Property owners unable to sustain rising interest rates and falling house prices are starting to flick off their homes for less than what they paid for them and some are taking massive losses.
Real estate agents who spoke to OneRoof say there have already been several properties in both Hamilton and South Auckland where both investors and home-owners have or are about to sell their homes for less than what they paid for them between six and 12 months earlier.
Just over 3% of property resales made a loss in the three-months ending September 2022, according to CoreLogic research, and the median loss was $40,000 and that figure is expected to grow in the coming months.
Harcourts Hamilton salesperson Craig Annandale said some property owners who bought earlier this year or last year are having to sell for about 10% less than what they paid for them.
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A property in St Andrews in Hamilton has an asking price of almost $100,000 less than what the owners bought it for at the start of the year.
It all came down to serviceability, he said, and people who bought at the height of the market are having to refix their mortgages at a much higher interest rate are looking to sell because they can’t afford the higher repayments.
“It doesn’t take a rocket scientist to work out what that serviceability is on a $1 million loan. Most people buying a house last year they were all borrowing a $1m. The ones that have $500,000 they were buying $1.5m and that was just the standard sort of ticket and it’s just the serviceability of that is a lot more now – a lot more.”
Annandale said it isn’t just one part of Hamilton where houses have dropped in price, but all over the city.
It’s also impacting South Auckland property owners and Ray White Manukau co-owner Tom Rawson said they have already seen a small number of people in South Auckland also sell their properties at a loss because they can’t afford to pay the mortgage.
Ray White Manukau co-owner Tom Rawson: “It’s a really unpleasant transaction. Nobody wants to sell at a loss.” Photo / Fiona Goodall
“They can’t afford the new interest rates, or they can’t afford to keep it, or they just want to get out now while they can with the perception that it might be worse in the new year.”
He said the number of people who bought earlier this year or last year and are in this unenviable position is minimal and at a guess less than 5%, it is increasing.
“Who would have sold at a loss over the last five years – no one... The mortgage rates are pushing people to do it, but at the same time prices have come back heaps so it’s a really unpleasant transaction. Nobody wants to sell at a loss.”
Rawson knows of one investor who is considering selling after his repayments doubled when he refixed his mortgages and the rental income did not increase to the same level.
“You’ve gone from it covering itself or not topping it much to having to top up the whole lot.”
While investors are considering selling as they are hit with both higher interest rates and the new tax deductibility rules that stop them from claiming it as an expense, some first home buyers are instead focussed on just trying to pay the mortgage anyway they can to avoid losing all their equity.
“Our region South Auckland has shot up massively over the last couple of years and then has come back down – probably to where it should have been all along, but if you bought in that time and you need to sell now, then they are realising a bit of a loss.”
CoreLogic NZ Chief Property Economist Kelvin Davidson said the number of properties being sold at a loss was only going to get worse and he expects it to rise to 5% in the next quarter.
While Davidson believes personal circumstances still make up the majority of reasons for people selling at a loss, he expects rising interest rates and falling house prices will start to put financial pressure on people in the coming months.
“We are starting to see a bit of stress coming through, it’s nothing major but you’ve also got to think that we have to face reality because it’s only going to get worse.”
Valocity head of valuations James Wilson says the pain is mostly limited to investors. Photo / Fiona Goodall
However, he said there is one upside because while people reselling property are going to feel a bit more pain and a bit less gain, perspective buyers might be able to grab a bargain.
Infometrics chief forecaster Gareth Kiernan said people who had owned their homes for some time will likely be able to absorb the higher interest rates, but there will be a small pocket of people heavily affected and that’s when the stresses would really start to show through.
“It will be a combination of first home buyers, but also there will be potentially some investors in there as well who will be reliant on the cash flow from the property to service the mortgage rather than necessarily their own personal income and obviously as those mortgage costs are lifting substantially there the ones that are probably most at risk as well.”
Kiernan said the banks usually try to work with customers to help them keep their homes rather than let them get into a position where they are forced to sell and potentially for considerably less than what they paid for the house.
“But I would be expecting given the almost unexpectedly large rises in interest rates that we’ve seen and will continue to see over the next few months that there will be more people in a position where they do find themselves forced to sell and potentially at a considerably lower prices than they bought the property a year or two ago.
Valocity head of valuations James Wilson said anecdotally some properties are being sold for a smaller profit as some people try and meet the market and avoid any future interest rate rises, but it is still extremely rare for properties to be sold at a loss.
“That’s mostly limited at the moment to groups like investors because owner occupiers are usually able and willing to ride through that on paper negative equity.”
