‘FOMO is back!’

[Logen Ninefingers]

https://i.stuff.co.nz/business/132448217/settlement-looming-no-finance-sorted-for-new-build

Settlement looming, no finance sorted, for new build

Geraden Cann
05:00, Jul 23 2023

At the end of this month, the del Valle family is due to settle on a new-build property that they cannot afford.

Lea del Valle​ said they stood to lose money from the KiwiSaver accounts of her mother, Cristina,​ and her brother, as well as most of the family’s savings, because they had not been able to get the loan they need to pay the agreed $839,000​ for the Te Atatū South property.

The family is not alone in finding themselves unable to afford a new-build they signed up for months or years before.

Mortgage adviser Hamish Patel said a combination of higher interest rates, home loan test rates, and price falls meant many borrowers were finding themselves rejected by lenders they had expected to offer them home loans.

The del Valle family were in a particularly bad position, because they did not seek finance prior to signing their sale and purchase agreement in October 2021, despite only having a 5% deposit.

Lea del Valle said they realised their mistake, but the family were from Chile, and had never purchased a property in New Zealand before.

“At this point we don’t care about owning property any more, the only thing we want is our deposit back, that was essentially our entire life savings,” del Valle said.

They say they were let down by their professional advisers.

When the family started trying to source finance this year, they were told any mortgage they would qualify for was $300,000 less than they needed.

The family now has a new lawyer, who has advised them the vendor expects titles and code of compliance certificates to be issued by the end of August, before the sunset clause in the contract would allow the del Valle family to withdraw.

If they did not settle, as well as losing their deposit, the developer might also be able to sue the family for the balance of the purchase price if it cannot resell the property to someone else for a similar amount.

The developer has been approached for comment.

Mortgage broker Hamish Patel said there were a number of other people affected by contracts signed in the heat of the market. Issues often arose when banks required a valuation on the completed property, he said.

If the new valuation came in too much lower than the originally agreed price, the borrower might find themselves instantly in negative equity, meaning they owed more money on the home than it was worth – a condition under which banks would usually refuse finance.

One would-be buyer posted online recently saying that they had encountered a problem because their valuation on a new townhouse came in $150,000 below the asking price they had agreed to. “The bank will only loan me less than the amount that I wanted and I would need to fork out the additional money, which I can’t. I have already put in a deposit, what can I do now?”

In some instances, builds had taken longer than expected, and buyer’s finance had expired.

Patel had recently taken on a client in exactly this situation, whose finance had expired a year ago, and the build was only now approaching completion.

“They are effectively just trying to find generous family and friends to find the difference.”

To avoid this, Patel said buyers should ensure their finance agreement continued until after a contract’s sunset clause date.

This meant the buyer could get out of the deal and get their deposit back, if their finance was going to expire.

Home loan rates were also sometimes now locking buyers out. Patel said the rates used by banks to assess a borrower's ability to repay a mortgage had increased from about 6.5% two years ago to 9%.

He said that meant a borrower’s income could have to go up by $30,000 a year before tax to qualify for the same loan.

Back in the crash of 2008 Patel had seen people fail to get finance, and the developer then sell the property at a lower price, after which it would come after the first buyers for the difference.

“So not only has the client lost the deposit because they can’t settle, but now if that $1 million property sells on the market for $850,000, that developer could potentially come after the client for the shortfall.

“A lot of people don’t realise that, you’re not just risking the deposit, you could also be sued.”

[SBQ]

FOMO probably an understatement at the time they signed up to build their home. Problem is even the financial advisors don't know what can happen from 1 year after another. It was not too long ago you had 2% mortgages in 2021, now we're looking at 7%, imagine what that does to the lender (the banks) who wonders the risk involved on a 5% down mortgage.

[Bjauck]

FOMO probably an understatement at the time they signed up to build their home. Problem is even the financial advisors don't know what can happen from 1 year after another. It was not too long ago you had 2% mortgages in 2021, now we're looking at 7%, imagine what that does to the lender (the banks) who wonders the risk involved on a 5% down mortgage.
Entering into a contract without ensuring finance would be worthcoming was a hazardous enterprise to begin with. If I Understand the story correctly, It seems negligent of the KiwiSaver scheme to agree to the release of KiwiSaver funds for the purchase of a home, if the whole finance package had not been arranged. That would make a mockery of KiwiSaver too.

“Lea del Valle​ said they stood to lose money from the KiwiSaver accounts of her mother, Cristina,​ and her brother…”

[thegreatestben]

KS providers have a very simple requirement for withdrawal, they are not given any details of any arrangements outside of these requirements. It's not their job to get involved and doing so would only make it slower and harder(more stress) for buyers who are obviously having their first crack at purchasing a home.

During periods of higher volumes this could lead to buyers unable to meet their finance conditions in time.

[Bjauck]

KS providers have a very simple requirement for withdrawal, they are not given any details of any arrangements outside of these requirements. It's not their job to get involved and doing so would only make it slower and harder(more stress) for buyers who are obviously having their first crack at purchasing a home.

During periods of higher volumes this could lead to buyers unable to meet their finance conditions in time. I don’t know what the requirements for withdrawal are. However It would bet more stressful if their KiwiSaver account is also depleted without even a first home being purchased. It seems that the requirements for withdrawal are very loose and can occur without an assurance that the KiwiSaver member will even be able to purchase a home. I would expect a government structured savings/pension scheme to have rigorous requirements for withdrawals prior to pension age.

[thegreatestben]

When you place yourself in undue stress then there's not much any system can do. The article mentions the person realised they made a mistake but they don't seem to want to accept the consequences. It does sound like they got bad advice, or potentially got close to none.

While working for kiwibuild I saw a number of buyers utilising the service of conveyancing services that really seemed to offer the transaction service and very little else.

Based on the scenario, I suspect they probably approached the developer via some marketing campaign, the marketing rep puts them in front of their recommended conveyancing specialist which just takes names, stamps the docs and moves onto the next poor victim.

Requirements are:

Meet the FHB withdrawal criteria
Fill in the application form provided by your specific KiwiSaver provider (this can be done with or without assistance from a lawyer)
You will need to sign a statutory declaration, usually this is witnessed by your property lawyer
Attach certified copies of supporting documents to the application

The above comes from this helpful site:
https://smithpartners.co.nz/property-law/kiwisaver-first-home-withdrawal-all-your-questions-answered/

They clearly state there are risks, including:



[*=left]Default on the contract (don’t buy the house) – and you will most likely have to pay the vendor damages



Adding extended time to a FHB's contract potentially puts them at a disadvantage (on top of everything else they can be faced with); anyone making the biggest financial decision of their lives, either at the time or even for the rest of the remaining life - needs to take a bit more care.

[Logen Ninefingers]

I bet hardly any of this stuff has gone on as well. 😕🤔

[Bjauck]

Yes I have experienced salesperson’s hustle! “You have to act quickly - no time for builder’s check, engineering reports etc or you may miss out. Prices are going up, act now or you may miss out on the first rung of the ladder”

Some sales agents leverage the FOMO in their pitch. They find an angle to use FOMO even in an otherwise quiet market - a big trap for Inexperienced FHB’s, without solid outside advice.

[Logen Ninefingers]

Yes I have experienced salesperson’s hustle! “You have to act quickly - no time for builder’s check, engineering reports etc or you may miss out. Prices are going up, act now or you may miss out on the first rung of the ladder”

Some sales agents leverage the FOMO in their pitch. They find an angle to use FOMO even in an otherwise quiet market - a big trap for Inexperienced FHB’s, without solid outside advice.

Quite sickening that not just these salespeople but also the property industry, real estate agencies, and supposedly responsible news media organisations are all promoting FOMO with regards to such a significant financial decision as purchasing a house, a decision that carries with it large and potentially very onerous responsibilities as regards paying off principal and interest. It's not like buying a mop or a new bedside table, it is an enormous responsibility.
Making calm, considered, and rational decisions will always result in better outcomes than giving in to the rash impulses associated with 'FOMO'.

[blackcap]

Quite sickening that not just these salespeople but also the property industry, real estate agencies, and supposedly responsible news media organisations are all promoting FOMO with regards to such a significant financial decision as purchasing a house, a decision that carries with it large and potentially very onerous responsibilities as regards paying off principal and interest. It's not like buying a mop or a new bedside table, it is an enormous responsibility.
Making calm, considered, and rational decisions will always result in better outcomes than giving in to the rash impulses associated with 'FOMO'.

That guy from one roof is often talking about how the property market will go up. Not sure if he is still saying that but when I listened about a year ago things were looking good for property. (or that is how I perceived it anyway)

[Logen Ninefingers]

That guy from one roof is often talking about how the property market will go up. Not sure if he is still saying that but when I listened about a year ago things were looking good for property. (or that is how I perceived it anyway)

Well of course if you were to take on board his articles, and were to give weight to his stylings of being an 'indepedent economist' and therefore an expert, and you then made a significant property purchase, and you then found yourself in a situation of negative equity and in extreme financial hardship struggling to pay your mortgage and interest bill....what recourse do you have as regards holding him to account for the substance of his 'expert' articles?
None whatsoever.
But it is revealing to me that these 'experts' can get it wrong for so long, and yet apparently they still retain their credibility with our media, and they still get an ample platform from our media.

[Logen Ninefingers]

Regarding the article I've provided a link for below, if the offers are 'crazy' in the opinion of the real estate agent concerned, can someone explain why the retail bank making the mortgage loan be happy with that situation? Offers that are 'crazy' have a clear implication that they are unsound or not rationally justifiable and the person making the offer will no doubt end up paying way over the odds. If something is descibed as 'crazy' it usually connotes something irrational is taking place.

I won't post the substance of the article, just the link. But it is clear that the intent of it is to stoke this phenomenon called 'FOMO', and I consider that to be irresponsible.

https://www.oneroof.co.nz/news/43986

[bulltrap]

Quoting the article:


There have been a “crazy” five pre-auction offers on a four-bedroom, two-bathroom home at 38 Twin Parks Rise in Papakura.

The craziness was in the unusually high number of offers. Taken individually, the buyers and the offers they submitted may've been reasonable and within the parameters of their mortgage pre-approvals.

But I agree with your main point, that article - and all the rest on OneRoof - do seem aimed at stoking the market. Last I checked, it's still winter in the midst of an historic downturn, and with an election looming.

[Logen Ninefingers]

Quoting the article:



The craziness was in the unusually high number of offers. Taken individually, the buyers and the offers they submitted may've been reasonable and within the parameters of their mortgage pre-approvals.

But I agree with your main point, that article - and all the rest on OneRoof - do seem aimed at stoking the market. Last I checked, it's still winter in the midst of an historic downturn, and with an election looming.

Could it be that there really are a group of people out there conducting themselves as if the OCR was still at 0.25%?
Could it be that they all want to secure this particular house because they know there is a cache of buried treasure hidden beneath it?

How can you verify any of the 'details' when so many of them are anecdotal and coming from real estate agents, who may have a vested interest?

[bulltrap]

Could it be that there really are a group of people out there conducting themselves as if the OCR was still at 0.25%?
Could it be that they all want to secure this particular house because they know there is a cache of buried treasure hidden beneath it?


For this particular house, records show 38 Twin Parks Rise sold new for $1.31M in Feb 2021. Compared to that, and comparing to costings for building something similar now, $1.07M (the estimate quoted in the article) might look like a pretty good deal.

But looking closer, actually the house up for auction is 83 Twin Parks Rise (https://www.oneroof.co.nz/83-twin-parks-rise-papakura-papakura-auckland-1936438) - not 38 as reported. Oops careless typo, or deliberate bait and switch?

[Logen Ninefingers]

For this particular house, records show 38 Twin Parks Rise sold new for $1.31M in Feb 2021. Compared to that, and comparing to costings for building something similar now, $1.07M (the estimate quoted in the article) might look like a pretty good deal.

But looking closer, actually the house up for auction is 83 Twin Parks Rise (https://www.oneroof.co.nz/83-twin-parks-rise-papakura-papakura-auckland-1936438) - not 38 as reported. Oops careless typo, or deliberate bait and switch?

It doesn’t pass the sniff test does it.

[iceman]

KS providers have a very simple requirement for withdrawal, they are not given any details of any arrangements outside of these requirements. It's not their job to get involved and doing so would only make it slower and harder(more stress) for buyers who are obviously having their first crack at purchasing a home.

During periods of higher volumes this could lead to buyers unable to meet their finance conditions in time.

So we should abort this stupid idea of giving people access to KS for this that and everything else. It should be locked in for retirement savings only, until retirement. Full stop.

[thegreatestben]

In your 20's the biggest and best investment you can make is in yourself, it's not raiding your KS if you can leverage that money to increase your earning potential. I have benefited hugely from withdrawing some of my KS to purchase my first home at 24.

I think the bigger problem here is the poor understanding most NZers have of money and how it works, all of my knowledge and experience has been gained from actively using my money/assets. Nobody will learn anything from passively contributing to KS, many participants are still in the default fund they ended up in.

[Logen Ninefingers]

Surely the ‘independent economist’ who writes for OneRoof, Tony Alexander, has now totally destroyed his credibility. The latest data is showing that property prices continue to fall, despite umpteen articles about ‘FOMO’ and ‘rebounding prices’.

——

‘Prices are now well below where they were in July last year. The national median price has dropped 4.9 per cent annually from $810,000 to $770,000.

For New Zealand excluding Auckland, median prices decreased 5.4 per cent from $719,000 to $680,000 annually.’

[blackcap]

In your 20's the biggest and best investment you can make is in yourself, it's not raiding your KS if you can leverage that money to increase your earning potential. I have benefited hugely from withdrawing some of my KS to purchase my first home at 24.

I think the bigger problem here is the poor understanding most NZers have of money and how it works, all of my knowledge and experience has been gained from actively using my money/assets. Nobody will learn anything from passively contributing to KS, many participants are still in the default fund they ended up in.

NZers need to learn financial literacy and how to get on with money.

I have a friend whose salary is $130k plus and yet he could not book some hut tickets $90 for us for a weekend in the mountains so asked if I could do it and he would pay me back later. That's tragic.

[Bjauck]

In your 20's the biggest and best investment you can make is in yourself, it's not raiding your KS if you can leverage that money to increase your earning potential. I have benefited hugely from withdrawing some of my KS to purchase my first home at 24.

I think the bigger problem here is the poor understanding most NZers have of money and how it works, all of my knowledge and experience has been gained from actively using my money/assets. Nobody will learn anything from passively contributing to KS, many participants are still in the default fund they ended up in. Owning your own principal house remains the best and most tax efficient investment/pension scheme in NZ. Governments will try to protect the value of housing (to keep a significant part of the voting electorate happy). You can leverage and trade your way up the ladder without attracting capital gains tax. You can enjoy a healthy tax free dividend from your investment by way of its accommodation value or net imputed rent. As with most asset purchases timing your entry can be important though!

[Logen Ninefingers]

With bank economists from 2 major banks tipping another OCR hike in November, ‘OneRoof’ cast about to find some ‘experts’ to give their views on whether this was a good idea or not. And who did they find?

Tony Alexander, the so-called ‘independent economist’ in thrall to the property industry who writes articles for OneRoof.
John Bolton, ‘Squirrel founder and head of mortgages’ - the ‘expert’ who predicted in July 2022 that mortgage rates had peaked.
‘EasyStreet Mortgages’ financial adviser Gareth Veale. (One wonders if highly indebted house buyers now in negative equity really believe they are on ‘Easy Street’).
CoreLogic chief economist Kelvin Davidson.
Jose George, New Zealand general manager of Canstar.
And finally, Jarrod Kerr - the chief economist at KiwiBank - who pronounced recently his belief that the Reserve Bank would be cutting the OCR as early as February 2024, and already looks to have egg on his face. Quote from Kerr: “We’d prefer they leave it alone. I think they’ve done enough. [The OCR] is the only tool they have. Obviously it hurts some people more than others, but it’s designed to hurt to get demand down to reduce inflation. Our call for a rate cut as early as February looks increasingly unlikely.”
Yes, Jarrod, it does. So what manner of cognitive bias is leading you to make such ridiculous calls, and what does your employer make of it all?

———

https://www.oneroof.co.nz/news/44123

[SBQ]

Another hike later this year? That's not the problem. The real issue is how long will interest rates stay at current levels. If mortgage rates stay at 7% for 2 or 3 years, that will definitely capture all the current mortgages when they reset for renewal. Then things will get exciting. The cash savers will be rewarded. The leveraged buyers will meet their fate.

[causecelebre]

Only have to look at the bond market where the "smart money" is to know that interest rates are going to stay persistently higher

[Logen Ninefingers]

What are they smoking….

———

https://www.interest.co.nz/property/124007/while-there-are-risks-both-sides-our-house-price-forecast-we-think-near-term-skew

'While there are risks on both sides of our house price forecast, we think the near-term skew is to the upside'

29th Aug 23, 2:50pm

‘ANZ economists are sticking with their view that house prices will rise 3% in the second half of the year but now say that "risks appear skewed to the upside".
In ANZ's latest Property Focus, ANZ chief economist Sharon Zollner, senior economist Miles Workman and senior strategist David Croy said housing data for July provided further confirmation that the house price cycle has turned.
"In July, the REINZ House Price Index (HPI) was 1.4% above April’s cycle low (after seasonal adjustment), with 0.6% m/m increases seen in both June and July," they said.
Annual house price inflation has "turned a corner", at -8.9% year-on-year on a 3-month moving average basis as against -10.6% in June and a low of -14% in February, the economists said.’