Astonishing - for Friday
Why you'll hear from the people who got it wrong...

Is negative equity a problem?

The headlines are screaming at us about the cost of housing. This time it's not prices, but interest rates that are the focus. "Negative Equity" is a term increasingly being used - because while averages provide a still comforting mask, the reality is that a number of people are already in trouble.

There will be pain - and some people will lose their homes. It's important to qualify that, however. There will be some people forced out of home ownership into rented accomodation. Some of those people will lose money. Sadly, this is only natural.

To a greater or lesser degree this happens all the time. There is no God-given right to make money in property - although it will be reported that way by some. As a society we try to make sure everyone is housed - and the mechanisms that support that goal need to be prepared to be tested. But most people will cope. This will not be made easier by some of the screaming headlines. Let's examine some of the excesses.

Negative equity. In itself, this is not a problem. The problem is being able to service debt. Anyone who has ever bought a stereo or a car on finance has probably been in negative equity (the item is worth less than the finance outstanding) for the whole period of the loan. What counts, though, is whether they can make the payments.

Renters are hurting 'just-as-much' as landlords. Reported in the Herald. This is rubbish. Yes, rents are now rising. But the cost of renting a house, rather than buying one, is considerably lower.

One-sided reporting. House prices rising was a problem. House prices falling is a problem. When will a retail finance writer point out that this part of the cycle is as necessary as the last? When will someone say that as interest rates fall in a year to 18 months, then we'll have lower house prices and lower interest rates? Just as we had a mere 7 years ago.

Comments

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Kate

Thanks goodness for some common sense on this topic at last! If only people realised how one-sided and sensationalist the media can be , they might not go into such a panic.

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