Short-term home resales are on the rise and mortgage stress is becoming a reality for many homeowners – what could this mean for you?
In recent times, the Australian property market has seen an intriguing shift. Homes being sold less than two years after purchase are reaching numbers not seen since 2014. This trend, confirmed by CoreLogic’s latest data, is not merely a statistical anomaly. It carries with it a suite of implications and underlying factors that industry stakeholders, potential homebuyers, and policymakers should be keenly aware of.
Here, I will delve deeper into the reasons behind this trend, its implications, and strategies homeowners can adopt to navigate this evolving landscape.
What's happening?
While the property market has historically been viewed as a stable and long-term investment opportunity, an increasing percentage of homeowners are opting for short-term resales. Usually linked to times of property boom, this trend is unusual as we are seeing vendors choosing to flip properties when the market is not at its strongest, sometimes incurring a loss.
Although this trend is predominantly affecting segments of the market with high mortgage levels, there are still parts of the market in which homeowners are not overly impacted by the vagaries of interest rates. These market areas are showing continued high demand and encouraging price growth, which is expected to continue.
However, according to data from CoreLogic 1, in the March quarter, 8.4% of national resales have been for properties held for less than 2 years. This figure has increased from 6.3% recorded for the same period last year. While the median results from short-term resale still show a profit, however modest, the number of vendors selling at a loss has also risen to 12.4%, indicating that economic pressures are forcing some homeowners to sell their properties in less-than-ideal conditions.
In contrast to the national figures, Sydney has seen a less striking uptick in properties being sold within a two-year window, with data showing an increase from 5.4% in October to 5.7% in April. Though this might seem like a modest rise, it’s still significant given the backdrop of Sydney’s property prices, which have been on an upward trajectory in recent months, although they have not shown the explosive growth seen in traditional booms. With values up by 4.5% on the last quarter 2, we would usually expect to see people holding onto properties to make the most of long-term capital growth in this climate
What's behind this trend?
While we may imagine that properties are being flipped by investors cashing in on quick, albeit modest, capital gains, the fact is that the looming spectre of mortgage stress, driven in part by rising interest rates and the resetting of fixed-rate loans is playing a significant role in shaping our market at the moment.
Clearly, the RBA’s interest-rate hiking cycle has had a major impact on many homeowners who borrowed close to the hilt at record-low rates only to be hit with a huge increase in their monthly repayment once the fixed-term portion of their loan rolled into a variable rate.
The unfolding scenario paints a multifaceted picture. While many homeowners are still able to service their mortgages, there’s a clear pressure point emerging from the current economic pressures of the rising cost of living combined with increasing interest rates and fixed-term mortgages switching to their variable portions.
It’s certainly not something we want to see more of, but in the face of these real pressures, I feel it’s worth looking at ways in which homeowners can adapt and what strategies they can employ to navigate these shifting sands.
Practical ways to manage the prospect of mortgage stress
With the possibility of mortgage stress looming for an increasing number of homeowners, many financial counsellors and analysts alike are urging borrowers to take pre-emptive action to maintain control over their finances and property.
Here are some of the key considerations to keep in mind if you think you may be susceptible to mortgage stress:
1. Reach out early
Both banks and financial advisors emphasize the importance of reaching out for help before problems spiral. Getting in touch before falling behind on repayments ensures there’s no negative mark on your credit score, offering more flexibility with options.
2. Consider refinancing
Seek a better deal either through negotiating a lower rate with your current bank or refinancing with a different lender. Take note that higher interest rates can affect your borrowing capacity, making refinancing a challenge for some.
3. Be proactive if selling
If you foresee selling your property, make informed decisions. Engage early with financial experts and your trusted real estate agent to understand your position and rights. Discussing your situation early with your lender when considering selling offers more options and could potentially halt loan repayments during the sale process.
4. Know your rights and options
If you do fall behind on payments, understand that a bank can issue a default notice after 60 days. Once issued, you typically have 30 days to settle the arrears before further action is taken.
5. Seek financial counselling
Consider reaching out to services like the National Debt Helpline or other independent bodies to discuss your situation. They can help assess your overall financial situation and guide you in creating a plan.
6. Explore ways to reduce repayments
For example, you could consider: - refinancing to an interest-only loan, - reviewing your offset and redraw accounts, - finding an alternative lender with easier stress tests, - negotiating with your current lender, - adjusting your lifestyle choices to save money or generate additional income, or - extending your loan term (but be aware, this will increase the total cost of your loan).
7. Understand hardship variations
If other options aren’t viable, consider requesting a hardship variation directly with your lender or through intermediaries.
A final word
At DiJones, we understand that the world of finance and property can often feel like a maze. But no matter how complex the path seems, there’s always a way through. The keys are early action, a proactive attitude and the right guidance. Remember, the best decisions are informed ones, backed by professional insights. Addressing potential problems before they escalate gives you a broader range of options and solutions to consider. Whatever you decide, ensure it aligns with your long-term financial goals and seek expert advice when in doubt.
[1] https://content.corelogic.com.au/l/994732/2023-06-27/z1szd/994732/1687912330PQQtJ5lJ/2306_CoreLogic_PainGainReport_Mar23Qtr_FINAL__1_.pdf [2]https://www.corelogic.com.au/__data/assets/pdf_file/0025/16819/202308_monthly-chart-pack.pdf
Other buying, selling and investing articles and resources
Guide to property investment success in NSW
Selling a house or apartment in NSW eBook
Buying a house or apartment in NSW eBook
