Negative Equity Threat in Australian Homes Downplayed by Reserve Bank

The threat of negative equity in Australian homes has been downplayed by Reserve Bank Governor Michele Bullock, who stated that less than 1% of households are currently in this situation. According to RBA modeling, even if house prices fall by 20%, only about 5% of households would end up in negative equity.

This could still amount to tens of thousands of people, including many recent home buyers with large outstanding loan balances. However, being in negative equity may not be as much of a problem as some headlines suggest.

Prices are sliding due to three interest rate hikes and tax changes in the May federal budget, leading to quarterly falls of 3.4% in Melbourne and 4% in Sydney. The national prices are down about 2%, while combined regional areas saw a decrease of 0.1% over the quarter.

Those most affected by negative equity are newer owners who bought at or near the peak of the market, and are then forced to sell due to changes in circumstances such as unemployment or family breakups. For others, the effects are more muted, with household mobility being a significant concern.