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Residents of several outer fringe suburbs who can no longer afford their mortgages face the prospect of selling into a weakening local property market.
In the mortgage-belt neighbourhoods that have high numbers of indebted households, many have falling property prices, rising listings or both, CoreLogic head of Australian research Eliza Owen said.
Skyrocketing interest rates have left many households feeling squeezed, although distressed property listings remain low so far. For any home owners who cannot hold on and need to sell, lower prices mean sellers would be unable to make as much money – if any – from a sale to cover the remainder of their loan.
Rising listing numbers mean those who sell would face more competition from other sellers, when the broader market trend was towards fewer listings.
Owen said a rise in listings in an area where prices were falling was a “red flag” and indicated homeowners weren’t choosing to sell but were unable to hold off until favourable market conditions arrived.
“When you look at some of the areas like the Melton-Bacchus Marsh area and the Blacktown north market for Sydney, this is where we see a slightly worrying trend of listing volumes rising,” she said, although property prices have edged up in Blacktown. “Why are new listings rising across Melton and Blacktown? Usually, this time of year it’s winter and listings should be going down, not up.
The analysis showed many outer council areas had market conditions that would prove difficult for stressed borrowers to navigate. Credit: Nine
“New listings continue to rise, which is pretty curious. Maybe there are some people who feel they need to sell their property.”
Other highly mortgaged areas that had a drop in prices but a rise in listings included the southern part of Melbourne’s Casey Council and the Knox Council area. In NSW, it included Gosford and Wyong on the Central Coast. This contrasts with the overall Sydney and Melbourne housing markets, which have been picking up, especially in sought-after inner suburbs and for more expensive properties.
Owen said she hoped these outer suburban areas would be prioritised for assistance by lenders.
“This is where you start to see areas that hold a bit more risk, and we should be watching a bit more closely,” she said. “I think it’s important for industry stakeholders to be proactive about contacting [borrowers] in these areas and thinking about finding ways to structure mortgages when people may be struggling to pay.
“When we talk about owner-occupier households that are in mortgage stress, I think we should talk about how we can help people keep a roof over their head like we did at the start of the pandemic.”
Westpac senior economist Matthew Hassan said he thought the analysis was valuable.
“[These areas are] definitely worth watching,” he said. “They may prove to be a bellwether for some wider shifts. I think it’s a reasonable approach.
“If they’re stressed, they’re going to find those conditions difficult.”
Hassan said unseasonable rises in listings data didn’t necessarily indicate mortgage holders were distressed, however.
“With respect to listings, one of the things we’ve come across recently, it does seem to relate to the differential between prices in the market,” he said. “A changeover buyer is also a seller. If there’s a big stretch involved to go from the current home to the new home that’s an affordability factor that’s not captured in other measures.
“We may be seeing listings improve because the gap between tiers has narrowed in the last few months. I think it is a little bit early for that mortgage affordability story to be playing out [in listings].”
Other indicators showed waves of distressed sales were yet to materialise, Hassan said.
“Mortgage arrears to March are still relatively low,” he said. “They’ve listed a little off a very low starting point, but they haven’t shown a wave of people who are selling because they’re stressed.”
Quantify Strategic Insights head of data and insights Angie Zigomanis said it wasn’t surprising some of the areas with the highest rates of mortgages were also recording spikes in listings but drops in prices.
“Those housing areas on the fringe typically bear the brunt. There’s a high percentage of first home buyers in these areas, they won’t have a lot of equity, they have a high loan-to-income ratio and they aren’t in the highest income brackets either.
“The moment those mortgage rates rise they put pressure on the borrower.”
Zigomanis said that even if distressed sales didn’t spike, the conditions created very little wiggle room for stressed mortgage holders.
“I think it will be a problem,” he said. “Often you find in a down market you don’t necessarily get a big increase in forced sales but people are more likely to sell because they are financially stressed.
“But in this case where are they going to go? The rental market is tight.“
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