This amidst fears of a recession
As interest rates rise and house prices fall, a growing number of mom-and-pop property investors are considering selling their properties in expectation of tougher times ahead, according to a real estate agent.
Fresh data from the CoreLogic House Price Index showed home prices might decline a further 15-20% in the second half of 2023. Furthermore, while the OCR is expected to peak at 5.5% this year, mortgage rates will likely remain above 7% as long as inflation remains high.
Drew Miller, Ray White Mairangi Bay agent, said this change of market tone is compounded by a high percentage of fixed-rate mortgages rolling off this year, compelling borrowers to refix their rates at the latest figure.
“This means a lot of interest rates on mortgages at the same time will be going from about 2.5% to 7%, and possibly 9%, before the end of 2023. That will eat into people’s spending patterns,” Miller said. “People are starting to worry if they will be able to afford their mortgages. Expect a lot of properties to hit the market soon as those concerns become real.”
He added that when this happens, a “whole lot of sellers competing in a very small market of buyers” will likely drag home values down.
“If you’re worried about the next 12 months, the best time to sell is right now,” Miller said. “You don’t want to risk going to the books in a rapidly cooling housing market. That’s a recipe for profound equity pain.”
Miller said people were already starting to downsize their property or ditching their investment properties as they eye the increasing interest rates.
And with the election scheduled later this year, there were also some people who were waiting to see if a possible change of government might introduce legislation such as interest deductibility on mortgages. But if no policy changes appear to lighten the soaring cost of debt, the housing market next year will be well on its way to a new paradigm and prices likely won’t be as high, Miller said.
“Many are hoping National might get into government and then reverse the interest rate component on mortgages to make them tax deductible,” he said. “For people living in their homes, that would be a great help. But presently, for those with rentals, it is becoming difficult to push these rising costs onto the tenants because the rental market is flattening as well.”
Miller also said that winter probably was the best time to sell since there generally was less competition that season.
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