First home buyers are the most affected
According to Domain economist Trent Wiltshire, the highest loan to value ratios and the lowest average price of properties that are now in red are key indicators.
“First home buyers generally buy cheaper homes and probably have higher value loan relationships because they do not have capital that an upgrader or reducer could have,” he said.
“It’s not so surprising with the fall in house prices that more people have a negative equity.”
Mozo’s housing expert, Steve Jovcevski, agreed that recent buyers were those who felt most affected by negative equity.
“It is disproportionately harming first-home buyers who can least afford it,” he said.
Roy Morgan’s industry communications director, Norman Morris, suggested that the data did not capture the full extent of the problem, as the housing price declines began to be felt.
“By all indications, it seems to get worse,” he said. “If the rates of mortgage loans increase, the problem is likely to get worse, as reimbursements will rise and housing prices will decrease, with the potential to further reduce capital.”
What is wrong with negative equity?
According to Wiltshire, negative equity traps homeowners in loans that are difficult to refinance and discourages owner-occupants from marketing property, as they continue to owe money after the sale.
“Owner-occupants are more likely to excel than investors,” he said. “[Investors] have the advantage of compensating for any loss of capital against capital gains.”
Jovcevski said the owner-occupiers with negative capital were at the mercy of the banks and “what the banks dictate,” adding that the situation could have a broader effect on the economy.
“Negative equity is a mentality,” he said, “when people realize that when their property is worth less than what they paid for it, consumer spending goes out the window.”
Homeowners with negative capital could improve their position by paying off debts, but according to Wiltshire, a change in the market would have the greatest impact.
“The key for people with negative capital is that prices rise.”