Tauranga Property Investors' Association

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Bernard Hickey: Mortgage pain on the rise


There is one sure way to capture the mood of the real estate market and economy right now.

Go to Trade Me or realestate.co.nz and search for properties with the word mortgagee.

You'll get a quick precis of what type of property owners are in trouble and how fast the new language of real estate is changing.

"These owners are serious about selling," says the listing for the mortgagee sale of an Auckland apartment. "Don't dilly dally on this one, the owners want it gone."

Apartments, townhouses, cheap rental properties, half-developed investment properties, sections, coastal property and resort property dominate in these mortgagee listings.

So far, mortgagee sales have been limited to stretched developers, maxed-out amateur rental property investors, over-committed renovators and coastal and resort property speculators. The lenders forcing these sales have tended to be finance companies, receivers for troubled finance companies and some second-tier banks and building societies.

Regular mums and dads living in their own homes are making their payments and when they aren't, banks are working with them on delayed payment schedules, payment holidays and even debt restructures.

Mortgagee sales are limited to the ghettos of property developers and leveraged up property investors and speculators. But the pressure is building and may soon leak into the "real" market, our analysis of mortgagee sales suggests.

At interest.co.nz, we monitor the number of listings of mortgagee sales, of all residential properties and all rental listings on both major websites.

We started this in March and mortgagee listings have more than doubled since then to a record 509 as at the start of last week.

However, that remains a very small proportion of total sales.

About 0.46 per cent of total sales listings are mortgagee listings, which is more than double what it was eight months ago, but still very low.

The arrears rate for mortgages in New Zealand is also relatively low at less than 0.5 per cent.

The threat of the sort of massive spates of mortgagee sales seen in the United States is remote. There are a couple of good reasons for that.

Firstly, New Zealanders are good at paying their mortgages on time.

There's a structural reason for this. In New Zealand, the bank essentially has a right to chase a borrower down for repayment, regardless of where they live.

It's not possible to simply decide to abandon a big loan and leave it with the house. Returning the keys to the bank in New Zealand is not a solution.

But it is in the US. About half of the states in the US are so-called "non-recourse" states where keys can be handed back to the bank and the borrower can walk away scot-free.

This has been a major factor in the mortgagee sales or "foreclosures" that swept many states late last year and through this year.

California, Nevada and Colorado have been particularly hard hit.

All are "non-recourse" states.

In some counties in the three states, more than half of all the sales are foreclosures.

Some US banks have moved to "shoot first and ask questions later" on foreclosures to ensure they are not left holding the baby in a group fire-sale situation. This has accelerated the scale of America's housing wipeout.

The second major reason why mass mortgagee sales are less likely here is that consumers and homeowners are unlikely to have large personal debts that push them over the edge, unlike in the US.

Some US homeowners have as many as 10 credit cards, while the average in New Zealand is about two.

But it is clear mortgagee sales are rising. The banks are under pressure from the Government to avoid them, and borrowers will also want to avoid them. However, a deep recession and increasing unemployment could expand the lexicon of real estate language of desperation.



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