Population Growth and Growth in Property Values

[rmbbrave]

The Reserve Bank concurs with rmbbrave

Homeowners warned to save


1.50pm Wednesday September 27, 2006


Many New Zealanders regard their homes as wealth "in the bag" and are leaving themselves vulnerable by saving less as a result, the Reserve Bank has warned.

It said an ageing population could prompt a fall in house prices and recommended the introduction of policies that would encourage wider savings for households.

In a paper Household Savings and Wealth in New Zealand, the bank expressed concern that the household savings rate, as measured by Statistics New Zealand, had declined markedly over the past 20 years.

It said the net worth of the household sector had almost doubled since 2001 and many homeowners appeared to be relying on capital appreciation in order to accumulate wealth.

"For many homeowners, the wealth associated with rising house prices is unrealised," the bank said in a statement.

"However the evidence suggests that many households may view this increase in wealth as 'in the bag' and may have lowered their savings from current income as a result."

The bank said that over the past four years, households had withdrawn an estimated $7 billion from housing by selling properties or increasing their mortgages.

While a "sizeable portion" of the equity withdrawn from houses had probably been reinvested in other assets, it said a significant amount would likely have been spent.

The bank warned there could be an increase in people trying to sell their homes as baby-boomers retired, potentially driving prices down.

"As the population ages and more households attempt to realise wealth built up through capital gains, doing so will require that there be enough willing and able new buyers of these assets at current (or higher) prices," it said.

The bank also said borrowing to support higher asset prices had largely been financed from abroad - which could make borrowers and lenders vulnerable to changes in interest rates or the continued willingness of overseas parties to provide funds.

The analysis paper was prepared as background for a presentation by Reserve Bank Governor Alan Bollard to the New Zealand Institute of Finance Professionals.

- NZHERALD STAFF

[minimoke]

Home is where the heartache is


But probe a little deeper and you find the real sacrifice they made, painfully submerged. The costly item that has had to be pruned out of their budget is a baby. They don't know when they will be able to afford to have children.

They could trade the house for a $350,000 in Papakura

[moe]

Or two houses in Dunedin.

[Sideshow Bob]

Or two houses in Dunedin.

Maybe 1 and a bit houses. Median price in Dunedin is about $260K. The average house here isn't worth that!

[moe]

Here you go, for example.....

http://www.realestate.co.nz/573295?max_price=300000

http://www.realestate.co.nz/570232?max_price=300000

The cheaper of the two is about 5 minutes drive to the university and could be rented out easy. The other is is a allright area close to schools and golf course.

You'd get change out of $350k for these two places in Dunedin. I think Aucklanders need to cut back on the Flat Whites, cocktails and big screen tv's. Try saving some of those 6 figure salaries for a couple of years...you can't have it all now.

[rmbbrave]

My Dad sold a house in for $162,000 in Papakura, in 1996. QV estimates it's worth at $347,000 in 2006.

That's a gain of 7.7% over the last 11 years.

Now we have a sample of 2.

[trackers]

I brought a house for 236,000 in December, 9 months later on QV puts it at 273,000.

Thats 15.7% in 9 months, extrapolated to 20.9% in 1 year.

Previous owners did well too, QV report extract:

26/11/2005 $236,000
09/02/2004 $180,000
15/12/2000 $127,000
25/05/1993 $106,000

Not designed to brag, but the most accurate example I can come up with is my own property. Also worthy to note that if you calculate a 10% deposit, and work out returns based on capital gains (if realised) less interest paid and rates you are looking at more like 200% on capital outlaid in ~1 yr...

Must also mention that your latest example is a gain of 214% over 10 years, looks better that way!

[Snow Leopard]

To take the sample to 5 and try and compare results

<pre id="code">
House From To %pa
===== ==== ==== =====

RMB1 1995 2006 4.77%
RMB2 1996 2006 7.91%
Trak 1993 2006 7.39%
PT1 1990 2006 4.87%
PT2 1989 2006 5.13%
</pre id="code">

PT1 sold for $190,000 in early 1990 and is currently valued by QV at $420,000
PT2 sold for $195,000 in early 1989 and is currently valued by QV at $472,000

[JoeKing]

Sample 6 a little different.
JK buys 2 acre section Rotorua 1999 $158k, spends $240 building, $60 landscaping etc.total $458.
Current CV (Sept 2005) $800K. Mortgage free.
Most recent sale in area 3 houses away CV $ 1.25 sold Dec 2005 $1.9
Neighbors house currently for sale CV $800k tenders starting $1,4.
I guess our property would probably be worth similar.
One of you guys will be better at the maths than me but I think we should be quite pleased?
Cheers
JK

[trackers]

JK, 300% in 7yrs - not too shabby..

I think its important to point out that while these house prices are showing a roughly 7% p.a odd gain, in most cases these are fairly highly leveraged amount, so the ROI is obviously much much higher.

Also the property i showed, roughly 20% gain total from 93 - 00 (ouch...); 250% gain 00 - 06