Our Market Performance…

On paper, our office had a much better week last week when it comes to a mix of the overall results. For the month we have seen twenty four properties go under contract. which is a solid result in a market that is clearly declining numbers of people committing to buy.

When looking at each sale, it is clear that buyer sentiment is considerably lower than it was just a few short months ago. Our contracts for August best illustrate this.

As recently as May, we placed 46 properties under contract for the month. Of the forty six sales, just two sales fell over for the month. Both were sold quickly soon thereafter.

Our contacts this month show a very different pattern.

As of this morning, we have placed twenty properties under contract this month. Of the twenty contracts, four are properties that have fallen over and have then resold for a second time, three have resold for the third time and one has resold incredibly for a fifth time.

One of the most important aspects of a sale in a declining market is the follow up that we have with our buyers post the contract being signed. Again, our sales this month show the benefits of longer time on the market with a very clear plan.

Adapting weekly, daily whatever it takes to keep our properties in the in the moving lane, not just a for sale lane.

I am now recommending that our sellers purchase a building and pest report prior to the sale to uncover any issues that may be present with the property. In a bullish market, buyers will overlook many issues with a home or investment property, this is not the case in the current marketplace.

Once a contract has been signed, we endeavour to work closely with both our sellers and our buyers by keeping the lines of communication open. Many contracts are rescinded simply because of poor communication between solicitors. I take pride and know that I need to be more involved at this point to make sure that we can help and support both parties post contracts being signed.

In a declining market, we will encounter more buyer nervousness. It's important that we have a plan to keep our buyers engaged with their purchase.

It has never been more important to be ready to move with the times, if that makes sense.

This week I have three feature articles for your consideration. Amongst these are the latest Corelogic market update for the month of August. As you will see in the video, we have now entered a three month period of National price declines that are expected to continue as we move through the remainder of 2022.

In addition to the Corelogic video report, we have a newspaper article that appeared last week from Tom Panos. In Tom's article, he discusses the fact that the price falls the media are now reporting are based on sales made several months ago. Tom's insights are relevant for all current and future sellers as well as buyers.

Our final lead piece this week is an article that appeared in this week's Australian Financial Review. The article discusses at length the ramifications of further interest rate rises and the stress that further increases may place on everyday Australians as well as property prices. The AFR report, Tom Panos's article and the Corelogic monthly review are all featured below.

Half a million homeowners will struggle to pay a 3pc rate increase

One in five mortgage holders, or an equivalent of 551,000 home owners, would struggle to meet their repayments if their home loan rates were to rise by 3 percentage points, a new poll shows.

Comparison site Finder, which conducted the survey, also found that around 145,000 home owners who were struggling significantly would consider selling if their mortgages rose to that extent.

“If homeowners paying 3 per cent now were asked to pay 6 per cent, there’d be quite a few looking to sell,” said Richard Whitten, home loans expert at Finder.

Meanwhile, more than one in seven home owners said they might fall behind on their repayments or other bills with the expected rate increases.

“It’s clear that many borrowers have become accustomed to the low-interest rate world of the last few years, and with runaway house prices they haven’t had much of a choice,” Mr Whitten said.

“Many borrowers are stretched, having bought properties at high prices with smaller deposits and larger loan sizes. It’s clear that a cash rate of 3 per cent is a threshold at which quite a large number of Australian borrowers would find repayments unsustainable.

“But it’s important to note that it’s not just home loan repayments rising, the cost of living is increasing across most spending categories. So even borrowers who may have been conservative with their mortgages are probably still reeling from all the other rising costs in their lives.”

Westpac and ANZ are both forecasting interest rates to peak at 3.35 per cent, while CBA is expecting it to rise to 2.6 per cent.

A cash rate rise to 2.5 per cent would translate to an average 5.85 per cent mortgage rate, according to Finder. This would add $878 a month or $10,538 a year on an average loan of $611,158.

“Investors have the luxury of being able to sell their investments or simply pass the cost onto their tenants in the form of higher rents when the existing lease expires,” Mr Whitten said.

“It is home owners, especially recent buyers, who will struggle the most. And in this category it is borrowers with small deposits who have stretched their budgets the most, who are going to be worst hit by rising rates.”

Louis Christopher, managing director of SQM Research, said a mortgage rate rise to 7 per cent would trigger a jump in distressed sales.

“If we were to get a 7 per cent average variable rate, we’re going to see a lot more people in trouble because that is essentially above the serviceability test threshold,” Mr Christopher said.

“We could start to see a significant increase in mortgage stress, which will then feed through into distressed sales activity. While distressed listings are still low compared to pre-pandemic levels, they are on the rise.

“They’re not at critical levels yet, but if interest rates continue to rise at this rate, we could see a sharp jump in distressed listings.”

Distressed listings rose by 4 per cent nationwide over July to 6257, according to SQM Research data. Before the pandemic, distressed listings were sitting at around 15,000 nationwide on average.

Mr Whitten of Finder said many homeowners on variable rates will start to struggle through the second half of the year, and “we will likely see the number of defaults rise”, he said.

“Those on fixed rates may not notice a difference now, but they’ll get a real shock once their fixed rate term ends.”

But selling in a downturn would be an added challenge for distressed homeowners, said Mr Christopher.