Last week’s 0.25% interest rate hike by the Reserve Bank of Australia (RBA) has clearly spooked market participants.
Immediately following the interest rate decision, SQM Research’s managing director Louis Christopher warned subscribers to expect “distressed activity to rise based on a new round of forced and panicky selling starting sometime the second half of this year”.
Market participants, Christopher said, should “be prepared for a new round of housing price falls starting in the second half of 2023”.
Coolabah Capital founder, Chris Joye, Tweeted that he had been contacted by top real estate agent, Alexander Phillips, who said the “market is turning” and that he was receiving a flood of calls from “nervous vendors” eager to sell their homes quickly before prices collapsed.
Leading Sydney real estate agent and auctioneer, Tom Panos, likewise argued that the RBA’s latest rate hike could be the “tipping point” for the housing market that could usher a wave of forced selling.
Over the weekend, Panos posted a video update on YouTube where he advised struggling home owners to sell while they can before there is a wave of distressed sellers and prices fall:
“Commonwealth Bank now has confirmed there’s a 50-50 chance of a recession and even the Reserve Bank dialogue and language is now saying the hard landing that they were trying to avoid may be unlikely”.
“So, the time has changed and the tone has changed because now they’re actually sort of suggesting that there’s more rate rises to come”.
“They’re looking at the numbers, but I just want to give you an idea of what the impact of these rate risers are”.
“If we have one more rate rise, we’re going to see a simple five hundred thousand dollar loan – we’re talking about the low socioeconomic people – [their] repayments will be $3,701 a month”.
“They have gone up $1,366 dollars since May last year, so your loan repayments would be $3,701”.
“What would it mean on a million dollar loan? The loan repayments are going to be $7,400 a month”.
“We have never ever had people’s loan repayments being such a big proportion of their incomes”.
“What actually happens to the people come September right when all these things have kicked in [and] they’ve gone from their fixed to their variable rates?”
“They’re all happening between July and March next year. These are all the people that are going off fixed to variables. What’s going to happen to these people?”
“They’ve got three options. Option number one, they go to rellos and they ask for money to help out short-term and that’s already happened”.
“I’ve already had friends of mine asked me whether they should lend money to people they know”.
“The second option that they might have is that they’re going to turn around and what they’ll do is they’ll go off and refinance”.
“[But] what are you going to refinance now that you’re rating has actually gone down because we know that people’s borrowing capacity has dropped 25%, so that’s not really an option”.
“Then you look at the third option: you sell. And that’s when you start seeing problems happening because you start seeing distressed sellers devalue the rest of the market”.
“So team, I agree with what Mark Bouris says and that is if you can, if you’re an owner of property and you can actually smell that there are problems coming your way, you are far better selling before the problems happen”.
“Take control of your position. Take control of your position, that’s what I would be doing”.
“And I’d also be doing it for another reason: because you don’t want to be in the mix when it gets really rocky and bumpy and the waves are hitting people’s faces and you’ve got a bunch of people that are selling at the same time”.
“That’s [already] happening. CoreLogic RP data are very clear CMAs are happening through the roof there is a high level of people getting appraisals and that is the beginning”.
“An appraisal is the beginning of someone putting their property on the market”.
Whether or not this is the ‘tipping point’ for the housing market will only be known in hindsight.
However, market participants are clearly concerned that the RBA has gone one rate hike too far.