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Homeowners list before the bank sells the house beneath them

Interest rates may have peaked, but the mortgage problems are not over yet and the impact is likely to be felt even greater in the housing market, commentators say.

The Reserve Bank is expected to keep the official cash rate at 5.5% on Wednesday and most forecasts indicate it will not fall until the end of the year.

Higher interest rates have been blamed for a significant drop in home values. While the market decline has largely stopped, prices are still well below their peak – around 15% as measured by the Real Estate Institute (REINZ).

This is putting pressure on people who bought in recent years and now face higher interest rates and weaker securities.

Corelogic data showed that 7.1% of homes that changed ownership in the first quarter of this year sold for less than they were bought for. The average retention period for those with losses was 2.4 years. The average loss was $50,000.

Chief property economist Kelvin Davidson said around 4% of resale properties had been held for two years or less, compared to 9% in the first quarter of 2020.

“However, I suspect that rather than showing financial strain (although there clearly will be some, I think this probably just reflects the market shift), one could hold short positions pre-Covid and make a solid capital gain; in the “I don’t want to come up short in recent years as capital gains have been flatter.”

He said that while homeowners had adapted relatively well to higher mortgage rates so far, the process was not over yet.

“Not everyone has priced it up to 7% yet, and now we have the added pressure of job losses. I’m not sure this will trigger a wave of financial stress, especially since banks are strongly keen to help.” “People pass, and no one expects a big explosion in the unemployment rate, but it is still a risk to watch, and another reason to think that this housing ‘recovery’ will continue to be slow and uneven.”

He said mortgage lenders’ sales rates were still relatively low.

Infometrics chief forecaster Gareth Kiernan said there were signs of further stress in the property market.

The number of homes for sale on Realestate.co.nz has increased 23% since July last year, its highest level since 2015.

“The biggest increases have been in Wellington and Wairarapa – 43% and 35% respectively, as the specter of public sector job cuts has loomed over the lower North Island. Other regions with increases “30% or more over the same period are Auckland, Bay of Plenty and Coromandel, areas where affordability metrics remain very tight given the current mix of house prices and mortgage rates.”

He said it could not be argued that sellers would return to the market because their sales prospects had improved.

“After a 3% increase between April and July last year, the REINZ house price index has drifted over the past six months. Instead, a greater number of new listings and the greater stock of properties in sale suggest that more people are struggling with larger mortgage repayments and are looking to get rid of properties before the bank sells them. This inference is consistent with Reserve Bank data showing that the proportions of non-performing and overdue mortgage loans. They have tended to increase since mid-2022 and are now at their highest levels since 2013.

“Anecdotally, the additional impact of rising mortgage rates over the past six months has come as highly indebted households have depleted their cash reserves and are struggling to meet their increased payments, with mortgage rates at 6.5% or more. Some homeowners or investors had previously been able to save cash while having lower fixed mortgage rates.”

He said only people coming out of one-year arrangements could access a lower rate than they had previously had, and only then if they were willing to accept a longer term.

But almost 70% of new loans are granted for terms of six or 12 months.

Real estate investor and coach Steve Goodey said he had seen several people buy houses from people who were suffering big losses. “Some are really feeling the interest rates.”

He said some developers were probably under pressure because it was possible to buy new-build homes at prices below what it would cost to build them.

Kiwibank chief economist Jarrod Kerr said there were still around 15% of households that had not emerged from low Covid interest rates at all.

New data from Corelogic shows that the number of transactions made by “movers” moving from one owner-occupied home to another has increased by 27%.

The market share of first-home buyers fell to 25% and investors with mortgages accounted for between 20% and 21% of activity, a low level compared to history.

By Susan Edmunds of rnz.co.nz

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