Mortgage Arrears Drop as National Home Prices Set to Rise

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Despite the ongoing cost of living crisis, Australian mortgage arrears have shown a decline, as new forecasts suggest a potential 4-6% increase in national home prices over the next year. The latest data from the Fitch Ratings’ Dinkum RMBS Index for the last quarter reveals a 7 basis points drop in 30-plus day arrears to 1.13%. This decrease follows a previous quarter’s trend. The report highlights that conforming index arrears would have risen slightly without new transactions, while non-conforming arrears decreased by 32 basis points. The Reserve Bank of Australia’s recent cash rate cut is anticipated to further reduce arrears.

While Australian home prices experienced a slight quarterly decline, they rose by 4.8% annually. Projections indicate a potential 4-6% increase in 2025 due to limited supply, a competitive rental market, and increased migration. The report emphasizes that strong home-price growth should help minimize losses from property sales.

However, the Australian Mortgage Market Dinkum RMBS Index Monitor: 4Q24 report notes that arrears for 2023 home loans remain above average. Arrears for these loans stood at 1.2% one year after closing, higher than the typical 0.5% for other vintages. The RBA’s recent rate cut is part of a series of expected reductions throughout the year. Another report warns of a looming housing shortfall, estimating a deficit of 400,000 dwellings by 2029.

The State of the Land Report 2025 by the Urban Development Institute of Australia projects a shortfall of 393,000 homes against the government’s target of 1.2 million new homes by 2029. In 2024, 135,640 dwellings were completed, showing a modest 2.4% increase from the previous year. Notably, Greater Perth led with a 22% rise in new dwellings, while Greater Sydney and Adelaide experienced declines.

UDIA modeling suggests reduced new housing supply in most capital cities in 2025 and beyond, except for Perth. This trend could exacerbate the housing shortage in the coming years. The property market is in a delicate balance, with the potential for price increases amid supply constraints and economic uncertainties. The need for proactive housing policies and increased construction efforts remains critical to address the housing shortfall and stabilize the real estate market.

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