Rob Stock: The nightmare of negative equity

Last updated 05:00 11/08/2017

Some people who bought recently now own homes worth less than they paid for them.

Recent buyers of houses in some parts of Auckland will have a sinking feeling.

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OPINION: Has the crash finally started?

Barfoot and Thompson's July sales report showed the average sale price for an Auckland Eastern suburbs home was $1.117 million in July, compared to $1.193m in July last year.

In the North Shore the average price was down from $1.3m to $1.06m. In South Auckland, it was down from $824,069 to $708,069.

What exactly this all means is up for debate.

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Is China's crackdown on money leaving the People's Republic causing the crunch?

Are anti-money laundering laws finally working?

Have the Reserve Bank's high deposit-for-investor rules knocked them out of the game?

It certainly isn't because we're building enough homes for the expanding Auckland.

Whatever the reasons, some people who bought recently now own homes worth less than they paid for them.

A tragic few may even be in negative equity, when the value of their home minus the cost of selling it (real estate fees, advertising, lawyers, etc) is less than is needed to repay the mortgage.

Large numbers of Britons have had to learn to live with negative equity after a boom was followed by a lasting bust.

If prices keep falling some Aucklanders may find themselves in a similar boat.

Barfoot's figures didn't show all suburbs were down. Central and West Auckland were up.

Negative equity is depressing for a homeowner.

It means they have gone backwards.

But unless banks get uppity and demand extra repayments (which they didn't do when prices fell in 2009 after the Global Financial Crisis), a homeowner in negative equity can just get on with life, hoping the property market will quickly revert to rising as the tide of migration to Auckland, and the failure to build enough homes in the city, continue.

Some will even speed up their repayments in a bid to get back into positive equity.

In the short term, negative equity only really becomes a problem for a homeowner if they have to sell, remortgage, or want to borrow more.

Banks don't want new borrowers with negative equity. Even people with less than 20 per cent equity aren't prime borrower to a bank. And (economists shudder) small business loans are secured against home equity.

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Long-term negative equity is a personal nightmare for homeowners.

It traps them, and is a rankling symbol of how they are a victim of failed markets, failed government policies, and other people's profiteering.

Ironically, that's exactly how many renters feel.

House-price booms create have's and have-nots, and they will clash at the ballot box in September.

Opposition parties are trying to actively win the renters' votes (Gareth Morgan's Opportunities Party's lifetime tenancies, Labour's Healthy Homes policy).

National's housing policy doesn't contain the word "rent".

Let's face it. They have been the party for homeowners.

Currently, the equity-rich seem to have the voting numbers, but elections all around the world are increasingly springing surprises, and people don't always vote in self-interest.

Homeowners often have children and grandchildren. They are interested in them being able to afford decent homes too, or live in decent rentals.

* House prices do go down too
* Know the parties' policies
* Vote

- Stuff


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