Sydney jobs ensure it escapes the Moody's mortgage stress
The proportion of residential mortgages more than 30 days in arrears is increasing with the national delinquency rate at the highest rate in five years.
But delinquencies have been in decline in New South Wales given good economic and labor market conditions.
Eight of the 10 regions with the lowest mortgage delinquencies in Australia were in Sydney, where housing market and economic conditions have combined to be highly supportive for borrowers.
Sydney's Eastern Suburbs headed the list followed by North Sydney and Hornsby, City and Inner South, Ryde, the Northern Beaches, Baulkham Hills and Hawkesbury, the inner west and inner South West.
Mortgage borrowers in these best-performing regions are most likely to be employed in professional services industries, Moody's Investor Services noted.
"These occupations tend to pay higher wages and are more stable than mining and construction-related employment."
Moody's also noted rising Sydney house prices had supported mortgage performance, giving borrowers at risk of or already in arrears the easier option to sell quickly for a good price to repay their loans.
However, as house prices continue rising without a corresponding increase in incomes, housing affordability decreases and the risk of delinquencies and defaults rises.
Moody's forecast continued weaker conditions in outlier states reliant on the mining industry, with high underemployment, and less favourable housing markets and income dynamics.
Six of the 10 worst regions across Australia — the Western Australia outback, Queensland outback, Mackay, Western Australia wheat belt, Mandurah and Fitzroy — have been among the worst performing regions in the country for the last four years.
The NSW state economy grew 3.8 percent over the year to March 2017, well above the national average of 1.6 percent.
NSW also has the lowest unemployment rate in the country since June 2015.
Although NSW's large and diverse economy shields us, we are sensitive to a slowdown in the housing market.
Our high household leverage poses a downside risk.
The large differential between house price and wage growth — particularly in Sydney where house prices have increased the most — means that households have had to take on more debt to fund home purchases.
While house prices in Australia have increased by an average of 30 percent over the three years to July 2017, average weekly earnings have increased just 4.99 percent.
Higher debt levels make households more vulnerable to economic or housing market shocks, Alena Chen, the Moody's VP senior analyst said.
She noted households had accumulated record levels of mortgage-related debt in the past few years.
But it should be noted the price growth ensure the proportion of people who have very high exposure to a fall in house prices – those with loan to valuation ratios above 90% – has also been declining over time.
The basic picture is one of prudent households, rather than a community of people gambling on house price rises, Rodney Maddock, Adjunct Professor of Economics, Monash University recently noted.
Retaining well paid jobs will be crucial to Sydney home owners.
This article first appeared in the Saturday Daily Telegraph.