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As property prices continue their freefall in some of the nation's capital cities, investors should be wary of the potential to dip into negative equity territory.
The research arm of major bank ANZ released an analysis of current market trends, as dwelling values continue to drop below pre-GFC levels.
ANZ made note of the downside risks associated with the price falls, including a potential rise in negative equity.
“Given that the recent falls in prices follow a low period of sharp gains (particularly in Sydney and Melbourne), the number of home owners in negative equity remains low at around 5 per cent, although this share is likely to rise further,” ANZ Research said.
“This is something to watch, but at this stage we think it is unlikely to become a significant problem if, as we expect, unemployment remains low,” it said.
ANZ Research also noted the rise in mortgage arrears, albeit from a “very low rate."
Softening values in key markets like NSW and Victoria are exposing investors and home owners to mortgage defaults.
Earlier this year, spurred by falling property values, ratings agency Moody’s predicted a rise in 30-day arrears for Australia’s residential mortgages.
You can read the full report here.