The potential for large-scale distressed property fire sales as a result of rising interest rates has been over exaggerated, according to new analysis of the market.
Online property settlement group PEXA says the rising risk of mortgage defaults is unlikely to trigger any fire sales, because other economic fundamentals such as low unemployment levels, rising demand for property and low supply means the markets will remain stable.
PEXA head of research Mike Gill says even another 50-basis point increase in the interest rates will not lead to property fire sales.
“For fire sales to occur, you have to see high unemployment where borrowers lose their jobs and they’re forced to make these selling decisions. We’re not seeing that,” he says.
“Some borrowers will really struggle to make their repayments and may be forced to sell. But I think on balance, we probably won’t see that to a great degree.”
The research does warn that nearly half of all suburbs in NSW (181 postcodes) have residents who are at high risk of missing a mortgage payment by May.
In Victoria, one in five suburbs (74 postcodes) are at deemed to be at risk and in Queensland 19 postcodes are considered to have above-average risk of default.