb. 3 (Bloomberg) -- Rising interest rates will trigger defaults on Australian home loans and commercial mortgages, causing deterioration in the quality of assets underpinning mortgage-backed bonds, according to Fitch Ratings.

Three straight interest rate rises last year and further increases expected in 2010 may cause Fitch’s Dinkum Index, which measures delinquency rates on prime home loans, to climb to as much as 1.5 percent this year from 1.21 percent at Sept. 30, the London-based risk assessor said in a report today.

“The improvement in Australia’s structured finance asset performance, which was experienced during 2009 thanks to historically low interest rates and a resilient economy, is unlikely to continue during 2010,” David Carroll, a director in Fitch’s Australian structured finance team, said in the report. “Rates will continue to rise during 2010 and structured finance arrears are likely to trend up,” he said in a phone interview.

Central bank Governor Glenn Stevens unexpectedly kept the overnight cash rate target at 3.75 percent yesterday, opting to support the economy’s acceleration and stem inflation later. Borrowing for home-buying fell to a five-year low last month, according to Australian Finance Group. Colonial First State, Australia’s biggest asset manager, froze an A$850 million ($754 million) mortgage income fund to withdrawals on Jan. 14 after signs some commercial property loans may sour.

Australian household debt remains a concern, with the ratio of household debt to disposable income standing at 156 percent as of June 2009, Fitch said.

The increase in delinquencies isn’t expected to be severe enough to affect the ratings of mortgage-backed bonds, according to Carroll.

Moody’s Investors Service said today it has a stable rating on the performance of the collateral securing Australian asset- and mortgage-backed bonds for 2010.

Australian Finance Group says it accounts for more than 10 percent of the nation’s mortgage market. The group arranged A$1.55 billion of mortgages in January, 19 percent less than a year earlier and the lowest level for any month since 2005.

To contact the reporter on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net .

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Rising interest rates will trigger defaults on Australian home loans and commercial mortgages, causing deterioration in the quality of assets underpinning mortgage-backed bonds, according to Fitch Ratings.

Key point.

The RBA are playing their own part in maintaining the bubble by keeping rates on hold and slapping savers in the face by encourages further speculative investment.

I know the RBA's primary goal is to keep inflation low and it is as 2.1%, but it also has an indirect side effect to manipulate market spending adversely too.

In a period where the spruik machine is in full swing, the RBA putting the brakes on rate rises will simply be promoted as a buy signal to the investment groups.

In effect, their willingness to hold on rates with inflation stalling may just trigger a large inflation spike anyway with increased spending.

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Key point.

The RBA are playing their own part in maintaining the bubble by keeping rates on hold and slapping savers in the face by encourages further speculative investment.

I know the RBA's primary goal is to keep inflation low and it is as 2.1%, but it also has an indirect side effect to manipulate market spending adversely too.

In a period where the spruik machine is in full swing, the RBA putting the brakes on rate rises will simply be promoted as a buy signal to the investment groups.

In effect, their willingness to hold on rates with inflation stalling may just trigger a large inflation spike anyway with increased spending.

The risk now is that due to the new sentiment on the Australian dollar imports will now be more expensive. This is inflationary and if our dollar gets down to 75c while petrol remains high then we are in for some high inflation numbers. Followed by high interest rate rises.

Australian household debt remains a concern, with the ratio of household debt to disposable income standing at 156 percent as of June 2009, Fitch said.

Well debt will continue to grow till houses are back at reasonable valuation. Everyone needs a house and if they are expensive expect high debt levels. In the long term this will be catastrophic on consumption trends, but for now live it up while it lasts and the boomers are out spending there equity............. Just dont buy a house of any of them.

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its been setup to take oldies homes as a bond for nurseing care placement. keeping their wealth to spend it on a nursing home, even without a home they'll get in there. if i was an oldie id be selling the place now and renting. live it up. wtf keeping all that cash in a house thats gonna be swept out form under you once u have a nasty tumble.

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its been setup to take oldies homes as a bond for nurseing care placement. keeping their wealth to spend it on a nursing home, even without a home they'll get in there. if i was an oldie id be selling the place now and renting. live it up. wtf keeping all that cash in a house thats gonna be swept out form under you once u have a nasty tumble.

There is an element of truth in your thinking SG.

Bonds for Nursing Home placements have been steadily rising over the past 10 years.

Once nursing homes were almost entirely Government funded, or at least a substantial part of care was supplied by subsidised pension.

Now it is almost a user pays system, and therefore homes are asking increasing bond levels to meet their costs, while receiving almost minimal funding from the Government.

I'm not sure what the impact might be upon the Nursing Home facilities (mainly private) that have been specifically set up this way.

But I believe you would possibly see a reduction in care hours, which is the method of determining staffing levels.

Whilst Retirement Homes, Nursing Homes and residential care are certain to be the boom industries in the next 2 decades at least, a fall in house equity, might see some of them go to the wall. They are quite expensive to set up, and do take a while to return a revenue stream.

There will also be a lot of money tied up in these organisation with bonds and deposits, that have to be invested wisely, or it could all be lost.

Governments are trying to keep the elderly in their own homes longer, due to the cost of care, but if house prices start fallling they could suddenly see a rush for the exits, as people try to get the highest price for their home, to ensure their care needs are covered.

Interesting scenario.

Perhaps that is another reason to maintain high house prices.

If you were in government and thinking that you had solved the problem of aged care through the equity in homes, you would be rather nervous about seeing house values falling.

I will give this a little bit more thought SG.

It has serious ramifications for a lot of people.

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yeah solomon i dint even think about the collapse of prices effect on nursing care. or well funding i was just thinking the selfish stuff, ie its gone i may as well spend it now kinda thing. oldies really do want to die in their own home. its safe and home after all. i did ponder how well those bonds that people paid fared in the GFC and if much money was lost. but yeah its a whole world of pain.

so i guess there is a bond that if you have cash deposits would go instead, gues si can see where all that super is going to go . paying for aged care facilities especially of you have to work till 70 before you retire :o bright future indeed.

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I will give this a little bit more thought.

You already spelled it out. Taxpayers can't fund existing lifestyles. Homeowners come to this realisation and wish to cash out. Everyone hits the sell button simultaneously. Gen X and Y are on slave wages unable to meet asking prices. One seller starts the avalanche of house price deflation. The rest follow like sheep. The universe returns back into a normal state.

I'd hate to be running a pharmaceutical right now. The German health minister is already looking into the government setting and capping pharmaceutical prices. The pharma patent monopoly rort is about to end.

Edited by sydney3000

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You already spelled it out. Taxpayers can't fund existing lifestyles. Homeowners come to this realisation and wish to cash out. Everyone hits the sell button simultaneously. Gen X and Y are on slave wages unable to meet asking prices. One seller starts the avalanche of house price deflation. The rest follow like sheep. The universe returns back into a normal state.

I'd hate to be running a pharmaceutical right now. The German health minister is already looking into the government setting and capping pharmaceutical prices. The pharma patent monopoly rort is about to end.

Maybe expand into nursing homes instead? Something big and extravagant with it's own medical centre and chemist built in.

You'll make a f*cking fortune if you can front the initial startup costs ;)

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Nursing homes are expensive. We have a big one here - made the local news that whoever owns it is spending $10M to upgrade it. I hope they are doing more to it than just repainting it and making the gardens pretty.

If you can't get respite care or into a nursing home, you end up in hospital. More pressure on the system. The public system for aged care is seriously underfunded.

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The risk now is that due to the new sentiment on the Australian dollar imports will now be more expensive. This is inflationary and if our dollar gets down to 75c while petrol remains high then we are in for some high inflation numbers. Followed by high interest rate rises.

Interest rates won't go high, gubment won't allow this. High interest rates are not compatible with the vested interests of the members of parliament.

Well debt will continue to grow till houses are back at reasonable valuation. Everyone needs a house and if they are expensive expect high debt levels. In the long term this will be catastrophic on consumption trends, but for now live it up while it lasts and the boomers are out spending there equity............. Just dont buy a house of any of them.

Deflating house prices are also not compatible with the vested interests of the members of parliament. The game is rigged, forget about economic theory.

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its been setup to take oldies homes as a bond for nurseing care placement. keeping their wealth to spend it on a nursing home, even without a home they'll get in there. if i was an oldie id be selling the place now and renting. live it up. wtf keeping all that cash in a house thats gonna be swept out form under you once u have a nasty tumble.

Thats whats happening now. My folks need ongoing medical care and monitoring and just went into a nice private facility with excellent care.

They will hunt back the clients finances for 10 years. The way around it is to divest yourself of your assets 10 year prior. If I'm 70 I'm going to transfer every cent into my children's names and live rent free (but they own the property when I kick the bucket) and draw my super/investment interest (leaving them the pricipals when its bucket time). Otherwise they won't inherit a razoo.

However, if they become like Sydney3000 (which I doubt), I'll join a SKI group and leave the remainder to charity.

The govt is asset stripping the oldies, they don't give a sh*t if you intend to leave your kids with a big lump of assets.

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The risk now is that due to the new sentiment on the Australian dollar imports will now be more expensive. This is inflationary and if our dollar gets down to 75c while petrol remains high then we are in for some high inflation numbers. Followed by high interest rate rises.

I like your line of thought Tom :notworthy: .

The deficits and Current Account will be the key to Capital Flight long term. Soverreign defaults elsewhere forning bond yields higher in those areas will compete for capital forcing our rates up in competion. Interesting times.

From CIA factbook...

Argentina benefits from rich natural resources, a highly literate population, an export-oriented agricultural sector, and a diversified industrial base. Although one of the world's wealthiest countries 100 years ago, Argentina suffered during most of the 20th century from recurring economic crises, persistent fiscal and current account deficits, high inflation, mounting external debt, and capital flight. A severe depression, growing public and external indebtedness, and a bank run culminated in 2001 in the most serious economic, social, and political crisis in the country's turbulent history.

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You've summed up another major issue with the people retiring - they may be budgetting for 20 years or so of good health, then they drop dead at 85. What really happens is after 80 you start to gradually fall apart, maybe one of a couple gets some kind of dementing illness, or they lose mobility, and the other becomes a carer. So you're left with the option of putting up with it at home with an hour of care twice a week and a government funded assistance chair for the toilet, selling it all to go into a nursing home, or if there isn't enough to sell, just going into some kind of public facility.

I found out today one of my grandparents has cancer and has declined treatment, and she's the carer of her husband. They'd probably have to change cities to get into a nursing home, if they even do it at all, and selling the house wouldn't cover much as they have an extremely modest little fibro house. Their days are certainly numbered now. One of the other half's grandparents had a fall and died not long after and so avoided a nursing home the bad way.

Retirement may be fun, but old age is NOT fun.

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You've summed up another major issue with the people retiring - they may be budgetting for 20 years or so of good health, then they drop dead at 85. What really happens is after 80 you start to gradually fall apart, maybe one of a couple gets some kind of dementing illness, or they lose mobility, and the other becomes a carer. So you're left with the option of putting up with it at home with an hour of care twice a week and a government funded assistance chair for the toilet, selling it all to go into a nursing home, or if there isn't enough to sell, just going into some kind of public facility.

I found out today one of my grandparents has cancer and has declined treatment, and she's the carer of her husband. They'd probably have to change cities to get into a nursing home, if they even do it at all, and selling the house wouldn't cover much as they have an extremely modest little fibro house. Their days are certainly numbered now. One of the other half's grandparents had a fall and died not long after and so avoided a nursing home the bad way.

Retirement may be fun, but old age is NOT fun.

Yep.

Mine are late 80s and when the carer partner starts falling over and breaking hips and they are getting an ambulance one a month, home living is too much.

The problem with aged care is some are really good and pretty cool and a bit like a country club meets an Officer's Mess (privately run) whilst some are from Solzhenitsyn's Gulag Archipelago meets One Flew Over The Cuckoo's Nest. It takes cash and nice kids to source the former.

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Yep.

Mine are late 80s and when the carer partner starts falling over and breaking hips and they are getting an ambulance one a month, home living is too much.

The problem with aged care is some are really good and pretty cool and a bit like a country club meets an Officer's Mess (privately run) whilst some are from Solzhenitsyn's Gulag Archipelago meets One Flew Over The Cuckoo's Nest. It takes cash and nice kids to source the former.

Somewhat disagree, as the Gulag ones can be just as expensive and found in the nicest of suburbs. The nice ones just wait until the family signs the papers and leaves before they stop serving the fish and salad and start serving the beans on toast 4 nights a week.

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However, if they become like Sydney3000 (which I doubt), I'll join a SKI group and leave the remainder to charity.

You can relax. I am unique.

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Somewhat disagree, as the Gulag ones can be just as expensive and found in the nicest of suburbs. The nice ones just wait until the family signs the papers and leaves before they stop serving the fish and salad and start serving the beans on toast 4 nights a week.

LOL

I've sprung a couple of mealtime visits on the olds, grabbed a Coopers from the bar thingy and sat down for a snoop and chat. A bit stodgy for mine but not too bad but I suppose a Thai Masaman Curry that rips your lungs out is probably not good for most 88yo's.

The Turkey hits leading up to Christmas were great.

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