A MESSAGE FROM OUR MANAGING DIRECTOR
The ‘ looming mortgage cliff ’ has become the go-to headline 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 lowfixed 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
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