About 136,000 homes likely to be worth less than their owners paid for them

Property / analysis

About 13,000 recent home buyers could now be facing negative equity

22nd May 23, 1:37pm by Greg Ninness

The slump in house prices over the last 18 months has raised the spectre of some home owners falling into negative equity.

A home owner's equity is the amount of money they would be left with after they had paid off their mortgage.

So if they purchased a home for $1 million with a 20% deposit, their equity would initially be $200,000.

If the value of a home increases, that will increase the value of the owner's equity.

But if the value declines, the owner's equity reduces by the same amount, because the bank will still want to be repaid in full.

Negative equity occurs when a property's value has declined so much that the owner's equity is wiped out and more, meaning if the property was sold there would not be enough money from the sale to repay the mortgage in full, leaving both the home owner and their bank in a very difficult situation.

So how many home owners are at risk of being in that situation following the latest falls in property prices?

The first step in that equation is working out how many homes are likely to be worth less now than they were when their owners purchased them.

Real Estate Institute of New Zealand (REINZ) national median selling price data suggests most dwellings purchased between March 2021 and December 2022 will probably be worth less now than they were when they were purchased.

According to the REINZ, 136,609 residential properties were purchased over that period.

So there's potentially 136,609 homes that are now worth less than their owners paid of them.

Does that mean that all of those home owners are in negative equity?

Absolutely not.

That's because the national median selling price has only fallen by 14.6% from its peak of $925,000 in November 2021, to $790,000 in December 2022.

That's the maximum decline in value for someone who purchased at the November 2021 peak and it's not enough to wipe out the equity of anyone who purchased a property with a standard 20% deposit during that period.

Certainly their equity would have been reduced and in some cases it would have reduced substantially, but in most cases those home owners would still have some equity left.

Those who are at risk of being in negative equity are those who purchased their property between March 2021 and December 2022 with less than a 20% deposit.

According to the Reserve Bank, 12,946 low equity mortgages were approved between March 2021 and December 2022.

Exactly three quarters of those low equity mortgages were to first home buyers.

Those numbers suggest there's about 13,000 home owners that are potentially at risk of being in negative equity, which is 9.5% of the residential properties purchased between March 2021 and December 2022.

Even that number may be a bit on the high side - the actual number will depend on when they purchased in the current cycle and how big their deposit was.

While being in negative equity is not a good place to be, in practical terms it only becomes a problem if the home owner wants to sell, can't keep up with their mortgage payments, or wants to access additional credit.

So far, most appear to be weathering the storm.

Currently there are about 34 residential properties advertised for mortgagee sale throughout the country, and the number of mortgagee sales has remained relatively flat since the start of the year.

However if mortgage rates continue to rise and house prices continue to fall, the number of home owners getting into difficulties could start start to become a more serious problem.

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116 Comments

by HughJorgan | 22nd May 23, 1:54pm 1684720445

The real question is, what are construction costs going to do? Construction costs will drive where property values land over the next 1 to 2 years.

by bw | 22nd May 23, 2:11pm 1684721502

Construction costs can rise even as the value of the land underneath the building falls. That's where the equation will be balanced - the falling price of the land. If we should have learned anything for the Christchurch event, it's that 'making it more expensive for the affected to rebuild' is not the way to go. Making it cheaper is. And freeing up the mass of land on Christchurch's perimeter was the obvious opportunity that was missed. Lets' hope we don't do the same to Gisborne.

by HughJorgan | 22nd May 23, 2:02pm 1684720961

Most land owners don't need to sell. Builders need to work and suppliers need to sell.

I agree there is a mix but surely construction cost will start moving. Most sites around me (North Auckland) are uneconomic to build on even with a reduced land value.

by bw | 22nd May 23, 2:06pm 1684721199

Land Tax on undeveloped land at say 20% per annum might just change that view? Or perhaps taking a leaf out of Singapore's book might? " Singapore Hikes Property Tax, Doubling Rate on Foreigners to 60%"

by huttman | 22nd May 23, 2:20pm 1684722046

so whenever we have a problem, we just tax it?

by ShoreThing | 22nd May 23, 2:25pm 1684722342

If the problem is negative externalities, then Pigouvian taxes are a pretty good solution.

by Mrs The Point | 22nd May 23, 5:57pm 1684735059

Many thanks for my new word of the day "Pigouvian Tax".

by bw | 22nd May 23, 2:32pm 1684722728

Not at all. But the corner we have painted ourselves into means that all changes to the Property Sector of our economy have to come from one very large hammer ; one much larger than it should be, and Adrian Orr holds that tool in his hand.

We've lost the capacity for legislative change to better our economy - via structural change brought in by whoever we elect, because none of them will campaign for the change they all acknowledge is needed, or they won't get elected.

So you're right. It won’t; it can't be Tax. It will be the Monetary Hammer brought down with force. And that will affect us all.

by peter.may | 23rd May 23, 10:29am 1684794552

Land constitutes about 40% of the total cost in a house & land package - in my area

by Miguel | 22nd May 23, 2:59pm 1684724374

This idea that prices can't fall below the cost of construction is just nonsense. The majority of the increase in house prices has been due to appreciation in the value of the land.

Buildings are depreciating assets, its generally the land that appreciates in value. A house constructed in the 1970's with no insulation or double glazing, and out of date kitchen and bathroom, SHOULD cost less than a brand new build built to the current building code.

by OldSkoolEconomics | 22nd May 23, 3:05pm 1684724701

Haha.

House prices wont balance with construction costs.

House prices will fall to what people can afford to pay for them.

by GV 27 | 22nd May 23, 3:19pm 1684725577

What they can afford to pay is a function of credit availability.

We are more likely to see easing there than houses falling to actual affordable levels as determined by income.

by Justa comment | 22nd May 23, 7:29pm 1684740592

I dont have much sympathy for those that bought in 2021. The prices were ridiculous.

by Slapheid | 22nd May 23, 11:00pm 1684753251

Its easy to say that in retrospect, but the fear of missing-out forever is very real.

I was actively bidding on properties during 2020 (and getting marmalised every time on auction day!) Property prices were on a tear, the RBNZ was telling banks to get set-up for negative rates, even the PM stated she wanted to see prices continue increasing with "sustained moderation".

I am risk averse and a renowned tight-arse, and even I was desperate to secure a home and escape a lifetime of renting, even if it meant going all-in financially.

Attending auctions is an expensive exercise (emotionally and financially) and after 4 or 5 unsuccessful attempts you've had the life sucked out of you.

I'm not surprised people bid to the moon....

by CN - new | 23rd May 23, 1:50am 1684763447

Only a small proportion of people are able to recognise when house price risks are extremely high.

Several commenters on interest.co.nz recognised the high house price risks and warned potential owner occupier buyers of those risks so that the potential owner occupier buyers could make a fully informed decision and avoid being potential collateral damage.

Those with vested self serving financial interests attempted to discredit them by giving them negative labels in a backdrop of continued rising house prices. Against such a backdrop, the general public does not believe that house prices can fall by much, discredit the warnings and continue to buy, using high amounts of debt to finance purchases of a residential dwelling. At extremes, with buyer expectations of continuing price rises and lenders willing to continue to lend, this can lead to aggressive buying competitions at auctions. That is how house prices can get to extreme levels.

The high house price risk warnings were drowned out by the frequent messaging by those with vested self serving financial interests in the media.

On some other media sites, comments of early warnings of house price risks were removed by publishers, thereby depriving owner occupier buyers of information and an opposing perspective to enable them to make a fully informed decision. Some media sites even removed some commenters who were making warnings of house price risks.

There was a comment that one potential influential voice did not want to publicly raise the house price risks in the media due to the vitriol that they would receive - most likely by those with their vested self serving financial interests.

This is how house price risks can continue to be elevated for quite some time.

Unfortunately, when house prices drop significantly, there can be significant collateral damage. Look at other countries where house prices fell significantly - e.g. Ireland 2008 / 2009, US 2008/ 2009, Japan 1990's

by CN - new | 23rd May 23, 12:04am 1684757070

In an environment of rising house prices, this warning was likely dismissed and ignored by many house buyers.

https://www.stuff.co.nz/national/politics/300238808/reserve-bank-govern…

In an environment of falling house prices, this warning is now likely seen in a different light.

by CN - new | 23rd May 23, 12:22am 1684758146

Here is one counter argument as to why previous international house price bubbles were irrelevant to NZ made on this site

USA - fraud and overbuilding

Ireland - economy collapse, unemployment to 16%

Spain - economy collapse, unemployment to 26%

Japan - literally the modern formative lesson on 'dont hike rates in to a bubble'. Following this lesson all major economies instead cut rates to reset yields and if needed monetize.

none of these are examples that are relevant to NZ.

Because you have not made a case for either overbuilding, fraud or an increase in unemployment to extremely high levels. Without that basis none of your examples are relevant. You have put the cart before the horse.

by CN - new | 23rd May 23, 7:44am 1684784655

Note that as at May 2023:

1) there are no reports of overbuilding

2) there are no reports of widespread fraud

3) unemployment is not at extremely high levels (unemployment is near record low levels of 3.4%)

So under this model, house prices should not be falling.

Yet in reality, the REINZ house price index for Auckland and Wellington have fallen more than 20% in nominal terms from their peaks in 16 months. (In inflation adjusted terms, with inflation around 7% p.a, the falls in the house price indicies is even more negative)

by J.C. | 22nd May 23, 3:41pm 1684726890

The majority of the increase in house prices has been due to appreciation in the value of the land.

You sure about that? Maybe it's due to an increase in the money supply and credit creation.

by agnostium | 22nd May 23, 4:46pm 1684730781

Agree JC, it caused by credit creation and has manifested as land appreciation.

by kiwimm | 22nd May 23, 3:11pm 1684725117

This construction cost argument doesn't hold if people can't afford to build. Firstly, the land price will fall to a lower level. Then people will look at building smaller or multi-generational (we have some of the biggest houses per person in the world). Then building innovation will find ways of reducing the build costs (lots of scope for this in NZ with the right motivation).

by Nzdan | 22nd May 23, 3:23pm 1684725839

If push came to shove, I'm sure the manufacturers/wholesalers could give up some of the margins I'm sure they've enjoyed after this credit fueled boom. Unless they're price takers, not price setters?

by HughJorgan | 22nd May 23, 3:29pm 1684726167

This is what we need to watch for. Too many fat margins.

Builders are going to have to put pressure on their suppliers if they want to work in NZ next year.

by HouseMouse | 22nd May 23, 5:48pm 1684734510

If builders can survive the next 12-18 months - a big ‘if’ - there could be another little mini boom. Cheaper land and lower construction costs will start to make development feasible again, especially as interest rates lower again next year.

by swapacrate | 24th May 23, 1:04pm 1684890297

Will there be a mini boom. Looks as if RBNZ will stomp all over inflationary outlooks. Also how much will interest rates drop, even if they did. Not sure myself, looking for stability, not constant peaks and troughs. Be good if they can contain inflation and not play around with interest rates, like its a one arm bandit. Keep things nice and steady.

by Zwifter | 22nd May 23, 4:37pm 1684730234

Not according to the DGM's on here Hugh, nothing to do with it apparently houses can fall 50% according to some on here.

by Independent_Observer | 22nd May 23, 4:54pm 1684731260

Are you claiming it to be impossible? (I think its a certainly a possibility in inflation adjusted terms - we're down around 30% already in real terms - but less confident of that outcome in nominal terms - but given the crazy things that have happened around the world, I wouldn't say that it is impossible).

by malamah | 22nd May 23, 5:10pm 1684732206

Can = possible. Is it possible? Yes. Will it happen? Who knows, must be over 30% in real terms in a number of parts of the country by now.

Edit: Not copying IO above, was reading an older comment thread at the time. Same perspective though!

by swapacrate | 24th May 23, 1:07pm 1684890469

Happiness is more affordable homes. Like the way you think, hopefully your right and 50% or more.

by Mr Ed | 23rd May 23, 7:27am 1684783679

@ HughJotgan: Surprisingly cost doesn’t equate with value 😊 In a downmarket cost will be greater but by all means believe whatever you wish .

by Ollies1 | 23rd May 23, 1:23pm 1684804995

Up. Partly due to inflation in materials and labour. Partly due to people not going for new builds as much (again, due to inflation, but also decline in overall property values making existing homes a more attractive option for FHBs). Already starting to see building companies failing due to insufficient work pipeline (Hawkes Bay/Tairawhiti rebuild notwithstanding). A bust cycle is on the way unfortunately.

by J.C. | 22nd May 23, 2:12pm 1684721572

No worries. Property is a 'consumption good', not a pot of gold at the end of a rainbow.

Even the RBNZ Guv said so.

by Beanie | 22nd May 23, 2:02pm 1684720939

I would take a wild guess and say that for every official mortgagee sale, there would be at least 20 others that have been instructed by the bank to sell for whatever they can get for it. The Bank often writes off any shortfall if you have no other assets without sending you into bankruptcy.

by chebbo | 22nd May 23, 2:03pm 1684721005

The Bank often writes off any shortfall if you have no other assets without sending you into bankruptcy.

Source?

by Yvil | 22nd May 23, 4:27pm 1684729637

"Beanie: I would take a wild guess and say….."

That's the source.

by HughJorgan | 22nd May 23, 2:58pm 1684724293

Agree, if you get a tap on the shoulder by the bank to sell then best to get on with it.

Edit: Spelling

by GV 27 | 22nd May 23, 2:12pm 1684721522

Gonna have to brush up on my tax, but debt remittance used to arguably be a form of income. So there's that to keep in mind too.

by rastus1 | 23rd May 23, 9:01am 1684789287

Good point. I'm not entirely sure but with a rental debt write off I would say so and quite possibly even a personal home.

by Retail shop | 22nd May 23, 3:02pm 1684724540

Make it up Beanie!

by Beanie | 22nd May 23, 9:42pm 1684748528

Yep as I said the 20:1 was a guess. If I had to place a bet on it I would go even higher, the bank will only use a mortgagee sale (or bankruptcy) as a last resort if you are deliberately not playing ball. It's time consuming and bad publicity for the bank, and a mortgagee sale will generally get the lowest price.

I have seen it a few times that the bank writes off the shortfall after people have genuinely done their best to repay. In one case the bank let an older farming couple (who had fallen behind after an unfortunate medical event) keep enough to purchase a modest cottage, which was a smart move as that garnered rock solid loyalty from other farmers in the area.

by Juzz | 22nd May 23, 2:08pm 1684721304

At least the losses are diminished in real terms as a result of inflation

by Retired-Poppy | 22nd May 23, 2:32pm 1684722762

Given that its more than likely that FOMO was an influencing factor, lets hope that the 136,000 are still quietly enjoying their homes despite most now knowing their hard saved deposits are wiped out. Interest.co members who saw this coming and repeatedly sounded warnings can live on with a clear conscience. This could easily have a serious impact on peoples lives.

by DTRH | 22nd May 23, 2:49pm 1684723746

The problem is the housing market is still falling at a accelerating pace this time next year we will probably see another 15% down, after this housing market could go down more. Just tell’s us how over valued the market was compared to incomes.

by agnostium | 22nd May 23, 2:18pm 1684721931

These calculations seem a bit off. Isn't it relevant that some areas have had bigger falls? Especially as the areas where there have been bigger falls are some of the bigger centres i.e. Auckland and Wellington where there would have been more sales during the period in question.

by rjn1 | 22nd May 23, 2:30pm 1684722642

Exactly right. Many of the 136k would be down more than 20%.

by Miguel | 22nd May 23, 3:07pm 1684724875

I think these sorts of calculations also tend to ignore how many people had family members help with deposits. There have never been official figures but there were estimates that in places like Auckland as many as 70%~ of FHB needed contributions towards the deposit from friends or family (on average of 50k). Its all fine if this was a gift (or an ownership stake) but if this was a loan that needs to be repaid, this makes peoples financial situation far more precarious

by Rob Reid | 22nd May 23, 6:52pm 1684738378

Dad: "You never lose on property mate. Here ya go."

30 year old kid: "Cheers Dad. We are on the ladder!"

18 months later:

Kid: "Dad, the shit just hit the fan and I had to sell during the downturn. Could you give me another $31,707 to cover the shortfall?"

Dad: " 'Give'. What do you mean, that was a loan!"

by CN - new | 22nd May 23, 8:19pm 1684743550

Some details on the size of the loans from the bank of mum and dad

New research from Consumer NZ has found the Bank of Mum and Dad plays a sizeable role when it comes to helping young home buyers on the property ladder, ranking fifth after ANZ, ASB, Westpac, and BNZ when it comes to owner-occupier loans. The Bank of Mum and Dad (BOMD) has doled out a whopping $22.6 billion in loans.

Consumer research found that 14% of all families have supported their kids financially to buy a property, with an average contribution being $108,000. This equates to roughly 208,638 parents. The most popular form of assistance was contributing towards a deposit, with more than half (61%) of parents helping in this manner. Three out of five parents don’t expect to be repaid.

https://www.interest.co.nz/personal-finance/115563/consumer-nz-says-ban…

by CN - new | 22nd May 23, 8:34pm 1684744492

Some issues that have arisen from the Bank of Mum and Dad and the recipient of cash. Potentially changes the relationships between the parties involved.

1) https://www.stuff.co.nz/business/property/111593768/lower-hutt-man-head…

2) https://www.stuff.co.nz/business/money/92419494/i-slaved-picking-tomato…

3) https://www.stuff.co.nz/national/128555781/dad-takes-daughter-to-court-…

4) https://www.stuff.co.nz/waikato-times/news/123671947/granddaughter-orde…

by Rob Reid | 22nd May 23, 10:58pm 1684753117

One nightmare after another.

by Halfway To Paradise | 23rd May 23, 9:58am 1684792698

by Halfway To Paradise | 23rd May 23, 9:57am 1684792635

Interesting reading. The figures in these articles show people were very generous helping with deposits. To the extent of them being irresponsible parents and grandparents.

by HouseMouse | 22nd May 23, 2:21pm 1684722078

We bought our place in mid-late 2019. I reckon if we went to market now we would get about what we paid for it, if we were lucky 5-10% more. Only because by most recent 3 bedroom townhouse standards it’s pretty good (ie. double glazing, lots and lots of internal storage, two off street parking spaces)

by dumbthoughts | 22nd May 23, 2:24pm 1684722246

We bought very early 2020 and I'd say about the same (think we might be up a bit just based on recent sales in the area). Paid mid fives and I think we could sell for low sixes if we had to.

However, we have some friends who bought down the road from us, buying a smaller/inferior spec place for about $850k just at the peak of the market - now with the added pain of higher interest rates etc. That's got to be galling. No wonder every spare room is rented out.

by Yvil | 22nd May 23, 4:29pm 1684729785

Did you guys do anything to increase the value of your houses?

by HouseMouse | 22nd May 23, 4:46pm 1684730790

Yep. Air con throughout the house (gets very hot upstairs in summer), plus a pergola to give better indoor / outdoor flow.

by agnostium | 22nd May 23, 6:09pm 1684735759

That's interesting, I'm familiar with a new build which was built to latest homestar standard. As I understand it there is/was a requirement to make it easy to keep warm but none to keep it cool. The oldies were melting on sunny days. Hopefully that oversight in the homestar standards has been remedied now. Especially as the heat island effect in our cities is only going to get worse unless we start retrofitting roads with more trees.

by HouseMouse | 22nd May 23, 7:04pm 1684739079

Our place is Homestar rated. KO have had big issues with overheating in new builds. Most architects are useless in terms of passive solar design, slaves to fashion over function. And hardly any of them and almost no planners even understand the basics.

we hardly ever have to heat the house in winter, but from December to mid to late April we will use the aircon upstairs before we sleep about 80-90% of the days.

by agnostium | 22nd May 23, 9:57pm 1684749428

That's consistent with what I've heard from my architect colleagues.

by HouseMouse | 22nd May 23, 10:32pm 1684751553

KO are so dumb. I told them they were going to have issues, and they have.

They have had to install heatpumps, mainly for cooling, in hundreds of recently built townhouses. Extra cost for the government AND the tenants (although cooling a house is certainly cheaper than heating it, and heatpumps are fairly efficient)

by Chaosinflesh | 22nd May 23, 8:18pm 1684743524

We noted two things in the new build we rented:

1. Aluminium-framed double-glazing without a thermal break. Calculated there was more surface area on the window surrounds straight to the -4 outside than on our fin heater. No heatpump present because the unit 'didn't need one'.

2. House cooked in summer. Not only was it a heat trap, the sun reflected off the roof of the next unit over straight through the ultra-wide sliding doors, providing a massive boost to the amount of heat provided by the sun.

We learned from this experience when we build, we're going to be looking at our eaves very carefully to maximise winter but minimise summer sun.

by HouseMouse | 22nd May 23, 8:35pm 1684744508

What are eaves?

lol

by dumbthoughts | 23rd May 23, 7:05am 1684782319

Point one does my head in. Also means you wind up with condensation on the aluminium framing in the winter, or sometimes in summer it's so hot to touch it's almost scalding.

by Zwifter | 23rd May 23, 10:33am 1684794828

Not likely in either instance. Condensation comes down to many factors in the build and even where the house is located and in what city. The humidity in Auckland is appalling for starters, there are places in NZ where you see humidity in the 30's, never happens in other places. Never had condensation on double glazing, the windows just do not get cold enough. Double glazing is awesome, that's why it became part of the building standard by 2008 on all new builds.

by Chaosinflesh | 23rd May 23, 11:53am 1684799580

Building code didn't require thermally broken double glazing. This was changed in November last year, and goes into effect in different areas of the country over the next 2 years.

The aluminium surrounds were definitely weeping in the mornings - this is what alerted me to the fact the double glazing didn't have a thermal break. We had the windows open during the day for airflow, but not at night due to the low temperatures outside.

Non-thermally broken aluminium double glazing was cheap, and proliferate in new builds, prior.

by dumbthoughts | 23rd May 23, 7:08am 1684782514

Like Housemouse, we have added a ducted AC system (it's a townhouse, albeit a generously sized townhouse - group home builders are constructing four bedroom single levels in some of the new subdivisions with less floor space than our three bedroom) and done some other minor tweaks e.g. curtains, tarting up the outdoor courtyard area etc.

None of this was done specifically to 'add value', e.g. we had the ducted AC put in because the house gets too hot in summer upstairs ... it was a game-changer last summer. I'll eat my hat if there's a developer/builder in NZ making two storey houses where the upstairs doesn't reach the same temperature as the Chernobyl reactor core in summer.

There's not much else we can do, it's not a 'doer-upper' at all. Just a nice, comfortable (now we have AC in all rooms) modern townhouse in a fairly central part of the city. We could have enjoyed a much bigger house if we had gone out to the satellite towns e.g. Lincoln or Rolleston but being central is so handy.

by Hamish | 22nd May 23, 2:46pm 1684723566

How many of these people bought into the promises of kiwibuild, held off buying, then finally took the plunge at the peak?

by nktokyo | 22nd May 23, 3:10pm 1684725025

Classic interest.co headline!

by IT GUY | 22nd May 23, 3:15pm 1684725358

Its a quiet Monday

by Caughtinthemiddle | 22nd May 23, 3:14pm 1684725250

Auckland City for example has fallen by more than 20% (22.9% according to April's HPI report) so the net is wider for such areas.

by live4ever | 22nd May 23, 3:33pm 1684726426

"it's not enough to wipe out the equity of anyone who purchased a property with a standard 20% deposit" - that is little consolation to a first home buyer. If they bought a home in 2021 it likely took them 9 years of saving for a deposit OR they cashed in kiwisaver. This current loss of equity means those 9 years' worth of savings have disappeared. Pretty depressing to think about.

by rastus1 | 22nd May 23, 3:41pm 1684726907

It'd tragic. I know a few great young people who purchased last few years out of desperation and continual spruiking. Young and naive but that's how it is without the wisdom of years and constant media re-enforcement of a narrative.

Tis why I detest National, bankers, msm landlords and much of Labour.

But at least Labour has done something, not just bloody smiled and waved and said it was a good thing.

by Zwifter | 22nd May 23, 4:43pm 1684730598

Its funny but in 25 years they will look back and it will not have mattered a bit. Life can be strange, what you think was tragic at the time turns out to be a positive in the long term. On of the worst experiences in my life turned out to be someone doing me a favour in the long term.

by malamah | 22nd May 23, 5:14pm 1684732480

Ever heard anybody talk about the 80s? No? I still hear about it almost weekly.

by rastus1 | 22nd May 23, 3:37pm 1684726638

Based on 20% deposit. Cough cough.

How many raised the deposit via the bank of mum and dad or other party off the book loans ie a fake 20% deposit for some.

Then we have the mortgage fraud. During the Irish property collapse estimates are that 10% of mortgages were fraudulently obtained.

I imagine 10% would be as bad if not worse here

We all know what Mr Buffett has said about swimming.

by HouseMouse | 22nd May 23, 4:00pm 1684728019

I think you are right, probably a fair bit of fraudulent shenanigans here.

by Nzdan | 22nd May 23, 4:27pm 1684729629

I mean if it's good enough for property investors to release equity via loans into "100%" mortgages for additional property, then why not first home buyers? Property only goes up.

by CN - new | 22nd May 23, 9:57pm 1684749432

Some previous examples of mortgage fraud reported in the media:

1) Simon Turnbull - https://www.rnz.co.nz/news/regional/305927/airport-arrest-on-mortgage-f…

2) Dunedin woman - https://www.odt.co.nz/business/pregnancy-hidden-puffer-jacket-mortgage?

3) Leonard Ross - https://www.interest.co.nz/property/86037/sfo-accuses-foursome-fraudule…

4) Kang Huang and wife Yan Zhang - https://www.nzherald.co.nz/business/husband-and-wife-named-in-50m-mortg…

5) Phillip Julian Cavanagh, Phillip John Niall, Zimbabwean immigrant couple Faizel Jassat and Margot Jassat, and Raghu Srinivas Aryasomayajula. - http://www.stuff.co.nz/national/24568/Another-agent-implicated-in-alleg…

6) Eli Devoy - https://www.stuff.co.nz/business/industries/83259012/eli-devoy-sentence…

by King of the whiners | 22nd May 23, 3:48pm 1684727314

An RE agent I know has been keeping an eye on this in her market (Nelson) - she claims there are quite a few like this about if you look hard enough:

https://homes.co.nz/address/nelson/stoke/87-coster-street/RJJoZ

Bought Feb 2022 at $870,000 - on sale now (just reduced) at $795,000

This one (apparently just around the corner), heading the same way:

https://homes.co.nz/address/nelson/stoke/10-olivias-place/24rkL

Bought $782,000 April last year, failed at sale by tender, now scrabbling around at PBN

Amazing that folk are jumping out having had the properties for just over a year, but then if you have to sell.......then you have to deduct sales costs from that as well.......ouchie.

by Yvil | 22nd May 23, 4:21pm 1684729278

there's potentially 136,609 homes that are now worth less than their owners paid of them.

I think there are just under 2 million houses in NZ. So, "there's potentially 1,860,000 homes that are worth more than their owners paid for them"

by Yvil | 22nd May 23, 4:32pm 1684729977

Those numbers suggest there's about 13,000 home owners that are potentially at risk of being in negative equity

OK, so less than 1% of all homes. Whilst it's difficult for these few owners, that's very few owners in trouble in the big picture

by DTRH | 22nd May 23, 5:29pm 1684733382

Quite a number of FHB who purchased a property would have only put down 10% deposit and with prices still tumbling 2.4% per quarter a huge amount will be way in negative equity, unfortunately this is looking like biggest housing price crash New Zealand has seen for decades possibly ever.

by CN - new | 22nd May 23, 5:42pm 1684734152

Total value of housing stock in NZ at Dec 2021 was NZ$1.76 trillion

16% fall based on REINZ house price index would be about $272 billion

by Retired-Poppy | 22nd May 23, 6:47pm 1684738071

$272 Billion. For a fast growing number, the housing ATM machine won't be functioning like it used to! In fact. many will now be actively avoiding it. Cue the resulting Construction and Service Sector joblessness.

by CN - new | 22nd May 23, 10:25pm 1684751153

Some jobs affected reported so far in the last 8 months or so. If these people are unable to find similar paying employment, they may need to downsize - especially if they have a large mortgage.

Note that total unemployment levels last report are near record lows at 3.4%.

1) Construction

a) Construct Civil - 75 jobs - https://www.stuff.co.nz/business/132096262/auckland-construction-firm-w…

b) AH Construction - 120 jobs affected - https://www.stuff.co.nz/business/131752673/selloff-from-struggling-firm…

c) Anthem Homes - jobs affected not disclosed - https://biz.crast.net/established-house-builder-anthem-homes-laying-off…

d) Williams Corporation - 10-15% of staff - https://www.stuff.co.nz/business/property/130433028/prolific-townhouse-…

2) Retailing

a) the Warehouse - 190 jobs affected - https://www.stuff.co.nz/business/131069316/warehouse-group-plans-to-cut…

b) HSU Smith - 220 jobs potentially affected - https://www.newshub.co.nz/home/money/2023/05/iconic-invercargill-store-…

3) Media

a) Mediaworks - 90 jobs affected - https://www.stuff.co.nz/business/300791210/mediaworks-announces-90-staf…

b) SkyTV - 170 jobs affected - https://www.stuff.co.nz/business/131294446/sky-tv-may-cut-170-nz-jobs-i…

c) Today FM - potentially 50 jobs affected - https://thespinoff.co.nz/media/30-03-2023/up-to-50-today-fm-staff-in-li…

4) Education

a) AUT - 250 jobs affected - https://www.stuff.co.nz/national/education/300727009/number-of-redundan…

b) Rainbow Corner - undisclosed number of jobs affected - https://www.stuff.co.nz/national/education/300841343/unpaid-early-child…

5) Government

a) Auckland Council - unreported total number of jobs affected - https://www.stuff.co.nz/national/politics/local-government/131420923/jo…

6) Services

a) Xero - potentially 800 jobs affected (not reported how many are specifically in NZ) - https://www.stuff.co.nz/business/300826021/xero-plans-to-cut-up-to-800-…

by Beanie | 22nd May 23, 10:43pm 1684752235

Good research you have been doing CN - keep it up 👍👍

by kiwiana02 | 22nd May 23, 7:44pm 1684741495

DTRH - house and land prices fell dramatically during the 1930’s depression. The government legislated enacted to force banks to provide mortgage relief to underwater borrowers. Perhaps we may end up doing something similar? Prices also dropped 40% in real terms in the 1970’s crash but remained flat in nominal terms due to the very high inflation at the time. There were also crashes aplenty in colonial times - New Zealand was built on land speculation (and land confiscation) - nothing changes it seems

by Caughtinthemiddle | 22nd May 23, 8:20pm 1684743606

Try 2.4% in April alone in Auckland’s wealthier suburbs.

by NZGecko | 23rd May 23, 7:52am 1684785146

Biggest housing crash in NZ HISTORY. WITOUT DOUBT.

We are only 1/3 into it.

Falling at a rate much faster than Ireland's 60% peak to trough. Can NZ do 65%?

Those that have not deleveragded bigly will be fuel to the housing bonfire.

You all had 3 years of blatant warnings on the site!!!!

by Frank Sobotka | 22nd May 23, 6:56pm 1684738601

It’s all about the trend as the crash accelerates.

In the words of Bruce Dickinson

A tide of change is coming and that is what you fear

The earthquake is a coming, but you don't want to hear

You're just too blind to see

Have you seen the writing on the wall?

Have you seen that writing?

Can you see the riders on the storm?

Can you see them riding?

Can you see them riding, riding next to you?

by nguturoa | 22nd May 23, 4:39pm 1684730378

136,000.. Wow. If bought with a partner than 272,000 working people in the country who feel for FOMO and took the plunge by paying crazy prices.

Darwinian theory. Survival of the fittest.

by Rob Reid | 22nd May 23, 7:05pm 1684739148

Or in my case, survival of the most fearful and pessimistic. I shall pass on my quality genes to the next generation.

by CN - new | 22nd May 23, 5:25pm 1684733157

FYI, some of the buyers in this period have realised their losses now:

1) https://www.oneroof.co.nz/news/mortgagee-auction-pain-sandringham-bunga…

2) https://www.oneroof.co.nz/news/south-auckland-home-suffers-near-1m-hit-…

by Frank Sobotka | 22nd May 23, 7:02pm 1684738964

“Marketed to developers, land bankers or families”…..so quite a broad church then.

And no bites. Woof

by Escander | 22nd May 23, 5:41pm 1684734114

I've been in negative equity before, I bought a second property near the bottom of the cycle and rented the first out until I could sell it to clear the mortgage, of course the lending was available back then. Perhaps when the market has bottomed out lending will start to loosen, and deals can be done.

Is it different this time, is this just a cycle? I think it is a cycle, it’s just how long until the next up cycle and who can hold on. I mean once this down cycle is complete and the dollar devaluation is complete, the 10 year house price double mantra may well hold true!! Lets see in 2033.

Time for some creative thinking.

Perhaps tiny homes in the gardens and renting out the main house, could be an option for some.

by ChrisOfNoFame | 22nd May 23, 5:52pm 1684734762

If I am right about the effects of the MDRS and the NPS/UD then house prices will flat-line (after inflation) for 20 to 30 years. Thus, many people will be waiting a long, long time to be rescued by inflation so the nominal negative equity becomes zero.

(Bit of humour ... a doubling of house prices ... Using the Rule of 72 this would require an inflation rate of 7.2% for the next 10 years to achieve that. Well, we've got a year or two of that rate. But the RBNZ is now on the case and wants to ensure you'll only get 1-3%. That's about 35 years.)

by HouseMouse | 22nd May 23, 7:37pm 1684741039

I think you are right that the MDRS / NPS UD will have a significant impact on dampening future house price inflation, although I think you might be slightly exaggerating the impact. I expect there will be little surges in house price inflation over coming decades from time to time, especially when interest rates are lower, and/or immigration surges (especially if it’s lots of kiwis returning due to an external shock).

But I definitely agree there will be a significant impact. They will definitely bring down the land value premium that has existed for sites zoned MHU and over 600 square metres.

by Rob Reid | 22nd May 23, 7:21pm 1684740111

If there is a cycle it's one driven by monetary policy, so divorced from fundamentals. The problem we have is 40 years of divorce from fundamentals has become too expensive to maintain (inflation). So now it is the turn of the secular (non-cyclical) trend of NZ's shitty balance of payments deficit to dominate. So yeah, we need new ideas, and for many, there will be a drop in standard of living. Our past experience is of little use.

by CN - new | 22nd May 23, 8:57pm 1684745835

Different people have different definitions of "fundamentals" of the property market. Some fundamentals that people look at:

1) underlying demand and supply of properties

2) effective demand and supply of properties

3) construction costs vs market prices

4) monetary policy

5) long term historical house price growth

Before the 2021 peak, these are some reasons given in the mainstream media, property market commentators, property market promoters, bank lending promoters masking as bank economists, real estate agents, property market mentors & other sources as to why property prices in Auckland will not fall by much and that there is a low probability that property prices will fall dramatically:

during the GFC, house prices in Auckland fell only 7-10%
over the past 50 years, house prices in Auckland have averaged 7.2% per annum (or commonly referred to as house prices doubling every 10 years). This trend can be expected to continue into the future - https://youtu.be/Agp9xFWoBX4?t=172
there is a shortage of underlying housing in Auckland, so property prices won't fall by much - https://www.interest.co.nz/property/97513/auckland-councils-chief-econom...
there is a growing population which means that there will be more demand for houses - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
we have inward immigration which means more demand for houses
Auckland is an attractive city with an attractive lifestyle - that makes it desirable and attracts foreigners to move to Auckland and hence raise the demand for houses
we mustn't forget either the vested interests in ongoing stability. No government, central bank or trading bank with mortgage exposure wants materially lower house prices. Nor does an incumbent Beehive want falling house prices going into an election campaign https://www.stuff.co.nz/business/110499233/think-house-prices-are-going-...
the economy is doing well, with low unemployment - https://www.stuff.co.nz/business/110499233/think-house-prices-are-going-...
there has been insufficient construction of new builds to meet the housing shortage - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
there are high construction costs to building a house. House prices cannot fall below their construction cost. - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
people don't sell their houses at a loss - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
continued inflation means that house prices will continue to rise in the future
The fact is, debt levels have barely changed from the beginning to the end of those 10 years, compared to GDP levels, compared to household assets, compared to household disposable incomes. And much more importantly, debt servicing is very much easier now, an item that is almost universally overlooked. We are not pushing out to unsustainable levels now, and even if they creep up a little, we are far from that point. https://www.interest.co.nz/opinion/95894/if-you-think-new-zealands-house...
in aggregate household debt servicing is low in New Zealand - currently at just under 8% of disposable income of households - https://www.rbnz.govt.nz/.../key.../key-graph-household-debt
property market participants & commentators who have been correct in their predictions about recent property price trends have more credibility and hence their predictions of upward prices are believed by a wider audience (such as Ashley Church, Tony Alexander, Ron Hoy Fong, Matthew Gilligan, etc). - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
previous warnings about a house price crash have been wrong - property prices have continued rising upward significantly since these warnings were given, so there is little reason to believe these warnings.(such as Bernard Hickey) - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
its unlikely Auckland prices collapse. I think the main two reasons though are:a) Affordability has been this bad, and worse, in the past and it only resulted in about a 10% drop. b) The number of homes built over the last decade has been too low and will take some time to recover - https://www.interest.co.nz/property/100670/housing-market-continues-hibe...
real estate is a hedge against inflation so I don't see house prices in Auckland falling much further.

[https://www.propertytalk.com/forum/forum/property-investment-forums/new…]

https://www.interest.co.nz/property/100711/low-auction-numbers-and-over…

by agnostium | 22nd May 23, 10:03pm 1684749803

I'm sure HW2 can think of some more :)

by ChrisOfNoFame | 23rd May 23, 9:24am 1684790661

Great post, CN! Agreed, we hear all these reasons over and over again. Of course, just about all of them can be either outright disproved or taken down by statistically based counter arguments.

The last one, 18, is fun. On the surface it seems to make sense. However, in Japan they know better. Houses wear out. Their value is constantly deteriorating without significant sums invested to modernize / renovate. And the canny, long-lived Japanese have done the sums and just don't bother. 'Mericans do much the same. Again, it is always about land supply in the right places. Location, location, location. With the MDRS and NPS-UD, and rising transport costs, it will once again come back to where the land is and how big a chunk is required to satisfy Council's often bizarre, subjective, arbitrary or backward-looking zoning restrictions.

by CN - new | 22nd May 23, 8:39pm 1684744772

Key assumption here - "and who can hold on"

The question is: How many are going to be unable to hold on?

by ChrisOfNoFame | 22nd May 23, 5:43pm 1684734229

My observation of what is actually selling at this time is that the average (mean) or median price is in fact much higher than the average or median house would sell at if sold tomorrow. I base this on two things.

1) Most sales for 'good prices' show beautifully presented properties that have been renovated and staged. Most home owners would not be able to afford this.

2) Most sales of 'average looking' homes, i.e. those that are not recently renovated and/or staged, are on large sections that can be developed easily.

Ergo ... The sales numbers do not reflect reality. They need to be adjusted down by the cost of renovations, maintenance, significant tidying and/or staging.

by Retired-Poppy | 22nd May 23, 8:25pm 1684743916

This is still very much an evolving situation. While presently those numbers affected by negative equity may appear small when compared to the bigger picture, lets not trivialize it either. Despite repeated warnings, only the naive, emotion driven and fearful believed the hype and purchased at the top of a market when the patient ones knew a canyon awaited. As this situation deteriorates further with joblessness, fixed rate mortgage transitions complete, distressed selling will undoubtedly intensify into a still weak real estate market. Lets see what the numbers and percentages tell us then.

by CN - new | 22nd May 23, 9:05pm 1684746348

Unfortunately, there will be some borrowers who are under cashflow stress, and also likely to be under mental stress.

Some borrowers may never financially recover and the financial loss will affect others in those households (spouse, children). Some may need to turn to social housing.

Losing one's entire lifetime of savings will also cause mental stress and unfortunately, some will turn to self harm.

by j@ferrier.co.nz | 22nd May 23, 10:40pm 1684752013

A scenario I am looking for an answer too. Off plan apartment purchases made post March 2021 with a 10 or 20% deposit under a Kiwibuild price or standard price is coming up for settlements pregressively over the rest of this year, several hundred of these in Auckland alone. Higher interest rates, difficult bank lending environment and degraded buyer affordability based on inflation and higher interest. What is likely to happen under this looming scenario? Will it lead to a default or settlement crisis and how will this impact the market.

by HouseMouse | 22nd May 23, 10:53pm 1684752807

Yes it’s going to get a bit ugly. There will be quite a few people having to walk away from their deposits. And developers are going to have to find buyers. Ugly on both the buyer and developer side.

Watch this space.

by CN - new | 22nd May 23, 10:49pm 1684752599

Seen some off the plan buyers trying to sell before settlement date.

If the off the plan buyers fail to settle and the if developers resell the dwelling at a lower price than the original off the plan buyer's price, then the developer may have contractual remedies against the off the plan buyer for the sale price shortfall.

There are reports that developers are having difficulties selling their newbuilds either currently under construction or completed

- https://www.oneroof.co.nz/news/developer-clearance-must-sell-glut-of-ne…

- https://www.oneroof.co.nz/news/off-the-plan-sales-falter-nervous-buyers…

by HouseMouse | 22nd May 23, 11:03pm 1684753400

This is the kind of development I am following with interest and curiosity:

https://www.temara.nz

Peak bubble nonsense - 2 bedroom terraces selling for circa 900k in the state housing heartland of Mt Roskill. A 700-750K mortgage at 2.5% is one thing - at 6.5% or more at settlement is quite another.

Let’s see

by ChrisOfNoFame | 23rd May 23, 9:40am 1684791646

Following that one too. ... These sorts of situations are why I believe the RBNZ has totally overcooked rises in the OCR. This is going to get messy. Only ethically challenged vultures can see this as a good thing.

The RBNZ needs to find and start using other tools. There are so many examples of far better tools and yet the RBNZ - and Government - refuse to even look at them.

by swapacrate | 24th May 23, 6:28am 1684866491

I wasn't sure of who you were referring to as vultures I read some previous comments, still not sure, but deleted my comment as I could be wrong.

by j@ferrier.co.nz | 23rd May 23, 5:45am 1684777545

So how much impact is the current record immigration numbers going to affect this new supply, considering there is low supply on the selling side currently. Do the developers become landlords and rent this stock if thier bankers will allow that.

by ChrisOfNoFame | 23rd May 23, 9:30am 1684791036

Pre-March '21 apartments were being sold at between 13k to 20k per square metre. Now, unless it is an upper end apartment with a cash-rich developer who can wait, they're going for 10k to 14k per square metre. 2nd hand competition can be 9k to 10k. If people who paid 10% understand sunk cost they'd be walking away. At 20%, walking away may still be an option. The problem, however, is most people don't understand sunk cost.

by Small Kev | 22nd May 23, 11:24pm 1684754669

Those flooded or near the area will devalue quite significantly as well like the leaky home syndrome.

by Chairman Moa | 23rd May 23, 10:43am 1684795433

If anything like Brisbane (where it flooded several times in the last 15 yrs), people have very short memory and still buying like crazy in flood zones.

Our house flooded to 3.7m in Feb 2022. completely wrecked the inside, took us 6 months to repair. Nowadays, houses for sale in our area don't last for more than 3 weeks on the market and prices are pretty much as they were before the flood.

Beside the State and Fed govt are funding up to 100k for flood resilient improvement and many people are taking advantage of that offer.

by wingman | 29th May 23, 7:40am 1685302837

Good time to look around for a bit of land, there's lots of pain out there.