THE Gold Coast has recorded the second highest rate of negative equity in the country for house prices over the last quarter.

According to a report released today by RP Data, Far North Queensland and the Gold and Sunshine Coasts have the highest instances of negative equity at 22.6 per cent, 19.4 per cent and 15.3 per cent respectively.

It is par for course across other lifestyle markets, including South West and Wide Bay-Burnett in Queensland, Richmond-Tweed in New South Wales and Western Australia’s Lower Great Southern.

Gold Coast-based property researcher and data analyst Colleen Coyne has simple advice for home owners – if you don’t really need to sell, then don’t.

“You need to hold for the long term and these days that means more than 10 years,” says Coyne.

“One reassuring aspect is that unless you really need to sell, having a theoretical negative equity is of little concern.”

Overall price growth positive

The good news is that nationally, just 6.4 per cent of Australian dwellings were estimated to be worth less than the price at which they were originally purchased as at the end of the December 2011 quarter.

The negative equity figure has risen from 4.9 per cent at the end of the previous September quarter. At the other end of the spectrum, about 42 per cent of Australian homes are worth more than twice what their owners originally purchased them for, down from 43 per cent in September.

While costal lifestyle regions have felt the brunt of the equity stick, strong growth in Australian property values over the recent growth cycle has been the major reason why most regions enjoy a strong level of baseline equity.

Over the five years to December 2011 capital city home values have increased by about 25 per cent, providing a significant wealth boost to most home owners over this period.

Despite the growth, values have appreciated at a much slower rate over this period than they did during the preceding five years. Additionally, since late 2010 the Australian housing market has been quite weak with home values falling by -5.5 per cent across the combined capital cities since the market peaked. Buyers who purchased a home since this time have in many instances seen the value of their home move below their contract price.

Of course there is some significant variation across regions of the country with a number of markets having more than 10 per cent of homes worth less than the initial purchase price. Alternatively, there are many regions with less than 4 per cent of homes worth less than the price at which they were purchased.

Duration of ownership a key factor

The findings also indicate that the length of ownership has a fairly significant bearing on the instances of negative baseline equity. Across the country, more than 75 per cent of all homes currently worth less than their initial purchase price have been owned for less than five years.

Coyne says on the Gold Coast in particular, homes bought five years ago were purchased at the peak of the market in 2007, therefore many are likely to have negative equity, especially at the top end.

“On the other hand there is lack of new supply, so we will see values move,” she says.

“The Ray White Auctions in January resulted in a lot of stock selling, so there are still people buying homes and a lot of good deals to be had.”

Of the 140 lots, 88 were cleared at the quarterly auction. While buoyed by the result, auctioneer Andrew Bell is looking at the April auctions as the next growth barometer.

“We finished the year stronger and I think the economy has started to turn in 2012. I am hoping we have hit the bottom of the U-curve,” says Bell, who heads up the Ray White Surfers Paradise Group.

“This (downturn) has gone on for four years and I have never seen anything like this continuing over this length of time.”

RP Data’s Baseline Equity Report provides an estimate of value accumulation across the Australian housing market by measuring the difference between the original purchase price of a home and the current valuation for individual properties around the country.

Property valuations used in the analysis are based on RP Data’s automated valuation model where the value of more than 9 million dwellings is estimated each week across Australia.

It is called a ‘baseline’ estimate of equity because the analysis doesn’t factor home owner debt levels into the analysis. At a minimum (unless they are in default), Australian mortgage holders would be covering interest payments on their loan while the majority of mortgage holders are paying down the loan principal. Additionally, home owners may have drawn upon their equity in the past which means their debt levels may have increased relative to property value.

Drop in home loan approvals could spur rate cut

Meanwhile a drop in home loan approvals may put enough pressure on the Reserve Bank of Australia (RBA) to consider a rate cut next month.

Australian Bureau of Statistics (ABS) figures for January showed a slight 1.24 per cent drop in the number of home loan approvals from December 2011.

While there had been nine months of consecutively increasing activity and January is traditionally a slower month, stalling in this sector does provide further evidence for a rate cut in coming months.

Following the removal of stamp duty concessions in New South Wales, the state recorded a 6.3 per cent drop in approvals.

Nationally, there were only 600 less approvals from December 2011 to January 2012, but in NSW specifically the number dropped by just over a 1000.

With lenders now appearing to move independently of the RBA’s rate decisions, many consumers are uncertain of the direction of home loan rates.

In seasonally adjusted terms, the Northern Territory had the worst decline, at 8.3 per cent, followed by New South Wales. The only states to record any significant increase were Western Australia (3.8 per cent), Tasmania (3.2 per cent) and South Australia (1.3 per cent).

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