On Friday, CoreLogic released research showing the high percentage of off-the-plan buyers where the value of their unit at the time of settlement is lower than the contract price:
In Sydney, 30% of off-the-plan unit valuations were lower than the contract price at the time of settlement in September, double the percentage from a year ago. In Melbourne, 28% of off-the-plan unit settlements received a valuation lower than the contract price. In Brisbane, where unit values remain 10.5% below their 2008 peak, the proportion was substantially higher, at 48%…
Markets where unit supply has been high and market conditions weak have seen a surge in loss making re-sales. Brisbane and Perth are prime examples, with loss making apartment re-sales substantially outweighing loss making resales for houses. An oversupply of inner city apartments has seen a divergence in Melbourne as well…
Today, Roy Morgan has released research showing that 8.9% (386,000) of mortgage holders in Australia have little or no real equity in their home, an increase from 8.0% twelve months ago, placing them at financial risk if they are forced to sell while prices are falling:
Over the last 12 months there has been an increase from 345,000 to 386,000 in the number of home borrowers having no real equity in their homes, which represents a considerable risk, particularly if home values continue to fall or households are hit by unemployment. Other potential contributing factors to this increase in mortgage stress include borrowers maintaining debt for other purposes rather than paying off their loan and the use of interest only loans. If home-loan rates rise, the problem would be likely to worsen as repayments would increase and house prices decline, with the potential to lower equity even further…
Mortgage holders in WA most at risk
On average, the value of properties in Australia subject to a mortgage is well in excess of the amount outstanding but there are problem areas. The state at highest risk is WA where 16.5% (90,000) of mortgage customers’ have no real equity in their home.
Over the last 12 months there has been an increase of 2.5% points in the proportion of mortgage holders in WA with little or no equity in their home. NSW has the lowest proportion of mortgage holders with little or no equity in their home, with only 6.1% (82,000). VIC is the second-best performer with 6.8% (71,000) of mortgage holders facing equity risk, followed by TAS with 7.0% (6,000), QLD with 9.6% (88,000) and SA with 12.1% (43,000). The strong performance in VIC and NSW is due mainly to the rapid rise in Sydney and Melbourne prices which has generally outpaced the amount owing on mortgages.
Lower-value homes face more equity risk
The mortgage holders with little or no equity in their homes have much lower average house values ($522,000) compared to all mortgage holders ($802,000).
Across all states, the value of the homes overall with a mortgage is much higher than the value of homes owned by mortgage holders who have no real equity in their home. In NSW for example, the average value of homes with a mortgage is $1,065,000, compared to the much lower average of $737,000 for mortgage holders where the value of their home is less or equal to the amount they owe. In VIC the figures are $851,000 for the average home value with a mortgage, well above the $542,000 for mortgage holders with no equity in their home.
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Expect all these metrics to get worse as dwelling values continue to fall and mortgage rates rise independently of the RBA.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
