Number of homes in negative equity on the rise: RP Data

The number of homes with mortgages worth more than the property’s estimated value increased late last year as house prices fell and recent home buyers incurred the biggest jump in so-called negative equity.

RP Data says 6.4% of homes were valued at less than their purchase price in the December 2011 quarter, rising from 4.9% in the September quarter.

While the trend has potentially pushed more owners into negative equity, only 1% of owners who have held their properties for 10 years reported negative equity on their homes.

Since late 2010, the Australian housing market has been quite weak, with home values falling by 5.5% across the combined capital cities since the market peaked, research analyst Cameron Kusher says.

“Buyers who purchased a home since this time have in many instances seen the value of their home move below their contract price,” Kusher says.

RP Data notes prices tracked lower through 2011 as interest rate uncertainty, economic jitters and the unwillingness by many households to take on more debt sapped demand.

Far north Queensland had the highest proportion of mortgages in negative equity, at 22%, followed by the Gold Coast, with 19%.

The Sunshine Coast was in the third spot at 15%.

The area with the lowest amount of negative equity was Loddon, Victoria, with 1.9%, followed by Canberra with 2%.

Brisbane fared the worst among capital cities, with 9.2% of property deemed to be “underwater” in financial terms, followed by Perth at 7.4%

Sydney had 3.6% of properties in negative equity, pipping Melbourne with a 3.5% rate. In Hobart, 6.2% of properties were in negative equity, compared with 5.5% for Adelaide.

But 42% of Australian home owners find their properties are now worth more than twice the purchase price.

Kusher says it highlights the long-term nature of the housing market and investment.

“The first few years of owning a property are always the toughest because you don’t have much equity and aren’t paying off much of the principal,” he says.

Victoria had the highest incidence of homes worth double their purchase price, as half of all homes in the state are in this category.

The analysis does not look at debt levels by owners, only the price paid for properties and their estimated current value.

Since late 2010, capital city home values have fallen by 5.5%, RP Data suggests.

This article first appeared on Property Observer.