Despite ongoing financial pressures from the cost of living crisis, mortgage arrears in Australia have seen a notable decline, with forecasts suggesting a potential 4-6% rise in national home prices over the next 12 months.
The latest data from Fitch Ratings’ Dinkum RMBS Index for the final quarter of 2024 indicates that arrears for mortgages overdue by 30 days or more fell by 7 basis points to 1.13%, continuing the downward trend observed in the previous quarter. This marks a positive shift in the housing market, even as broader economic challenges persist.
Mortgage Arrears: A Positive Trend
The report highlights that without the influx of new transactions, which typically feature lower arrears, the arrears figure would have increased slightly to 1.21%. Additionally, non-conforming loan arrears dropped by 32 basis points quarter-on-quarter, although this would have risen by 19 basis points without the new transactions.
Experts from Fitch Ratings suggest that the Reserve Bank of Australia (RBA)’s recent decision to reduce the cash rate in February 2025 could further alleviate arrears, with two additional rate cuts expected later this year. As a result, they anticipate a continued reduction in arrears levels.
Housing Prices: A Modest Decline but Long-Term Growth Forecasted
While Australian home prices dipped by 0.3% in the last quarter of 2024, they rose by 4.8% year-on-year. Looking ahead, experts predict a 4-6% increase in home prices for 2025, driven by limited housing supply, a tight rental market, and high net migration.
Despite this, the report warns that arrears on home loans taken out in 2023 remain higher than usual. The 30-plus day arrears rate for loans issued in 2023 stood at 1.2%—double the average of 0.5% for loans issued in other years at a similar stage. This suggests that while the market is improving, challenges persist, particularly for newer loans.
Land Tax, Housing Supply Shortages, and Regional Developments
The report coincides with broader concerns about Australia’s housing market, with experts warning of a significant shortfall in new housing stock. The State of the Land Report 2025 from the Urban Development Institute of Australia (UDIA) predicts a 400,000-dwelling shortfall by 2029, undermining the Federal Government’s target of 1.2 million new homes.
The UDIA report noted that only 135,640 new dwellings were completed across capital cities in 2024, reflecting a modest 2.4% increase from the previous year. Notably, Greater Perth saw a 22% increase in new dwellings, while Greater Melbourne experienced a 7% rise, and South East Queensland saw a modest 1% increase. In contrast, cities like Greater Sydney, Greater Adelaide, and Canberra recorded declines in new residential supply.
Future Outlook: Supply and Demand Imbalances
Looking ahead, the UDIA’s modeling suggests that with the exception of Perth, all major capital cities are likely to experience reductions in completed housing supply in 2025, with further declines expected in 2026. These trends signal ongoing challenges in meeting the housing needs of Australia’s growing population, with supply unable to keep pace with demand.
As the national housing crisis deepens, the decline in mortgage arrears provides a glimmer of hope, but experts warn that the industry must address issues such as land tax, housing affordability, and a constrained supply of new properties to ensure long-term market stability.
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