By Unconventional Economist in Australian Property
| 77 comments
With Sydney dwelling values down roughly 14% from their February 2022 peak, real estate agents are beginning to see forced sellers who can no longer afford their mortgage repayments.
Tanmay Goswami – a real estate agent who sells homes in Sydney’s outer western suburbs – said distressed sellers are coming through his door stunned by the sharpest increase in mortgage rates in this nation’s history.
“We are now getting calls from lots of landlords”, Goswami told ABC News.
“They are struggling with the repayments, so they are looking to sell”.
“All the inflation and other day-to-day costs has gone up, so they can’t afford”.
However, some distressed sellers are finding that they cannot get what they paid as prices have fallen below their purchase price.
The “good” news is that Sydney dwelling values have posted a 0.2% rebound over the past eight days, according to the CoreLogic Daily index:
The “bad” news is that this rebound does not capture last week’s 0.25% interest rate hike from the Reserve Bank of Australia (RBA), nor its guidance that it will increase rates further in the months ahead.
Given Sydney is the most expensive housing market in the nation with the most indebted households, Sydney should be particularly sensitive to further rate hikes from the RBA.
Accordingly, Sydney home values should soon resume their downtrend.
The situation is especially precarious given some 800,000 mortgages (and at least 200,000 in Sydney) will this year transition from cheap pandemic rates of around 2% to variable rates that are nearly triple this level.
KPMG Australia this week estimated that people with an average mortgage of $600,000 will face a $16,500 increase in their annual repayments when switched from a fixed-rate loan to variable rates.
The financial impact will be even greater in Sydney, owing to its larger mortgage sizes.
Thus, there is the clear and present danger that forced sales will accelerate in Sydney in 2023, which will drive home values sharply lower.
Many sellers that purchased near the peak in 2021 and early 2022 also face negative equity.
CoreLogic’s daily dwelling values index, which
SMH columnist, academic, and immigration lunatic,
Last month’s raids by the Australian Federal
CoreLogic has released its February Unit Market
“Accordingly, Sydney home values should soon resume their downtrend.”
Regular programming (entertainment) will resume shortly 😉
https://www.theguardian.com/commentisfree/2023/feb/15/australias-banks-are-not-a-source-of-economic-dynamism-but-a-drag-on-our-economic-and-social-welfare
Oh wow, what commie rubbish! It’s a clear attack on our freedoms. The commies really are trying hard at the moment.
Freedoms ?
What are these Freedoms you talk of , can you name them ?
Oh gawd, youse guys really cannot accept that it’s boom times!
Been saying this for years.
If the debt doesn’t grow at the correct rate to cover the interest then the system collapses due to the drain from the interest.
Of course we could all work harder and transform more raw materials into more finished goods for more profit to repay the debt and interest and reduce the interest obligation… but repaying old debt with new debt is far easier and cleaner and much better for the banks.
Sounds like a genuine bona fide Ponzi scheme we’ve got going here…
The key is to slow drip the credit expansion, nudge down the interest rates and step out the repayment period. You don’t want covid price fireworks, just a steady doubling of debt every 7 years.
https://www.news.com.au/finance/business/other-industries/melbourne-builders-12m-collapse-impacts-62-homes/news-story/23f4fa060c951ca7399754dcc01c8a71
https://www.9news.com.au/finance/unemployment-rate-discrepancy-roy-morgan-underemployment/9cbac389-742f-4957-b183-e9442c022c03
That’s more like it!
https://www.9news.com.au/national/hamlen-homes-collapse-metro-homes-western-australia-enters-insolvency/b6a069a4-7947-485a-a325-6a64266ce1f2
https://www.theage.com.au/national/victoria/our-way-of-life-lost-as-house-prices-keep-rising-20230215-p5ckm1.html
But prices are rising again.
https://www.corelogic.com.au/our-data/corelogic-indices
Raise. The. Rates.
One hike, could kill
My pain, Phil’s thrill
Hit me baby, one more time.
Ok… Every Raise Has Its Thorn
Yes!…to fix teh thing.
Green shoots!
I associate that phrase with this guy.
https://www.youtube.com/watch?v=Y7ZN2F_7K7U&t=240s
Panda?
HODL! Boom times coming.
Gut feel, 95% of investors are still sitting on massive gains. Any forced sales will be snapped up.
Mathematical fact, 100% of investors are witnessing their Equity Mate go bye bye, the ones with massive gains are the smart ones trying to get out while they can.
Equitymate is vapour, it needs to be solidified with more debt. The question is, is there going to be enough, and if there is, then what? Can kicked?
They need to get back onto the interest rate cut treadmill, but in order for that to happen this rate reset needs to run its course. The only important thing right now is whether there was enough stimulus created so everyone can keep their jobs while it happens. It’s looking shaky, but if they can pull it off they will be gods among men.
No interest rate cuts…we’re going to war.
I wish Leith would clear up weather he still believes there will be another housing boom when rba cuts later this year. Seems unlikely to me cuts or no cuts, but that was the MB/UE previous prediction.
The smirkers at the RBA ivory tower are just about to enjoy the pain to mortgagors that that their medicine is finally starting to deliver with its usual delayed reaction. Rates cuts – dream on.
They’re probably updating their predictions. Markets currently pricing rates at 4.1% through to end of year, most of 2024 held there and then cutting (only once or twice) at midway through 2024. It was previously 3.6 and cutting earlier. US inflation figures are still red hot, meaning Fed won’t cut, meaning RBA won’t cut.
And if it stays hot then the rate futures market might go up to 4.6% from 4.1%.
This article marks the pivot of their predictions.
No one could have seen this coming
They are still in the transitory land !!
Bc niche did
bcniching fun!
Once rates settle and house prices start rising think we will see a large number of investors jump in, couple of friends have been told by brokers to wait till end of year for forced sales.
I know others just waiting this out
Based on evidence from other parts of the world inflation is not going to come down any time soon as Leith predicts.It will take a big recession to destroy demand and bring inflation closer to the 2-3% band.Rate cuts in such an environment is unlikely to reignite housing as lot of punters will be out of work by then.
Thank goodness someone else thinks this. Was beginning to think I was missing something. Only the guys who think the economy is a mathematical model to be solved would think house prices go up automatically when rates are cut. Only a deep recession will cause rates to be cut and that ain’t good for house prices in any way shape or form.
Had a regional RE agent text about a property price drop
My area had and an average drop of $500K
I am regional now and I am aware of at least 4 houses in my suburb, one about 100m away that have been on the market for 3+monhs. One of these places is on its second listing in 12 months, gave up last time. Vendors are not meeting the market…yet
I’m looking to buy acreage property in a regional area. Listings have been increasing at a higher pace than the last few months and I have also been watching houses that have been on the market for many months start to drop their prices recently. Recent sales are either price withheld or sold at the bottom of the price guide or under.
I’m hoping this continues, but those Sydney Corelogic numbers have me worried.
The place we were interested in (above ) the vendor has already bought elsewhere and now must sell.
One place I inspected, just before it was put up on domain last week, is the same. I’ll keep an eye on that to see if they drop their price quicker than others.
Good introduction piece that needs unpacking, with data, when it becomes available. That’s the problem though, data is hidden and withheld so all we have at the moment is anecdote.
“Forced” sale here is owner-occupiers turned landlords turned forced sellers. All in this group are too fragmented to aggregate. Data needs to come from banks or regulators.
I think the mortgagor type is important here – owner occupiers and landlords really are different.
Anecdotal – Friends had their place for auction last week in inner west of Sydney. Tightly held street, off street parking ( a thing around there) quick access to the city etc.
70 odd inspections according to the agent – not a single registered bidder.
Starting to think the comments about CoreLogic lagging due to so much price data not being available till settlement are spot on
The flip side to FOMO (Fear of Missing Out) is FOOP (Fear of Over Paying). January is traditionally a month with very low volume, it’ll get even worse when the data comes out this month.
FOGITE.
Fear of getting in too early.
Paranoid of over funding!
Next step is FOOFAPOSSIP
Fear Of Overpaying For A Piece Of Sh*t Shack In Panic
The “bad” news is that this rebound does not capture last week’s 0.25% interest rate hike from the Reserve Bank of Australia (RBA), nor its guidance that it will increase rates further in the months ahead.
Nor does it capture the standard delayed impact of monetary policy changes or the looming interest rate cliff. In other words, there’s no way it should be happening right now. Possible reasons for it –
1. Statistical noise (Wolfie thinks so)
2, Numberwang
3. Dead cat bounce
4. Genuine rise caused by NSW stamp duty concession (FHB grant effectively), plus huge inflows of students etc, plus APRA / banks loosening credit buffers (if they’re talking about it as a possible policy change, maybe they’re already doing it?)
All those poor Reusa Singhs in western Sydney who though they were on the ladder to riches .
The punjab might start to look good again .
Lol…
Sikh Burn
Burn baby burn….
Ring of fire 🔥
Prices in Sydney have basically been flat for the past five and a half years – a little down, a little up, a little down, and back to where they started in June 2017.
https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/residential-property-price-indexes-eight-capital-cities/
No, they haven’t. I made around $2m in gains in that period and sold last year.
Most places went up like a bloke on an Epstien massage table.
Look at youuu…2 million…
Rookie numbers…
Love the fact that there are no more reports planned for future release and the last one was Dec 21. What does this say?
Well spotted.
It says a lot.
Put an offer on yesterday for a place listed for $830-880k. Offered $750k. Agent told me no, so I said, let me know if they’re keen in three months time. 😛
Lama, based on my experience, my 2 offers on two houses in December were smirked off. Both agents rang me last week sighting that other interested parties have bought elsewhere. I informed them my previous offers no longer reflect the market, updated offers now down another 100K (this 100K plus the 200K unders I offered would reflect a 10% gap vs what they wanted in December). We shall repeat this process until vendors understand they are no longer in control. There are next to no buyers. Of course different price brackets of home/units will have differences, but I’m seeing crash signs, not boom sentiment. Agents need turnover not higher prices, so they are turning the heat up on vendors too.
Exactly! I will wipe off another 5% if they call back in a few months time. Afterall, my affordability will have dropped with rate rises anyway! The house I offered on is a deceased estate too. Otherwise I’ll let it go.
Good on you. Vendors yet to realise that in a falling market, the first offer is usually the best.
I can tell you in Melb, we are on our next big leg down. I’ve actively engaged (read: negotiating) with agents and sellers in blue chip inner east and north, and there very few buyers and vendors are meeting the market. circa. 10% down on the ‘vendors holding steady in December.
There seems to be some ‘Christmas magic’ going on with Core Logic dailys at the moment because when this round of sales go through, it’s a big fall with no interest rate pivot on the horizon. I’m going with Melb down another 12% by Christmas
Not if there’s enough like you willing to meet at that 10 % from December level.
There will always be trades on the way down. It never freezes completely. Buyers offer lower than the market, sellers want 3 month ago prices-that’s the way it is. But the trend continues down. Wash and repeat. More stock pouring on the market right now. Check some suburbs on REA. Some of the suburbs I’m looking at just doubled in number this week.
Agree, but that’s why I say “enough”. If there are enough buyers to meet at 10% down it will soak up the listing stock and flow. The driver here though is interest rates, not just the current level but expectations. Agree stock will increase further. My take is that it won’t stabilise until interest rates do.
I was closely monitoring my area (Adelaide southern beachside) from March 2020 onwards). And commented a few times on here how it seemed like a switch had been flicked cos inspection Nos were rapidly rising from a low level. This continued for 2 yrs resulting in 40% increase in values around here. The main point is that it took Core Logic minimum 4/5 months to register what was clearly happening on the ground months before.
But remember the 2018 downturn, Corelogic got that right on the day when the Libs basically announced they will pump the housing market again. Sydney daily jumped 0.5 and never turned back.
Manipulation…who’d have thought? Played like marionettes.
Exactly. With no media announcement in Adelaide, Core Logic has no clue what’s happening on the ground, for 4/5 months. Media carry change of policy, immediate adjustment. That is my point.
A while ago over 50 Sydney suburbs had a median price of $3,000,000. If you borrowed $2.5 million to buy a median house in a decent suburb and borrowed at 2.5% interest rates the repayments are 118k a year.
Let’s say a couple is on $600k combined, a 200k salary and a 400k salary. That is $365k after tax. Using the CBA interest calculator of 6.84% you are looking at $196k a year in mortgage payments. If interest rates go up another 1% that turns into 216k a year. Suddenly a couple earning 600k start to feel relatively poor – they are $100k a year worse off than 2 years ago when they fixed the loan. If a couple on 600k a year start to feel pressure for just buying a median house, imagine everyone else who are not in the top 1% of income earners – it will be impossible and forced sales will be required. Add in job losses and other life events (maternity leave / child care) and things look dire for a lot of people.
600k combined income sounds realistic…lol. Still a long way for RE prices to fall.
I think earning ~$200k puts you in the top 3% of earners, and $400k in the top 1% of earners, so doctors, lawyers, bankers, senior managers etc all fall in that category. There are literally thousands of properties for sale in Sydney above the 3mil mark as it is ‘only’ a median property in ~50 suburbs. There are even hundreds of apartments for sale on Domain with an over 3mil price guide. If the top income earners can’t afford these ‘median’ properties with more interest rate increases, then it really shows how precarious the situation is for the middle class. The only way to purchase is through using existing equity, which is a problem if prices are decreasing and the banks don’t trust values.
Those jet skis aren’t gonna buy ‘emselves!
On the DHA interview last night it was mentioned that one of the big 4 – I forget which – had seen 1 in 8 people missing at least one mortgage payment since rises began.
I wonder what 12.5% of people with mortgages being pushed into forced sales would do to the market?
But I’d guess that the bank hasn’t increased its provisions for loan impairments even though 12.5% have missed a repayment at least once or maybe even more than once.
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