Negative equity to invoke mortgage stress

Rising unemployment will force approximatley 1 million households into mortgage stress by March 2009. Big interest rate cuts are not expected to stop the growing level of financial distress and falling house prices are expected to exacerbate the situation.

Fujitsu Consulting Managing Director Martin North, said people are able to exit the property market in an orderly way now by selling, but that may not last if prices drop below loan levels and owners are prevented by negative equity from selling their homes.

Morgan Stanley also expects property prices to fall by 20%–25%, while University of Western Sydney economist Steve Keen is predicting a 40% drop in residential property markets.