One of the biggest real estate concerns in the GFC was falling house prices. Although prices did contract in the months that followed the crisis in New Zealand, they did not fall as sharply as they did in other countries.
However, the economic uncertainty unleashed by the coronavirus will be bringing back memories of tough times for many Kiwi homeowners.
One term that is likely to be doing the rounds in lockdown is negative equity.
Often misunderstood, negative equity means that the value of your house is lower than the sum of your mortgage. So if you had to sell, the likely sale price wouldn't cover what you owe the bank.
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OneRoof asked financial and real estate experts about negative equity and whether or not Kiwi homeowners should be worried.
Economics commentator Tony Alexander says negative equity is a “temporary situation” and will only affect a minority of homeowners.
“Historically, house prices can fall for a short period of time and then the trends re-assert themselves with low interest rates, rising population, strong net migration and adequate construction, which will push the prices back up again,” he says.
Director of Queenstown’s MortgageMe, Guy Carter, agrees, and argues that negative equity is a natural part of the property cycle.
“Obviously there’s going to be a bit of a dip but if you are holding a property for long it doesn’t matter that its value drops,” he says.
He doesn't believe the market will bounce back overnight, predicting that recovery will take from 12 to 24 months. However, that isn't a problem for the majority of his clients who are in the market for the long-run, "so they are not freaking out".
"Some people are looking to sell to reduce their debt but the majority [of my clients] are sitting it out,” he says.
First Home Buyers Club director Lesley Harris says that Kiwis who have just entered the market should not be stress about negative equity if they have stable employment and don't need to sell.
“I don’t see this turning into a negative equity situation. First home buyers go into the market with their eyes wide open. They are looking to secure a home that will last them."
She adds: “There will be highs and there will be lows and I’d argue no one should enter the market for a quick increase in capital."
Investors are more at risk, as they are looking for a quick financial gain, she says.
Christchurch economist Ed McKnight, from investment company Opes Partners, says investor can stick with a property for 20 years.
“Most first home buyers move into their first homes but not forever homes and tend to move on quickly, while investors don’t have to live in properties they buy.”
Investors with properties in areas which are in peak of their property cycle are more at risk, he says.
“Those areas are Otago with 19.57 percent above the long-term average to the New Zealand's median house price and Southland is on 11.58 percent above the average. Because we had such growth in those regional markets there is more potential movement there as they are nearing to the peak of their property cycle."
His advice is to hold the ground and don’t panic.
“We know that in five years' time the property prices will recover. In five years you will crystallise that loss.”
Alexander adds that Reserve’s Bank recent announcement on scrapping LVR is a positive for people trying to get their foot into the property market.
"There are many first home buyers that have good secure jobs but just lost some of their KiwiSaver. Well now, the impact of that has been completely offset by the banks saying they'll accept less than a 20 percent deposit."
