Spec­tre of neg­a­tive eq­uity

Franklin County News - - YOUR LOCAL NEWS - ROB STOCK MONEY MAT­TERS rob.stock@fair­fax­me­dia.co.nz

Bar­foot and Thomp­son’s July sales re­portshowed 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. Has the crash fi­nally started? 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

GOLDEN RULES

House prices do go down too Know the par­ties’ poli­cies Vote 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 de­mands 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

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

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.

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’’.

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.

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