Houses in negative equity: the surprise facts

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The percentage of dwellings in Australia that are in ‘negative equity’ has hit almost 5%, according to the latest report from RP Data.

The RP Data National Equity Report found that 4.9% of Australian homes were worth less than their purchase price at the end of the September 2011 quarter – up from 3.7% the previous quarter.

The report uses what RP Data calls a ‘base level’ estimate of equity, which compares purchase prices with current valuations – using RP Data’s automated valuations model.

This differs from the conventional method of deducting the outstanding mortgage from the property’s value to determine equity.

According to the report, the worst affected areas are Far North Queensland, the Gold Coast and Sunshine Coast – where the instances of properties that are worth less than their purchase price hit 20.2%, 14% and 13.5% respectively.

On a state by state basis, Queensland was found to have the highest percentage of dwellings that have fallen in value since purchase, at 9.2% – up from 6.3% the previous quarter.

The report also notes that parts of Western Australia, too, have suffered – with the Lower Great Southern region reaching 12.3% and the South Western region recording 11.3%.

But it’s not all bad news: RP Data estimates that 43% of properties are now valued at more than twice their purchase price, while capital city home values have increased by around 28% over the five years to September 2011.

The report notes that, while most regions are enjoying strong equity levels thanks to this latest growth cycle, recent buyers – in particular those who bought after 2007 – are more likely to have seen their property’s value drop below its purchase price.  

“More recently the Australian housing market has softened and home values are down 3.3% between their October 2010 peak and September 2011. Recent buyers who purchased a home during this time have potentially seen the value of their home move below their contract price,” says the report.

Are you surprised by these results? Have your say on our property investment forum.

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