Mum and dad investors selling

Data CoreLogic’s House Price Index shows house prices might dip a further 15-20% in the second half of 2023.

On top of that, increases in the Reserve Bank’s official cash rate (OCR) are forecast to peak at 5.5% this year and mortgage rates are likely to remain above 7% as long as inflation remains high.

Miller says compounding this change of market tone is that a high percentage of mortgages will expire before the end of the year, compelling debt holders to refix their rates at the latest figure.

“This means interest rates on a lot of mortgages 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.

“People are starting to worry if they will be able to afford their mortgages.” Miller expects a lot of properties to hit the market soon as those concerns become real.

When this happens, he says, there will be a “whole lot of sellers competing in a small market of buyers” which will likely push home values down in a race to the bottom.

Meanwhile economist Tony Alexander’s latest Investor Insight survey with property management company Crockers shows about 24% of respondents are thinking of buying another property this year. It takes purchase intentions to almost the 25% average over the time the survey has been running.

The low was 18% late last year when investors were reacting to the record tightening of monetary policy and the Reserve Bank’s waning about recession over this year.

The proportion of investor thinking about selling a property has decline marginally to just under 22%, just below last month’s average of 23%.

Miller says for those investors wanting to sell there are risks if they wait, particularly in a market that is rapidly cooling. “That’s a recipe for profound equity pain.”

He has noticed people already moving to downsize their property or ditching their investment properties as they eye rising interest rates.

“With an election this year, some people are 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 rising 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 says.

“For those with rentals, it is becoming difficult to push rising costs on to tenants because the rental market is flattening as well.”

Miller says winter is probably the best time to sell since that season generally has less competition for properties.

“If investors are going to get out, they need to get out now. It’s probably not going to get better than it is today.

1. Get an appraisal

An appraisal older than three months may seem recent, but Miller says it will already be out of date in the rapidly changing housing market. An appraisal is an unbiased opinion of a home's value and is required whenever a mortgage is involved in buying, refinancing, or selling a property. Most real estate agents will offer a free appraisal of a home but getting it wrong could be costly. So, it’s always a wise decision to get a second or third opinion and compare them to find an average value, Miller says.

2. Check your home’s health

Just like going to the dentist every few years for a general check-up, a home also needs to be kept at top shape. Ensuring a home has no major wear and tear is one part of this process, but so is ensuring all upgrades, renovations and additions are appropriately signed-off with the council for relevant consents. The sooner you can get this check-up process moving, the better, Miller says.

3. Get good advice

It’s important to be prepared for rising interest rates and increased cost of living, but no one can foretell the future. Nevertheless, if selling isn’t going to be an option, but costs are expected to balloon, Miller says seeking out advice on tightening the belt can do wonders for peace of mind. “Talk to a mortgage broker and a financial planner to make sure you can afford the worst-case scenario should the wider economic system get too hard to manage. It’s also advisable to set up a spreadsheet to monitor your weekly costs and keep a close eye on your budget.”