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Negative Equity for home owners around the country

Praneeta Mahajan

Praneeta Mahajan

Hamilton, 3 November 2022

Interest rates have been constantly on an upward trend for a while now and homeowners in negative equity are appearing around the country, a CoreLogic analysis shows.

The likes of Auckland, Gisborne, and the Waikato district are all experiencing an increasing number of first home buyers who owe more on their mortgages than their homes are worth as a result of recent price falls.

Wellington continues to have the greatest proportion, with 38% of first home buyers who bought during the last three months of 2021 now in negative equity.

In Auckland rates were lower despite the region experiencing comparable falls in prices to Wellington, with about 4% who bought during this period in negative equity, but CoreLogic head of research Nick Goodall said this could change quickly if price falls continued at their current pace.

The figure would rise to 15% if prices fell by up to an additional $50,000 dollars – which equates to roughly a further 5% drop.

If the same additional price fall occurred in Wellington, the number of first home buyers who bought in October, November and December who were in negative equity would jump to 67%.

In the Waikato District, one in ten of first home buyers who bought during those months were in negative equity. That would rise by 17% if house prices fell another $50,000.

Gisborne rates of negative equity among first home buyers were similar to Waikato, but they would rise to 26% if prices fell a further $50,000.

CoreLogic’s analysis focused on first home buyers, who could be assumed to have a 20% deposit, and was calculated by comparing purchase prices to how much homes were worth today. It worked under the assumption no principal had been paid back.

Current values were based on CoreLogic’s automated valuation model, which is often used by banks to estimate a property’s value.

All four regions also had first home buyers who bought during the third quarter last year, and during the first quarter this year, who were in negative equity.

Goodall said with the market turnaround, he had expected to see some in negative equity, but the scale in Wellington was a surprise.

Auckland’s relatively low rates were also unexpected, because parts of the region had seen similar falls.

He put this down to sellers retaining their properties, rather than selling, if they could not get the price they wanted.

The REINZ House Price Index, which measures the changing value of residential property, saw a 15.7% decrease from its peak in Auckland. Wellington was down 16.2% from its peak

The Gisborne/Hawke’s Bay region had fallen just over 9% from its peak, and Waikato was down almost 6%.

Negative equity and mortgage arrears were not widespread despite house prices falling 11 percent from their November 2021 peak, the Reserve Bank said.

However, it warned they would grow if prices continued to fall and mortgages were repriced to higher interest rates.

“Significantly higher unemployment would lead to further stresses among households, and is the biggest risk to financial stability at present.”

The bank said a sharp increase in jobless numbers amid worsening economic conditions “could lead to widespread defaults and significant losses for the banking system”.

Household spending will be limited by rising debt servicing costs and falling wealth, and current conditions would likely lead to a fall in new residential construction once existing projects were completed, it said.

Praneeta Mahajan is an Indian Newslink Reporter based in Hamilton.

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