By Stephen Johnson, Business Reporter for the Daily Mail Australia
06:08 June 20, 2023, updated at 07:08 June 20, 2023
- CoreLogic figures show where borrowers are in the majority
- The number of homes coming onto the market has also increased
Working couples who bought a home in an outer suburb where prices are typically in the seven figures face money losses if mortgage stress forces them to sell.
But in one region of western Sydney, the number of homes coming on the market is rising in double digits in just four weeks. after the The Reserve Bank this month raised rates for the 12th time since May 2022.
Suburbs with newer homes north of Blacktown, including in ZIP codes 2148 and 2763, have median home prices of more than $1 million, increasing the likelihood of mortgage stress.
Those who bought early last year, before interest rates rose, face owing the bank more than their home is worth as prices fall, a situation known as negative equity.
CoreLogic Australia’s head of research, Eliza Owen, said a recent large rise in new listings in these areas could particularly hurt distressed borrowers who are forced to sell as higher supply drives prices down.
“This could make it difficult for recent homebuyers to earn a capital gain if they struggle to meet mortgage payments,” he said.
“As buyer demand subsides amid higher interest costs and seasonal trends, there could be a prolonged downturn in some of these markets.
“In areas like Blacktown North, where values have seen a strong rally in the three months to May, as supply increases, it can put downward pressure on the growth trend in the coming months.”
The Blacktown North area in western Sydney is particularly risky, with 55.5% of households holding a mortgage, according to 2021 census data mapped by the Australian Bureau of Statistics.
The number of homes on the market has risen 24.3 percent over the past four weeks in an area covering the suburbs north of the M7 motorway, including Quakers Hill, Schofields and Riverstone, where median house prices are in seven figures.
“It is notable that new listing volumes are increasing in some of these markets, where the national trend is a seasonal slowdown,” said Ms Owen.
In the suburbs south of the M7 motorway, in the Blacktown area, prices have already fallen below seven figures.
In Seven Hills, the median home price plunged eight percent to $929,102, down from $1,009,471 in the year through May, CoreLogic data showed.
Suburbs at risk of forced sales
BLACKTOWN NORTH (WEST SYDNEY): Listings up 24.3 percent in four weeks in an area where borrowers make up 55.5 percent of households
MELTON – BACCHUS MARSH (NORTHWEST MELBOURNE): Listings are up 8.7 percent in four weeks in an area where borrowers make up 51.9 percent of households
SOUTH CASEY (EAST MELBOURNE): Listings up 6.1 percent in an area where borrowers make up 56.2 percent of households
Other nearby suburbs have also fallen out of the million-dollar club, including Prospect, where values have fallen 7.4 percent to $928,922, below $1,003,087 and Kings Park, where home prices have fallen 6. .3 percent to $976,838, down from $1,042,297.
In Melbourne’s Melton – Bacchus Marsh region, in the north-west of the city, 51.9 per cent of residents have a mortgage, and prices here have risen 8.7 per cent over the last four weeks.
Across Melbourne, in the Casey South region that covers Cranbourne East, 56 percent of households have a mortgage and prices rose 6.1 percent in four weeks.
But in Perth, the mortgage belt areas had seen a drop in prices.
In the Swan region, 54.2 percent of households have a mortgage, but listings are down 5.8 percent in this area east of the city that covers Midland.
The Reserve Bank’s 12 rate hikes since May 2022 are the most aggressive since 1989.
Those who borrowed early last year before the hikes began are most at risk of mortgage stress, where they owe the bank more than a third of their income in payments.
Three of Australia’s big four banks – Westpac, ANZ and NAB – now expect the Reserve Bank to raise interest rates in July and August to a new 12-year high of 4.6 percent, up from 4. 1 percent current.
Minutes from the Reserve Bank’s June meeting acknowledged that most economists expect two more rate hikes.
“Going forward, about half of the economists surveyed expected a 50 basis point adjustment for August, which was broadly in line with the probability implied by market prices,” he said.
The RBA board opted to raise interest rates in June by another 25 basis points, with April’s inflation rate of 6.8 percent well above its 2-3 percent target.
Inflation could remain high beyond mid-2025 if not addressed now, according to the minutes.
“The argument for raising the cash rate by another 25 basis points centered on the increased risk that inflation would take longer to return to target than expected,” he said.
Financial comparison group Canstar said that anyone who applied for a new loan in April 2022, when the RBA cash rate was at a record low of 0.1 percent, appears to be in mortgage stress two months from now.
That scenario is based on a borrower taking out a loan where he owes the bank six times what he earned.
The RBA’s 12 rate hikes since May 2022 have decreased what banks can lend, and those that borrowed at full capacity just over a year ago are most at risk.
Sydney, Australia’s most expensive capital market, is particularly risky for someone who bought a $1,416,960 median-priced home in April 2022.
Mortgage stress for rent with two more increases in the interest rate
SYDNEY: $187,542 income paying 50 percent of salary on mortgage
MELBOURNE: $141,692 income paying 47 percent of salary on the mortgage
BRISBANE: $128,692 income paying 46 percent of salary on the mortgage
ADELAIDE: $106,086 income paying 42 percent of salary on mortgage
PERTH: $95,772 income paying 40 percent of salary on mortgage
CANBERRA: $149,639 income paying 48 percent of salary on mortgage
HOBART: $119,611 income paying 44 percent of salary on mortgage
darwin: $94,359 income paying 41 percent of salary on mortgage
A couple with a combined income of $187,542 who borrowed $1,133,568, with a 20 percent down payment, faces spending 50 percent of their wages on their August mortgage payments.
Canstar applied this calculation to a couple earning close to the median full-time salary of $94,000.
Assuming your mortgage interest rate increases from 2.98% in April 2022 to 7.48% in August, your payments would eat up 66% of your after-tax income.
House prices in Sydney fell 9.2 per cent over the past year to $1,293,529.
Suburbs north of Blacktown have median prices close to that level, including Schofields ($1,214,389) and Acacia Gardens ($1,248,340).
In Melbourne, a couple earning $141,692 between them who bought a median-priced home for $1,000,926 in April 2022 would owe 47 per cent of their pre-tax income to service $5,553 in monthly mortgage payments for a loan of $800,741.
House prices in Melbourne fell 8.6 percent to $911,007 in the year to May.
Suburbs where borrowers are in the majority include Melton, where the median home price is $466,185, Bacchus Marsh, where $638,203 is the midpoint, along with Cranbourne East, where $644,076 is the median.
In Perth, a couple earning $95,772 who bought a $578,751 house would spend 40 percent of their income servicing $3,211 in loan repayments for $463,001 of debt.
House prices in the Western Australian capital rose 2.2 per cent to $606,563 in the year to May despite rising rates, but in Midland, in the city’s east, the median price is $407,206 more affordable.
National unemployment in May fell to 3.6 percent, down from 3.7 percent in April, nearing a recent 48-year low of 3.5 percent.
Michele Bullock, deputy governor of the RBA, told an Australian Industry Group function in Newcastle on Tuesday that unemployment would have to rise to 4.5 percent by 2024 for wages to stop driving inflation.
Economists refer to this as the non-accelerating inflationary unemployment rate, or NAIRU.
“While 4.5 percent is higher than the current rate, this result would still leave us below where it was before the pandemic and not far from some estimates of where the NAIRU might currently be,” he said.
“In other words, the economy would be closer to a sustainable breakeven point.”