Homeowners face new ‘risk’ after big rise in forced sales

Forced home sales have increased by more than a quarter in some areas following a year of interest rate hikes and the latest interest rate rise could ‘tip the scales’, new research shows.

Forced home sales have been rising off the back of successive interest rate hikes and the latest cash rate increase from the Reserve Bank would be a “clear risk” for homeowners, alarming research shows.

A report released Tuesday by SQM Research showed distressed sales – which include those by owners struggling to pay their loans – have increased by more than a quarter annually in some states.

It comes as the RBA increased the cash rate by 25 basis points, bringing it to 4.10 per cent, at its monthly board meeting in June.

Prior to the rise, SQM Research director Louis Christopher warned that another cash rate rise could deal a devastating blow to homeowners.

“We as a research house believe we are close to a cash rate setting which could tip the scales and induce a significant increase in forced selling,” he said.

New listings have been dropping, but distressed listings have been increasing. Picture: David Swift.

SQM figures showed distressed listings in NSW increased by 29 per cent over the year, rising from about 900 sales in May 2022 to nearly 1200 in May 2023.

The increase in Victoria was about 26 per cent, with 837 distressed listings in May, up from 666 a year ago.

Queensland had the highest amount of distressed listings at just over 2000, but it was down from about 2200 a year ago.

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Distressed listings increased by 66 per cent and 74 per cent in the ACT and Tasmania, respectively, but this was coming off a low base – both regions had less than 100 distressed listings last year.

Mr Christopher said distressed listings could increase further following the Reserve Bank of Australia decision to increase the cash rate again at Tuesday’s monthly board meeting.

“Further rises in the target cash rate represent a clear risk for housing market participants over the medium term,” he said.

“Indeed, some regions such as Hobart and South East Queensland may be feeling the stress of the rate rises given some sharp rises in distressed listings activity and falls in asking prices.”

Areas like Hobart and South East Queensland were also affected by changes in population flows, Mr Christopher said.

“The reversal of population flows away from regional areas which previously enjoyed a lockdown boom in population growth rates, is likely to be the main contributor to the current downturn in these areas,” he said.

It comes as research from Roy Morgan showed an estimated 1.38 million mortgage holders (27.8 per cent of mortgage holders) were ‘At Risk’ of ‘mortgage stress’ in the three months to April 2023.

This period encompassed two cash rate increases of 0.25 per cent taking official interest rates to 3.6 per cent in April.

This is the highest number of mortgage holders considered ‘At Risk’ since there were over 1.4 million ‘At Risk’ in August 2008.

The number of mortgage holders considered ‘Extremely At Risk’, increased to 881,000 (18.5 per cent) in the three months to April 2023.

Roy Morgan CEO Veronica Levine said further cash rate increases will drive up mortgage stress levels.

“If there is a sharp rise in unemployment, mortgage stress is set to rise towards the record high (in) May 2008 during the global financial crisis,” she said.

Graham Cooke, head of consumer research at Finder, said the Reserve Bank’s most recent decisions to raise the cash rate came as a shock to many.

“The RBA continues to operate in the dark, as our panel of economists are split on the bank’s intentions,” he said.

“Aussies with an average loan size of $577,000 will be spending over $15,000 more per year on their mortgage compared to what they were in April last year.

“That’s an additional $1,200 every month – a huge amount of extra money to be forking out on your mortgage.”

Originally published as Homeowners face new ‘risk’ after big rise in forced sales