ALL OUR ROADS NOW LEAD TO MILLIONAIRE ROW
Fears of ‘blood on the street’ when interest rates rise and Gold Coast homeowners mortgaged to the hilt are forced to sell – and sell quickly
ONCE it was just Hedges Avenue … but now every Gold Coast street is its own Millionaires Row.
Just compare this tale of two homes – they both have four bedrooms, two bathrooms and sold for just over $1m.
But one is an 833sq m north-to-water block with views of the Surfers Paradise skyline, located just a few hundred metres from Nobby’s Beach.
The other is a block that is just over half the size at 474sq m and out the back of Robina, where the only views are the roofs of identical cookie-cutter houses.
Not that there’s anything wrong with that. But, somehow, it’s the house in Robina that sold for more.
Yep, $1.1m was paid for 1 Kiawah Crt, Robina on February 3, 2022, compared to the $1.05m paid for 9 Rudder Crt, Mermaid Waters on March 15, 2019.
And it’s the difference between these two houses – over the course of just 36 months – that is exactly why we are about to see blood on the streets.
Just a few short years ago in the pre-pandemic, paying a million dollars for a house used to mean something … you’d bought and sold your way up the property ladder, you scored a big promotion or landed a new high-paying job. It was an exclusive club.
But now, according to Corelogic’s quarterly Regional Market Update, the official median price for a house on the Gold Coast is one million dollars.
And that research also shows that Gold Coast homes are among the fastest-selling in the country – with just 16 days needed to find that million-dollar buyer. For reference, 60 to 90 days was long considered the standard for this city.
But without the wage increases to support these seven-figure prices, these homes are coming with an almost one-million-dollar mortgage.
Indeed, one Gold Coast mortgage broker confirmed that almost all of his business comes from million-dollarplus properties, with many residents borrowing a full 80 per cent of the value.
So the news that the Commonwealth Bank (CBA), Australia’s largest bank, has brought forward its estimation of an interest rate rise is alarming.
“We shift our central scenario for the first hike in the cash rate target to June 2022 (from August 2022),” said CBA’S head of Australian economics Gareth Aird.
The official cash rate has been at a record low of 0.1 per cent since November 2020 in response to the Covid-19 pandemic but it is expected to jump by one per cent by the end of this year and hit 1.25 per cent next year.
Although a one per cent rise sounds like a tiny amount, it would add hundreds of dollars every month for every Gold Coaster in a (very average) $1m home with an $800,000 mortgage.
A two per cent rate rise would see monthly repayments on an $800,000 loan increase from $3200 to $4063.
While banks factor in a three per cent interest rate rise when approving loan applicants, that is far from a comfortable buffer.
“With every loan, the government makes sure that you can service it at three per cent above the current rate … but the reality is that buffer goes in an instant,” says the mortgage broker.
“Interest rate rises are predicted precisely because the cost of living is increasing, so that three per cent extra servicing is eaten up very quickly. It’s not just your loan increasing but your groceries, your fuel, your school fees … it’s a very precarious situation,” the broker adds.
“We are on the edge right now and there are going to be a lot of people mortgaged to the hilt who will be forced to sell – and quickly.
“That’s when we’ll see blood on the streets.”
Of course, the faint silver lining of this situation is that these distressed sales might finally mean a softening of the market and an opportunity for sidelined buyers to pounce.
Or it could just mean another interstate migrant moves into the neighbourhood.
Unfortunately, it’s hard to see our property market pitched as a land of opportunity for anyone other than the cashed-up.
And these days, one million just won’t cut it.
And these days one million dollars just won’t cut it