* Home loan delinquencies at multi-year highs in mining
* Investors worried distress could spread nationally
* Mortgage insurers first to show the pain
* Housing market seen as biggest threat to the Australian
By Cecile Lefort and Jamie Freed
SYDNEY, March 10 Australia's quarter-century run
of uninterrupted economic growth has made its property market
one of the world's most expensive, but mortgage pain in towns
hit by a commodities downturn is beginning to be felt in parts
of the financial system.
While most Australians are able to pay their debts, alarm
bells have sounded around pockets of distress in the
mining-heavy states, raising warnings from policymakers, ratings
agencies and the Organisation for Economic Co-operation and
In the remote mining town of Karratha in Western Australia,
61-year-old Peter Lynch received a letter advising him that his
bank was going to repossess his house at the end of the March.
"My property in 2010 was worth A$905,000, today it's worth
A$260,000," Lynch said, estimating that seven out of 20 homes on
his suburban street were for sale.
Two decades ago, Lynch borrowed money to buy a five-bedroom
house in the town, thinking his job as a railway maintenance
worker at Rio Tinto would last until he retired.
But the end of a one-in-a-century mining boom changed all
that. He now owes A$222,000 ($168,764) and earns A$42,000 a year
as a cleaner, or roughly half his pay at the mine.
Western Australia is the hardest hit Australian state with
delinquencies topping 2.1 percent, up by nearly half
year-on-year, according to credit ratings house S&P Global.
S&P Global said that 30-day arrears on mortgages packaged in
issued securities are at multi-year highs.
Alena Chen, a senior analyst at Moody's, expects rising
underemployment and weak wage growth to drive delinquencies
higher in mining-intensive states.
Signs of stress are now showing in the mortgage insurance
market - shares in Australia's largest mortgage insurer,
Genworth Mortgage Insurance, are down 19 percent since
The company, which provides protection to lenders from
borrowers defaulting on their home loans, last month reported an
11 percent profit drop in 2016 due to a jump in mortgage
Australian borrowers typically pay for insurance when they
have less than a 20 percent deposit on their home purchase.
Genworth said in February last year's loss ratio of 35.1
percent, up from 24 percent in 2015, reflected higher average
paid claims in resources-exposed regions, particularly
Queensland and Western Australia.
POCKETS OF PAIN
Australia's arrears rate of under 1 percent, according to
industry estimates, is still modest compared with the U.S. peak
of 27 percent seen during the 2007-2009 subprime mortgage
crisis, and Australia has almost no subprime loans as such.
For now, rising arrears have not materially impacted the
wider property market or financial system.
The major banks remain in good health and the
mortgage-backed securities market, which finances the loan books
of smaller banks and lenders, enjoys strong investor demand. And
unlike the U.S., Australia has had no mortgage-backed bond
But investors and economists are worried stress could spread
should there be a sudden loss of faith in the property market.
Real estate is a national obsession in Australia where
two-thirds of households own a home. Since 2009, home values in
the nation's largest city of Sydney have more than doubled,
while Melbourne has increased 88 percent.
Australian households are among the world's most indebted
with a debt to disposable income ratio at an all-time peak
around 180 percent, compared with about 100 percent in Germany
and 150 percent in the U.S.
Domestic mortgage debt stands at a whopping A$1.7 trillion,
equal to the country's entire annual economic output.
Last week, the OECD singled out a "dramatic house-price
correction" as the biggest threat to the Australian economy.
Central bank governor Philip Lowe last month said the bank
is wary of easing further for fear of creating housing
vulnerabilities, particularly in the mining states.
Steven Hur, acting head of credit at AMP Capital which
manages around A$58 billion in fixed income, said market
concerns about property prices are already present.
"It may push sellers to move first, thereby potentially
signalling to the market a decrease in house prices, which may
in turn spark further pressure on pricing," Hur said.
($1 = 1.3154 Australian dollars)
(Additional reporting by Aaron Bunch; Editing by Sam Holmes)