Andrew Bell’s Market Wrap: Who is Affected by Rising Interest Rates?

Issue 13 | Thursday 30 June 2022 | Who is Affected by Rising Interest Rates?

Hi. Andrew Bell here and thanks for all the significant feedback last week. Lots of comments from people appreciating getting some context around these rising interest rates. So a little bit more this week.
The question is who gets affected by rising interest rates? And in that regard, about a third of Australians who own properties, this is owner-occupiers actually own their homes outright with no mortgage whatsoever. The next group of those who have purchased properties and many of those who have owned them for quite some significant amount of time and they’ve already reduced the level of their mortgages and others right through this period have lowered their loan repayments by continuing to pay at higher level. So they’ve really eaten into their mortgage repayments and have dropped substantially their debts so they’re in a good position, they’re well placed to better handle any interest rate rises.
So it’s the remaining group that will largely be affected by mortgage rates rising and these are most likely people who have bought in the last two or so years and have probably bought to the absolute maximum to keep up with price rises so that’s the group who are going to feel these interest rate rises more than anybody else.

The key always is to have some handsome equity in your property because you’ve got more flexibility in any discussions with the banks around any mortgage stress you may have. Now, whilst I’m the first to acknowledge that it’s only probably this month that people are starting to see some impact of rising interest rates as they get their loan repayments, it’ll be as we get through the year and there’s more and more interest rate rises that people really start to feel them so for the great majority of people, they’re not going to be forced into a decision about how do I manage my mortgage payments until in the second half of this year and indeed maybe even to the early part of next year?

Do you know what the biggest impact is? It’s about consumer confidence. That’s the real problem. The media keep making huge issues about interest rates, and so it’s spooking people. It’s really stopping some people from even thinking about getting a loan.

So people ask, is consumer confidence having an impact on the marketplace? Well, here’s a great way of looking at it… Ray White is the largest real estate company in Australasia. So we’re a great barometer of seeing just how the activity is changing. Last month, the group sold $6.2 billion of real estate. That’s a mighty lot of real estate. But to try and get some context to that, if we go back to the same month last year, where we compare the time of year or seasonal factors and so on, we see that this year sales are up 29%.

So it doesn’t suggest that we’re seeing any real impact as yet in the marketplace. There is no question that we’ll start to see maybe some softer prices and so on. But the activity is really, really strong at the moment. So in response to the question are we experiencing any hit to the real estate market? Modest here in Queensland, stronger in other parts of Australia where there are some falls of between 10% and 15%.

Now the next barometer people look at is auction success. Auctions have been accepted by the great majority of people in Australia as the best way to sell real estate, no matter what market conditions are. What is a poor barometer that’s used by the media when looking at auctions and that is auction day success? It fails to identify that many properties successfully sell, days or within a week or so of an auction where they hadn’t sold on the day and that’s not factored into the numbers.

So I advise being very careful when you watch those numbers to see whether you’re in fact seeing the correct volume of sales by auction or just sales on the day. You know, last year we were selling around about 42% of our auctions prior to auction with people making offers just simply too good to refuse. That number has softened to around 24% for our office. And yes, I do acknowledge for less experienced offices that percentage is lower the actual success rate by the end of the day of the auction, which includes the property sold prior to and under the hammer was 72%, that’s down only a little bit from six months ago we were around about 88%. Registered bidders have dropped from about 5.6 on average down to 4.2. All of these figures are well above the usual trend of stats over the last 20 years.

So be careful when talking or taking too much notice about what the media print, as again they just love to play up anything that spells some negativity. What the media doesn’t report is a comparison to private treaty sales. That’s where you simply list a property with a price. The success rate of this method of sale is declining and sharply, and largely because the prices placed on the properties at the time of listing are often people’s desired price, which is well above market price. And so, people looking at print media or looking at the digital platforms simply reject, even looking at the property, inquiring on it because I believe it’s overpriced. So the success rates in this space is declining and days on market for those properties are blowing out. It’s taking time, sometimes for sellers to adjust their prices back to market price.

All in all, the market here on the Gold Coast still has an imbalance. There are more buyers and sellers, but the buyers will no longer pay whatever the asking price is, but will pay what they have researched as a fair market price. If you are well priced to meet the market, then there will be no problem in selling your property.

Talking about auctions, today we have our end-of-financial year auction with a big array of properties that have been receiving excellent inquiries and inspections, and so we look forward to a strong finish to the first half of the year.

Thanks to all of those who supported my CEO Sleep Out last week. The support was amazing and the Gold Coast CEO Sleep Out contributed over $400,000 towards the national total. With the very cold winter, we are experiencing It’ll make a difference in feeding & clothing so many of our fellow Australians living it tough on the streets.

In summary, yes, there’s a change in the real estate market. But yes, if you’re thinking about selling, I would do so before interest rates rise higher. And yes, if you’re a buyer I’d be buying now before those interest rates rise to lock in the lower interest rates. We’re past the shortest day of the year, so I say bring on the warmer weather as we head towards summer

All the best, for now, I look forward to being back with you in a fortnight’s time.

Andrew Bell

Warm Regards,

Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group

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