The Wrap: Mortgage Stress, Oil, BNPL & Childcare

Weekly Reports | Feb 12 2021

Higher mortgage stress ahead; higher oil prices; BNPL trends; demand-supply issue in day care centres.

-Mortgage stress levels similar to 2019
-Oil price rising amid tighter supply
-Buy now pay later: A look at January trends
-Childcare centre supply expected to grow in 2021

By Angelique Thakur

Australian housing market: Mortgage stress

The latest Roy Morgan data into the Australian housing market shows mortgage stress levels remained low in the three months to November 2020.

There were 783k mortgage holders at risk, the same as 2019 although higher than the record low of 668k between July and September 2020.

The low rate of at risk mortgages in 2020 was driven by support measures by the government along with measures taken by banks and financial institutions such as offering mortgage holidays to distressed borrowers.

However, with support measures progressively dwindling over 2021 things may change, warns Roy Morgan.

In such a scenario, Roy Morgan highlights the importance that tracking mortgage stress assumes, serving as an early indicator of the potential financial distress in the near future.

A survey by Roy Morgan showed by May 2020 about 11.2m Australians were impacted to varying degrees with respect to their employment status and the number was still high at 10.2m in November 2020.

These changes include having their working hours reduced, being stood down for some time, not having any work or being made redundant.

Naturally, mortgage stress for these households is 5% higher at 25.7% than for the other mortgage holders with one in six or 16.8% extremely at risk.

Oil prices: Dont err on the side of caution here

The world may be in for higher oil prices with Brent prices expected to go higher rather than lower by 2021-end.

Aided in no small measure by the discipline of the OPEC-Plus cartel and Saudi Arabias restrained output that led to depleting inventory numbers, the oil price rebound since November is no accident, says Citi.

Diminishing inventory levels have led to an earlier than expected re-balancing in the market, prompting Citi to raise its expected prices for Brent and WTI crude for the next 6-12 months to US$70/bbl and US$68/bbl.

While to some it may looklike a textbook case of the markets getting ahead of themselves, Citi firmly believes the markets are correctly anticipating the tightening conditions going into, and possibly through, 2021.

Higher demand levels in China and the rest of the world seem to be in line withthe soaring traffic activity since the third quarter of FY20 and more robust summer travel demand in the coming days.

The biggest risks to this viewpoint come from Iranian supply although the broker doesnt envision a rapid supply return in the first half of FY21, along with a US supply response (even that isn't expected until 2022).

Seasonal trends in the buy now pay later sector

Citis analysis of the buy now pay later (BNPL) sectors January transactions indicated seasonal trends with user metrics down month-on-month although staying above the average levels seen in the December half.

The sectors growth is expected to be solidly driven by e-commerce growth, stimulus measures and merchant adoption in the near-term, particularly in international markets.

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