Hundreds of first home buyers in Wellington who bought at the peak of the market now with negative net worth

It is estimated that hundreds of first home buyers in Wellington are now in a negative position due to persistent price declines across the region, CoreLogic analysis shows.

Nick Goodall, head of research at CoreLogic, said about 34% of first-home buyers who bought in the capital during the last quarter of 2021 were now in a negative equity position, with mortgages larger than their value. houses.

In the Upper Hutt the percentage was 48%, in the Lower Hutt it was 43% and in Porirua it was 31%.

But Goodall said there shouldn’t be too much to worry about while the economy and the job market remain solid.

READ MORE:
* CoreLogic’s largest quarterly decline in GFC housing prices
* The Fed’s balance sheet is about to shrink and Wall Street is not ready
* Accountant who resisted FOMO says real estate fundamentals “went out the window”

“I think one of the important things to note here is that just because you’re in negative equity on the card doesn’t mean the bank will come and ask for more money to top up the loan,” he said.

“With long-term growth expected to return at some point and unemployment remaining low, banks and mortgage holders should be willing and able to hold out during the recession.”

The analysis assumed a 20% deposit, which most first home buyers had to have, that no principal had been repaid, and was calculated by comparing purchase prices with what homes were worth today.

Nick Goodall, head of CoreLogic research, says that while the economy may go into recession, it shouldn't cause significant job losses, so most kiwis will be able to keep up with their mortgage repayments.
Nick Goodall, head of CoreLogic research, says that while the economy may go into recession, it shouldn’t cause significant job losses, so most kiwis will be able to keep up with their mortgage repayments.

Goodall said the analysis was relatively simplistic, but the target first-home buyer population would likely only pay about 1% of the loan.

The current values ​​were based on CoreLogic’s automated valuation model, which is often used by banks to estimate the value of a property.

CoreLogic’s July House Price Index showed that homes in the Wellington region were worth less than they were in the same period last year, after average values ​​fell a further 3.6% in July .

The analysis also found that some first home buyers who bought during the third quarter of 2021 and the first quarter of this year were likely to have negative equity, although the ratios were lower.

For those who bought between January and March of this year, it is estimated that 19% of first home buyers in downtown Wellington were in negative equity.

In Porirua the figure was 12%, Lower Hutt 13% and Upper Hutt 10%.

Goodall said earlier growth, the high presence of first-time buyers earlier, and greater affordability were some of the factors behind Wellington’s price drop.

Experience the drop in prices

Ed Scragg and his wife bought their first home in the northern suburb of Wellington, Newlands, last August, about two months before the market peak.

Scragg said the appraised value of their three-bed property initially increased about 15% on Homes.co.nz, but all of the capital gain was eroded and he expected to suffer a loss if he were to sell today.

Scragg wasn’t overly concerned about the specter of negative equity, because he and his wife had amassed a hefty deposit over years of hard saving.

They also bought the house as a family home and had no plans to sell, and when the time came, they expected the market to recover.

Upper Hutt is estimated to have the highest percentage of first home buyers who bought during the peak of the market and are now in negative equity.

Kevin Stent / Stuff

Upper Hutt is estimated to have the highest percentage of first home buyers who bought during the peak of the market and are now in negative equity.

Faced with higher interest rates

But the couple were facing another difficulty shared by recent buyers nationwide: their one-year flat rate was about to expire, which would likely have resulted in doubling the interest paid on that portion of their mortgage.

Goodall said 45% of mortgages had less than one year of maturity at the end of June.

When his one-year rate was renewed, Scragg said it would have to tighten his belt, which meant less eating out and being more demanding at the grocery store.

“You don’t buy a house without thinking that interest rates might go up and you trust the banks that have been stress-tested,” he said.

Wayne Barton of the Professionals Redcoats real estate agency says the offering is booming in Wainuiomata, with 25 homes on the market during the peak and 150 for sale today.

Provided / Stuff

Wayne Barton of the Professionals Redcoats real estate agency says the offering is booming in Wainuiomata, with 25 homes on the market during the peak and 150 for sale today.

Scragg, who works at Stuff, said he was surprised at the pace at which interest rates have risen and expected the market to stay on its bullish trajectory longer than it did.

In August, Scragg said there was a lot of FOMO (fear of getting lost) in the air, but for him and his wife it was more of a push to commit than something that led to a rash decision.

Autumn may be bigger than recorded

Goodall said he spoke with real estate agents at the Hutt, who said the houses were not being sold even though the price was 20% lower than the price spikes.

If such sellers took their properties off the market instead of accepting lower prices, they would not be caught, which means that the true scale of the downside may not be reflected in the HPI.

Wayne Barton of the Professionals Redcoats real estate agency operates in the suburb of Wainuiomata and said prices have dropped about a fifth in his area as well.

He said that during the boom some new buildings in a local development were selling for $ 1.1 million, but the same homes today cost $ 920,000, or $ 180,000 less.

MONIQUE FORD / STUFF

Nick Goodall, CoreLogic’s head of research, outlines the looming factors that could bring home prices down and how important the upcoming elections will be.

No more buying for capital gains

Real estate investor Steve Goodey said the Wellington market has changed in more ways than one.

The profit would no longer come from the capital gains, so Goodey had switched to bidding only on properties that would yield at least 12%.

The yield is calculated from the annual rent, divided by the purchase price.

“This year I am solely concerned with cash flow,” he said.

“If you bought a house that was falling at 5.5% in the midst of the boom, now that property now has to fall by 8 to 8.5% just to break even.”

Achieving this yield meant focusing on condominiums or guesthouses.

Goodey said most buyers were still not accepting how much the market had fallen, which was reflected in the rate of decline at which his offers were being accepted.

In the past eight weeks, Goodey said he made about 40 offers.

Steve Goodey runs a real estate coaching business and operates primarily in Wellington.

Provided

Steve Goodey runs a real estate coaching business and operates primarily in Wellington.

Four owners had made counter-proposals that he considered too high and in the end he bought only one.

“Everyone’s expectation is that they will get the money that was available at the absolute peak of the market.

“It’s gone and most people don’t realize how much it fell.”

Leave a Reply

%d bloggers like this: