Sydney’s outer suburbs are showing signs of rising numbers of distressed property sales with higher interest rates the likely cause, a trend that can be expected to spread to other capitals, according to property data group Domain.
Distressed listings as a share of the national market remain low, at about 2.8% across the capital cities, compared with a record 5.1% in late 2018.
However, pockets of forced sales are showing up even before the full impact of 12 interest rate rises by the Reserve Bank in 13 months take effect. In addition, almost 900,000 households are scheduled to roll off low fixed rates to higher variable ones this year, worsening the financial strains for many.
Nicola Powell, head of Domain’s research and economics, said signs of forced sales were showing an uptick in outer suburban regions, particularly in Sydney. Indications of distress included terms such as “mortgage repossessed”, “urgent sale” and “price reduced” that turn up in property descriptions.
“If you look at Blacktown [in Sydney’s west], 9.2% of new listings in May were distressed, that’s almost one in 10,” Powell told Guardian Australia. That tally approached double the 5.2% rate a year earlier.
Similarly, in Sydney’s south-west, another area of rapid population growth, the share of distressed sales among new listings had jumped from 4% in May 2022 to 9.8% last month, Domain data shows.
People in those regions “are feeling the higher cost of living and they may have bought at the peak, stretching themselves financially to get into the property market”, Powell said. Those suburbs include areas that are considered relatively affordable.
The RBA has been hiking the cost of borrowing since May 2022 in a bid to rein in the highest inflation rate in three decades by cooling spending of households and businesses.
With many people debt-free, however, the pain of higher interest rates is falling unevenly on the population.
The RBA expects debt repayments as a share of households’ disposable income to rise to about 10% by the end of 2024, but says so far personal insolvencies remain at low levels, according to minutes of its June meeting.
Powell noted distressed listings remained low in many parts of the country, and were lower than a year ago in cities such as Melbourne and Perth. However, as a share of total listings, such sales were up in regions such as south-east and north-east Melbourne, as they were in north-west Perth.
As a proportion of total listings, distressed sales in the Gold Coast region rose to 9.3% in May from 8.2% a year earlier.
If the unemployment rate rose, as Treasury and the RBA predict, by about one percentage point to 4.5% in the next year or so, more people can be expected to struggle to meet debt repayments and some will become forced sellers, Powell said.
A concentration of forced sales would also likely mean those areas would miss out on some of the uptick forecast by Domain for property prices across the country.
Harry Bawa, head of property and business analytics at SQM Research, said at this point “we’re not seeing a huge uptick in distressed properties overall. In Australia, it’s been very flat.”
That said, searches using listings’ descriptions were likely to be a conservative gauge of the scale of distressed sales.
“It’s really only dependent on what the agents actually put into their listings,” Bawa said. “If they’re not putting in the sale that it was actually for a mortgage repossession or distressed in some way, we’re not going to pick that up.”
Across the states, only Tasmania’s distressed sales have so far exceeded pre-Covid levels. With the caveat that the sample size is relatively small, such sales in the island state passed the pre-pandemic levels last December “and have been increasing since then”, he said.
