Falling house prices put some homeowners into negative equity

PHOTO: CoreLogic said negative equity was only a problem for homeowners if they needed to sell. Photo: 123RF

Some home buyers are already experiencing negative equity in their home as market prices continue to decline.

Negative equity is what happens when the value of a mortgage exceeds the sale value of a property.

Prices were expected to continue to decline over the next year, with latest data from Quotable Value indicating the national average house price fell 4.9 percent over the past three months ended July to $989,790.

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However, property research firm CoreLogic said negative equity was only a problem for homeowners if they needed to sell.

“There are some people who are probably already in that situation who purchased in third quarter of last year or fourth quarter of last year and have seen the value of their property fall,” CoreLogic chief property economist Kelvin Davidson said.

However, the tight labour market and rising wages meant there was not a lot of pressure to sell, provided people were able to stay in employment, he said.

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“Negative equity doesn’t need to be a disaster. It’s not great for the mindset perhaps, but financially it doesn’t need to be a total disaster,” Davidson said.

The other issue was the ability for people to service their mortgage at higher interest rates, however homeowners could offset those costs by tightening their belts, he said.

“So I think a widespread scenario where we have a lot of negative equity, and a lot of people falling behind on mortgage payments is just a little bit off the cards right now.”