Housing slump affecting existing homeowners wanting to move up the property ladder

Property / analysis

Sliding house prices likely reducing existing homeowners' equity - making it more difficult for them to move up to a more expensive home

11th Sep 26, 9:40am by Greg Ninness

The current housing market slump may be making it more difficult for existing home owners to move up the property ladder, because it's likely reducing the amount of equity they have to put towards their next home.

Interest.co.nz tracks how much equity a couple could have if they purchased their home 10 years ago with a 20% deposit at the lower quartile price, then sold the home now at the current lower quartile quartile price to move on up to a more expensive home.

Ten years ago in July 2016, the Real Estate Institute of New Zealand's lower quartile selling price was $320,000.

Move on 10 years to July 2026 and the lower quartile price has increased to $575,000. So it's up by $255,000, or almost 80%.

The couple's equity in the home would be the amount of money left from the sale after they had repaid the mortgage in full, less selling costs such as agent's fees.

Interest.co.nz estimates this would give them equity of around $347,000, which they could put towards the cost of their next home.

If the new home was purchased at the REINZ's July 2026 median price of $760,000, the equity from the sale of their previous home would give them a deposit of 46.6% on their new home.

Those figures suggest that moving up the property ladder is still a viable option for people who have owned their own home for 10 years or more and have maintained regular mortgage payments without taking on any extra debt.

So the kiwi dream of moving up the property ladder over time appears alive and well.

But there is a catch.

The amount of equity homeowners would have from such an arrangement has been in steady decline for almost five years.

Equity increases along with house prices, and as housing values rise, so the amount of equity owners would have to put towards their next, and presumably better, home should also rise.

However, when housing values decline, so too does homeowners' equity.

Using the example above of buying a home at the lower quartile price then selling at the prevailing lower quartile price 10 years later, interest co.nz estimates home owners' equity would have peaked at about $478,000 in November 2021, right at the top of the last property boom.

You can see how the estimated equity levels would have changed over the last 10 years in the graph below, rising steadily from 2016 to 2020, then increasing sharply following the dramatic cuts to interest rates and the associated boom in house prices that occurred in the wake of the Covid pandemic.

Then as the housing market began to normalise in 2022, equity levels began to fall and then flatten out.

So far this year, the estimated equity level has been in a particularly noticeable decline, and at $347,000 in July was down by $37,000 since February, and down by $131,000 compared to its 2021 peak. It is now at its lowest level since August 2020.

However, it's not the end of the world for homeowners wanting to move up to their next property.

Equity of $347,000 is still a decent chunk of cash to put towards a property. And making a move should still be affordable for people with a reliable income.

However, it does likely mean that some homeowners will have less cash to play with than they might have been expecting. That could affect how much new debt they are prepared to take on and how much they can pay for their next home.

Uncertainty is a word that we hear used a lot in commentary about current housing market conditions, and it's likely a decline in equity is just one more thing adding to that uncertainty at the moment.

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5 Comments

by The Person | 11th Sep 26, 9:53am 1789077191

It's fine, they have less equity but they need less equity. It's not just their lower quartile house that has stopped rocketting up, it's also that median house. They have less equity, but they need less equity and also less borrowing to upgrade to that cheaper median house. Less borrowing means they are better off. Cheaper housing is good for everyone. Well except those unfortunate sods that bought at the peak, but they'll get it paid down eventually and will then benefit from the cheaper upgrade.

by JohnTrz | 11th Sep 26, 4:06pm 1789099605

Yes. I'd have thought the difference in price between small and bigger would be less when prices are lower, therefore easier to bridge.

by LouB | 11th Sep 26, 1:58pm 1789091912

I'm not sure what your point is here Greg. Other than perhaps identifying that housing is much the same as other assets over the long-term, vulnerable to value swings. Surely there remains merit to the wisdom of selling and buying in the same market. And perhaps, highlighting that housing, as an asset class is no longer the cash cow of rampant nominal capital value growth. Your illustration is about degree and pace of value growth. Which, I guess, shapes the trajectory of moving from one class of house, up to anothe class.

Of course, equity growth will also be influenced on how the home owner has shepherded the equity in their home. Diligently meeting mortgage payments and living expenses from available income, perhaps making lump sum principal repayments along the way to shorten the mortgage term or reduce payments at the payment intervals, aids equity growth. Mining perceived equity growth to access further borrowing for lifestyle or life's curve balls, may compromise equity growth.

Equity growth will occur if no further borrowing is added to the mortgage. For your example, the property value is $320,000, 20% deposit is $64,000, borrowing $256,000. Assuming a 30 year table mortgage term at 5% interest, after 10 years (⅓ of term) principal repaid amounts to about 18.6% or $47,600 giving a total equity position of $116,600 (36% of original value) and after 20 years, ⅔ of the term grown to $190,000 (60% of original value).

Interest rate is a big deternant governing the pace of principal repayment and, hence equity growth. On that 30 year mortgage, after 10 years, 20 years and 25 years respectively, principal repaid amounts to:

At 3.5% interest - 22.6%, 54.6% and 75.3%

At 5% interest - 18.6%, 49.4% and 71.5%

At 6.5% interest - 15.2%, 44.3% and 67%.

And, of course, the amount of interest paid will influence the amount of 'surplus' income available for other investment to grow net worth.

After 30 years, total interest on the $256,000 borrowed amounts to: $157,700 @ 3.5%; $238,500 @ 5%; and $326,200 @ 6.5%.

Just as a reality check, back in the 80s when interest rates were 18.5% or higher. For the same 30 year mortgage, total interest paid would amount to $1,170,500. Principal repaid at 10 years would be 2.1%, 20 years, 15.5% and 25 years 39.5%. They were tough times.

by The Person | 11th Sep 26, 2:08pm 1789092482

Back in the tough 80s though, house price growth was double digit % per annuum. 1981 alone house prices increased 31.57%.

So you might not have paid much of the principal down, but you had a whole lot more equity ( to draw down and put into the stock market lol )

by Marcus Traddles | 11th Sep 26, 4:22pm 1789100543

A falling market equals reduced transactions as buyers wait for more falls, perhaps, and sellers wait for matters to improve.

My hunt across these two Islands continues, and I am learning a great deal by looking, and getting out and talking.

Looking at one area: simple search between $500 - $650k, of the near 50 houses that came up (not flats, just houses), 25% were empty, 20% noted - Must Sell/This needs to go/Priced toSell/Sellers have left - must sell. One wonders how long sellers can wait to sell and own an empty house.

Talking with a few bods: one has had their property for sale for over a year and awaits that magic offer. Another two have reduced the price by roughly 10%, but still suffer close to zero interest. Another involved in an estate sale: property went on originally for around £850k, now down to around $775k, and still little interest.