By Stephen Johnson, Economics Reporter For Daily Mail Australia
06:08 20 Jun 2023, updated 07:52 20 Jun 2023
- CoreLogic figures show where borrowers are majority
- The number of homes going on market has also risen
Working couples who bought a house in an outer suburb where prices are typically in the seven figures face losing money if mortgage stress forces them to sell.
In less fashionable parts of Sydney, Melbourne and Perth, home borrowers make up the majority of residents in the midst of a cost of living crisis – and with two more rate rises tipped by August.
But in one region of western Sydney, the number of homes going on the market is surging by double-digit figures in just four weeks, after the Reserve Bank this month raised rates for the 12th time since May 2022.
Suburbs with newer houses north of Blacktown – including in the 2148 and 2763 postcodes – have median house prices of more than $1million, 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 big increase in new listings in these areas could particularly hurt struggling borrowers forced to sell as more supply brought down prices.
‘This could make it more difficult for recent buyers to make a capital gain if they are struggling to meet mortgage repayments,’ she said.
‘As buyer demand wanes amid higher interest costs and seasonal trends, there could be an extended downturn in some of these markets.
‘In areas such as Blacktown North, where values have seen a strong bounce back in the three months to May, as supply creeps up it may put downward pressure on the growth trend in the coming months.’
The Blacktown North area in Sydney’s west is particularly risky with 55.5 per cent of households having a mortgage, based on 2021 Census data as mapped by the Australian Bureau of Statistics.
The number of homes going on the market has risen by 24.3 per cent during the past four weeks in an area that covers suburbs north of the M7 motorway, including Quakers Hill, Schofields and Riverstone where median house prices are in the seven figures.
‘It is noticeable that new listings volumes are climbing in some of these markets, where the national trend is seeing a seasonal slowdown,’ Ms Owen said.
In suburbs south of the M7 motorway – in the Blacktown area – prices have already fallen below the seven-figure mark.
In Seven Hills, the median house price plunged by eight per cent to $929,102, down from $1,009,471 in the year to May, CoreLogic data showed.
Other nearby suburbs have also fallen out of the million-dollar club, including Prospect where values have fallen by 7.4 per cent to $928,922, down from $1,003,087 and Kings Park where house prices have dropped by 6.3 per cent to $976,838, down from $1,042,297.
Woodcroft prices have fallen by 4.7 per cent to $986,695, down from $1,034,957.
In Melbourne’s Melton – Bacchus Marsh region, in the city’s north-west, 51.9 per cent of residents have a mortgage, and listings here have risen by 8.7 per cent during the past four weeks.
On the other side of Melbourne, in the Casey South region covering Cranbourne East, 56 per cent of households have a mortgage with listings rising 6.1 per cent in four weeks.
But in Perth, mortgage belt areas had seen a fall in listings.
In the Swan region, 54.2 per cent of households have a mortgage but listings have fallen 5.8 per cent in this area east of the city covering Midland.
The Reserve Bank’s 12 interest rate hikes since May 2022 are the most aggressive since 1989.
Those who borrowed early last year before the hikes began are the most at risk of being in mortgage stress, where they owe the bank more than a third of their income in repayments.
Three of Australia’s big four banks – Westpac, ANZ and NAB – are now expecting the Reserve Bank to hike interest rates in July and August to a new 12-year high of 4.6 per, up from 4.1 per cent now.
The Reserve Bank’s June meeting minutes acknowledged most economists are expecting two more rate rises.
‘Further ahead, around half of economists surveyed expected 50 basis points of tightening by August, which was broadly in line with the probability implied by market pricing,’ it said.
The RBA board opted to raise interest rates in June by another 25 basis points, with April’s inflation rate of 6.8 per cent well above its 2 to 3 per cent target.
Inflation could remain high beyond mid-2025 if it wasn’t tackled now, the minutes said.
‘The case for raising the cash rate by a further 25 basis points focused on the increased risk that inflation would take longer to return to target than had been expected,’ it said.
Financial comparison group Canstar said anyone who took on a new loan in April 2022 – when the RBA cash rate was at a record-low of 0.1 per cent – looks set to be in mortgage stress within two months.
That scenario is based on a borrower taking out a loan where they owed the bank six times what they earned.
The RBA’s 12 rate rises since May 2022 have diminished what banks can lend, with those borrowing at the maximum capacity little more than a year ago most at risk.
Sydney, Australia’s most expensive capital city market, is particularly risky for someone who bought a median-price house for $1,416,960 in April 2022.
A couple on a combined income of $187,542 who borrowed $1,133,568, with a 20 per cent mortgage deposit, face spending 50 per cent of their salaries on mortgage repayments by August.
Canstar applied this calculation to a couple each earning close to the average, full-time salary of $94,000.
Assuming an increase in the interest rate on their mortgage climbing from 2.98 per cent in April 2022 to 7.48 per cent by August, their monthly repayments of $7,861 would consume 66 per cent of their post-tax income.
Sydney house prices have dropped by 9.2 per cent during the past year to $1,293,529.
Suburbs north of Blacktown have median prices near 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-price house for $1,000,926 in April 2022 would be owing 47 per cent of their pre-tax income servicing $5,553 in monthly mortgage repayments for a $800,741 loan.
House prices in Melbourne fell by 8.6 per cent to $911,007 in the year to May.
The suburbs where borrowers are in the majority include Melton where the median house price is $466,185, Bacchus Marsh where $638,203 is the mid-point, along with Cranbourne East where $644,076 is the middle price.
In Perth, a couple earning $95,772 who bought a $578,751 house would be spending 40 per cent of their income managing $3,211 in loan repayments on $463,001 of debt.
House prices in the West Australian capital have increased by 2.2 per cent to $606,563 in the year to May despite the rate rises but in Midland, in the city’s east, the mid-point price is a more affordable $407,206.
National unemployment in May fell to 3.6 per cent, down from 3.7 per cent in April, putting it closer to a recent 48-year low of 3.5 per cent.
Michele Bullock, the RBA’s deputy governor, on Tuesday told an Australian Industry Group function in Newcastle unemployment would have to rise to 4.5 per cent by 2024 for wages to stop fuelling inflation.
Economists refer to this as the non-accelerating inflationary rate of unemployment or NAIRU.
‘While 4.5 per cent is higher than the current rate, this outcome would still leave us below where it was pre-pandemic and not far off some estimates of where the NAIRU might currently be,’ she said.
‘In other words, the economy would be closer to a sustainable balance point.’