‘Cliff-edge scenario’, as borrowing power plummets
Real estate guru Andrew Winter has revealed how buyers and sellers can deal with the ‘fragmented and unpredictable property market’, as borrowing power slumps.
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Real estate guru Andrew Winter has revealed his tips for buying and selling in a volatile market, as new figures show borrowing power has shrunk by nearly $300,000 since interest rates started rising.
The Selling Houses Australia and Love It Or List It star is warning struggling homeowners against “panic selling”, and says buyers who try to “time the market” may only end up disappointed.
“The market is very fragmented, and more unpredictable than many other times I’ve seen it,” Mr Winter said. “Every time we think that’s the last of the (rate) rises, they go up. It’s a bit of a cliff-edge scenario.
“The lack of stock is playing a massive part, developers have held back building the volumes they were, and homeowners are saying; ‘If we sell, what are we going to be able to buy?’”
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It comes as new figures from financial comparison site Compare the Market show just how much borrowing power has plummeted since interest rates starting rising in 2022.
A double-income couple with no children earning a combined $150,000 has seen their borrowing capacity drop $292,000 since May last year.
The borrowing power for a single person with no kids earning $75,000 a year has dropped $152,000, and a family with two kids on a combined $150,000 annual salary can borrow $259,000 less than they could 16 months ago.
“The cost of borrowing has completely skyrocketed, and that impacts the market in
all different ways,” he said.
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“But despite higher interest rates smashing household budgets, Australian property
prices and auction clearance rates are doing reasonably well.”
SELLERS ‘STRUGGLING TO GET PEAK PRICE BACK’
Mr Winter, who has joined Compare the Market as their resident property expert, said he had noticed signs of distressed selling in parts of NSW, particularly in Sydney’s so-called ‘mortgage belt’.
“I’m seeing a few examples of people who bought before rate rises started, so bought at the peak, who are struggling to get that peak price back,” he said.
“They’re selling because Sydney’s expensive and they can’t manage (mortgage repayments) because of recent interest rate rises, so the $1.5m home gets sold for $1.38m and they just take the hit. It’s not happening in every suburb, but certainly in the mortgage belt areas that are higher risk.”
The veteran real estate agent described the Victorian market as “lazy”, with buyer demand not translating into much price growth.
He also blamed the Victorian government for scaring off investors and heightening market uncertainty.
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“Their government’s doing weird and wonderful things with housing regulations and that’s frightening off investors and impacts a market massively,” he said.
But Mr Winter — who lives on the Gold Coast — said sellers in Queensland were in a great position because of strong buyer demand, little choice, and no sign of prices weakening.
“If you’re in the right area and have the right type of property, you’re selling for a good sum,” he said.
“The growth is quite sustainable because Queensland’s attracting a lot of investment, industry, business, and it’s so much more affordable than most parts of Sydney and Melbourne. And, it’s a great place to live!”
It’s a similar story for the South Australian market, which he said was “flying”, as home prices finally caught up with the growth in eastern states.
“If you’re asking yourself whether to keep renting and wait to see if the Reserve
Bank cuts rates and property prices fall — that’s an impossible question to answer,” he said.
“Maybe prices drop … maybe you spend half of your deposit on a trip to Europe. If you’ve found a property you like and you’re in the position to be able to buy, try not to worry about what prices will do in the short term.”
‘DON’T PANIC SELL - HAVE A PLAN B’
Mr Winter said the spring market could present some opportunities for frustrated buyers, as homeowners moved off fixed-rates and looked to shed their debt.
“Unfortunately, there will be some people who won’t be able to afford their
mortgages,” he said.
“Don’t just accept the deal you’re on; get out there and shop around.
“Don’t panic sell. That’s the worst thing you ever could be doing.
“Have a Plan B. Rent out a room if things get tough. Could one of you take on a second job or more hours at work? Even if it’s just for three or six months.”
Finsure Group CEO Simon Bednar said there were still hundreds of thousands of borrowers on cheap fixed rates which would expire later this year who would have to deal with much higher mortgage repayments.
“I think there are around 40 per cent of the lower fixed rate home loan terms set to expire by the end of 2023, and another 20 per cent by the end of next year,” Mr Bednar said.
“This will continue to push inflation down as homeowners cut back on spending to accommodate the increase in mortgage repayments.”
But PropTrack senior economist Eleanor Creagh said she did not think there would be a marked rise in distressed sales in coming months.
“Most people still prioritise mortgage repayments over discretionary spending or selling their home,” Ms Creagh said.
“A lot of these borrowers have probably built savings buffers to handle rising interest rates, and many are ahead on repayments.”
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