Latest / Best of Business / Kelvin Davidson: Cotality Chief Property Economist on the number of first home buyers who owe more than what their home is worth

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Kelvin Davidson: Cotality Chief Property Economist on the number of first home buyers who owe more than what their home is worth · Best of Business

• 0:16
  Speaker 1: It's been revealed that thousands of Kiwis might have a
• 0:19
  Speaker 1: bigger mortgage than their house is actually worth, actually 3,600
• 0:23
  Speaker 1: of them. These are the probably first home buyers who
• 0:25
  Speaker 1: bought at the peak of the market and lost value
• 0:27
  Speaker 1: in their house as, of course, the market softened. Kelvin
• 0:30
  Speaker 1: Davis is Cotality's Chief Property Economist and with us. Hey, Kelvin.
• 0:34
  Speaker 2: Good night.
• 0:35
  Speaker 1: So am I right in thinking you got the number
• 0:36
  Speaker 1: of 3,600 based on the fact that they might have
• 0:39
  Speaker 1: paid a 20% deposit, yeah?
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  Speaker 2: Yeah, you have to make some assumptions about the equity
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  Speaker 2: put in, but that is a fairly standard deposit for
• 0:46
  Speaker 2: first-time buyers, and then based on how values have performed
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  Speaker 2: since then, particularly if you look at, say, Auckland or Wellington,
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  Speaker 2: where values are down sort of 25% on average, yeah,
• 0:55
  Speaker 2: you get sort of 3,500 in negative equity. So yeah,
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  Speaker 2: that's kind of the assumptions.
• 1:00
  Speaker 1: Okay, but it's entirely possible that a whole bunch of
• 1:03
  Speaker 1: them actually paid far less in their deposits. So the
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  Speaker 1: number could be greater, couldn't it?
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  Speaker 2: Yeah, it could well be, yeah. Certainly for people that
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  Speaker 2: put in 10 or 15%, if they've had that sort
• 1:13
  Speaker 2: of 25% fall in values here, they'll be more in
• 1:16
  Speaker 2: negative equity. But I guess I'd say a couple of things.
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  Speaker 2: I mean, it's still reasonably small in the grand scheme
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  Speaker 2: of things. It might be 1% or 2% of all
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  Speaker 2: mortgage holders. And Of course, the bank's not going to
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  Speaker 2: come knocking either just because you're in negative equity. The
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  Speaker 2: big thing that matters there is paying the debt, and
• 1:31
  Speaker 2: most people are still doing that. Yeah.
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  Speaker 1: How far into negative equity are these people, do you think?
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  Speaker 2: Well, I mean, you might be looking at it in
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  Speaker 2: percentage terms. At least the dollar values will be different
• 1:43
  Speaker 2: depending on, obviously, what they paid. But, you know, if
• 1:46
  Speaker 2: you put in 20% deposit and you live somewhere like
• 1:48
  Speaker 2: Auckland or Wellington where values are down 25, well, you'll
• 1:52
  Speaker 2: be sort of 5% in negative equity, which is You know,
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  Speaker 2: very quick figures off the top of my head, based
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  Speaker 2: on average values, I mean, that could be $ 40, 000, something
• 2:00
  Speaker 2: like that. So it's not trivial. If people are paying
• 2:04
  Speaker 2: the debt, it's going to be manageable.
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  Speaker 1: I mean, as you say, the impact of it is
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  Speaker 1: not that the bank is going to come knocking. It's really,
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  Speaker 1: I would imagine, that this is a reasonably stressful experience.
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  Speaker 1: Would it be? Yeah.
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  Speaker 2: I mean, I've been fortunate to not be in that position,
• 2:19
  Speaker 2: but I can imagine it'd be highly stressful. It slows down.
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  Speaker 2: I guess any future decisions too, you sort of probably
• 2:26
  Speaker 2: feel to some extent stuck where you are. And yes,
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  Speaker 2: you might still be paying the debt and the banks,
• 2:31
  Speaker 2: if you're doing that, the bank will be happy. But yeah,
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  Speaker 2: it does slow down your future decisions. You might not
• 2:35
  Speaker 2: want to move because you've lost equity on the current place.
• 2:38
  Speaker 2: And so, yeah, there's definitely some challenges. And based on
• 2:42
  Speaker 2: where house prices are going right now, which is not
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  Speaker 2: very far at all, it might take a while for
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  Speaker 2: that negative equity to be sort of recouped again too.
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  Speaker 2: So yeah, definitely some people in tough positions.
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  Speaker 1: I'd heard somebody suggest that it may have scared a
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  Speaker 1: generation off property ownership. Would that be going a bit far?
• 2:59
  Speaker 2: I think probably just on the basis of negative equity alone,
• 3:02
  Speaker 2: I think that's probably going a bit far. But that
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  Speaker 2: is a mindset that seems to be coming through a
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  Speaker 2: bit more for people. If you look at possible tax changes,
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  Speaker 2: if you look at the rise in housing supply, some
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  Speaker 2: of these big picture things are probably going to slow
• 3:16
  Speaker 2: down the rate of capital growth in the future. And
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  Speaker 2: if people... start to believe them, start to question the
• 3:21
  Speaker 2: assumption that property values always double in 8 or 10 years.
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  Speaker 2: It does sort of feed back into people looking at
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  Speaker 2: different options. So, yeah, negative equity would be part of it,
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  Speaker 2: but I don't think it would be the biggest part.
• 3:34
  Speaker 1: How long do you think before these people are out
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  Speaker 1: of the situation they are? Like, how long do they
• 3:37
  Speaker 1: have to sit there and wait for their property growth
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  Speaker 1: to catch up?
• 3:40
  Speaker 2: Yeah, well, I mean, to fully recoup your equity, I mean,
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  Speaker 2: if you put in a 20% deposit and also... values
• 3:49
  Speaker 2: have fallen sort of 5% beyond that. You know, you're 25%
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  Speaker 2: kind of down on where you were. And based on
• 3:55
  Speaker 2: current projections, house prices might only grow on average sort
• 3:58
  Speaker 2: of 3%, 4%, 5% over the next, what, a while. So,
• 4:02
  Speaker 2: you know, it could be a series of years. It
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  Speaker 2: might be four or five years, which is going to
• 4:07
  Speaker 2: be a challenge for people for sure.
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  Speaker 1: Yeah, it's a long time to be stressed out. Hey, Kelvin,
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  Speaker 1: thank you very much, mate. Appreciate your time. That's Kelvin Davidson,
• 4:13
  Speaker 1: Cotality Chief Property Economist. For more from Newstalk ZB, listen live,
• 4:18
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• 4:19
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