Natural disasters spell trouble for housing, lending

By Gerv Tacadena

Natural disasters are threatening housing prices and home-loan sector.

The growing frequency of natural disasters in Australia could ultimately result in a dent to the housing and the home-lending markets, according to an analysis by Moody's Investor Service.

The report said there has been a significant growth in natural disasters in recent years, including the incidences of bushfires, floods, and storms. In fact, the number of major natural disasters in the country has jumped by 50% over the last decade.

"The risks associated with natural disasters for home loans and house prices in Australia are increasing, because of the growing frequency of such events," Moody's analysts Joanne Kung and Ilya Serov said.

The two analysts said that climate change could result in more extreme weather events, which could disrupt economic activity and affect borrower incomes.

Also read: Property market could shed $571bn due to climate change

"This development is, in turn, credit negative for both home loans and Australian residential mortgage-backed securities (RMBS), because it can lead to higher delinquencies and losses in the mortgages that back RMBS deals. Such disasters can also result in significantly lower property values in affected areas," they said.

The report highlighted the impact of Cyclone Debbie, which hit Queensland in 2017. The cyclone led to a rise in mortgage arrears, the report said.

In the aftermath of the event, 30-day arrears in disaster-hit areas hit 2.3%, up from 2%.

However, the report said natural disasters have a moderate and temporary impact on mortgage performance. In the case of Queensland, arrears dropped to 1.9% after eight months.

The graph below shows the increasing frequency of natural disasters in Australia:

Natural disasters are becoming more prevalent in Australia.

#

More Mortgage News