Distressed listings to surge if interest rates stay on hold this year - Financial Review
Distressed listings to surge if interest rates stay on hold this year
Nila Sweeney Reporter Feb 20, 2024 – 4.25pm - Financial Review
Distressed listings jumped sharply in pockets of Brisbane and Sydney over the past 12 months, with up to one in five homes listed under distressed conditions amid signs home owners could be struggling to meet their mortgage repayments, new data shows.
The increase in particular suburbs contrasts with a broader trend as the proportion of distressed listings in the capital cities falls to its lowest level since before interest rates started rising.
Distressed listings could rise rapidly in the coming months if interest rates remain at this level, experts say. Peter Rae
But it is significant, say experts, who say some vendors in mortgage-heavy areas, particularly those that just came off fixed-rate mortgages, may have become desperate to offload their properties.
AMP chief economist Shane Oliver said distressed selling and mortgage delinquencies could start to rise strongly in the coming months if interest rates stayed at their current level this year.
“So far, most homeowners have been able to hang in there – evident in rising but still low delinquencies and distressed listings – because they have been able to rely on savings buffers, and the jobs market has been strong,” he said.
“But with saving buffers for lower-income households looking like they are close to being depleted, and unemployment now clearly trending up, [that points] to rising delinquencies and distressed listings ahead unless the Reserve Bank of Australia soon starts cutting interest rates.
“While we think rates have peaked and will start to come down from mid-year, there is a high risk that rate cuts won’t start till later this year. If this is the case, I suspect delinquencies – like unemployment – will start to rise more aggressively, putting a lot more pressure on the property market.”
Rates, inflation starting to bite
Sunnybank district, 16 kilometres south-east of Brisbane’s CBD, had the highest level of distressed listings at 20 per cent of all properties listed for sale in January. That was a 5.2 percentage point increase from a year ago, according to Domain.
Portion of distressed listings as a percentage of total listings
The neighbouring district of Rocklea-Acacia Ridge also posted a sharp rise in the portion of properties selling under distressed conditions, lifting by 2.9 percentage points to 12.3 per cent.
Nicola Powell, Domain’s chief of research and economics, said the accumulation of rate rises and continuing high inflation might be hitting household budgets harder now than last year.
“I think for some people, that may be starting to bite particularly those that came off fixed-rate mortgages,” she said.
“Even though they’ve negotiated with their banks, the ongoing impacts of trying to balance the budget against high cost of living and higher mortgage repayments has become too much for some, so they’re selling up.”
Investors keen to sell
Brisbane buyer’s agent Zoran Solano of Hot Property Buyers Agency agreed that a lot of urgent sales were from people who were struggling to meet their repayments after rolling off their fixed mortgages.
“I’m getting at least two or three clients calling me about selling an investment property in the next six months, so there are certainly more urgent sellers now than six to 12 months ago,” he said.
“Most prospective sellers are investors with multiple properties that have fixed mortgages that just ended, and now they’re finding it tough to service the much bigger repayments so that’s where a lot of urgency is coming from.”
Urgent sales jumped by 3.1 percentage points to 13.2 per cent in Nerang on the Gold Coast and rose by 0.1 percentage point to 10.6 per cent in Surfers Paradise.
In Sydney, distressed listings climbed by 1.8 percentage points to 10.1 per cent in Blacktown and stayed at 9 per cent in the Merrylands- Guildford area.
It’s very abnormal, and it suggests some vendors in NSW are increasingly desperate to offload their properties.
— Louis Christopher, SQM Research
Separate analysis from SQM Research showed distressed listings rose sharply in Sydney suburbs Carlingford, Kellyville and Westmead in the past four weeks. There are now 15 distressed listings in Carlingford and Kellyville and 14 in Westmead.
SQM Research managing director Louis Christopher said the 9 per cent jump in distressed listings in NSW in the past four weeks was alarming.
“It’s very abnormal, and it suggests some vendors in NSW are increasingly desperate to offload their properties,” he said.
“I think there is increasing fear and concern among property owners about when interest rates are going to fall. It might not come this year because the RBA, in my opinion, is on a slight tightening bias, so there’s no guarantee we will get a rate cut this year at this point in time. So we might see more distressed selling in the next few months as a result.”
In Melbourne, 25 houses in North Clyde were selling under distressed conditions, 21 unit listings in Melbourne CBD excluding Southbank and Docklands and 15 mostly houses in Werribee.
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