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Housing Market Crisis: How Falling Property Values Affect Families

Writer's picture: Sofia JohnsonSofia Johnson

The Rise and Fall of the Housing Market


The New Zealand housing market experienced significant growth in the past few years, particularly from 2021 to 2022. During this period, many young families and individuals could procure homes at what seemed like bargain prices. However, this growth was short-lived. As the market began to slow down, property values started plummeting. For Jessie Moss and her family, this change had devastating consequences.


The Worst Possible Timing


Jessie Moss and her family bought their first home in November 2021, at what turned out to be the peak of the housing market. They purchased a three-bedroom state house in Lower Hutt's Waiwhetū for $743,000, only to see its value drop to $560,000 within a year. This drop left them with an equity wipeout and significantly increased monthly mortgage payments.


The Reality Check


When they bought the house, Moss and her family had secured 20% of the purchase price as a deposit. This amount came from their savings, KiwiSaver accounts, and a loan from family members. However, their happiness was short-lived. The once-advantageous mortgage now felt like a heavy burden.


Increased Mortgage Payments


The monthly mortgage repayment, which initially stood at $675, increased by 30% to $888. Adding insurance and rates pushed their total weekly outlay to $1000. This was a far cry from their expectations when they first bought the home, paying roughly what they would have on rent.


No Move, No Choice


Despite their financial predicament, Moss and her family had no plans to move. They were stuck in this situation with no viable alternatives. The house needed maintenance, but they couldn't afford it. Even simple tasks like installing blinds were beyond their means.


The Saving Grace—Increased Income


Moss's decision to leave her teaching contract and secure another role meant that her family's income had increased by 30% in the same period. This rare blessing allowed them to manage their finances slightly better but still left them precariously balanced.


Frustration and Hope


"We are paying way above rental rates," Moss said candidly. "It feels ridiculous." Her situation highlighted the maddest of movements in the housing market, where slight changes in market conditions could drastically alter one's financial situation. The house might cost $600 or $700 a week to rent, but they were paying much more.


The Concept of Homeownership


Homeownership isn't just about a roof over one's head; it's also about building equity and securing a future. For many first-home buyers, owning a home was seen as a gateway to financial stability. However, this dream has turned sour for thousands of families.


Numbers Don't Lie


According to recent data, 81% of homes bought by first-home buyers between October 2021 and March 2022 have dropped in value from the time of purchase. This statistic underscores the severity of the housing market downturn.


Economic Factors Contributing to the Crisis


Multiple economic indicators suggest that New Zealand is on the brink of recession. The job ads continue to decline, with recruitment numbers plummeting 4.9% and 4.8% in successive months. This means higher unemployment rates are likely on the horizon.


Tightening Immigration Policies


Immigration policies are also contributing to the economic downturn. The approval numbers for work visas and residence visas have been decreasing significantly. This reduction in immigration can potentially alleviate some pressure on the job market but also hampers labor growth.


Retail Sector Performance


Retail data paints a dismal picture as well. April saw a decline of 1.1% in retail spending compared to the previous month, with a 1.6% decrease year-over-year. This continuous slump in retail activities underscores broader economic stagnation.



FAQs


1. What is the average monthly mortgage increase for homeowners in New Zealand?

The average monthly mortgage increase for homeowners in New Zealand can vary widely depending on individual circumstances. However, for first-home buyers whose homes have significantly decreased in value, monthly mortgage payments can increase by as much as 30%.


2. How many first-home buyers have seen their equity wiped out due to falling house prices?

Approximately 2000 first-home buyers have seen their equity wiped out due to falling house prices.


3. Are there any alternative solutions for families struggling with high mortgage payments?

At present, there are limited alternative solutions available for families struggling with high mortgage payments. Families might consider seeking financial advice or potentially exploring rental options. However, the most practical solution seems to be waiting for market conditions to stabilize and interest rates to drop.


4. How does increased income help families manage their mortgages?

Increased income can be a saving grace for families managing their mortgages. It allows them to cover higher monthly payments and additional expenses like insurance and rates. However, this is not always reliable or sustainable and can add more stress to the situation.


5. What are the broader economic implications of the housing market downturn?

The broader economic implications include higher unemployment rates, significant declines in retail activity, and tight immigration policies. These factors contribute to a potential recession, which further exacerbates the housing market crisis.


Data Points


  • 81% of homes bought by first-home buyers between October 2021 and March 2022 have dropped in value from the time of purchase.

  • 30% increase in monthly mortgage repayment for Moss's family.

  • $743,000 was paid by Moss and her family for their home in November 2021.

  • $560,000 is the current value of their home, a drop of 19.9% from purchase price.

  • $888 is the new monthly mortgage repayment amount, up from $675.




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