Australia’s tumbling housing prices are sending more and more mortgage holders underwater. A small but growing share now owe the bank more than their properties are worth, i.e. they have “negative equity”.
The Reserve Bank of Australia is highly alert to the risks of negative equity and just published an extended analysis of it. Among that analysis was the following graph, which shows the loan-to-value ratio (LVR) of Australian mortgages. Those with a ratio above 100 are underwater, or in negative equity. The graph shows that negative equity is more prevalent now than in February 2018.
When I look at this graph I can’t help but see a “great wave” looming up and threatening to break over the Australian economy.