MoneyHousing price crash sends homeowners spinning into negative equity territory
House price slide continues, but analysts say the end is nigh
Home price falls are continuing to slow in Australia's two biggest cities, as an increase in auction clearance rates prompts some analysts to predict that the property market will bottom this year. CoreLogic's latest monthly home value index shows prices fell an average of 0.4 per cent in May, with regional areas declining a smaller 0.2 per cent. Darwin and Perth led the declines, with prices off 1.6 per cent and 1 per cent respectively last month. require(["inlineoutstreamAd", "c.
Adam Hughes never imagined buying a modest family home in Perth's outer suburbs would lead him into financial turmoil, struggling to pay a mortgage he can no longer afford.
The full-time mechanic and father of two bought a three-bedroom house in Byford for $336,000 in 2015.
Within three years, it was valued at just $280,000.
Making matters worse, Mr Hughes went through a relationship breakdown, involving costly family court proceedings.
If he was to sell the house, he would be staring at a $56,000 debt, so he was forced to stay put. But as the bills piled up, he fell behind in his mortgage repayments.
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Fitch Ratings has warned that any sharp rebound in house prices and housing debt fuelled by the newfound optimism in housing would be a "negative" for the country's banks. With interest rates expected to fall to new record lows later on Tuesday, Fitch's senior director of Asia-Pacific financial institutions, Tim Roche, said a key concern was how cheaper credit and greater optimsim about housing might reignite activity in the property market, and household borrowing. © Dallas Kilponen A re-acceleration in household debt would be negative for banks, said Fitch.
"It just seems to snowball. You get a little bit behind and then six months down the line you are behind with everything," he said.
"I held off as long as I could but then I was forced to go into what they call 'hardship'.
"I rang the bank and said, 'Look, I'm struggling, I really need some help'.
'A gnawing, ever-present burden'
Mr Hughes is among a growing number of Australians grappling with negative equity — when a mortgage holder owes more to the bank than their house is worth.
"The highest rates of negative equity are in Western Australia, the Northern Territory and Queensland, where there have been large [house] price falls in areas with high exposure to mining activity," the Reserve Bank noted in April.
"Almost 60 percent of loans with negative equity are in Western Australia or the Northern Territory."
Australia's house price downturn is now the largest on record
Australia's house price downturn is now officially the largest on record. Median home prices have now fallen 8.2% in nominal terms, surpassing the previous record decline seen in the early 1980s.
A new survey by Digital Finance Analytics suggested as many as 112,000 WA households were in negative equity.
But with the property markets in states like NSW and Victoria sharply dropping after housing booms in recent years, it was a problem that other states could soon start experiencing in greater numbers.
Morgan Stanley bank analyst Richard Wiles said headwinds from negative equity were growing as house prices dropped.
"All else being equal, we estimate that if house prices fall a further 5 percent, then around 4.5 percent of mortgages will be in negative equity," he said.
"This rises to 7.5 percent in negative equity given 10 per cent house price falls, or 18 percent given 20 per cent house price falls."
For many mortgage holders, it's not a crippling financial problem — as long as they can meet their repayments and "ride out" the fall in property values until the market picks up again.
Young families flee Auckland
A growing number of people are turning their back on Auckland for greener and cheaper pastures of the regions. Credit Cards Are Now Offering 0% Interest Until 2020 Find out more on Finder Ad Finder.com.au A study by independent economist Benje Patterson indicates 33,000 left the super city in the four years to 2017, when its overall population grew by nearly 200,000 to nearly 1.7 million. "Net regional migration out of Auckland is characterised by high net outflows of people in their late twenties and through their thirties with children," said Patterson.
But financial counselling service Anglicare said even a small or temporary reduction in household earnings could tip people into mortgage arrears.
"A lot of families are living under enormous pressure, knowing that if something goes wrong — if there's a medical crisis, if they lose their job, if they get less hours at work — that they're going to really be in trouble," chief executive Mark Glasson said.
"And for those people it's like a gnawing, ever-present burden that they're carrying."
House repossessions on the rise
Legal Aid WA offers a mortgage hardship service to people facing the prospect of having their homes repossessed by their lender.
"Currently we're helping about 60 people per month, every month since January, so that's double the number we were seeing last year," Legal Aid WA's director of civil law Justin Stevenson said.
Data from the WA Supreme Court shows lenders have so far made 943 applications for property repossessions this financial year.
If applications continue at the rate of previous years, that figure is on track to exceed last year's total of 1,234.
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The ute had been travelling south on Greenhills Road when it left the road and collided with a tree. The driver, a 46-year-old man from Broomehill West died at the scene.
"It's a problem that isn't going away," Mr Stevenson said.
He noted many mortgage holders were now facing higher repayments following the expiry of interest-only terms on their loans.
Mr Stevenson said people suffering from mortgage hardship should seek help early.
"Stay away from court, because it only means that the legal costs to the bank will be added to your mortgage debt," he said.
Help is available — seek it early
Mr Hughes was unaware he was eligible for free professional advice until he was referred to a financial counsellor by his electricity provider.
"Before that, I was just drowning," he said.
The counsellor helped him negotiate a hardship plan with his bank, as well as manage outstanding debts to other service providers.
"It may only be a small bill that you're not paying but if you speak to someone before it snowballs … it makes life a lot easier to deal with," he said.
Anglicare's Mark Glasson said lenders had become more flexible with hardship arrangements since the Banking Royal Commission.
"I think part of that is because they're required to be," he said.
"But I think in their own interest, banks have seen that they need to take a much closer look at what's happening with the people they're doing business with."
Mr Hughes said he was grateful for the help, but he was still finding his financial situation stressful.
"Especially those times when you just don't know where you are going to get the money from," he said.
"Food for the kids — that doesn't happen very often — obviously I'm lucky enough that I work full time and I have a reasonable job … but it's very difficult to dealt with."
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