Negative-equity homeowners are showing up across the country, analysis from CoreLogic shows.
Auckland, Gisborne and the Waikato district are experiencing a growing number of first-time homebuyers owing more on their mortgages than their homes are worth as a result of recent price declines.
Wellington continues to have the largest share, with 38% of first-time homebuyers who purchased during the last three months of 2021 now having negative equity.
In Auckland, rates were lower despite the region seeing price declines comparable to Wellington, with around 4% buying during this period in negative stock, but CoreLogic research head Nick Goodall said that this could change quickly if prices continue to fall at the current rate.
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The figure would rise to 15% if prices fell by as much as an additional $50,000, roughly equivalent to an additional 5% drop.
If the same additional price drop were to occur in Wellington, the number of first-time homebuyers who purchased in October, November and December who had negative net worth would rise to 67%.
In the Waikato district, one in ten first-time homebuyers who purchased during those months had negative net worth. That would jump 17% if home prices fell another $50,000.
Gisborne’s negative equity rates among first-time homebuyers were similar to Waikato’s, but would rise to 26% if prices fell another $50,000.
Nick Goodall, head of research at Core Logic, says that while the number of negative-equity homeowners remained in the hundreds rather than thousands, banks wouldn’t be too concerned.
CoreLogic’s analysis focused on first-time homebuyers, who could be assumed to have a 20% deposit, and was calculated by comparing purchase prices to the current value of homes. It worked under the assumption that the capital had not been paid.
The current values were based on CoreLogic’s automated valuation model, which is commonly used by banks to estimate the value of a property.
All four regions also had first-time homebuyers who purchased during the third quarter of last year, and during the first quarter of this year, who had negative equity.
Goodall said that with the turn of the market, he expected to see some negative capital, but the scale in Wellington came as a surprise.
Auckland’s relatively low rates were also unexpected, because parts of the region had seen similar drops.
He attributed this to sellers keeping their properties, rather than selling them, if they couldn’t get the price they wanted.
The Reinz House Price Index, which measures the changing value of residential property, saw a 15.7% decline from its peak in Auckland. Wellington is down 16.2% from its peak
The Gisborne/Hawke’s Bay region was down just over 9% from its peak, and Waikato was down almost 6%.
With downward pressure on house prices likely to continue for the rest of the year, Goodall said the number of recent buyers in Auckland who had negative equity is likely to rise.
supplied
ANZ is the country’s largest mortgage lender, followed by ASB, Westpac, BNZ and then Kiwibank.
Bank prospects limited
It is difficult to establish how much in loans the banks had that were made to borrowers in negative equity.
Most banks do not break out the data in their disclosure statements.
Kiwibank does, and on its statement for the year ended June 30, it recorded $192 million in mortgage loans in which borrowers owed more than 100% of the value of their homes.
Reserve Bank data shows that Kiwibank currently has $23.3 billion in home loans, making it the smallest lender among the Big Five (ANZ, ASB, Bank of New Zealand, Westpac and Kiwibank). ) with approximately 7% of the total market share of the five.
A Kiwibank spokesman said some of the $192 million was due to borrowers using bridge financing or having a loan secured against a property that was greater than the value of the home and therefore unrelated to the loan. impact of falling house prices.
Kiwibank CEO Steve Jurkovich said the number of customers with negative wealth was small.
“Even on a desktop, there are maybe 100, we think of 70 customers, based on what they paid and when they bought it, they will be in a situation where they are close to negative equity,” he said.
“When you think of having a million customers, that’s a very small number,” he said.
RICKY WILSON/Things
Glen McLeod, director of Edge Mortgages, says New Zealanders worried about having a negative net worth shouldn’t panic, “stick to your guns” at work and try to get early payments if possible.
Glen McLeod is a director of Edge Mortgages, and he said there was no reason for banks or homeowners to panic, because with the job market so tight, jobs were unlikely to be lost and homeowners wouldn’t fall behind on the payments.
He said that in time the real estate market would recover and any lost value would be replaced.
“The reality is that as long as you keep making your payments and don’t miss a beat, the banks will keep going,” he said.
The biggest economic impact would be if homeowners didn’t make their next investment or purchase, because the prospect of capital gains had diminished.
Goodall said the banks weren’t looking into negative share rates yet, but would likely have a rundown on the situation.
Independent economist Tony Alexander said banks were unlikely to panic or foreclose on the properties.
“The labor market is strong, house prices will eventually go back up, so I don’t think the bank will have the incentive to do anything about it.”
He also said there would be few borrowers who would be paying higher mortgage rates than those they were stress-tested against when the bank issued the loan.
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