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

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.