It is heartbreaking to think that you have to sell your home due to financial hardship. It is always preferable to hold on to your property, but for some homeowners that have been hit by COVID-19, the decision to sell in the present market situation could be beneficial in the long term.
In March 2020, the Australian Banking Association launched six-month mortgage holidays to help homeowners that can’t make mortgage repayments due to loss of employment during the pandemic. As the loan moratorium nears its end, banks are urging borrowers to begin making repayments again, if they’re able. Good news for people who are struggling – the mortgage holiday period has been extended for four months to January 2021.
However, as the country experiences its first recession in nearly 30 years due to the pandemic, more loss of jobs is projected with some industries forecast to take years to return to normal. This suggests that a loan moratorium is only postponing the inevitable.
If we analyse the years before Australia’s last official recession occurred in the early 1990s, the unemployment rate had slumped to 5.8% in late 1989. It then increased to 11.2% in December 1992 and didn’t return to pre-recession levels until August 2003.
Though it wasn’t technically a recession, before the Global Financial Crisis Australia’s unemployment rate dived to a low of 4.0% in February 2008 and rose to 5.9% in June 2009. The lowest rate reached since that period is 4.9% and that was just for one month.
Unemployment was recorded at 5.1% in February 2020 pre-pandemic, and it’s currently at 7.4% with forecasts it could reach 10% by Christmas.
These numbers are important because the harsh truth of the present recession is that some of jobs that had been lost will not be returning and the unemployment rate is not likely to go back to pre-pandemic levels for several years.
With this in mind, mortgage holders who find themselves unemployed should really think about the possibility of them getting another job, or a job with a similar salary. If the chances of this happening is low, they should seriously deliberate selling their home now rather than later.
Three Good Reasons to Sell Now
Selling a home is not simple. You and many other people may be hopeful that the situation will be much better soon, but struggling homeowners could be facing more competition if they wait longer to sell.
COVID-hit mortgage holders should consider selling now because the supply of new listings is very low in Newcastle. At the end of August 2020, the number of homes that were for sale nationwide was roughly 9% below that for the same period a year-ago.
- High demand
Demand for property is at an all-time high. The number of people who are actively looking for properties for sale is at record-high. Similarly, the share of high-intent search behaviour on realestate.com.au is also near to a historic high and considerably greater compared to last year. In all my years in the industry I have never seen so many active and qualified buyers. A lot of whom are actually cash buyers!
The inadequate supply is likely slowing buying activity at present due to the fact that many prospective buyers are just unable to find the right home to buy. Particularly when you take into account that spring is when people would normally see new home listing increase.
- Historic low interest rates
Lastly, a major factor for the rise in interest for properties at present is the historically low cash rate. The latest Reserve Bank of Australia figures show a 2.3% average for the new three-year fix rate mortgage rates, which is a record low.
According to the RBA, the official interest rate will not be increased until progress is gained towards full employment and the inflation will sustainably remain within the 2% to 3% target brand.
Though the cash rate may not increase for several years, there is no guarantee that the banks won’t independently raise mortgage rates. Because of this, people may feel a certain urgency to buy property and take advantage of those low rates sooner rather than later, and it is critical that there is an increase in supply of homes for people to be able to do that.
It’s not easy to make the decision to sell
Don’t take the decision to sell property lightly, especially during an economic downturn. What is ideal is to hold on to your property or downsize – but you should want it rather than need it.
However, during situations like this pandemic, it would be smart for homeowners with bad financial prospects to capitalise on the present market situation.
No one is sure that the current market dynamics will continue in the coming months.