Negative equity on the rise

[hobo-jo]

Report authors and RP Data researchers Tim Lawless and Cameron Kusher said that almost 5 per cent of homes nationwide were in negative equity.

“4.9 per cent of all Australian homes are currently valued at less than purchase price,” the report said.

“The negative equity figure has risen from 3.7 per cent at the end of the last quarter.”

The report cited far north Queensland, the Gold Coast and the Sunshine Coast as having the highest instances of negative equity at 20.2 per cent, 14.0 per cent and 13.5 per cent respectively.

“Western Australia’s Lower Great Southern and South West and South Eastern Western Australia are showing high levels of negative equity,” the report added.

"On a state-by-state basis, Queensland has the greatest percentage of properties in negative equity at 9.2 per cent, up from 6.3 per cent last quarter.

"Western Australia also has a relatively high instance at 6.3 per cent up from 4.9 per cent of properties last quarter."

http://www.perthnow.com.au/business...-negative-equity/story-e6frg2ru-1226247640456

As I pointed out in a recent post on my blog this development is only going to act to further dampen the market. It will put recent high LVR buyers in a position where they are unable to or find it difficult to upgrade (potentially having to take on unsecured debt to fund their exit from one house before buying the next). Many of the FHBs who were lured into the market during the FHOG Boost period will be unable to upgrade and this flow on effect will reverberate through the rest of the market. Volumes are already at dismal levels in most markets and things only look set to get worse...

[Note: I believe RP Data's calculations are on sale vs resale prices of the same properties, negative equity technically is when the value falls below the mortgage amount]

 

[RumpledElf]

Add on stamp duty and LMI to those figures of course.

 

[willair]

Volumes are already at dismal levels in most markets and things only look set to get worse...

[Note: I believe RP Data's calculations are on sale vs resale prices of the same properties, negative equity technically is when the value falls below the mortgage amount]

Maybe it will sort out the real Agents from the dropkicks waiting for someone to walk in the door with a bucket load of "OPM",it's happened 3 times in my investing life when the price goes nowhere,but from 1998 till 2008 it went gangbusters,problem is people are sometimes slow when change happens
they only find out when they sell,then look for someone to blame..nothing to worry about mate..

 

[hobo-jo]

Add on stamp duty and LMI to those figures of course.

+ 1

In the case that they want to upgrade those stuck in high LVR positions/negative equity are also faced with stamp duty on the new property and agent/other selling costs for their existing property.

While the markets has been rising the message has been to just get into the market and use your first home as a stepping stone with equity gained while holding to buy the next one, but situation is different now prices are falling.

FHBs should avoid buying any home (e.g. unit/small house) that they might grow out of, rather rent, save the difference and save up for the house they intend on holding over the longer term.

 

[Success]

+ 1
While the markets has been rising the message has been to just get into the market and use your first home as a stepping stone with equity gained while holding to buy the next one, but situation is different now prices are falling.

Why not pay off your PPOR ... THEN and only THEN invest in your IP. Get rich slowly strategy ... always WORKS !

 

[agent007]

http://www.perthnow.com.au/business...-negative-equity/story-e6frg2ru-1226247640456

As I pointed out in a recent post on my blog this development is only going to act to further dampen the market. It will put recent high LVR buyers in a position where they are unable to or find it difficult to upgrade (potentially having to take on unsecured debt to fund their exit from one house before buying the next). Many of the FHBs who were lured into the market during the FHOG Boost period will be unable to upgrade and this flow on effect will reverberate through the rest of the market. Volumes are already at dismal levels in most markets and things only look set to get worse...

[Note: I believe RP Data's calculations are on sale vs resale prices of the same properties, negative equity technically is when the value falls below the mortgage amount]

I'd like to be able to find and read this post in 15y to 20y from now. I wonder how the land scape would look at that time and how it will compare to the present.

 

[Aaron Sice]

i posted about this in redwings thread.

a majority of WA's bad stats come from "down south" - in west australia that means margaret river, dunsborough, yallingup, vasse, busselton etc.

of course they were hit hard - they're regional centres highly reliant on tourism.

considering the record number of people headed to bali last year (385,000) it's no wonder the place is doing it tough - jobs are dying up because less and less people are holidaying down there.

 

[hobo-jo]

I'd like to be able to find and read this post in 15y to 20y from now. I wonder how the land scape would look at that time and how it will compare to the present.

15 - 20 years is a long time. Any number of changes to tax, demographics, population, urban planning or the Australian economy could have developed (positive or negativea for housing)... I imagine most of those buying now who hold for 15-20 years will be better off having done so, but the stats say those holding for this length of time are in the minority:

"About one in four property investors sell their property within the first year and almost half have sold up in within five years."

And chances are there will be better buying opportunities in the years ahead (including for those looking to buy and hold long term). Buying now vs in 2 years time for 10%/$50,000 less might seem insignificant in isolation (in say 20 years time when the median Australian property has doubled/tripled from current prices), but you have to take into consideration the compounding effect of the extra paid... I think timing should definitely play a role in property investment.

 

[Rolf Latham]

It will put recent high LVR buyers in a position where they are unable to or find it difficult to upgrade[/I]

Why would a recent high LVR borrower be looking to upgrade ?

That would be the lest most sensible thing to do in most instances in an "even average" market

A recent high LVR borrower in an average market would not have the resources in any case ?

ta
rolf

 

[hobo-jo]

Why would a recent high LVR borrower be looking to upgrade?
That would be the lest most sensible thing to do in most instances in an "even average" market
A recent high LVR borrower in an average market would not have the resources in any case ?

By recent I'm talking perhaps 3-5 years over which time they've still only paid off a relatively small balance of their principal (perhaps 3-5%) if they've stuck with minimum repayments. So if they've borrowed 95% then they still have a relatively high LVR and a 10% drop in prices could have wiped out any equity.

In my small pool of friends and family over the last 10 years probably at least 80% of the FHBs have upgraded their home within 4 years.

Most have been encouraged by those around them to just "buy what you can afford" and then to trade into something else later when they have the equity.

 

[Aaron Sice]

By recent I'm talking perhaps 3-5 years over which time they've still only paid off a relatively small balance of their principal (perhaps 3-5%) if they've stuck with minimum repayments. So if they've borrowed 95% then they still have a relatively high LVR and a 10% drop in prices could have wiped out any equity.

In my small pool of friends and family over the last 10 years probably at least 80% of the FHBs have upgraded their home within 4 years.

Most have been encouraged by those around them to just "buy what you can afford" and then to trade into something else later when they have the equity.

but what about those on lo-docs that have stacks of equity but still cant borrow OR get into full doc products to increase their LVRs?

half the mining sector are in this position as contractors.

they have a house and will have to wait longer - it's not like they're doing it tough by having a house over their head.

me no unnastan'....

 

[Rolf Latham]

Hiya

3 to 5 I can accept

Much less than that, the average FHOG buyer isnt in a possy to upgrade simply because of either income ( already borrowed a fair slab for the home, then a few interest frees etc) or capacity to put aside income for stamps etc for a new purchase.

Yes there are exceptions.

ta
rolf

 

[Rolf Latham]

but what about those on lo-docs that have stacks of equity but still cant borrow OR get into full doc products to increase their LVRs?

half the mining sector are in this position as contractors.

they have a house and will have to wait longer - it's not like they're doing it tough by having a house over their head.

me no unnastan'....

subject to a few things, just because they are contractors doesnt necc mean they need to go lo doc.

Quite interesting what you can get through on full doc at 80 % or less with a year or so financials PLUS PAYG history previously,

Since the advent of the NCCP many brokers have to actually WORK and understand financials and try and get deals to work that previously " couldnt"

ta
rolf

 

[hobo-jo]

but what about those on lo-docs that have stacks of equity but still cant borrow OR get into full doc products to increase their LVRs?

half the mining sector are in this position as contractors.

What percentage of the Australia wide workforce work is in mining?

I'm not saying all upgraders are in this position, I'm saying those who are facing negative equity and want to upgrade are faced with a difficult set of circumstances which is likely to further impact on already poor sales volumes.

 

[Aaron Sice]

What percentage of the Australia wide workforce work is in mining?

I'm not saying all upgraders are in this position, I'm saying those who are facing negative equity and want to upgrade are faced with a difficult set of circumstances which is likely to further impact on already poor sales volumes.

sorry - i read it different.

but i think the point rolf is making is WHY do they have to upgrade? it's not necessary - and those 5 percent that did for whatever reason is prob a good percentage of fallout considering....?

 

[Aaron_C]

I'm not saying all upgraders are in this position, I'm saying those who are facing negative equity and want to upgrade are faced with a difficult set of circumstances which is likely to further impact on already poor sales volumes.

The people in negative equity are likely to be those who have paid for LMI. If you think that this is happening, why not short QBE or Genworth? You would've made heaps.

 

[hobo-jo]

but i think the point rolf is making is WHY do they have to upgrade? it's not necessary - and those 5 percent that did for whatever reason is prob a good percentage of fallout considering....?

You're right it's not necessary. Most will likely keep stay where they are (having little choice in the matter).

The people in negative equity are likely to be those who have paid for LMI. If you think that this is happening, why not short QBE or Genworth? You would've made heaps.

Making plenty long Gold and Silver.

 

[pieman]

Making plenty long Gold and Silver.

What's plenty?

 

[Aaron Sice]

Making plenty long Gold and Silver.

me too!!

 

[Aaron Sice]

What's plenty?

15% in 6 months for me - and i got in late.