386,000 home owners owe the bank more than the value of their home

Negative equity: 386,000 home owners owe the bank more than the value of their home

Almost 9 per cent of mortgage holders are now underwater with their home loans, as falling house prices push them into negative equity, new research has shown.

These homeowners have seen their mortgages barely budge as their homes decline in value, leaving them with a loan bigger than the value of their property.

First-home buyers are being pushed into negative equity as falling house prices bite

 

Whilst not being ideal, it is really a non-issue unless:
1. You need to sell
2. You want to refinance
3. You were hoping to draw down on equity to use as a deposit on an investment property
The last 2 can be delayed and are just wants. The first is a risk that you can experience when you invest with a long term outlook but then the situation changes.

 

RBA data shows that circa 2.75% of securitised loans by value are in negative equity, representing approx 2% of borrowers. But the domain article would no doubt get more tongues talking and more clicks so sure let's run with that hehe!

 

The real number is probably closer to be RBA number. Tbh, with the ridiculous increase in property prices recently, I’d be very surprised if the number is as high as percent. I’d like to know how is this number calculated. You’d have to bought pretty recently to be in negative equity.

 

I'd add 4. If your rents aren't covering your mortgage and you're losing money/ cashflow on a property that is flat or going down in value.

 

That’s not an issue if the owner can afford the difference between the rent and the mortgage. Doesn’t necessarily mean that the owner of the property needs to sell.

 

Can you please link to the source of the RBA info. I looked on the RBA website but couldn’t see it.

 

No shortage of people in Perth sitting on negative equity in Perth , including a few of our friends sitting on investment IO loans that they bought over 8 years ago, for some it goes even further back, because many were in such a hurry and afraid of missing out on the next boom, they still owed large amounts on other loans or their PPOR, which makes it difficult to pay of one loan ,as they are trying to pay two off and were just relying on future growth.
The big gains that some made earlier on are slowly all being eroded away.
If only they were not in such a hurry, they would have been able to pay off the other debts first and then be cashed up.
As a result their is still well above normal numbers of people trying to sell , which keeps the market going down or flat.

 

This part of what you posted is pretty much representative of every investment property when first purchased unless you put down a very large deposit. At least negative gearing laws (as they currently stand) help stem the amount of cash flowing out, until, over time, rents increase, and then go on to a situation where they exceed the mortgage repayments, making it positive cashflow.

This can frighten many newbies and first time investors who panic and sell. RE is a long term play.

 

RBA braces for a 30% home price downturn

 

its like a black hole ,pouring money ,each and single month in to it
sad

 

its not only the mortgage also repairs fees and so on

 

Being able to cope with the various periods is part of the IP journey.

Crazy growth periods.... long flat periods.... falling periods..... boring marginal growth periods..... if you can ride it out and hold for the LONG term, then you should, based on the averages be in a better financial position because of it.

 

This is investing 101 and yet so many newbies and not so newbie seem to have forgotten this most basic lesson.

Unchecked fear is often the beginning of the end for an investor.

 

386,000 Homeowners.
Yes, I've seen that number before and I see the article posted above is 6 months old. It has been critiqued previously on PC.

9%?

"Homeowners" are not just FHBs, and they are not just investors.
"Homeowners" in popular culture live in their homes and just keep paying their mortgages. They are not necessarily interested in development, buying investment properties and sometimes they don't even want the hassle of refinancing regardless of how much lower their interest rate might become.

 

I thought investing 101 was Past performance is no indication of future performance? Are they running different 101 classes over school holidays?

 

4 is only an issue if you can't afford the difference.

Every IP I purchased over many years started life being negative cash flow

 

The future will still have "Crazy growth periods.... long flat periods.... falling periods..... boring marginal growth periods..... "

That's nothing to do with past performances etc , its just the nature of our markets.

 

Every IP I purchased over many years started life being positive cash flow.
It was only when interest rates rose over 20% they became negative cash flow.