The proportion of distressed listings has almost doubled in some heavily mortgaged areas such as Blacktown in Sydney’s west during August, amid signs some households may be starting to buckle under the pressure of higher interest rates and weaker economy.
More than one out of seven homes listed for sale in the Blacktown district were selling under distressed conditions – a sharp rise from a year ago when only 8.7 per cent were distressed, data from Domain shows.
Distressed listings jumped sharply in heavily mortgaged areas according to Domain. iStock
The proportion of distressed listings also stayed high across a number of Gold Coast areas such as Mudgeeraba, Nerang and Southport where more than one out of 10 homes were selling under duress.
Nicola Powell, Domain’s chief of research and economics, said while the share of distressed listings had fallen across the capital cities over the past 12 months, some areas were starting to show signs of weakening.
The portion of distressed listings in Sydney has dropped from 4.7 per cent last year to 3.3 per cent during August. It fell from 2 per cent to 1.6 per cent in Melbourne and from 6.6 per cent to 4.2 per cent in Brisbane.
The share of distressed listings shrank between 0.2 of a percentage point and 1.3 percentage points in other capital cities during the same period.
“Distressed listings remain contained on a capital city level, so it means that overall it appears that households are able to cope with the financial changes of the higher cost of debt,” Dr Powell said.
“But when you drill down into smaller geographical areas, we’re now seeing pockets of vulnerability.
“We’re starting to see a spike of distressed listings in the mortgage belt districts, particularly those in Sydney. I think they are the most vulnerable in terms of higher distressed listings because you have to be highly leveraged to gain access to that market.”
Over the past few months signs of stress have been gathering pace in Blacktown, as well as in Parramatta, Fairfield and Mt Druitt, where the portion of distressed listings is sitting between 7.1 per cent and 8 per cent of all listings, according to Dr Powell.
“These are areas where people have really stretched themselves to buy a home,” she said.
Mark Bouris, executive chairman of Yellow Brick Road Home Loans, said distressed listings could rise in the next six to nine months as more fixed-rate mortgage holders transitioned to higher variable rates.
“I think some people are going to be in trouble, and we’ll see more supply coming into the market, although I don’t think it will be enough to create a property price disintegration,” he said.
“If the Reserve Bank is successful in achieving their 4.5 per cent unemployment rate goal, then I think there will be added pressure on those borrowers who no longer have a job, and there’ll be added pressure on borrowers who do have a job but are concerned about their ability to work a second job, so people will start to get worried.
“As a result of that, I think we could see an increase in supply of property, which, if there’s no increase in demand, could push prices lower.”
Shane Oliver, AMP chief economist, said while house prices had likely bottomed out, they could fall again if the unemployment rate jumped higher than expected.
“If unemployment goes up significantly, and it’s very hard to fine tune these things, if we go to 5 per cent, the narrative changes, and then you end up with that second leg down in property prices, even though we’ve got the shortage of dwellings,” he told the Australian Financial Review Summit attendees on Tuesday.
So far, house prices are holding up despite the increase in distressed listings. In the past three months, dwelling prices in Blacktown jumped 5.1 per cent, outpacing Sydney’s overall 3.8 per cent increase during the same period, data from CoreLogic shows.
Parramatta prices rose by 4.8 per cent, while Sunnybank and Southport climbed by more than 3 per cent.
“Selling conditions remain strong, particularly in Sydney, where some areas have fully recovered from the recent slump,” said Dr Powell.
“But I do think we’re going to see areas of weakness, and it’s going to be where buyers have high debts to enter those markets.”
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