The ‘looming mortgage cliff’ has become the go-toheadline for so many of our media outlets. As a headline designed to grab attention, it’s a beauty. It’s hard to resist the urge to read the latest twist or insight from financial commentators on the potential impact of interest rate rises.
These commentators argue that when a large component of home loans that are currently on low fixed rates switch to variable rates in the middle of this year, then there will be a surge in financial stress and an accompanying rise in properties for sale. This increase in properties for sale, plus a decline in purchasing power of buyers, will result in a depressed market.
A couple of points shouldn’t be overlooked though as we look ahead.
Firstly, the lowest fixed rates offered by the major banks were circa 1.9 per cent per annum. These customers were stress tested at approximately five per cent per annum before these loans were approved. The current floating rate being offered on new home loans from the major banks is approximately five per cent per annum.
Secondly, the current level of home loan defaults is well below long-term averages. The most quoted method to assess loan defaults is the ‘90 day past due’ rate, and for the ANZ this is at 0.5 per cent which is half the long term average. It seems that over the past few years, borrowers have saved more and got ahead of their minimum loan repayments.
Thirdly, there’s been a lift in real estate activity over the past few months especially in Queensland and New South Wales, while South Australia and Western Australia have remained consistently buoyant. Buyer activity has lifted in these markets, and all of these buyers are bidding knowing that there’ll be further interest rate increases and their finance is being provided after being financially stress tested at much higher rates. The overall health of the Australian economy, and the forward outlook of low unemployment and more immigration, is contributing to this confidence.
Our February 2023 Australian residential sales result of $4.1 billion was better than what we expected when we estimated our likely sales figures at the end of 2022. Listings were better, as were conversions of
listings to sales.
However, the experience of our New Zealand network is sobering. The sales market had a very tough month in February. There are many unique factors in New Zealand that are contributing to the status of the current market, including the recent natural disasters. Though it does remind us and our vendor clients currently on the market, or contemplating coming onto the market, that the current strengthening of conditions in Australia is by no means guaranteed to continue.
Dan White
Managing Director
Ray White Group
