Working couples who bought a home in a suburb where prices are typically in the seven-figure range could lose money if mortgage stress forces them to sell.
In the less fashionable parts of Sydney, Melbourne and Perth, home borrowers make up the majority of residents amid a cost-of-living crisis – and with two more rate hikes tipped by August.
But in a region of western Sydney, the number of homes for sale has risen by double digits in just four weeks. after the Reserve Bank raised interest rates this month for the 12th time since May 2022.
Suburbs with newer homes north of Blacktown — also in ZIP Codes 2148 and 2763 — have median home prices above $1 million, raising the likelihood of mortgage stress.
Those who bought early last year, before interest rates rose, face more debt to the bank 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 surge in new listings in these areas could especially hurt struggling borrowers who are forced to sell as more supply pushes prices down.
Working couples who bought a house in a suburb where prices are typically in the seven digits risk losing money if mortgage stress forces them to sell (pictured are new houses in Sydney’s Blacktown west)
“This could make it more difficult for recent buyers to get a capital gain if they are struggling to pay off their mortgage,” she said.
As buyer demand slows amid higher interest costs and seasonal trends, some of these markets could see a prolonged downturn.
“In areas such as Blacktown North, where values rebounded sharply in the three months to May, increasing supply could put downward pressure on the growth trend in the coming months.”
The Blacktown North area in western Sydney is particularly risky as 55.5 per cent of households are mortgaged, based on data from the 2021 Census, as mapped by the Australian Bureau of Statistics.
The number of houses coming onto the market is up 24.3 per cent over the past four weeks in an area covering the suburbs north of the M7 motorway, including Quakers Hill, Schofields and Riverstone, where average house prices are in the seven figures lie.
“It is noticeable that new listing volumes are rising in some of these markets, where the national trend shows a seasonal slowdown,” said Ms Owen.
In suburbs south of the M7 motorway – in the Blacktown area – prices have already fallen below seven figures.
The Blacktown North area of western Sydney is particularly risky as 55.5 per cent of households are mortgaged, based on data from the 2021 census as mapped by the Australian Bureau of Statistics
In Seven Hills, the median home price fell eight percent to $929,102, down from $1,009,471 in the year to May, CoreLogic data showed.
Suburbs are at risk of foreclosure
BLACKTOWN NORTH (WESTERN SYDNEY): Ads up 24.3 percent in four weeks in an area where borrowers make up 55.5 percent of households
MELTON – BACCHUS SWAMP (NORTH WEST MELBOURNE): Ads up 8.7 percent in four weeks in an area where borrowers make up 51.9 percent of households
CASEY SOUTH (MELBOURNE EAST): Ads 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 property values are down 7.4 percent to $928,922, down from $1,003,087, and Kings Park, where home prices are down 6.3 percent to $1,003,087. $976,838, down from $1,042,297.
In Melbourne’s Melton – Bacchus Marsh area, in the north-west of the city, 51.9 percent of residents have a mortgage, and listings are up 8.7 percent in the past four weeks.
On the other side of Melbourne, in the Casey South region that covers Cranbourne East, 56 per cent of households are mortgaged, with quotes up 6.1 per cent in four weeks.
But in Perth, mortgage belt areas had seen a drop in offers.
In the Swan region, 54.2 per cent of households have a mortgage, but in this area east of the city that covers Midland, the number of advertisements has fallen by 5.8 per cent.
The Reserve Bank’s 12 rate hikes since May 2022 are the most aggressive since 1989.
Those who borrowed money early last year before the rate hikes began are most at risk of mortgage stress, as they owe the bank more than a third of their income in repayments.
Three of Australia’s big four banks – Westpac, ANZ and NAB – now expect the Reserve Bank to raise interest rates to a new 12-year high of 4.6 percent in July and August, from 4.1 percent today.
The minutes of the Reserve Bank’s June meeting acknowledged that most economists expect two more rate hikes.
The minutes of the June Reserve Bank meeting acknowledged that most economists expect two more rate hikes (photo: Gov. Philip Lowe)
Looking further into the future, about half of the economists surveyed expected a 50 basis point tightening by August, broadly in line with the likelihood implied by market prices, the report said.
The RBA board chose to raise interest rates by another 25 basis points in June, with April’s inflation rate of 6.8 percent well above the target of 2 to 3 percent.
Inflation could remain high beyond mid-2025 if not addressed now, the minutes said.
“The pleas for raising cash rates by an additional 25 basis points focused on the heightened risk that inflation could take longer to return to target than expected,” it said.
Financial comparison group Canstar said anyone who took out a new loan in April 2022 — when RBA money rates hit a record low of 0.1 percent — appears to be in mortgage stress within two months.
That scenario is based on a borrower taking out a loan that owes the bank six times the amount earned.
The RBA’s 12 rate hikes since May 2022 have resulted in banks being able to borrow less, with those that borrowed at maximum capacity just over a year ago being most at risk.
In Melbourne’s Melton-Bacchus Marsh area, in the north-west of the city, 51.9 percent of residents have a mortgage, and listings here are up 8.7 percent in the past four weeks
Sydney, Australia’s most expensive capital, is particularly risky for someone who bought a median-priced home in April 2022 for $1,416,960.
Mortgage stress due to income with two more rate hikes
SYDNEY: $187,542 income that pays 50 percent of salary in mortgage
MELBOURNE: $141,692 income that pays 47 percent of salary in mortgage
BRISBANE: $128,692 income that pays 46 percent of salary in mortgage
ADELAIDE: $106,086 income that pays 42 percent of salary in mortgage
PERTH: $95,772 income that pays 40 percent of salary in mortgage
CANBERRA: $149,639 income that pays 48 percent of salary in mortgage
HOBART: $119,611 income that pays 44 percent of salary in mortgage
DARWIN: $94,359 income that pays 41 percent of salary in mortgage
A couple with a combined income of $187,542 who borrowed $1,133,568 on a 20 percent mortgage must spend 50 percent of their salary on mortgage payments by August.
Canstar applied this calculation to a couple who each earned nearly the median full-time salary of $94,000.
Assuming the interest on their mortgage increased from 2.98 percent in April 2022 to 7.48 percent in August, their repayments would eat up 66 percent of their after-tax income.
House prices in Sydney fell 9.2 percent over 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 who earned $141,692 together and bought a median home for $1,000,926 in April 2022 would owe 47 percent of their pre-tax income on $5,553 in monthly mortgage payments on a $800,741 loan.
House prices in Melbourne fell 8.6 percent to $911,007 in the year to May.
The 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 price.
In Perth, a couple who earns $95,772 and bought a $578,751 home would spend 40 percent of their income managing $3,211 in loan payments on $463,001 in debt.
House prices in Western Australia’s capital are up 2.2 per cent to $606,563 in the year to May despite rate increases, but in Midland, in the east of the city, the median price is a more affordable $407,206.
The national unemployment rate fell to 3.6 percent in May from 3.7 percent in April, bringing it closer to its recent 48-year low of 3.5 percent.
Michele Bullock, the RBA’s deputy governor, told an Australian Industry Group function in Newcastle on Tuesday that unemployment should rise to 4.5 percent by 2024 if wages are not to fuel inflation.
Economists call this 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 pre-pandemic levels and not far off some estimates of where the NAIRU might currently be,” she said.
“In other words, the economy would move closer to a sustainable balance point.”