Falling property values give some home owners negative equity

The recent “softening” of our property markets have placed a small number of home owners and property investors in the uncomfortable position of negative equity.

Over the five years to September 2011, capital city home values have increased by around 28 percent, according to RP Data’s  National Equity Report. 

However, home values have dropped by 3.3 percent between the October 2010 peak and September 2011. While this is the overall figure some properties, especially at the top end of the property market, and in holiday locations have dropped more than this.

RP Data says buyers who purchased homes over the last year or so have potentially seen value move below contract price.

The report shows 4.9 percent of Australian homes are currently valued less compared to when purchased.

Let’s put this into perspective

On the other hand around 43 percent of homes are worth more than twice what owners originally paid.

Where is it worst?

The report says there is some variation between regions, with areas that have recently seen a more severe downturn in home values reporting higher proportions of negative equity.

Northern and south-east Queensland and south-eastern Western Australia are showing more than 10 percent of dwellings are worth less now, compared to the original purchase price.

How long have you owned it?

RP Data says homes ‘held’ for a longer period of time accumulate more equity, in comparison to those held for shorter periods of time.

Homes purchased after 2007 have a higher propensity toward negative equity, according the report. It says this is due to their being purchased after the 2000-2004 market gain, and after the market gain experienced throughout 2007.

Negative equity is rising

The report finds the instance of negative equity nationally has risen, as property values have fallen over the last quarter.

Capital city values fell by -1.3 percent over the September 2011 quarter, resulting in an increase in negative equity, from 3.7 percent of all homes nationally to 4.9 percent.

While negative equity is increasing, the report says only 13.1 percent of households are ‘in the red’ or experiencing less than 10 percent equity. More than 56 percent of homes have more than 50 percent equity.




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