Tuesday
Higher rates are causing those with fixed rate mortgages*, of which there are many in Australia, to not put their houses on the market. Yes, they can make a dollar profit by doing so, but then they have to buy a new house. Their new mortgage is going to be at twice the interest rate of the one that they already have. That is a big incentive to not sell.
In the higher risk environment signified by the higher interest rates, banks are reluctant to lend for new building projects. They are hoarding their cash – just in case (SVB, Sovereign etc.). Far fewer houses are going to be built.
So, we have less existing houses coming on the market and less houses being built = less supply.
However, there is also mounting apprehension on the part of the potential buyers because of the higher interest rates = falling demand.
It should be stalemate, but more likely is that many owners will be forced to sell because they can no longer afford the mortgage repayments – like all the out-of-work builders. Note that builders are not the only people who cannot get credit at the moment.
Hold your Gold.
While house prices may – may – hold ground in dollar terms, they are certainly going to continue to fall in terms of real money. As measured by Gold, house prices peaked in Australia in December, 2004.
The housing bust, which has been in slow motion for almost 20 years now, is about to take a turn for the worse.
* Fixed rate mortgages are generally only for up to 5 years in Australia, though there are a few for 10 years. The 30 year fixed rate mortgages of the U.S. don’t exist here.