Homeowners at Risk: Banks Listing Houses for Sale Amid Mortgage Crisis

Explore the urgency faced by homeowners as banks prepare to sell houses due to mortgage struggles, highlighting the ongoing housing market challenges.

Interest rates may have reached their peak, but the challenges in the mortgage market are far from over, with experts predicting further impacts on the housing sector. The Reserve Bank is anticipated to maintain the Official Cash Rate at 5.5% this Wednesday, with most projections suggesting no decrease until the year's end. The surge in interest rates has been identified as a key factor in the significant decline in house prices. Although the market decline has largely stabilized, prices remain substantially lower than their peak, with a decrease of approximately 15% according to the Real Estate Institute's (REINZ) data. This situation is placing considerable strain on recent property buyers who are now grappling with both higher interest rates and diminished property values.

Recent data from Corelogic revealed that 7.1% of homes sold in the first quarter of this year were sold at a loss, with a median holding period of 2.4 years and a median loss of $50,000. Additionally, the proportion of property resales owned for two years or less has decreased from 9% in the first quarter of 2020 to 4% in the same period this year. While homeowners have managed to adapt reasonably well to the increased mortgage rates thus far, indications suggest that the challenges are ongoing, with signs of heightened stress in the housing market becoming more apparent.

The number of houses listed for sale on Realestate.co.nz has risen by 23% since July last year, reaching its highest level since 2015. Regions such as Wellington and Wairarapa have experienced the most significant increases in listings, with rises of 43% and 35% respectively, largely attributed to concerns over potential public sector job cuts in the lower North Island. Other areas, including Auckland, Bay of Plenty, and Coromandel, have also seen notable increases of 30% or more in listings, reflecting the continued strain on affordability due to high house prices and mortgage rates.

The surge in new listings and property stock suggests that more individuals are struggling to meet larger mortgage payments and are seeking to sell their properties before facing potential repossession by banks. This trend aligns with Reserve Bank data indicating a rise in non-performing and overdue mortgage lending since mid-2022, reaching levels not seen since 2013. The impact of increased mortgage rates over the past six months has been particularly challenging for highly indebted households, many of whom are now finding it difficult to meet their increased payments, especially with rates exceeding 6.5%.

As a result, there has been a notable increase in the number of property transactions involving sellers taking significant losses, as well as pressure on developers due to the availability of new-build homes at prices below construction costs. Despite this, approximately 15% of households have yet to transition from the low interest rates introduced during the Covid-19 pandemic. The latest Corelogic data indicates a 27% increase in transactions by "movers" shifting between owner-occupied properties, while the market share of first-home buyers has decreased to 25% and investors with mortgages represent around 20-21% of market activity, a historically low level.

While interest rates may have stabilized, the repercussions in the mortgage market continue to unfold, with homeowners and investors facing ongoing challenges amidst fluctuating property values and mortgage rates.