The less hawkish tilt in the RBA’s language on Tuesday was also an encouraging sign a rate pause could be under way, Mr Lawless said.
“Once interest rates find a ceiling I think housing prices will probably find a floor soon after that,” he said.
“If that is the case, we aren’t likely to see negative equity become widespread. [Although] I don’t think we will see any material rise in housing values until interest rates start to come down or credit policies ease up. Potentially a rate cut could be on the cards late this year, but more likely in early 2024.”
Negative equity occurs when the value of the property falls below the mortgage amount, which limits a home owner’s ability to refinance to a lower interest rate.
Home owners who took out a mortgage on a 10 per cent deposit at the height of the boom have likely already fallen into negative equity, but even those who bought with the standard 20 per cent deposit are rapidly losing equity, according to Sally Tindall, research director at RateCity.
“Based on the recent price declines, many home owners would own just 9 per cent equity due to falling property prices, despite the fact they have been paying down their debt for the last 14 months,” Ms Tindall said.
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Of the 532 Sydney suburbs analysed, 452 have posted 10 per cent or higher house price declines, with some areas such as Surry Hills and Redfern plummeting by 28.5 per cent and 28 per cent respectively.
Waverley in the eastern suburbs has slumped by 27.8 per cent or $1.2 million since peaking in January last year, while Birchgrove in the inner west lost 26.6 per cent or $936,520.
Losing value
In Melbourne, house prices in 254 out of 367 suburbs or 69 per cent have tumbled by 10 per cent or more from their pandemic peak, led by large losses in the inner south and on the Mornington Peninsula.
Highett and Chelsea in the inner south fell by more than 21 per cent while Somers and St Andrews Beach on the Mornington Peninsula dropped by about 20 per cent.
In Brisbane, house values in nearly six out of 10 suburbs have fallen by at least 10 per cent. In Hobart, 80 per cent of suburbs and in Canberra, 70 per cent of suburbs fell by the same amount.
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Nationwide, more than two in five suburbs have now lost 10 per cent or more in house values since peaking.
By contrast, Adelaide, Perth and Darwin seemed to be holding on to their gains with only a handful posting a similar rate of decline.
The 10 successive rate rises have already taken a toll on a growing number of home owners, according to new data from finance and advice company Compare Club.
The number of people who are now unable to refinance has risen by 42 per cent since the RBA started increasing the cash rate, with NSW households struggling the most.
Lance Goodman, chief executive of Compare Club, said the RBA’s consecutive cash rate increases combined with a downturn in the property market had really started to kick in for households which, less than 12 months ago, could comfortably service their mortgage.
“Borrowers in a negative equity situation are prisoners of circ*mstance. Refinancing will be difficult, unless a new bank values their home more highly than their current one or they have enough savings to pour back into their loan and reduce the capital amount,” Mr Goodman said.
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Canstar finance expert Steve Mickenbecker said households paying off a loan on either their own house or on an investment property were right at the pointy end of interest rate increases.
“There is a sense of urgency added when you consider that around one-third of all home loan debt is on loans taken out over the last two years when property prices were high,” Mr Mickenbecker said.
“Values are now being whittled back and disappearing equity is piling on further pressure.”
