Interest rates slug pushes up distressed sales rate

Forced home sales have risen in Australia’s two largest property markets as homeowners continue to be squeezed by soaring rate rises and cost of living pressures.

Distressed sales data from SQM Research showed a year-on-year increase in the number of emergency property sales in NSW of 11.1 per cent to 1118 homes in June, and Victoria, where instances of forced sales were up 19.7 per cent to 846. Picture: NCA Newswire / Gaye Gerard

Forced home sales have risen in Australia’s two largest property markets as homeowners continue to be squeezed by soaring rate rises and cost of living pressures.

Distressed sales data from SQM Research showed a year-on-year increase in the number of emergency property sales in NSW of 11.1 per cent to 1118 homes in June, and Victoria, where instances of forced sales were up 19.7 per cent to 846.

It is Tasmania that has SQM managing director Louis Christopher the most concerned, as forced sales in the Garden Isle rose by more than 54 per cent over the past year to 88 properties.

“All other states are still lower than what we had them compared to pre-Covid levels,” Mr Christopher said.

“This is a reason why we haven’t been overly concerned about the numbers as yet. But in Tasmania, that’s not the case, they’re definitely above.

“We know that in Tasmania, mortgage stress levels did reach very high levels, housing affordability reached record low levels during the last boom, and housing prices have virtually been on the rise since 2015. I think these factors might be affecting that state the most at this time for the local population.”

Despite the Reserve Bank choosing to pause the cash rate at 4.1 per cent this month to allow time for previous increases to work through the economy, homeowners with a $600,000 mortgage have had their repayments increase by more than $15,000 annually since May 2022.

While budget constraints will undoubtedly reduce spending, PropTrack senior economist Paul Ryan said this is exactly what the RBA wanted. It has yet to show up in significant mortgage arrears.

“We have seen those that have rolled off fixed rates and those people that never fixed and have followed variable rates – which was more than half of all borrowers … they haven’t shown significant signs of trouble so far,” Mr Ryan said.

Distressed listings – categorised as those with phrases such as “mortgagee in possession”, “must sell”, “deceased estate”, and “desperate vendor”, among others in the advertisement – fell at a nat­ional level by 11.3 per cent to 5335, according to SQM.

This was largely led by significant reductions in the South Australia (down 10 per cent to 225 properties), Western Australia (down 37.1 per cent to 983 properties) and Queensland (down 16.1 per cent to 1955 properties), cities that have all shown resilience to property price falls through the majority of the 2023.

Both of the country’s territories also recorded a rise in forced selling. The country’s second most expensive region, the ACT, was up 13.3 per cent over the year to 17 homes, while the volatile Northern Territory market rose 21.3 per cent to 103 properties.

Mr Christopher is conservative about the outlook of the property market, warning that the significant tightening in household budgets and borrowing capacities has increased the risk of a “double-dip” downturn, with future falls possible despite recent perceived strength.

“We’re on a knife edge with the housing market,” he said. “On our modelling, we have reached levels which can create a recession in terms of interest rates.”