The jury is out as to whether pain in the housing market will translate into a tidal wave of forced sales.
A small number of properties around the country are listed as mortgagee sales but agents who spoke to OneRoof either did not know the reason for the sale or said the reason was unrelated to the tough economic climate.
But some agents warned there will be people feeling the pressure in paying back their loan who may not show up as forced sales until next year.
Others didn’t expect many such sales will eventuate, saying lenders foreclose as a last resort and also that people will do almost anything to keep their house.
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OneRoof figures show there was a 15% lift in the number of properties listed as mortgagee sales between the first quarter of this year and the second, but the actual number of mortgagee listings is small, and represents a tiny fraction of overall listings for the year.
Mark Fitzgerald from Harcourts has a single-level brick and tile home in Papatoetoe, Auckland, listed as a mortgagee sale.
The property is not related to today’s economic conditions, Fitzgerald says, but he also says it could be a sign of what’s to come.
“Without doubt what’s happening in the market at the moment is going to reflect in more mortgagee sales coming up but we haven’t seen it arrive yet.”
The mortgagee sale process takes time and banks and second tier lenders look for a way out for owners rather than have them end up with a forced sale.
The whole process can take six months before a property gets to the marketplace.
Fitzgerald says there are bound to be people who are now looking at refinancing who may run into trouble having fixed within the last couple of years when mortgage rates were so low.
This three-bedroom brick and tile home at 1/35 Avis Avenue, in Papatoetoe, Auckland, goes to auction on September 1. It is listed on OneRoof as a mortgagee sale. Photo / Supplied
Banks working within the confines of the CCCFA might not be able to lend, or lend as much, to someone refinancing from a 2.5 per cent interest rate to a much higher rate now, he says.
“My own view is a lot of people that were buying at 2.5% now either cannot refinance, or certainly not with a bank, they are refinancing with a second-tier lender, and they've gone from 2.5% to 7, 8, or 9% and that's going to cripple them.”
Mortgagee sales Fitzgerald has conducted in the past have usually been because someone’s income has gone so their ability to meet the mortgage has gone, and high interest rates can feed into that.
“I think circumstances compound themselves and I think the interest rates going up will be the straw that breaks the camel’s back, but that won't snap, it will take a while.”
In Tauranga, Harcourts has another mortgagee sale listed, this time in sought-after Mt Maunganui.
Agent Ben Cantley says he can’t discuss the reasons for the sale of the renovated five-bedroom home in a prime location.
But he, too, thinks there could be cases ahead of people forced to sell.
“We're getting more appraisals coming through. I think the banks may be just preparing a little bit.”
A bank asking for an appraisal does not necessarily mean a property is in trouble, he says.
A five-bedroom home at 83A Ranch Road, in Mt Maunganui, Tauranga, is being advertised as a mortgagee sale. Photo / Supplied
“But they may be foreseeing something or they need to know the value for that property and the current market so they come to us for an appraisal before going and getting valuations done, but every situation is different.”
While mortgagee sales get a lot of interest, Cantley says just because it’s a forced sale it doesn’t mean it’s a bargain.
Sometimes the competition can drive the price up, and as with any sale the goal is to get the best result possible.
In Featherston, a four-bedroom property is being listed by Andy Scott, principal Patrick & Scott Ltd/Professionals.
Scott says he doesn’t know the circumstances behind the sale but says the split brick home with a studio is being targeted towards investors and is currently rented with an excellent fixed term tenant until May next year.
Scott says he is hearing stories some people are struggling: “It might not happen until next year but I'm picking there will be a fair bit of pain in the market.
A four-bedroom home at 74 Brandon Street, in Featherston, South Wairarapa. The listing is "calling all investors" to check out the mortgagee sale. Photo / Supplied
“Different people have different circumstances so if something goes wrong in their own life and all of a sudden they have to get an evaluation done and that’s less than what it was and they're in a situation where they're not going to get anything out of it so that's what basically comes down to a mortgagee sale or the start of that process.
“But it’s a long process. They don't just pull the plug on somebody with a few hours’ notice, it's normally months.”
In Wellington, where house prices have fallen substantially, Nicki Cruickshank, principal of Tommys, is yet to see any evidence of mortgagee sales and doesn’t expect to.
“Distress in that people are stressed but, no, we’ve had no mortgagee sales come through and honestly I think it’s just hype around that because banks have been stress-testing people.
“They’ve learnt a lot of lessons since the GFC – people will give up their lives almost to hold on to their house.”
Cruickshank isn’t sure the situation will get any worse than it is now, saying banks want to lend money and if no one is borrowing they are likely to hold their interest rates and take less profit, with some already cutting rates last week.
“The impact of the OCR going up may not flow through to the mortgages as much.”
Ray White’s chief operating officer, Daniel Coulson, doesn’t think there will be many forced sales either, saying as of Wednesday the company had just six properties listed as mortgagee sales out of over 4500 listings.
Ray White COO Daniel Coulson: "Over the last few years there hasn’t been as much pressure on people to sell.” Photo / Supplied
“It’s almost like non-existent compared to the rest of the real estate that we do. It’s just reflective of the fact that over the last few years there hasn’t been as much pressure on people to sell.”
He agrees banks have been of a mind to help people through changed circumstances and have been stress-testing serviceability at higher rates, plus people have seen significant value increases in property over the past 18 to 24 months.
“That’s meant they have had options with regard to downsizing their home and downsizing their mortgage.
“They have had options with regard to refinancing potentially with more equity in the property than what they previously had so I’m not yet convinced we’re going to see a significant or higher than usual number of mortgagee properties coming to market.”
CoreLogic’s latest Pain and Gain report says while some investors may have been reassessing their sums of late there haven’t been fire sales but the report raises first home buyers who bought during the final quarter of last year, when prices were at their peak, as an area of concern.
“Assuming a 20 per cent deposit was used and no principal has been paid back, the softening values could have plunged more than 500 first home buyers into negative equity with mortgages larger than what their homes are now worth,” says Kelvin Davidson, CoreLogic’s chief housing economist.
“It seems likely that property values have further to fall over the coming months so additional weakening of the resale performance data is on the cards for the next two quarters and into 2023.”
But with unemployment still low and long-term growth expected to return at some stage, genuine forced sales remain few and far between with borrowers willing and able to ride out the downturn, he says.
