Moody's: Australian mortgage delinquencies to rise on slowing housing market and rising macroeconomic challenges

Moody's Investors Service says a slowing housing market and rising macroeconomic challenges will lead to an increase in Australian mortgage delinquencies in 2016.

According to Moody's latest monthly review of the performance of mortgages backing Australian prime residential mortgage-backed securities (RMBS), delinquencies in excess of 30 days rose to 1.20% in November 2015 from 1.14% in October 2015.

While the month-on-month increase in delinquencies in November is typical and reflects increased spending in the run-up to the holiday season, Moody's expects that mortgage delinquencies will be higher in 2016 than in 2015.

"The housing market has shown signs of cooling over recent months," says Alena Chen, a Moody's Assistant Vice President -- Analyst.

"Strong housing market activity in both Sydney and Melbourne helped foster relatively strong economic performance in the respective states of New South Wales and Victoria in 2015," adds Chen. "But a slower pace of house price growth will mean a slowdown in economic activity and will contribute to a deterioration in mortgage performance in 2016 from current exceptionally healthy levels."

In Q4 2015, house prices fell by a weighted average of 1.36% across Australian capital cities, with Sydney and Melbourne falling the most by 2.27% and 1.87% respectively. Rental yields also dropped 30 basis points in December 2015 compared with 12 months earlier, according to CoreLogic RP Data.

Moody's expects the slowdown in the housing market to continue into 2016, particularly in Sydney and Melbourne where prices have increased significantly over the past two years.

"Slowing growth in China, Australia's biggest export market, and declining commodity prices, which are -- at or near multi-year lows -- will also put pressure on the Australian economy and contribute to below-trend growth and a soft labour market in 2016," adds Chen.