NZ 1st homebuyers are ScReWeD...

[fungus pudding]

Does anyone else think its strange how we are comparing the NZ market with the US market (which is apples and oranges anyway) but we didn’t hear a peep from these “experts” on how big our gains would be here in NZ on the back of the rapidly rising US market?



There's nothing strange about it. Eventually affordability rules, which means house prices will settle at a more normal multiple of annual earnings. It's not possible to predict when it will rise above it, but we know with certainty that it will return to a lower level. And that is what is happening in the U.S. When it's below that level - buy, buy, buy.

[upside_umop]

There's nothing strange about it. Eventually affordability rules, which means house prices will settle at a more normal multiple of annual earnings. It's not possible to predict when it will rise above it, but we know with certainty that it will return to a lower level. And that is what is happening in the U.S. When it's below that level - buy, buy, buy.

And when its above, sell sell sell...

I believe there is also a certain amount of psychology in it aswell. Of course that psychology would change if there was long run changes in tax rates, credit access, or anything that affects the ability to buy a house.

Your right Minimoke...this thread is about buying your first home. It is also about timing of buying your first home. You buy at the peak and you will not be able to use that house for collateral as there won't be equity in it for a long time....you know what I'm saying? I think I speak for most first home buyers on ST who would not only be looking at a home, but the ability to use it as better access to future investments.

[Dr_Who]

Does anyone else think its strange how we are comparing the NZ market with the US market (which is apples and oranges anyway) but we didn’t hear a peep from these “experts” on how big our gains would be here in NZ on the back of the rapidly rising US market?



NZ property is nothing like the US property market. To compare it is totally wrong. I have been looking at both markets and there is clear differences. This was highlighted in an article I posted a few pages back. US property investors have no recourse on the property and can walk away without the fear of the bank coming after them.

Our property market is more similar to the Aussie property market. NZers will always love properties. This will never change, especially with the lack of protection for the average investors in the equities market and recent finance market. The average "investment advisors" out there are from car sales and insurance back ground with no knowledge of finance or business.

Housing heads for a soft landing

http://business.smh.com.au/business/...f0.html?page=1 (http://business.smh.com.au/business/housing-heads-for-a-soft-landing-20081125-6hf0.html?page=1)

[fungus pudding]

NZ property is nothing like the US property market. To compare it is totally wrong. I have been looking at both markets and there is clear differences. This was highlighted in an article I posted a few pages back. US property investors have no recourse on the property and can walk away without the fear of the bank coming after them.



Not always so. State laws vary and so do lending terms of mortgagees.

[minimoke]

You buy at the peak and you will not be able to use that house for collateral as there won't be equity in it for a long time....you know what I'm saying?
And that’s the difficulty. The “experts” didn’t know when the peak was, nor do they know when the trough will have bottomed out. If they don’t know it makes it a tough call for the first time buyers. I don’t think the situation is helped by “experts” trying to compare the NZ market to the US market, nor when they talk about apartments and second homes. The dynamics are quite different. A lot of it is speculation and best guessing – and hindsight is great. Which is why if we go back to Shrewds original question, Jan 07 was not a bad time to buy because the market hadn’t peaked. He would have been better off today than he was back then. Its a mute point if he will be better off in 6 – 18 months time. Houses values will have moved over that time.

[upside_umop]

And that’s the difficulty. The “experts” didn’t know when the peak was, nor do they know when the trough will have bottomed out. If they don’t know it makes it a tough call for the first time buyers. I don’t think the situation is helped by “experts” trying to compare the NZ market to the US market, nor when they talk about apartments and second homes. The dynamics are quite different. A lot of it is speculation and best guessing – and hindsight is great. Which is why if we go back to Shrewds original question, Jan 07 was not a bad time to buy because the market hadn’t peaked. He would have been better off today than he was back then. Its a mute point if he will be better off in 6 – 18 months time. Houses values will have moved over that time.

Experts have been wrong yes. So was the first home buyer buying in November last year - or anyone else for that matter.

I'm not trying to pick the bottom...just going to wait until things are a little more inline with the long run average.

Housing dynamics are different, yes. But we have many common factors...I'll reply to the doctors comments later on as I'm at work at the moment... :(

If you refer to my post earlier, he wouldn't have been any better off financially than he is now...infact he would be approximately $30000 less well off than if he had bought then.

[minimoke]

If you refer to my post earlier, he wouldn't have been any better off financially than he is now...infact he would be approximately $30000 less well off than if he had bought then.
If we can put aside the semantics of first home average / median/mean prices for a moment then you might want to reflect. Not than I’m not happy discussing averages etc – but it is hard to find the data and trends on these figures so a lot is conjecture and anecdotal evidence based on one-off observations.

Simply put SC could have bought a median house for $327k in Jan O7. That median is, at Oct 08 $335K. The media is banging on about “house values” – well here are the values – and they have gone up during the time this tread has been around.
That interest rates have fallen also has to put the “07 buyer in a good position their repayments have gone down.
Even if interest rates were locked in at 8% - you would have ridden through the highs without worry and going into Christmas 08 rubbing you hands think “great they are coming down - what can I get in the new year”
SC reckons having a $20k deposit isn’t an issue as he can find some one to lend to him. Well good luck – but he hasn’t said if he would be expected to pay a premium on his interest rates for the pleasure.

Looking back to Jan 07 to today – I’m struggling to see why the first home owner would think they are being so hard done by. But I’m happy to check things out again in Jan 09 when we will have a whole two years of data – when we might like to pose exactly the same question but in the context of 2009.

[fungus pudding]

If we can put aside the semantics of first home average / median/mean prices for a moment then you might want to reflect. Not than I’m not happy discussing averages etc – but it is hard to find the data and trends on these figures so a lot is conjecture and anecdotal evidence based on one-off observations.

Simply put SC could have bought a median house for $327k in Jan O7. That median is, at Oct 08 $335K. The media is banging on about “house values” – well here are the values – and they have gone up during the time this tread has been around.
That interest rates have fallen also has to put the “07 buyer in a good position their repayments have gone down.
Even if interest rates were locked in at 8% - you would have ridden through the highs without worry and going into Christmas 08 rubbing you hands think “great they are coming down - what can I get in the new year”
SC reckons having a $20k deposit isn’t an issue as he can find some one to lend to him. Well good luck – but he hasn’t said if he would be expected to pay a premium on his interest rates for the pleasure.

Looking back to Jan 07 to today – I’m struggling to see why the first home owner would think they are being so hard done by. But I’m happy to check things out again in Jan 09 when we will have a whole two years of data – when we might like to pose exactly the same question but in the context of 2009.


The median may have risen, but that's not the whole story. A burst of higher priced sales, or a slow down in sales (which tends to drop off the bottom priced properties) will raise the median. The same house valuation has dropped in many properties in most areas.

[Financially dependant]

A few more views on the future prices of residential property...

http://www.stuff.co.nz/4782143a13.html

Looks like Bernard Hickey view isn't too negative;)

I don't count real estate agent views as anything but the usual BS.

[minimoke]

So here’s what Bollard reckons: “If you want to be technical about it we believe the recession has ended and we have positive but very low growth for the next four quarters.”. Bollard in the past has raised interest rates to slow a hyperactive property market. He has today lowered rates in the single biggest drop ever to the lowest rates in five years. The expected outcome is greater fiscal stimulus – of which the property market is part. Analysts appear united that the worst is over- there will be a period of stabilising and then slower growth. There are still inflationary expectations, down from 5% and that will help bolster property values.

Today ASB, Kiwibank, SBS, BNZ and Westpac have all dropped their interest rates – making housing more affordable for those with a deposit. Those rates have also got to be looking good for those with solid property equity or cash to get back into the old rental market – the yields are looking much better. If all these people are supposedly selling their houses then the rental market has to be improving.

All in all, not looking as gloomy as some make out.

[minimoke]

Looks like Bernard Hickey view isn't too negative;)

I don't count real estate agent views as anything but the usual BS.
Bernard Hickey is a Journalist – his responsibility ought to be reporting the news – not trying to create it. But I guess if you are trying to sell advertising anything goes.

As for real estate agent views, that’s a given - so many of them haven’t a clue how to even market a property yet the media look for their views on the economic climate. A paper will obviously stoop as low as it needs to so it can fill a few more column centimetres.

[Dr_Who]

I don't count real estate agent views as anything but the usual BS.

Amen

When are we gonna seen changes to the realty sector? The sooner the better.

[upside_umop]

NZ property is nothing like the US property market.

True to a certain extent...


To compare it is totally wrong. I have been looking at both markets and there is clear differences. This was highlighted in an article I posted a few pages back. US property investors have no recourse on the property and can walk away without the fear of the bank coming after them.

To compare it is not totally wrong. Economic factors are the main correlation which determine asset prices. That and monetary policy. And from those two a whole heap of factors are dictated...ie unemployment, immigration which as we know has been very low as of late.

Policy has an effect, too. So your right, walking away from your house in the US will add to the adverse effect they experience.

But the financial crisis that we are in now, was caused from the US subprime crisis. That crisis has frozen money etc you know what its done. What does that do to a small, open economy? You see the effects now:

*The NZD has depreciated immensely - Not good for when we need external borrowing. Investors are risk reward orientated. We rely on investors a lot to fund our short fall. The NZD has been very volatile. Risk is defined as volatile. Risk means more reward. More reward means greater interest rates. Combine this with a frozen credit market and you get the picture.

*Commodity prices have fallen through the floor. NZ is a commodity country. Dairy, lamb, beef etc. A little bit of oil. This just makes us more vunerable in such conditions. Again, more risk for the external investor...more reward...higher rates.

As other posters have pointed out, different states in the US of A have different policy with regard to walking out of your home and sending the bank your keys. Maybe you could find out how many states have that policy? The US of A has things over the NZ economy too. How about a large, diversified, internally focused, GDP (or GNP as the slightly different, but equivalent form) base?


Our property market is more similar to the Aussie property market. NZers will always love properties. This will never change, especially with the lack of protection for the average investors in the equities market and recent finance market. The average "investment advisors" out there are from car sales and insurance back ground with no knowledge of finance or business.

Similar to Ozzy market...hmm. Similar economic policy. Our economy has been in recession for the whole year and is expected to be dipping in and out of it for the next year according to most economists. Bollard thinks its over, but also backed himself up by saying 'statistical' probabilities could prove we were/werent in recession. Even given this, its obvious our economy is weaker than the Australian economy and we will suffer more. Our house prices have already fallen on average (median) by around 10%. The Australian is according to your article only 3%.

Your article also states many differences between the NZ market and the AUS market.

*Supply of houses - Rents have been rising in AUS but falling in NZ?

*Negative equity. More so in NZ because houses are already 10% down on average and more down for the lower end first home buyers. Combine that with 100-110% mortgages and it affects the ability of home owners to buy 'second' properties immensely.

*Unemployment. They're not expecting high unemployment in AUS but they are here in NZ...around 6% - about the same as US of A?

*Less skilled people losing their jobs....AUD do very well at attracting skilled labour, no offence but NZ gets international students and gives them residency for getting jobs in clothing store and corner shops.

There is heaps of differences in all markets, as well between NZ and USA and AUS. But there are strikingly similar factors too. Time will tell I guess.



Housing heads for a soft landing

http://business.smh.com.au/business/...f0.html?page=1 (http://business.smh.com.au/business/housing-heads-for-a-soft-landing-20081125-6hf0.html?page=1)

Here goes a NZ article with a little about the NZ market at the bottom. Still falling next year.

http://www.stuff.co.nz/4782392a13.html

'Not expecting a recovery until 2010 for houses....'

Sounds like we're on the button SC :cool:

[Dr_Who]

No point going round and round in this threat.

I am putting my money where my mouth is and have been active buying again in the property market. I am in it for the long haul. I guess time will tell.

[upside_umop]

Fair enough, but as we have said, for first home buyers timing is everything.

Just out of interest, how many properties are you looking to buy?

You must be paying more for your houses now than what you sold them for in 2005?

[Dr_Who]

Fair enough, but as we have said, for first home buyers timing is everything.

Just out of interest, how many properties are you looking to buy?

You must be paying more for your houses now than what you sold them for in 2005?

Interestingly, if you keep your eyes and ears open you can get some very good price properties with desperate sellers. You have bargaining power when you give them cash unconditional contract. Take it or leave it is my negotiation strategy. If you can get a property at bargain basement prices, who cares where the market goes, cos average prices mean **** when you can get it at good bargain prices.

Abit like buying a new Sony 42 inch flat screen Full HD TV at auction for $1500 when it is retailing for $2500.

[Financially dependant]

Interestingly, if you keep your eyes and ears open you can get some very good price properties with desperate sellers. You have bargaining power when you give them cash unconditional contract. Take it or leave it is my negotiation strategy. If you can get a property at bargain basement prices, who cares where the market goes, cos average prices mean **** when you can get it at good bargain prices.

Abit like buying a new Sony 42 inch flat screen Full HD TV at auction for $1500 when it is retailing for $2500.

So are you saying you are buying at 40% discount to advertised prices?

[fungus pudding]

So are you saying you are buying at 40% discount to advertised prices?


Advertised prices are irrelevant. It's discount to market value that matters. The best buy I have ever seen was purchased at full advertised price.

[Financially dependant]

Advertised prices are irrelevant. It's discount to market value that matters. The best buy I have ever seen was purchased at full advertised price.

OK, I will reword..

Dr Who, are you saying you are buying properties at 40% discount to market value?

[George]

Well, I was wrong about being able to fix at the lower rate for no cost.
Rang BNZ today and the cost would be about $3,300 to refix for 6 months
at 6.49% compared to 8.3 now for another 3.6 years.
This would save us about 2000 over the 6 months but with no guarantee of
what the rates would be then.
Were told a good idea is to simply add that amount to the mortgage.
We are considering our options, certainly looks as if rates can
go much lower in the new year.
Anyway, no regrets about fixing, it gave us certainty.
George

[Dr_Who]

OK, I will reword..

Dr Who, are you saying you are buying properties at 40% discount to market value?

Next time a finance company in receivership auctions their property portfolio, go have a look, you will be very surprise.

[ritchie]

george.

Also in same boat....on 5/11 I made enquiries re breaking a fixed term to lock in the 6.99% rate....It was going to cost $1700.00.

Made enquiries 2 days ago...to break the same mortgage to get the 6.99% rate was now going to cost $5000.00.

I am fixed at 8.89% for a year which expires in september.

[Sideshow Bob]

George I think we touched before with this subject as we're with BNZ also. We went from fixed to floating a week or two back, originally on a 4 year deal at 8.99%, and only 3 years into it. It cost about 1% of the mortgage value to change, but we'll save that in less than a year with the prospect of more to come.

It also allows us to offset interest cost with total money also, allowing for any funds on deposit.


SSB

[George]

Worked out that even with the fee added to the mortgage, we would be about
12,000 better off after the 3 years, assuming 6.5% compared to our 8.3.
Will check on Monday what happens after 6 months and/or if the same deal
can apply to a longer term.
The shrewd one must be chuckling at our dilemmas. To be honest, I would also be
hesitant about buying at the moment, but also working my butt off to save
the deposit and hoping prices didn't get away on me.
Am looking at a printout of the economic wheel - will post details here soon.
George

[George]

The economic clock from the top (approximate)
12 Sharemarket peak
1 Rising property values
2 High interest rates
3 Falling commodities and share prices
4 Falling overseas reserves and rents
5 Harder to obtain finance
6 Falling property prices
7 Low/falling interest rates
8 Higher unemployment
9 Rising share and commodity prices
10 Rising overseas reserves and rents
11 Easier finances
then back to our sharemarket peak

According to this we are at about 7-8 o'clock with possible more
unemployment to come then a rising sharemarket - but this could be
months or years away. Don't know if that helps in timing the markets
or not.
George

[Yossarian]

George, ritchie - count yourselves lucky. I was talking to my step brother in the weekend and he is staring down the barrel of a $13k charge for breaking a 2 year mortgage, fixed at the height of the market (9.7% ish, in April I think)!!! Yikes.

[Yossarian]

The economic clock from the top (approximate)
12 Sharemarket peak
1 Rising property values
2 High interest rates
3 Falling commodities and share prices
4 Falling overseas reserves and rents
5 Harder to obtain finance
6 Falling property prices
7 Low/falling interest rates
8 Higher unemployment
9 Rising share and commodity prices
10 Rising overseas reserves and rents
11 Easier finances
then back to our sharemarket peak



Interesting - I don't think the relationship between each 'hour' and the way this plays out in the real world is necessarily linear. E.g. some hours take weeks, some hours might take years!

Also (obviously) lots of hours are happening at the same time.

[fungus pudding]

George, ritchie - count yourselves lucky. I was talking to my step brother in the weekend and he is staring down the barrel of a $13k charge for breaking a 2 year mortgage, fixed at the height of the market (9.7% ish, in April I think)!!! Yikes.



Why yikes? He entered the contract willingly - with no gun at his head. And he doesn't have to break it and won't break it unless he will come out winning. He should be grateful the contract has a buy-out option.

[Yossarian]

are you a robot?

[GTM 3442]

Why yikes? He entered the contract willingly - with no gun at his head. And he doesn't have to break it and won't break it unless he will come out winning. He should be grateful the contract has a buy-out option.


This would imply that the loan amount was all fixed, not split between fixed and capped/floating.

The hard part is to work out which proportion of a loan is fixed.

[George]

2 questions - most seem to pick rates coming down and staying down for a while.
This would make it a no-brainer to pay the cost to break current fixed mortgage.
BUT could interest rates rise in the next say, 2 years, and what would be the
catalyst to cause that?

Read somewhere that the time lag between stimulus and inflation is 9-12 months.
So this time next year inflation could kick in - does this imply higher rates?
Thanks
George

[fungus pudding]

This would imply that the loan amount was all fixed, not split between fixed and capped/floating.

The hard part is to work out which proportion of a loan is fixed.


It doesn't imply any such thing. The loan could well be all at a fixed rate or split.
And there's nothing hard about working out the split if there is one. Read the loan documents, or ask the lender.

[minimoke]

It doesn't imply any such thing. The loan could well be all at a fixed rate or split.
And there's nothing hard about working out the split if there is one. Read the loan documents, or ask the lender.
I agree funguspudding. Here is a person who willingly entered into an agreement and now he wants to break that agreement. I’m really at a loss as to why people are bleating about their penalty fees – they would have been happy as a pig in muck if the rates had gone up and the bank was paying the loss. They weren’t forced into a fixed term at the start of the agreement. They could have gone floating but made the call fix. So now they are trying to blame the bank for their incorrect judgement call. I’d even go far as to suggest that anyone that doesn’t know what part of their indebtedness is on fixed or floating rates shouldn’t be entering into a loan agreement in the first place.

[George]

Minimoke
I don't think anyone was complaining about their break fees, simply airing their
current situation. None of the posters blamed their bank as you suggested.
We are still considering the choices, may even stay as we are, what has come down
could just as easily go up again. No-one seems to know the answers to my questions
about the medium term prospects for interest rates and inflation.
George

[Sideshow Bob]

Ditto - I wasn't bleating, just stating the situation.

[minimoke]

Except over the past three months to October, we’ve seen figures which show there are increasing numbers of sales; the time on market is reducing and the median price appears to have bottomed out and is on the slight increase. Too early to suggest a trend, ...

Back in Jan 07 when he first posted the median price was $327,000, at Oct 08 its $335,000, He would be a lot better off now than then as he still has increased value in his property, ....
REINZ's national median price last month was $337,500, up from $335,000 in October. A 0.74% INCREASE in a month and the 4th month in a row with no drop.

[George]

From QV on 8 Dec, average NZ house price fell to 375,408 from 379,290 in October.
Yet from REINZ on 11th Dec, average NZ house price rose in Sept-Oct from
330,000 to 335,000.
Someone's pulling someone's tit and I repeat, to think they get paid for
churning out this rubbish.
George

[fungus pudding]

REINZ's national median price last month was $337,500, up from $335,000 in October. A 0.74% INCREASE in a month and the 4th month in a row with no drop.


Which might be telling you that first home purchasers, or lower priced homes. are the highest-non performing sector. If you have access to information, have a look at the number of houses listed for sale that are attracting no interest,r have been withdrawn because of lack of interest. It's quite staggering.

[minimoke]

Which might be telling you that first home purchasers, or lower priced homes. are the highest-non performing sector. If you have access to information, have a look at the number of houses listed for sale that are attracting no interest,r have been withdrawn because of lack of interest. It's quite staggering.
There is clearly tension between supply and demand coupled with finding willing buyers and willing sellers.
Median values went up on one of the lowest sales volumes ever. But days on market is reducing – down to 44 off a high a few months back of 58. Faster sales indicates a bit more energy coming back into the market – that’s probably not a bad thing.
We are being told that there all these distressed sellers out their loosing their shirts on property. But this isn’t evidenced by the sales figures. If there aren’t many sales there aren’t many people loosing on property.

[George]

Another question I now add to the ones above re inflation and interest rates (which no-one
seems game to answer) - what about DEflation???
After a bit of research, it seems opinions are split with deflation being the worse situation.
So no-one knows!!! Inflation would be good for property I gather, but deflation would not.
If deflation, then I should pay the fee (now 5k) to break our fixed mortgage, but if inflation
is to occur again (possible in a year or so) then I should stay fixed.
Going by the news it's all bad for property for the near term and first home buyers would be
wise to wait, but by the time the news is good it will be too late. Interesting times.
George

[minimoke]

Another question I now add to the ones above re inflation and interest rates (which no-one
seems game to answer) - what about DEflation???

OK, Ill give it a shot – but if you want three more answers find three economists.

We are heading towards our recent historic interest rate lows of 5.65% in the mid sixties. While there is a political and economic will to see rates drop further, there isn’t an indication that there is will to see them drop below historic levels. My pick – perhaps as low as 6.5% by mid 2009 but after that the oldies will be screaming too loud about their retirement savings. After that rates will stabilise and then start heading back up. Who knows what the catalyst will be – but we do know rates go up and they go down; that’s the nature of life.

Amongst all the data that always fluctuates there is only one trend that stay constant – that is that the worlds population continues to increase. This keeps pressure on the demand side of inflation. This being just one ingredient – I don’t see us getting into deflation. Its the mid 1930’s since we were last there – times have changed.

We already have inflation –its at around 5% - the highest rate since the early 90’s. So inflation will come down. Lets say it gets to 3% - this isn’t really inflation as we might know it. Not like when we had 15% in the 70’s and 80’s. But it is inflation all the same – and this will flow into property.

Property values are also on a cycle – currently they are in a downwards part of the cycle but since we also have had inflation, and probably always will property values will turn around and head back up. Our housing stock will change: the old villas will have passed their economic life and be pulled down with new homes being built; the oldies will quit their big homes but demand for self contained old folks amenities will increase (see why Rymnan are doing so well) and those that can’t afford to buy (and there will be more of them) will go to rental housing; cheap apartment blocks will start crumbling and the ghettos of the future will push people back into traditional stock; birth rates are increasing (meaning the wee dears are going to need an education and where are the schools?) - all putting positive pressure on property values.

[Financially dependant]

imho I do not see deflation as an issue, in fact I see high inflation next year.

The US$ has started it's fall, printing money, bail outs etc. etc... The price of oil moves in the opposite direction, the price of oil effects the price of all staples including food which are all very inflationary... US$ down = inflation up!

Property is in for a +30% drop in value but half of that might be through high inflation.

my 2c

[fungus pudding]

imho I do not see deflation as an issue, in fact I see high inflation next year.

The US$ has started it's fall, printing money, bail outs etc. etc... The price of oil moves in the opposite direction, the price of oil effects the price of all staples including food which are all very inflationary... US$ down = inflation up!

Property is in for a +30% drop in value but half of that might be through high inflation.

my 2c

http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml

[minimoke]

http://www.cbsnews.com/stories/2008/12/12/60minutes/main4666112.shtml
The ALT-A’s and AMR’s presumably paid some interest at the time the loan was set and probably at a time when the Fed had their rates at 4%ish. With the Fed now setting the rates effectively at 0% these reset rates won’t look as bad as they might have been – so the impact might not be as bad as the Author anticipates.

[upside_umop]

Theres been many things I could have posted in the last 2 weeks...but have chosen not to.

But these are pretty good if people want to get into a bit of light reading with their spare time.

http://www.nationalbank.co.nz/economics/publications/propertyfocus/default.aspx

Note Minimoke, that in the December issue, that under building consents, they have very similar views to me in construction costs.

http://www.stuff.co.nz/4799888a13.html

I'm sure many have already read the above article. Fancy pumping that out before Christmas...

My sister and brother in law bought a house 2.5 years ago and did multiple renovations including, kwelia deck, revamp garden (major), interior design etc. They have just had a valuation and the agent gave an appraisal of less than they originally paid for it. This is in the booming region of Blenheim.

Sorry to be negative around this festive season, but there is worse to come.

[George]

Bernard Hickey says in http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10549103
that even if the OCR drops to 4%, longer term mortgages will still be around 7% because of the cost
of overseas borrowing.
With high break fees now it seems risky to change to a lower rate, but a 30% drop in housing would
be a worry. Also, by adding several thousand to the mortgage to pay the break fee will temporarily
lower ones equity and that also, temporarily, would be a worry.

Another article http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10549106
shows opposing viewpoints about how much banks should share the pain with customers.

I can see this thread going for years, it will be interesting to see how this all plays out and
who was right - first home buyers in a couple of years or existing owners now.

George

[minimoke]

http://www.stuff.co.nz/4799888a13.html

I'm sure many have already read the above article. Fancy pumping that out before Christmas...

My sister and brother in law bought a house 2.5 years ago and did multiple renovations including, kwelia deck, revamp garden (major), interior design etc. They have just had a valuation and the agent gave an appraisal of less than they originally paid for it. This is in the booming region of Blenheim.


I thought that was a lazy piece of reporting of a shabby piece of research. I’d have expected something more robust from a university – perhaps it was the work of a first year student supervised by a Professor who is about to publish a book – just like the Canterbury bloke did on the 1918 epidemic at the height of bird flu.

For a start the headline did not reflect the evidence. The evidence suggested house values had dropped 10% - but on the other hand mortgages were 75% or more. There’s a big hole in the data right there. Also home owners tend to hang onto their homes, on average for around 7 years. Taking homes bought and mortgaged in one year cannot be extrapolated to all mortgage holders.

The data was based on first sales in 06/07 – right at the peak of the trend. Most posters here consistently said buying at/near the peak with minimal deposit was foolhardy. Westpack was rightly hauled over the coals for offering 110% during this time – you’ll find the response in these threads somewhere.

Then there is the sample size. There were around 8,000 homes sold in Christchurch in that period. This is about 6% of the total housing stock (which suggest many are holding their property for a lot longer than 7 years in Christchurch)

Of these 8,000 – how many were resold in that research period – maybe 500. Anyone buying a home and then having to sell within a year is generally one of two people. Either a speculator hoping to flick on at a higher value during boom times – well that person lucked out. Or the person is a distressed seller. Maybe the family has split, the job is redundant or on transfer or there is a death. Whatever, being a distressed seller is not a good place to be to get top dollar for your home – you can expect to be screwed under those circumstances, regardless of the market.

There is a cavernous difference between “being at risk of negative equity” and “1 in 5 owes bank more than house is worth” so that article is worth less than tomorrows chip wrapper and would be insulting to loo paper to suggest an alternative use.

Oh – and a clue for your rellies. A valuation and an appraisal are two different things. Anyone who takes the word of a real estate agent needs their head read. I’m not sure you can have “booming Area” and “Dropping property values” in the same context – but agents will spin any kind of yarn.

[MrDevine]

George, don't listen to Hickey, how can you fly with eagles when you run with turkeys? What is his agenda to instill fear into the market like that? Does Bernard own a house? My prediction is for general prices to flatten out and for some areas to head south by another 10%.

I'm not an economist, but these economists don't seem to know f**k all in the current climate.

As for refixing your mortgage – we can't complain about breakfees, when the option is available to take a floating rate, or a shorter term.

The hysteria around this housing problem is ridiculous, most first home buyers will stay put in their properties and as long as they keep their job they'll be fine. The crazy days of flipping your house every year has gone, now is time to knuckle down and get on with it. I also strongly disagree with the skewed picture we get in the media about 'average' houses. If you're a first home buyer you won't be in the 'average' house category, you'll be in the small, unit or 2 bedroom townhouse category. Or you should be. Plus Bernie mentions that in the good old days a 30K deposit could have got your $600k, well if you did that you're a turkey just like Bernie. If you've got a good combined income $30k should get you $300k. Plus there is this garbage about 'home affordability as compared to your household income' They say the average house would take 80% of the average wage, well that sounds stupid to me, all these stats depend on the inputs that go into them, they seem to take no account of the real world, the academics who operate these models are so far out of touch.

Upside, your brother who rennovated his house obviously over capitalised on his rennovations didn't he? If he's fine with staying there, what's the problem? He should have got a valuation before he embarked on his renno.

A message to all those sitting on their hands, if you need somewhere to live and you find something you like then buy it, you'll be there for a while. There is never a good time or a bad time to be in the market.

Thats my rant for Monday.

Mr D.

[minimoke]

http://www.nationalbank.co.nz/economics/publications/propertyfocus/default.aspx

Note Minimoke, that in the December issue, that under building consents, they have very similar views to me in construction costs.

Have they been reading our posts – pretty much as I’ve been saying – but lets here it from the bank:“The key indicator we monitor - the median number of days to sell - improved to 47 days (in seasonally adjusted terms) and has fallen over consecutive months after peaking at a record high of 57 days in July. The median house price has stabilised, and has in fact risen over the past three months to $337,500, although is still down 4.1 percent on a year ago.”

The comment on construction costs reflects downward pressure (fair enough) but it does not say construction costs will, for example, next year be less than this year. Construction costs will continue to go up.

Nor do they talk about the risks associated around construction – did you see the article on “Squeaky buildings” – where parts of the the industry in Auckland have attempted to drive down costs is using sub-standard timber. So builders are charging less – but the new owner is getting less!

[minimoke]

I can see this thread going for years, it will be interesting to see how this all plays out and
who was right - first home buyers in a couple of years or existing owners now.

George
George, usefully we will have Shrewdies reference point of $330,000 house in January 07 (which was pretty much the median price at the time) with a 9.5% floating interest rate (edit - on a really low deposit 5% would have done it - or take Westpaks 110% mortgage). My pick is that in Jan 09, 10, 11 and on some of us will have been right and others will have missed some great opportunities – but time will tell.

[duncan macgregor]

Georege, usefully we will have shrewdies reference point of $330,000 house in January 07 (which was pretty much the median price at the time) with a 9.5% floating interest rate. My pick is that in Jan 09, 10, 11 and on some of us will have been right and others will have missed some great opportunities – but time will tell. The people in SHREWDYS position who missed the chance of getting on the property ladder when deposits were low are now in the hopeless position of saving more for a much higher deposit, by which time the market will trend up leaving them behind once more. This has happened in the past over, and over again. They also think its smart to gamble with interest rates, forgetting that if they get back to 20% they go broke, against if they trend down a few percent they gain a few bob. The housing market in NZ will trend up faster than ever next time, once this money crisis is over. The first home buyers who were to smart to take advantage of low deposits because they thought the market would drop, are now left as tenants to the more astute. Macdunk

[STRAT]

George, usefully we will have Shrewdies reference point of $330,000 house in January 07 (which was pretty much the median price at the time) with a 9.5% floating interest rate (edit - on a really low deposit 5% would have done it - or take Westpaks 110% mortgage). My pick is that in Jan 09, 10, 11 and on some of us will have been right and others will have missed some great opportunities – but time will tell.Hi yall,
I bought another rental early 07 on a minimal deposit which is now not possible as banks have tightened up on deposit size even for those who show good cash flow. It was I thought was a very good price at the time. Its not looking so cheap now but.....
With interest fixed at 7.8% for 5 years( this may turn out to be high in the future but as macca says I can account for my outgoings for another 4 years. No ugly surprises ) it wipes its own arse. No ongoing additional capital required. Its set and forget. I will hold it at least 10 years so what happens to the market and the economy between will slide by unnoticed short of rents dropping by 50%

If the next RE boom hasnt arrived within the next 10 years I would be most surprised. If the property goes up by only 50% over the next 10 years that would be 500% on initial capital investment.

Safe as houses :D

[upside_umop]

Wow, got a few quick bites!

Minimoke...you seem to think you have an answer for everything.

Your analysis on their data technique was incomplete. I believe Christchurch gives a good representation as its pretty much bang on the average NZ house prices. Banks lending criteria don't change throughout the country, and therefore should be able to extrapolated over a wider population.

The analysis on 75% may be slightly out, but not if your a distressed seller. Good scare tactics though huh?

Are the examples out of whack too? 530k to 420k? Ouch...those owners wont be buying in a hurry!

But as you say, they must have been reading posts. 'More downward pressure on prices are expected.' Thats the overall opinion that we should be after? December statistics will be interesting.

Mr Devine, it was my brother in law and sister. Sounds like you have a vested interest....watch and learn buddy. House prices will continue to fall. So far us first home buyers have been right all the way through this thread. You say..'they may fall another 10%...' do you mean in nominal or real terms? If in nominal terms, add inflation, and you will have 20% over 3 years. Add on the 10% already lost and theres your 30% that I've been talking about for quite a while now. Bernards talking of another 30% could be out a bit...depends if hes talking nominal or real terms.

Duncan, I dont even bother listening to your advice on housing anymore. You cant answer any questions...bleat the same old stuff all the time! Maybe we'd get more out of you face to face....next Auckland meeting, you better not pike! That goes for Minimoke...where are you at the CHCH meetings?!

George, you give a surprisingly honest unbiased opinion. Good on you. I'm sure you will be fine since as you say, your knocking it down as fast as you can!

For everyone...can you honestly say, its best to try buy now, or with the current outlook to buy in 1 year time?

I myself cant buy now, and 1 year time probably will be me depending on the outlook at the time.

[Crypto Crude]

shrewd-
mackdunk is deep in this with us...

mackdunk,
You have not removed yourself from current market losses like you say you have...

you admittedly locked in higher fixed interest rates, which are now being used to support bank balance sheets as they struggle with the current market situation... So you sold your shares, but you pay much higher locked interest rates... To be completely honest you have transferred your losses to different asset classes...
so dont be giving us a hard time... I know im right... you taught me the insights too well... I too gave you grave warnings...
you were tipping your position on interest rates at the peak of the cycle...

If we losen up all the assumptions, you are effectively indifferent between the losses on the sharemarket compared to losses on fixed term rates (as housing uses other peoples money, and is leveraged)...
come on mackdunk... fess up?...


peace out... lets remain respectful towards other posters please...
If you want to pull us apart then please address us properly...
Your mate Shrewd keeping all facts open and honest...
peace...




mackdunk-



SHREWDY we are getting a bit off topic here will reply tonight on the property thread.





The price of oil cant get much lower without a cut back in production which in turn will create another price hike. Now is the time to buy barrels of top grade lubricant, and stick them in the shed to sell back later. That is a practical way to avoid a money crash or inflation which ever comes first, much safer than shares. Buy in bad times material things that hold their value, money is only a promise to pay stampted on a bit of paper. Macdunk



mackdunk,
You cant give me a hard time for not buying a house...
I did not have a full time job as I just graduated last week...
I did not have the income to support a loan...

You cant pay me out about that...
You can pay me out about being born two years too late...
...
On another note you have explaining to do..

your in this with us...
Peace..
im out...
:cool:
.^sc

[duncan macgregor]

SHREWDY, I have reached the happy position in life of not having bank loans or owe money on anything. I only speak of the road that got me here. You may wish to travel a different route to this destination i only give you the benefit of my experience getting here.
All the people that i know that were self made, and well off did it with property. Some had menial task jobs with low incomes, but still managed to get there.
Share market crashes, property only downtrends, then gets back up to steeper uptrends.
I think that 2008 will make you a much wiser investor on the share market, i only hope you wake up to how easy it is to make it with property. Have a happy xmas congrats on your graduation and whatever you do dont get stuck playing with one commodoty in this crazy market. Macdunk

[minimoke]

Wow, got a few quick bites!

Minimoke...you seem to think you have an answer for everything.
..... That goes for Minimoke...where are you at the CHCH meetings?!


Nope – just a view on some things. But backed mostly by evidence. Look at the evidence – not the tales of woe spouted by people trying to sell newspapers, web sites, media profiles or books.

See back in 07 the Reserve bank reckons there was about $168b in bank loans covered by $614b in house assets. Where is the negative equity in this? We can take a 50% hit in the housing market and assets will still be worth more than debt. And that’s not even covering the twits who have booked their flash car, new boat, holiday home or car on the mortgage – why should the property market be tarnished by this extravagance.

As for Christchurch meetings – I’m not sure my best flame retardant suit would do a decent job a seeing me leave in decent shape:)

[Mick100]

mackdunk,
You cant give me a hard time for not buying a house...
I did not have a full time job as I just graduated last week...

.^sc

Shrewd - congrats on your graduation - getting a good education is the best investment of time and money a young person can make - and don't let anyone tell you it's not. There will be countless opportunities for you to get into realestate over your lifetime - the first of those opportunities is just around the corner probably in about 4-5 yrs time.

You should really be comparing yourself with your peers rather than the likes of macdunk and minimoke

[duncan macgregor]

Shrewd - congrats on your graduation - getting a good education is the best investment of time and money a young person can make - and don't let anyone tell you it's not. There will be countless opportunities for you to get into realestate over your lifetime - the first of those opportunities is just around the corner probably in about 4-5 yrs time.

You should really be comparing yourself with your peers rather than the likes of macdunk and minimoke MICK, Macdunk was nothing but a hooligan at SHREWDYS age. Fighting womanising bastard of a bloke. Come to think of it i wouldnt swap the memories of it all for quids. If i can turn my life about from that young Shrewdy will have no problems. Macdunk

[minimoke]

mackdunk,

I did not have a full time job as I just graduated last week...

Likewise SC, congrats on your graduation. And thanks for starting the thread. Nothing like a bit of cheerful banter to help pass the day.

[minimoke]

You should really be comparing yourself with your peers rather than the likes of macdunk and minimoke
There’s no value in trying to make a comparison. Hopefully he’ll have his own aspirations and go for it without the distraction of making comparisons which breeds envy and disappointment. And how do you compare – Macdunk debt free – me, intending to be in debt on my death bed. Different roads but all fun along the way.

[MrDevine]

Upside, buddy, let's both watch and learn. 2008 has been a masterclass I can't see straight anymore. Like any 'investor' I've got a vested interest, you've got a vested interest in house prices dropping 30% and I've got a vested interest in them not falling that far, only because I think house prices dropping that much would be terrible for the economy, and I ask what use will buying a house be, when you don't have job?

Shrewd well done on your graduation!

Mr D.

[upside_umop]

I have also said 30% would be terrible for the economy and the financial system...flick back a few pages.

30% in real terms may not be that bad if it occurs over 5 or so years and inflation takes a little bit and so does nominal.

Of course, I too have a vested interest...but I don't have a job, have one lined up though. I have one more year to do honours in finance and then will be actively seeking out bargains. I have got a reasonable deposit which by the end of next year should hit up 20% if i dont bugger it up!

But your right, we are both watching and learning....I'm no dooms dayer, I have been 100% in the market this year until Friday but it seems such a given to wait a little while yet.

[Financially dependant]

I have a vested interest too, been out of the market for about a year and will be for another one before I get back in.

Go Bernard Go!!!:D

Mega trend video on housing

http://www.interest.co.nz/

[fungus pudding]

I have a vested interest too, been out of the market for about a year and will be for another one before I get back in.

Go Bernard Go!!!:D

Mega trend video on housing

http://www.interest.co.nz/


I reckon he's pretty close with his predictions. I'd say you should wait at least a year before you even start looking - just in case you see one you can't resist.

[Crypto Crude]

mackdunk,SHREWDY, I have reached the happy position in life of not having bank loans or owe money on anything. I only speak of the road that got me here. You may wish to travel a different route to this destination i only give you the benefit of my experience getting here.
All the people that i know that were self made, and well off did it with property. Some had menial task jobs with low incomes, but still managed to get there.
Share market crashes, property only downtrends, then gets back up to steeper uptrends.
I think that 2008 will make you a much wiser investor on the share market, i only hope you wake up to how easy it is to make it with property. Have a happy xmas congrats on your graduation and whatever you do dont get stuck playing with one commodoty in this crazy market. Macdunk


To be blatently honest, You are a hypocrite mackdunk...
You say one thing and then do another...
your share trading comes with such strict systems and rules, then you go and blow it all on housing...
You have openly said you will sell Nuclear weapons to the Iranians if theres money to be made from it...
Then you say yourve been there done that wanting to preserve your wealth... what do you really want?

and then you call us all dumb chooks... brain dead...
dumb shiits for losing money to the markets, when you have done exactly the same thing with your fixed loan terms..... I was rampantly against your brain dead mutilation idea...

I am quickly becoming an old man trying to knock sense into you mackdunk...
I am becoming an old man debating with you...

I dont have to take your path... I may decide to take the easy road and get into housing in a big way, but then what a boring life that would be...
I want excitement....
its not about money..... well maybe it is...
its more important the path to making that money...
If your not happy, then why take a boring path...

mackdunk->Go to the NZO thread and give it up to them...
they have out done both you and I....
Dont make them feel bad....
address the people you are referring to....
Im tired of this....
apologise to the NZO thread...
:cool:
.^sc

[Crypto Crude]

its so true though mackdunk...
In life you will do things you enjoy...
And right now im not enjoying online posting.....
so I have stood back....
You try and make us all feel bad, when you are just as deep as us with your fixed term higher interest rates which effectively transferred your (potential) losses from the share market to (real) higher banking costs...
Im over it... I dont want to compete and beat you again in our yearly competition if you are going to give me this crap all year long about what it is you do in real life, and all that...

well... actually I will still compete against you...
because I can win easy...
But I promise I wont be so buoyant, and bubbly...
it will be business as usual...
make your pick on the 1st trading day of 2009... thanks....
:cool:
.^sc

[duncan macgregor]

SHREWDY, You are on the wrong thread to have a go at me about competitions. The reason you have gone off posting is your ideas about investing are all going bad. Rather than get upset learn from your mistakes. First mistake was sticking to one commodoty because when it goes bad you have nothing left. Second mistake was sticking half your funds into a company with such low volatility you cant get out of it in a hurry. Third mistake was riding the sp down from 21.5c to 10.5c without a stop loss.
I have never lost one cent on property ever. Most of the time i made over 10% pa using the banks money not mine. I tried to show you how to do it but you know best.
You have argued all this year about me staying out the market then gleefully say how you beat me with a minus 50% or whatever with a win when it was only you in the market.
The reality of property investing is what you should study.
The interest rate must be locked in at a manageable level even if it requires you to sometimes lock in a higher rate. That is the one thing that keeps you out the bankrupsy court. I have warned people all year about this crash and definately not dumb enough to be caught in it. Macdunk

[Dr_Who]

Property investments should always be viewed as long term due to the illiquid nature. Unlike the sharemarket it is hard to sell a property on a downturning market quickly.

I cashed up about 3 years back and now slowly getting back into the property market again. Who knows how low it will go or when it will bottom. Those that think they can pick the bottom are either fooling themselves or have a crystal ball that can also predict lotto ticket numbers.

I ve been in the property investment game for a long time. As long as the numbers work for you and you are comfortable with it then it is a good investment. For good tenants buy in a good area.

ps: why is this forum so quite? Dont you guys have internet at your bach?

[duncan macgregor]

Property investments should always be viewed as long term due to the illiquid nature. Unlike the sharemarket it is hard to sell a property on a downturning market quickly.

ps: why is this forum so quite? Dont you guys have internet at your bach? Doc all the threads have gone quiet which is very easy to explain, Its like gamblers raving on about winning then going quiet when they are losing. Property requires great uptrends followed by great corrections otherwise its not worth the effort. Property is the simple mans way to riches unlike the share market where only the astute survive. To tell someone caught up in the hype of an uptrending market that its all about to turn to custard is not the way to win the popularity stakes. Even my mate SHREWDY has gone off posting simply because he got it wrong by buying at the top and riding the market down and is in a state of silent depression. When you take all the ups and downs over the years property gains on average about 10%. When you take the average rate of borrowing at 8% less rent plus expences you dont need a college education to understand how to make it work. Macdunk

[upside_umop]

Property investments should always be viewed as long term due to the illiquid nature. Unlike the sharemarket it is hard to sell a property on a downturning market quickly.

I cashed up about 3 years back and now slowly getting back into the property market again. Who knows how low it will go or when it will bottom. Those that think they can pick the bottom are either fooling themselves or have a crystal ball that can also predict lotto ticket numbers.

I ve been in the property investment game for a long time. As long as the numbers work for you and you are comfortable with it then it is a good investment. For good tenants buy in a good area.

ps: why is this forum so quite? Dont you guys have internet at your bach?


Sure its illiquid, but that doesn't mean your timing should be sacrificed. The sharemarket is very volatile, so I'd beg to differ and suggest its easier to pick the bottom of the housing market than the stock market. I'm pretty sure you have said the market has bottomed a few times doc. You have also said your in every industry out there by most of your comments. 'Ill be going long on oil if it goes below $100...' Didnt see you disclosing that you have?

I believe we've got a couple years to go in this downturn of the market, and it was suprising to see you all of a sudden switch to being a housing bull from a bear within a matter of months. Your only reason for change seemed to be interest rates were coming down...what about unemployment? what about migration? what about flows of foreign capital? the list is endless...all that i have mentioned in the 'bear' phase for housing and the only thing going right is the OCR. But again, thats not going to flow through to mortgage borrowers like everyone thinks it will. FED target rate 0.25 and their 1 year ARM mortgages still hovering around 6%! You guys are dreaming thinking a lower OCR will give confidence for people to buy into the market....job security is number one.

Good that you have been in the market a long time, and you obviously have the equity to take a few hits. First home buyers/potential investors Dont. A 20% drop in house prices will seriously affect first home buyers to do anything involving significant financial commitment in the future. So timing to first home buyers IMO is everything...

Forum quiet? Busier than most...

Oh MacDunk, you have this once fundamental principle you go by. "Never swim against the tide..." seems like your swimming against the tide!

[Crypto Crude]

mackdunk,
I have my own reasons why I have not been posting to my usual volume over the last few months...
you can read into this all you like... the truth is Ive got big fish to fry, and internet posting is not going to set up my life......
Im in a period of transition between moving from study to work, and Im doing it in the worst time ever, and I quite possibly have to relocate to Australia next year... Ive been told im a specialist, expert blah blah blah....
I dont have experience to get a great position (dream position)... and I dont have a position to get experience.... catch 22...

Ive had one interview and I gave a 30min presentation 15mins on CUE, and 15 mins or so on the markets and oil and US economy and all that...... I macked it with enthusiam and all that.... I cant find my dream job here as the companies are too small to take me on a specialist role.... Ive barely looked though... I will wait until the new year before I step it up.... so im humming and harring about what to do....to go to Australia or take an entry level job and wait on dream job that I know I deserve right now...



I tried to show you how to do it but you know best.


no,
you have never showed me how to do it...
You backed away from the stiff questions, and in the end we argue about medial topics, back and forward middle of the road opinions rather than you teaching anything that I can gain from...eg we debate about interest rates, debate about the medium term outlook on house prices... You do not actually run through the nuts and bolts of leveraging into housing....
You run me down by saying house deposit increases are a detriment, when they have fallen 30k in value...
You have told me to find the positives in any situation...
you are a hyprocrite on many levels...

Joeking came out and said he would teach us about Wraps, as soon as there was interest he was gone like jack flash... (for real)
You have not taught me anything I cant teach myself... You have not taught me anything I did not already know, (or care too know about eg hands on property maintenance) though you have told us how it is which helps on some level...

It does not matter that I got CUE wrong... it was out of my control, unlike other investments ive made... so im learning.... thats great......
I feel I can control what happens in any other market condition...im happy... Ive now learnt to not take on such a market which we all new was coming...



You have argued all this year about me staying out the market then gleefully say how you beat me with a minus 50% or whatever with a win when it was only you in the market.


I did not give you much stick about being out of the market... not like others did... I did join you on the sidelines late last year...
... Ive said Ive beaten you every single year over the last 5 years apart from this one...
I had many successes this year including RPM, AKK, WHN, LMPO (just sold LMP after it ran baggers and came back down), ran on MEO, and positive plays over the years on NWE, and AED, and PPP, and NZOOD, and TEX last year... and others.... ive done well like most others when many of us were hitting home runs for not much effort (including yourself), and now its changed... So I took one hit on CUE which was 60% of my wealth..... big deal... If I can make 1 mistake out of 10 then I will do well... and the one mistake was when the markets were against me.... So, Yourve told me too look at the positives in any situation....

Ive lost on TEXO 100k holding, $500 on FAR, CTP and CTPOA a few k, URA, and UOGO, and WCP,and an AED CFD position, and I cant think of any others ever....
...
real champions are here, and Im afraid ive not proven to be one of them this year...
your teachings, and your postings have come across to almost torment me.... this death by a thousand cuts has also added to my withdrawl from sharetrader because I know how special I am and just how I can make it any which way I choose...
ive come up from a small fry... and here I am.... Im very proud mackdunk... Im extremely chuffed daily even in this market... even with CUE... the only monkey on my back is you...

congratulations to you and your predictions...
merry christmas...
Ho ho ho...
:cool:
.^sc

[MrDevine]

Shrewd, toughen up mate, grow some hairs on your chest. Macdunk isn't on your back. He's engaging with you, if you like some of his ideas, then run with them, if you don't then say so - as you have. You should also realise that he's an old fella and has seen rain, hay and sunshine in his time. Please don't withdraw from posting because of a grizzly old bear. Now is the time when everyone needs to keep contributing and putting their two cents on the table, that way we all learn and grow, in the face of what is a pretty scary market.

I hope you don't go to Aussie, we need sharpies like you to grow the economy here, Australia is stuffed, I was in Sydney earlier this month and all they could talk about was the recession, a few mates were umemployed. Jam a stake in the ground here in NZ and keep on engaging in the conversation.

Enjoy the holidays.

Mr D.

[bigminty]

Hi Mr Devine-nice post!
I,m from Sydney and things are not looking good for those in the finance sector at the moment. People from Maquarie bank and the like are getting retrenched. These people have been on Million dollar incomes which support harbour view houses,holiday homes ,boats and private schools-they cannot find similar jobs in this economic climate. House prices in Sydneys most prestigous suburbs are hence predicted to fall!

My suggestion, Shrewd is to go to CHINA- perhaps do an exchange program at a Chinese University--Ring AFS(American Field Scholarships) for more info.
Speaking Chinese will be an invaluable asset in the business world!

The other suggestion-which lots of people in sydney are doing -is to go and work in DUBAI........plus that would be lots of fun!!

I enjoy the banter between you and macdunk-it is obvious he is very fond of you ..I hope he doesn't mind if I speak on his behalf--but I.m sure he didn't mean to offend you....sometimes you take his bait too easily!!!

Shrewd.you are obviously a smart dude and will do well!
All the best for your future
BigMinty;)

[duncan macgregor]

SHREWDY, you are one smart dude that gets it wrong sometimes. The real smart dudes take it on the chin, learn from their mistakes and come back fighting. The really really smart dudes, learn from other peoples mistakes, avoid making them themselves, and pick who are smart enough to listen to, and who are not. I only say it as i see it, open myself up for ridicule by saying in advance how i see the action playing out.
Take notice of PHAEDRUS and his charts, start to realize that the market is like a manipulated can of worms, where logic is a non event. You were caught out simply because you failed to understand that PE ratios and future prospects count for nothing against market sentiment. Having an old bugger like me on your back will stand you in good stead later on when you look back and think it over. Good luck in what ever you decide to do but keep posting. When you get a few bob get into property that is the easiest and safest way to get rich. Macdunk

[Ketel One]

New Zealand is at the beginning of a first homebuyers crisis...
lets assume NZ median house price is $330,000 .... and you pay a piddley deposit of $30,000
-also assume interest rates are 8%
-number of years to pay the loan off are 30 years
-loan amount is $300,000, after deposit is paid

you therefore get....
Year 1 2 3 4 5 6
Beginning principal bal 300,000 297,352 294,492 291,403 288,067 284,464
payment 26,648 26,648 26,648 26,648 26,648 26,648
interest component 24,000 23,788 23,559 23,312 23,045 22,757
principal component 2,648 2,860 3,089 3,336 3,603 3,891

-and so on, for 30 years
-in the first year you are paying $24,000 in interest only... wow... and only $2,648 is coming off the loan balance at the end of the first year...
-so, your house value has to increase 8% in the first year... (24,000/300000) just to break even and cancel out payment for interest only (8%)
-year 2 opening balance is year 1 beginning principal balance less principal component
and so on...
-so for 30 years you are paying $26,648 per year or $512 per week, every week.....
-total amount paid to the bank after 30 years is $799,440 ...[:0](26,648 * 30)
-the above example doesnot include the benefits of what you save in rent by having your own house

I have only ever been told to buy a house, by parents, friends, every single person I have gone to, to ask for advice has told me to buy a house... The housing success stories are all to common for people who are 5plus years older than me and beyond...

but yet, I look at the above loan amortization table... and cannot see a path...
I am 22, student, without a house (of course)... and cannot allow myself to be a 52yr old man, and have a house only... so I looked for another means... I spent two years just looking at shares, and the last 2 years playing high risk shares, with much success I add... I applied a simple strategy where I invested in high upside, low downside... trouble is finding a share with these characteristics... any way....
It is always a goal of mine to have a house... but It will have to be paid largely in cash...

Or I will need a combination of a few events happening...
-house price falls dramatically
-interest rates to drop, (not likely in the next year) but interest rates will drop in the medium term
-rental rates to increase dramatically, so house buying becomes more attractive
-wages to go up massively (yeah right)
-large govt incentives...

we are due for a housing fall... If you are a first time house buyer, dont be fooled into housing by others... let the numbers speak for themselves...the only way to make house buying attractive is large front end payment, or up weekly payments.up $500, yeah right...
any more than 15years spent to pay for a house is far toooooo long!...(for me)

at $500 per week for 6 weeks equals 3 thousand, a nice sized share parcel... we are going to be a generation of renting property, or inheritance... I want neither...

they say there are risks in buying a house... no theres not... theres no risk in doing what everyone else is doing, because at the end of the day everyone will be in the same boat... and either all better off, or all worse off... there aint no risk in that...
to get ahead in life you have to take risks....

I have heard that many property buffs are changing their views on apartments... I heard of apartments selling recently as low as 55k in auckland...
if you are pondering a first home, then all the best, wheather you buy a house or not, it will still be the largest decision you will ever have to make
Thank you for taking the time to reading the above...

Hey shrewd,

Just starting at your first post, as I haven't had time to read all 90 pages that this monster of a thread has turned into, but:

I'm in a similar position to yourself- i'm a student, have some capital but no regular income from a job yet (other than part time tutoring/scholarships/sharetrading income etc; nothing a bank would consider reliable!), and have been following the housing market for a couple of years. I have some vague thoughts as to how/when it's going to be possible for me to eventually buy property:

- I think the aim for me initially has to be to buy a property to rent, and for it to be a cashflow positive arrangment, because: 1.) If you're buying to rent, the costs are cheaper; interest costs, depreciation, etc are all tax deductible. If you're buying a property to live in these things aren't. 2.) As others have mentioned (i think) you're using other people's money- the bank's for the loan, and the tenant's for paying off that loan. This takes some of the sting out of paying all that interest that your post focuses on!

- Finding a property that brings in more in rent than the outgoings is pretty tough at the moment. However, I think things will improve slightly in the next couple of years, and I don't think the apparent difficulty should be cause for despair. Interest rates are lower than when you started this thread, and there's a fairly good chance they'll come down a bit more. Prices are likely to drop, or are likely to go sideways for a number of years- which is the same thing, as inflation at around 3% (say, it's actually higher atm) will eat away at those prices that are going "sideways".

- Beyond this, I think it will probably require some creativity, and some hard work and patience to find the right kinds of properties. Being a student and having rented flats, it's a market I have some familiarlity with. Something i've seen a few times is houses that would have sold as 2 or 3 bedroom places, which have an extra lounge or something, that was turned into an extra bedroom with very little extra capital outlay and rented to students or the younger/flatting market. This is just an example (probably a poor one at that)- the point is you have to be creative when actually looking at properties, and finding a property that can be modified with modest costs to create a cashflow positive rentable situation. Finding properties like this is no doubt tough, and they're unlikely to be advertised as "GRATE INVESTMENT OPPORTUNITY" by real estate agents. Nevertheless I think it is (or will be) possible for someone who perseveres, is able to be fairly clinical in their assessment of properties and patient enough to only commit when the figures line up (this may be a few years away given the current market).

- If you can manage to pull this off, you've got a property that has the tenants paying off your mortgage, it's costs are tax deductible, and the end result is each week that passes, you (and the bank) are getting a little bit richer. Any capital gains in the value of the property are just icing on the cake. And then you can start again and find another one ;)

[fungus pudding]

Hey shrewd,

Just starting at your first post, as I haven't had time to read all 90 pages that this monster of a thread has turned into, but:

I'm in a similar position to yourself- i'm a student, have some capital but no regular income from a job yet (other than part time tutoring/scholarships/sharetrading income etc; nothing a bank would consider reliable!), and have been following the housing market for a couple of years. I have some vague thoughts as to how/when it's going to be possible for me to eventually buy property:

- I think the aim for me initially has to be to buy a property to rent, and for it to be a cashflow positive arrangment, because: 1.) If you're buying to rent, the costs are cheaper; interest costs, depreciation, etc are all tax deductible. If you're buying a property to live in these things aren't. 2.) As others have mentioned (i think) you're using other people's money- the bank's for the loan, and the tenant's for paying off that loan. This takes some of the sting out of paying all that interest that your post focuses on!

- Finding a property that brings in more in rent than the outgoings is pretty tough at the moment. However, I think things will improve slightly in the next couple of years, and I don't think the apparent difficulty should be cause for despair. Interest rates are lower than when you started this thread, and there's a fairly good chance they'll come down a bit more. Prices are likely to drop, or are likely to go sideways for a number of years- which is the same thing, as inflation at around 3% (say, it's actually higher atm) will eat away at those prices that are going "sideways".

- Beyond this, I think it will probably require some creativity, and some hard work and patience to find the right kinds of properties. Being a student and having rented flats, it's a market I have some familiarlity with. Something i've seen a few times is houses that would have sold as 2 or 3 bedroom places, which have an extra lounge or something, that was turned into an extra bedroom with very little extra capital outlay and rented to students or the younger/flatting market. This is just an example (probably a poor one at that)- the point is you have to be creative when actually looking at properties, and finding a property that can be modified with modest costs to create a cashflow positive rentable situation. Finding properties like this is no doubt tough, and they're unlikely to be advertised as "GRATE INVESTMENT OPPORTUNITY" by real estate agents. Nevertheless I think it is (or will be) possible for someone who perseveres, is able to be fairly clinical in their assessment of properties and patient enough to only commit when the figures line up (this may be a few years away given the current market).

- If you can manage to pull this off, you've got a property that has the tenants paying off your mortgage, it's costs are tax deductible, and the end result is each week that passes, you (and the bank) are getting a little bit richer. Any capital gains in the value of the property are just icing on the cake. And then you can start again and find another one ;)


It's all a little simplistic. All the charts and tables and various forms of analysis almost always ignore the huge costs of repairs and renovations and the occasional bit of modernising. All very well to talk of property doubling every ten years or so, but without constant attention can you imagine a house after twenty or fifty years? Especially one full of tenants - they are a little rougher on a dwelling than the owner (massive understatement) Of course repairs can be deducted from profit, but not so capital improvements. Residential landlords are a little like those who follow the horses - you tend to hear the good, and the bad gets forgotten. For many years I have made my living as a property investor, but flagged residential houses and flats away many years ago. Not a bad lark to get started in the 60s and 70s, when inflation was always in double figures and interest rates were low; mortgages were obtained through your lawyer, and were limited to two thirds of valuation. Those of us with no money always looked for a sale where vendor finance was a possibility. Most of the first few houses I owned were 100% financed. These days being a residential landlord is a mug's game. Commercial property offers miles higher returns and nowhere near the hassles. Get a copy of the old 1970s classic - Jones on property. The basic rules he covers are much the same.

[Ketel One]

It's all a little simplistic. All the charts and tables and various forms of analysis almost always ignore the huge costs of repairs and renovations and the occasional bit of modernising. All very well to talk of property doubling every ten years or so, but without constant attention can you imagine a house after twenty or fifty years? Especially one full of tenants - they are a little rougher on a dwelling than the owner (massive understatement) Of course repairs can be deducted from profit, but not so capital improvements. Residential landlords are a little like those who follow the horses - you tend to hear the good, and the bad gets forgotten. For many years I have made my living as a property investor, but flagged residential houses and flats away many years ago. Not a bad lark to get started in the 60s and 70s, when inflation was always in double figures and interest rates were low; mortgages were obtained through your lawyer, and were limited to two thirds of valuation. Those of us with no money always looked for a sale where vendor finance was a possibility. Most of the first few houses I owned were 100% financed. These days being a residential landlord is a mug's game. Commercial property offers miles higher returns and nowhere near the hassles. Get a copy of the old 1970s classic - Jones on property. The basic rules he covers are much the same.

I agree it is probably overly simplistic. But some of the main points are still valid I think:

- It's cheaper to buy property for the purposes of renting
- It's better to use other people's money for it
- You're not going to be able to just buy something and start renting it at a profit. You need to do something to increase the potential for rental income, and as you point out, this will be a capital expense and so not tax deductible. What this amounts to will vary for each person depending on your skills, the kinds of property you're buying, what rental market you're looking at etc.
- The market/conditions ARE moving in the right direction for things to become more affordable- even if they aren't there yet.

[arco]

Things must be pretty bad to get to this price level


http://www.zillow.com/homedetails/photos/11453714_zpid/

http://images2.zillow.com/is/image/i0/i0/i6040/IS110atqiybj82r.jpg?op_sharpen=1&qlt=90&size=460,300

[arco]

I have a friend in the US who just purchased a nice property near his home for $35,000 cash and is getting 14% rental return........now that more like it.

Even Cheaper......................for $19,000
3 beds, 1.0 baths


21 Mckinnie Ave Mc Kees Rocks PA 15136http://images2.zillow.com/is/image/i0/i0/i6020/ISx2mmjmxi4t5v.jpg?op_sharpen=1&qlt=90&size=330,225


http://www.zillow.com/homedetails/21-Mckinnie-Ave-Mc-Kees-Rocks-PA-15136/2140478905_zpid/

[minimoke]

Two year anniversary Shrewdy, so time to review your original post on buying a first home.

Your original figure of $330k coincided with the REINZ median values for Nov 06. And you were right – property did nothing for a couple of months and then dipped to $327k in Jan 07.

But after that the median went up 6.6% – hitting a high of $352 in Nov 07. Since then the median has dropped back 4.1% to $337.5K – still above your original value. So your prediction was right – but a year too early.

So now to deposit rates – you sure could have looked at buying a house on pretty much zero deposit – but not any more. You’ll now be looking at a 20% deposit.

And interest rates. The RBNZ had a floating rate in Jan 07 of 9.5% and two year fixed was 8.2%. We know you are against fixed rates – but you would have seen floating rates increase month after month to an eventual high of 10.3% in Sept 08. Some of us who like fixed rates would have sat back on 8.2% and watched you pay 2% over the odds following your view. Your view does have some merit if a person had taken a fixed position in Feb – April 08 when the fixed rate peaked at 9.6% but even by Oct 08 the floating was still 9.6%

But in the meantime you have haven’t bought – but rented. So what have rents done? Back in December 06 mean weekly rents for a three bedroom home was around $290. Rent have trended up to around $325 a week - a 12% increase.

Had you been working your pay would have gone up roughly 4% an annum – which would have seen you marginally ahead of inflation

So house values up a bit, deposit requirements up hugely; interest rates around the same and rent up; wages and inflation up.

You might have had a cash deposit – if it had been invested with a Finance Company there is a good chance you would have lost the lot over the past couple of years. As for shares the NZX50 has gone from around 4000 in Jan 07 to 2700 in Dec 08.

Jan 07 would have been a good time to buy your first home. Had you posted in Nov 07 your thoughts might have been closer to the mark – but still a better place to park your cash and income than shares or finance companies.

[Financially dependant]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10550607

Even the Real estate agents have stopped quoting the bottom is in!

plus...

"The average rental income will have to increase 71 per cent or the median house price will have to fall 42 per cent," he said, if historical average rental yields of 7.7 per cent on residential property were to apply.

[The GrandMaster]

But in the meantime you have haven’t bought – but rented. So what have rents done? Back in December 06 mean weekly rents for a three bedroom home was around $290. Rent have trended up to around $325 a week - a 12% increase.

You guys crack me up. So Shrewdy could have fixed his interest rate, but would have meekly sat back and let his rent go up the 12%? The average rent may have gone up, but I can assure you mine has not changed in that period (and I can't see it changing in the foreseeable future either).

And of course you have failed to mention that the interest on this $330k 100% mortgage would be $520 per week - just a 'touch' higher than either $290 (or $325 if you like) per week in rent. In fact, I am sure for $520 per week Shrewdy could live in a much nicer pad than the average $330k house.

And in the meantime - no maintenance, no stress about getting in tenants to help him pay those high interest payments, no wasting his weekends painting the hallway.

Don't worry Shrewdy, stick to your guns. Buy your house (if that is what you want to do), but on your terms and nobody elses. The sheep get scared when others don't follow the flock.

TGM

[lakedaemonian]

Things must be pretty bad to get to this price level


http://www.zillow.com/homedetails/photos/11453714_zpid/

http://images2.zillow.com/is/image/i0/i0/i6040/IS110atqiybj82r.jpg?op_sharpen=1&qlt=90&size=460,300


Pittsburg, while affected to a certain extent by the crashing housing bubble, is a bit different from other regions.

It got destroyed in the Version 1.0 deep recession/job losses/offshoring of the 70's-80's.

Although the economy there is a bit better diversified, it still hasn't fully recovered.......especially in terms of real estate prices...so since the Pittsburg region had less real estate upside....they will likely have a good bit less downside.

It would be quite common to find older, reasonably well constructed homes, but likely poorly maintained, for the price of a car in former manufacturing hubs in the US.

My guess is that there are limited/declining job prospects for a reasonable radius away from that house.

Also, local property taxes(rates) play a HUGE factor in the US in terms of local school district catchment areas. Disparity in resources between public school districts can be at times FAR wider than in NZ. IF the local school district is POOR, it would further hinder the marketability of this property.

Sort of like a run down house selling for $50k in a prospectless outer suburb of Gore would be the closest analogy.

Just my 0.02c

[minimoke]

Y
And of course you have failed to mention that the interest on this $330k 100% mortgage would be $520 per week - just a 'touch' higher than either $290 (or $325 if you like) per week in rent. In fact, I am sure for $520 per week Shrewdy could live in a much nicer pad than the average $330k house.

And in the meantime - no maintenance, no stress about getting in tenants to help him pay those high interest payments, no wasting his weekends painting the hallway.


No – the pros and cons of renting vs owning have already been well canvassed. If you have missed them there are very good arguments for renting as a home option – but Shrewdys thread was about owning your first home. What I didn’t mention was his rental situation – which as I recall in one post was a cold draughty place which wasn’t helping his health. Perhaps he has moved. Either way he would still have been better off buying a $330k house in Jan 07 with a 100% loan at 9.5% rather than leaving it till Nov 07 when his house would cost $352k at 10.4%

[lakedaemonian]

I have a friend in the US who just purchased a nice property near his home for $35,000 cash and is getting 14% rental return........now that more like it.

Even Cheaper......................for $19,000
3 beds, 1.0 baths


21 Mckinnie Ave Mc Kees Rocks PA 15136http://images2.zillow.com/is/image/i0/i0/i6020/ISx2mmjmxi4t5v.jpg?op_sharpen=1&qlt=90&size=330,225


http://www.zillow.com/homedetails/21-Mckinnie-Ave-Mc-Kees-Rocks-PA-15136/2140478905_zpid/

Median income for that area is only approx HALF the state average, which would put that house at a bit less than 1x annual median gross wages.....


If that home were within spitting distance of say University of Pittsburg it would probably sell for 5-10x that price.

Just my 0.02c

[lakedaemonian]

Our old beach house up the street closed a month ago.

We sold at 98.5% of asking price(a quite reasonable and fair one in my opinion...a "win/win" for all :) )

I think the buyer has SERIOUS buyer's remorse......since it went unconditional in November some of the other sellers in this great wee suburb have been starting to display signs of seriously "dropping their pants" on price...some houses on the market for 6-9+ months and going nowhere.

She keeps dropping nasty notes in our letterbox about mail redirects that are the problem of NZ Post.

There have been only 3 known completed sales in our suburb in the last 6 months....2 of the 3 being the house we sold, and the home we purchased.

We just recently held our first two BBQs at our "new" home...lots of fun had by all, but I now have several months worth of wine/beer bottles to recycle :)

[Serpie]

Good work Lakedaemonian,

We've sold 2 (we hope) in the last couple of months.

First one sold at the asking price within 10 days, and we also got a back-up offer at the asking price. Has confirmed.

Second one was under offer within 7 days by the first person that looked at it. Within 2% of asking price. To be confirmed soon (again, we hope).

Both due to settle before the end of January.

I've got another couple that we didn't price as aggressively (because I'm not bothered of we sell them or not at this stage) and they're still sitting there.

If people really want to sell they can sell most standard houses quite easily I believe. Stuff that's a bit out of the ordinary may take longer, because it's a specialised market, but other than that it just comes down to motivation.

[lakedaemonian]

Good work Lakedaemonian,

We've sold 2 (we hope) in the last couple of months.

First one sold at the asking price within 10 days, and we also got a back-up offer at the asking price. Has confirmed.

Second one was under offer within 7 days by the first person that looked at it. Within 2% of asking price. To be confirmed soon (again, we hope).

Both due to settle before the end of January.

I've got another couple that we didn't price as aggressively (because I'm not bothered of we sell them or not at this stage) and they're still sitting there.

If people really want to sell they can sell most standard houses quite easily I believe. Stuff that's a bit out of the ordinary may take longer, because it's a specialised market, but other than that it just comes down to motivation.

While I am the eternal optomist(which you sound like yourself), I can't help but note CLEAR indications of a dramatic shift in the RE market in Christchurch in the past year......most definitely in our suburb.

Commercial Real Estate has nearly frozen as well.........our last commercial property that we have been marketing for the better part of this year(blue chip, recently refurbished retail) has gone from reasonable-ISH offers, to cheeky offers, to insane lowball offers.

VACANT commercial RE inventory is PILING up very quickly in Christchurch.

I'm now receiving about 4-5 unsolicited commercial real estate offers a week.....as well as unsolicited angel funding "opportunities".

Keep your eye on Pegasus Town Village just north of Christchurch.

[arco]

Interesting area by area.

We are on the Hibiscus coast and I've noticed in Orewa prices don't seem to have dropped that much. A basic older 3 bed bungalow without sea view but within walking distance of town is still in the high 300's/early 400's. (one I recently viewed sold at $406k and was probably about 30 years old). A friend in Napier has just bought a similar house for $163k, and is getting $280 pw rent. One he sold in late 2006 for $325k has been on recently at $249k.

I've noticed a few of the outer areas in Whangaparaoa peninsular falling a little. A 3 bed I spotted this morning 3k's from Orewa at $269. Thats the cheapest I've seen - looked quite a nice house.

[Serpie]

Keep your eye on Pegasus Town Village just north of Christchurch.

Mmmm - why Pegasus Town?

Personally I think Pegasus Town will take 5 years or more to bounce back into life. There may be some bargains out there over the next 12 months, but do you want to sit on empty sections for years?
Do you see some opportunities out that way in the nearer term?

Agree with you regarding the commercial side of things. although that's also had a great run over the last few years. From a casual observer's point of view I've noted that retail occupancy is dropping noticeably, especially in the suburbs outside of the main malls.

[minimoke]

So, can we take it that neither Serpie or Lakedameon have taken a loss on their recent house sales?

As for my neighbourhood, there are lots of “sold” signs up but I haven’t checked the sale prices yet and not so many for sale signs around.

And Pegasus Town – I’m not sure they have dug the heavy equipment that got lost in the sand out yet. I wasn’t in the least bit tempted to buy when this town went to market and I’m less inclined now. I’m picking another “Rolleston” – 20 years before we see anything substantial. But in the meantime buyers will take a hit on their land purchase on resale and covenants will get slackened.

[arco]

Residential sections often fall further than expected in my experience,
but they have been good over a long term if you can hold.

Napier 1996 section $27000, sold 2006 $187k.


House prices - how far will they fall?

Tuesday Jan 06, 2009


By Anne Gibson (http://www.nzherald.co.nz/anne-gibson/news/headlines.cfm?a_id=39)


http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10550607&pnum=0

[Serpie]

So, can we take it that neither Serpie or Lakedameon have taken a loss on their recent house sales?

We bought ours as investment properties before the market went silly (8-9 years ago), so have made good money. Not as much as we would've if we'd sold a year ago, but the glass is still 90% full.

And we're looking at houses to live in that would've been out of our reach a year ago, so maybe the glass is completely full!

I think you've raised a fair point about the convenents at Pegasus Town MM. Once they relax the standards out there then it's all over.

[The GrandMaster]

No – the pros and cons of renting vs owning have already been well canvassed. If you have missed them there are very good arguments for renting as a home option – but Shrewdys thread was about owning your first home. What I didn’t mention was his rental situation – which as I recall in one post was a cold draughty place which wasn’t helping his health. Perhaps he has moved. Either way he would still have been better off buying a $330k house in Jan 07 with a 100% loan at 9.5% rather than leaving it till Nov 07 when his house would cost $352k at 10.4%

My mistake, I thought you mentioned it being the 2 year anniversary since his initial post and was just comparing that.

Regardless, even in the example above he would have been better off by c$13k by delaying until the Nov07 purchase. Even using the higher house price and interest rate you quote, it would take over 2yrs for him to come back to evens.

Either way, he didn't do either, and is better off for it.

[Dr_Who]

I dont know what you doomsayers are on about, maybe I am deaf and blind. I have been buying property lately and will buy more when and if I see a bargain. As long as the numbers are right, I am in with a grin. :D

Those of you that think you can pick the bottom must be a guru and/or have a crystal ball. And yeah, all those so call experts writing in the papers got the last cycle wrong so why would they get this cycle right?

[Serpie]

Dr,
I was talking to my agent about one this morning which sounded promising. I was thinking about having a look at it myself, but my wife would kill me if I started buying again.

PM me if you're interested and I'll give you the details. No promises about whether or not it's for you, but you may want to have a look.

[lakedaemonian]

So, can we take it that neither Serpie or Lakedameon have taken a loss on their recent house sales?

As for my neighbourhood, there are lots of “sold” signs up but I haven’t checked the sale prices yet and not so many for sale signs around.

And Pegasus Town – I’m not sure they have dug the heavy equipment that got lost in the sand out yet. I wasn’t in the least bit tempted to buy when this town went to market and I’m less inclined now. I’m picking another “Rolleston” – 20 years before we see anything substantial. But in the meantime buyers will take a hit on their land purchase on resale and covenants will get slackened.

We made a VERY tidy capital gain on the house we sold! Hence our selling it for a fair price...we're not too greedy, especially since we got such a screaming good deal on our new home a number of months ago.

As far as Pegasus Town goes in no way am I implying anyone should invest their hard earned money there, quite the opposite.

I'm of the believe that it is about the LAST place I would invest capital at the moment.

To be blunt, I think it might be a nice place to live in 10-15 years time.......but the next couple of years there are probably going to suck.


Just my 0.02c

[minimoke]

We made a VERY tidy capital gain on the house we sold! Hence our selling it for a fair price...we're not too greedy, especially since we got such a screaming good deal on our new home a number of months ago.

As far as Pegasus Town goes in no way am I implying anyone should invest their hard earned money there, quite the opposite.

I'm of the believe that it is about the LAST place I would invest capital at the moment.

To be blunt, I think it might be a nice place to live in 10-15 years time.......but the next couple of years there are probably going to suck.


Just my 0.02c
Now don’t yours and Serpies posts make much more positive reading than the dross regurgitated by the media who just love gloom and doom (or over hyped greed). What do the media now want? – us to feel sorry for the poor mugs that paid top dollar for a property they didn’t really want but thought they could make a quick buck or two.



I’m just waiting for the next instalment of sob stories from those that have bought into places like Pegasus Town – they’ll be the people, or siblings of people, that no doubt bought dodgy time-shares 20 years ago and didn’t learn but then went on to invest in that nice finance company fronted by some respectable ex rugby player or news reader – only to be blown away by a $2m scaled model created by artisans and promises of secluded lagoons and sunken ships for the enthusiastic diver. All built on sand dunes and swamp.!

[Financially dependant]

This guy just does not give up with his B.S spin!

From Interest.co.nz......but a good reply at the bottom.


Auckland’s largest real estate agents Barfoot and Thompson reported a 4.7% decline in their average sale price over 2008, and a 40% decline in average sales per month, compared to 2007.

Barfoot’s average number of sales per month in 2008 fell to 547 from 915 in 2007, while its average sale price fell to NZ$513,597.

“This is a really good result, given all the dire predictions that have been tossed around,” Managing Director Peter Thompson said about the 4.7% average price fall.

“This should also help lend confidence to the market and reassure both vendors and prospective buyers.”

For the week ended December 19, 2008, Thompson said Barfoots recorded 227 sales, compared to a weekly average over the year of 171. Its average sale price in December rose 1.7% from November, up to NZ$509,513.

“We’ve certainly seen an improvement in the market since the Reserve Bank’s most recent move. It seems to have tipped the balance in terms of converting interested parties into committed buyers,” Thompson said.

The average weekly rent over 2008 for Barfoot’s property management division was NZ$388, compared to an average of NZ$370 in 2007.

1. andy hamilton Says:
January 12th, 2009 at 4:06 pm

There is more than the usual spin going on.

Note the use of the whole year comparison, and the avoidance of a comparison with average value in Dec 2007 (a year on year comparison which has typically been given in their previous missives). Want to know why?

Because Dec 2007 value was $559,803 versus 2008’s December value of $509,513 - ie a $50,000 difference, a 10% fall.

I am suprised you missed that one Alex.

As regards the use of the annualised figure - mine the data a little deeper and you get this:

Average value 1st half 2007: $528,566
Average value 2nd half 2007: $548,391 (ie the peak)
Average value 1st half 2008: $519,195
Average value 2nd half 2008: $509,513

[Yossarian]

Now don’t yours and Serpies posts make much more positive reading than the dross regurgitated by the media who just love gloom and doom (or over hyped greed). What do the media now want? – us to feel sorry for the poor mugs that paid top dollar for a property they didn’t really want but thought they could make a quick buck or two.



I’m just waiting for the next instalment of sob stories from those that have bought into places like Pegasus Town – they’ll be the people, or siblings of people, that no doubt bought dodgy time-shares 20 years ago and didn’t learn but then went on to invest in that nice finance company fronted by some respectable ex rugby player or news reader – only to be blown away by a $2m scaled model created by artisans and promises of secluded lagoons and sunken ships for the enthusiastic diver. All built on sand dunes and swamp.!


I had a drive around Pegasus in the holidays. Boy, what a depressing place. I agree - it will be the next Rolleston. Even when it's complete I would not live there. It feels like a massive version of Dannemora in Auckland (apologies to any residents of that suburb).

And do you know, there is only one way in - one lane each way for 8000 to 10000 residents!!! Talk about a traffic jam! And the main road runs right through the golf course... what the hell?

[fungus pudding]

I had a drive around Pegasus in the holidays. Boy, what a depressing place. I agree - it will be the next Rolleston. Even when it's complete I would not live there. It feels like a massive version of Dannemora in Auckland (apologies to any residents of that suburb).

And do you know, there is only one way in - one lane each way for 8000 to 10000 residents!!! Talk about a traffic jam! And the main road runs right through the golf course... what the hell?


I don't think anyone need worry about the traffic jams.

[Arbitrage]

People were reportedly queuing to buy the sections when they first came on the market. How many houses have actually been built so far?

[lakedaemonian]

People were reportedly queuing to buy the sections when they first came on the market. How many houses have actually been built so far?

6-12 completed(as of 12/08)

Only 1 that I could confirm as being lived in...mostly show homes.

[Dr_Who]

(as of 12/08)

Only 1 that I could confirm as being lived in...mostly show homes.

Plant lots of trees and you got yourself a holiday bach... :D

[upside_umop]

This guy just does not give up with his B.S spin!

From Interest.co.nz......but a good reply at the bottom.


.
.
.
.


1. andy hamilton Says:
January 12th, 2009 at 4:06 pm

There is more than the usual spin going on.

Note the use of the whole year comparison, and the avoidance of a comparison with average value in Dec 2007 (a year on year comparison which has typically been given in their previous missives). Want to know why?

Because Dec 2007 value was $559,803 versus 2008’s December value of $509,513 - ie a $50,000 difference, a 10% fall.

I am suprised you missed that one Alex.

As regards the use of the annualised figure - mine the data a little deeper and you get this:

Average value 1st half 2007: $528,566
Average value 2nd half 2007: $548,391 (ie the peak)
Average value 1st half 2008: $519,195
Average value 2nd half 2008: $509,513

Great article FD...I read it in the herald a couple days back but it didnt have the same comment down below. I thought the same as this guy at the bottom who commented, although easy to get caught out though in this agents 'talk.' Property fell 8-9% in 2nd half of year after holding up for first half according to QV. We all know how much optimism is installed in QV figures...! This is worst than people like to admit.

30% is a reality...2/3 firms plan to layoff staff by April, you cant tell me that is going to do nothing to housing! Its these sort of expectations that take out the confidence of the market...all of the market.

Thanks for posting FD.

[Financially dependant]

My pleasure upside_umop, I really get peeved with the media coverage, so one sided.... constantly quoting Real estate agents with there vested interests and BS, then to balance the argument they quote an independent adviser:rolleyes:!

[Arbitrage]

From QV today:

"The property market in 2008

2008 has been a pivotal year for the NZ property market with a sustained drop in property values for the first time since 1998. QV's December Residential Price Movement report shows property values fell by 7.4% during the year.

"Property values held reasonably flat through the first three months of the year, but the decline kicked in through the autumn and winter months, during which time values dropped 6%. With the significant drops in interest rates over the past three months, there has been an increase in market activity and values appear to be flattening again" said Mark Dow of QV Valuations.



"To keep 2008 in perspective it's useful to look back at the activity of the past two decades. Property values grew by 120% between 2002 and mid 2007. By way of comparison, the last period of sustained growth occurred between late 1992 and the end of 1997 when property values increased by 54%" said Dow. "After such a period of sustained growth it's inevitable that we will see a correction. The question remains how long this period of falling property values will continue."



"It's also interesting to look at the types of properties selling at the different stages of the property cycle. Between 2000 and 2003 the number of house sales more than doubled, with a dramatic increase in the proportion of lower value property selling. In the years 2004 to 2007, the number of house sales remained fairly steady, as did the proportion of low, medium and high value sales. During 2008, the number of house sales fell dramatically and the proportion of lower value properties selling significantly decreased. This pattern reflects the wider drivers of the property cycle. When the economy is strong; job prospects are good and immigration is increasing, then demand for houses, particularly first homes, pushes prices up. As the economy weakens and affordability becomes a real issue, first home buyers are usually the first to suffer; sales volumes drop and activity in the market moves back to mid to higher end properties as we saw through 2008" said Dow.

Our December report showed a 7.4% decline over the past year (calculated over the three months ending December 2008 in comparison to the same period last year) while the average New Zealand sale price for December increased slightly to $378,605.

All the main centres showed further declines in property values. In the Auckland Area values dropped back to -8.0% from the -7.4% reported in November. Hamilton values fell to -9.3% from -8.5%, Tauranga to -9.0% from -8.4%, and the Wellington Area to -6.9% from the -6.0%. Christchurch and Dunedin followed the same trend dropping to 8.0% and -7.7% respectively.

Most of the main provincial cities followed the national trend with property values easing further. Whangarei dropped 8.6%, Napier 8.1%, Nelson 7.6%, and Invercargill 9.1%. However, a number of areas bucked the trend most notably popular summer destinations like Queenstown whose property values dropped to 10.6% from the -12.5% reported in November, and Gisborne to 5.8% from 9.6% last month."

[minimoke]

Shrewdy has finally been shown to be nearly right. Latest sales figures show drops in property values – back to the levels they were at when Snoopy first posted. Indeed a home owner might now be around $1,500 worse off with their mean home value.

But buyers back then would still be better off. Interest rates have dropped around 2.5% to around 6.99% for a floating loan at Kiwibank. So the poor old January 2007 home owner would be better off by $7,500 cash in hand – not a bad place to be in these recessionary times. Interest rate drops are more than off setting real estate value drops for home owners.

[upside_umop]

No they wouldnt be...your forgeting that while we went a room for only $100 per week, it has saved us around $30k over the last 2 years instead of buying. Read some previous posts to see the calculations of savings...I dont know where your getting yours from? Or how you see paying interest over the last two years to be better off?

[minimoke]

No they wouldnt be...your forgeting that while we went a room for only $100 per week, it has saved us around $30k over the last 2 years instead of buying. Read some previous posts to see the calculations of savings...I dont know where your getting yours from? Or how you see paying interest over the last two years to be better off?
We’ve done the renting vs home ownership elsewhere and as I have previously said there are certainly merits to renting. But what we can’t do is compare renting 1 bedroom at $100 a week with owning a home.

[Dr_Who]

It would be interesting to see what happens when OCR hits 4%.

I am confident OCR will hit 3% this year.

[upside_umop]

We’ve done the renting vs home ownership elsewhere and as I have previously said there are certainly merits to renting. But what we can’t do is compare renting 1 bedroom at $100 a week with owning a home.

How is that any different when your merits are based on renting out the rest of the rooms? I believe you have less worries/responsibilities renting.

As for shrewdy and myself...its paid off as we're both students.

Interesting how dr? Most banks have already priced in the cuts....you wont see mortgage rates below 5% but you will see unemployment rise markedly. 7.5% by 2011 according to treasury...no immediate housing rebound on the cards IMO.

[MrDevine]

Upside, you're in a great position as a student to take advantage of a falling market when (if) you get a job. Keep saving and you'll find yourself a cracker first home or investment property.

Who says bank interest rates won't get to -5%? If the OCR goes to 2.5% then there is every chance. 3 month LIBOR is now down to 1.15% and collapsing under billions of dollars of guaranteed liquidity.

[Dr_Who]

Upsidedown Mop, you young grasshoppers have a lot to learn.

I ve been through two market crashes and have invested and managed more property portfolios than you ve had hot meals.

Everything goes in cycles and with properties it is usually a long term investments. The so called "experts" got the timing wrong the last time and they are gonna get it wrong this time. NZers will always love properties, cos they dont trusts the sharemarket.

Once the OCR gets to a certain level, it will be game on again.

[Crypto Crude]

Upsidedown Mop, you young grasshoppers have a lot to learn.


young grasshoppers...
hahahaha.....
these young G hoppers outsmarted all the 'businessmen housing buffs'...
and continue to defy them today, continue to be proven right on a daily basis, and continue being told that the business buffs were right all along....
they wont admit there fault...

Housing is still falling... interest rates are going to come down further...
buying now is for dead ducks... and it aint even duck hunting season...
ka pow....
Umop is a very lucky, talented individual to think on his own two feet, and to be in the best position in life......
We have both landed great jobs...
im off to China...
:cool:
.^sc

[upside_umop]

Upside, you're in a great position as a student to take advantage of a falling market when (if) you get a job. Keep saving and you'll find yourself a cracker first home or investment property.

Who says bank interest rates won't get to -5%? If the OCR goes to 2.5% then there is every chance. 3 month LIBOR is now down to 1.15% and collapsing under billions of dollars of guaranteed liquidity.

Yeah thats the thing about jobs...I've got one secured coming out as a graduate in 2010...At this stage going for the investment property...makes more economic sense to me. Worry about the 'home' later :D

If OCR gets to 2.5%, wouldnt necessarily see rates come below 5%. Most banks now have priced in a cut in OCR to 4% but yet are still up above 7% for any length of time (3,4,5,7 year mortgages). It could be possible to see the 6 month and 1 year under 5% but not for any fixed amount of time. Because if houses stabilize, and economic growth picks up and so will inflation expectations ----> higher expected forward rates. I'd like to see a 6% 5 year rate...that would definitely catch my attention! Whats NZ's equivalent to LIBOR like? I cant remember its name....

But yeah, all in all, I feel reasonably fortunate to be coming into a situation where there will be good opportunities and to take advantage of some as they arise, whether that be in 2010, 11 or 12...maybe I'll try do the 'house a year' like some property guru does!

[upside_umop]

Upsidedown Mop, you young grasshoppers have a lot to learn.

I ve been through two market crashes and have invested and managed more property portfolios than you ve had hot meals.

Everything goes in cycles and with properties it is usually a long term investments. The so called "experts" got the timing wrong the last time and they are gonna get it wrong this time. NZers will always love properties, cos they dont trusts the sharemarket.

Once the OCR gets to a certain level, it will be game on again.

You always talk about 'housing experts' but yet you implicitly proclaim to be one yourself?

Maybe NZers wont trust houses after this is done with.

As for the OCR...1 year ago you would have said the same thing, and your level would have been 5% in your dreams. Now we're talking 2.5% bottom and no positive spin.

Unemployment will rise markedly but may be saved at the expense govt deficit blowouts as a political move...I'd rather see unemployment rise a bit to 'let the market work it out'...

[MrDevine]

I reckon we should tie this thread up. What we have is a couple of young bucks with a lot of confidence, and good on you two (shrewd and upside). However bowling out of University you guys have no idea of the 'real world' I know because I was just like you about 6 years ago.

It would pay to respect the opinions of older posters and learn from them. This downturn is no different to any other.

Umop your comment about liking to see unemployment rise 'to let the market work it out' shows an arrogance which you'll lose quite quickly once you leave university. High unemployment causes all sorts of social problems that no one needs.

Good Luck.

BTW upside what sector are you moving into in 2009?

[Dr_Who]

You always talk about 'housing experts' but yet you implicitly proclaim to be one yourself?



Ive never claimed at any stage I was an expert.

I am a property investor myself and cashed up 2-3 years back. I have started buying again, always on the look out for more under valued properties to buy. I started buying properties again late last year with a long term view. Unlike a few people, I do not pretend to know everything and I am not a fortune teller so I cant predict the bottom of the market.

From my previous experiences, I know for certain that property goes in cycles and experts and analysts always gets the timing wrong. I am only voicing my opinion based on my previous experiences.

In a down trending market you can always negotiate a fantastic price, esp with cash unconditional offers. In a up trending market it is much harder to negotiate a good price.

Good luck to you Upside. If you are right and the market has not bottomed, then it is an opportunity for me to buy more at a cheaper price. Nothing stays cheap for ever.


ps: Shrewdy.. watch out for the girls from Shanghai, they will chew you up alive.

[Crypto Crude]

It would pay to respect the opinions of older posters and learn from them. This downturn is no different to any other.


sorry if I offended anyone...

but,
calling some posters old is just plain discrimination?
these buffs come across as young bucks at heart anyway...
enthusiastic... outgoing.... successful...
mackdunks a young wipper snapper at heart...
these oldies would run circles around our generation...
give it up to us for calling the situation right all along, even when we were tested when we were out of our depths...
housing falls have only just begun...
peace out...
:cool:
.^sc

[fungus pudding]

Ive never claimed at any stage I was an expert.

I am a property investor myself and cashed up 2-3 years back. I have started buying again, always on the look out for more under valued properties to buy. I started buying properties again late last year with a long term view.

Good luck to you Upside. If you are right and the market has not bottomed, then it is an opportunity for me to buy more at a cheaper price.


Why do you call yourself a property investor? Cashing up, or selling, then buying more is property trading - not investing.

[upside_umop]

I reckon we should tie this thread up. What we have is a couple of young bucks with a lot of confidence, and good on you two (shrewd and upside). However bowling out of University you guys have no idea of the 'real world' I know because I was just like you about 6 years ago.

It would pay to respect the opinions of older posters and learn from them. This downturn is no different to any other.

Umop your comment about liking to see unemployment rise 'to let the market work it out' shows an arrogance which you'll lose quite quickly once you leave university. High unemployment causes all sorts of social problems that no one needs.

Good Luck.

BTW upside what sector are you moving into in 2009?

Fair enough, this thread has gone on for a bit...I'd like to see it out though. Share more experiences as they come along. I'll definitely be getting advice from the likes of MacDunk on what to look out for with leaky homes etc as he knows what he is talking about.

I feel I have a reasonable understanding of the real world...maybe not fully yet. I have held a job throughout the last 3 years of university, but know that a tight job market doesn't do any good. If the govt was to come out and try keep unemployment below 4% it would be madness. I don't think we would see any social problems at large if it were to rise to 6-7%...maybe 10-12% would though? Sorry wasn't trying to come across as arrogant! But I dont like it how people come and say "I'm never buy Fisher and Paykel Appliances again, because they'd rather employ overseas workers...." I mean would they rather have FPA around as a company in 10 years or not is the question? Just that sort of thing you know. Also, real estate agents, financiers, etc have all had it good for a while...now there is just a little downturn, they choose the high reward job but also have to have the high risk/volatility in earnings. Its all part of the game but unfortunately some people arent prepared.

I'm heading into accounting, so even a lot of my peers are at severe risk of not finding employment next year but I'm sure those that have worked hard will be ok.

what do you do? did you buy a house straight out of uni?

[MrDevine]

Upside, my wife and I work as a designers in Auckland. My company does good work for a range of clients, and what we are seeing is that across the board, from suppliers and clients – barring government work – is that things are quite slow and a lot of work is going on hold, layoffs are occurring - nobody is hiring in our industry.

Conversely my wifes' company does a lot of work in Australia, and they are still quite busy. Advertising and media spend is always the first to be cut in a recession, which I think is counter intuitive if you still want to broadcast your products or services to your market, and encourage punters to spend.

We brought our house two years ago on low deposit (I've been out of uni for 6 years, my wife is a 'bit older') primarily for the reason that we wanted somewhere to live. I was in two minds about it – didn't expect any capital gain, and was prepared to weather any losses. Our position is secure if we keep our jobs, under that scenario low interest rates are fine as we can pay our mortgage back faster and move onto other things. If we lose our jobs, then you can buy my place! Life is all about timing, and sometimes you come into things at the right time, sometimes you don't. I hope I'm in the former category.

Point is, if you come out and land a sweet job next year, earning good coin, you'll be sweet and miss any of the uncertainty etc.

On another note, how is your share portfolio going? I am almost back on parity where I was in September, so I'm stoked with that.

Mr D.

[tricha]

Ive never claimed at any stage I was an expert.

I am a property investor myself and cashed up 2-3 years back. I have started buying again, always on the look out for more under valued properties to buy. I started buying properties again late last year with a long term view. Unlike a few people, I do not pretend to know everything and I am not a fortune teller so I cant predict the bottom of the market.

From my previous experiences, I know for certain that property goes in cycles and experts and analysts always gets the timing wrong. I am only voicing my opinion based on my previous experiences.

In a down trending market you can always negotiate a fantastic price, esp with cash unconditional offers. In a up trending market it is much harder to negotiate a good price.

Good luck to you Upside. If you are right and the market has not bottomed, then it is an opportunity for me to buy more at a cheaper price. Nothing stays cheap for ever.


ps: Shrewdy.. watch out for the girls from Shanghai, they will chew you up alive.

Yes its time to buy rental properties if u think this recession will blow over in 12 months.
Toss that coin :p

1 - market has bottomed in certain areas.

2 - interest rates are the key to positive gearing and this next rate drop will make it happen. 5% on $200,000 = $200 a week
8% on $200,000 = $320 a week

3 - Do not be surprised to see John Key do as in OZ, offer house grants to get the timber, building, forestery, suppliers, realestates etc moving ;)

4 - If u r young who cares if u make a mistake or 2, u have plenty of time to catch up.

5 - As Dr Who states the so called sheep (experts) get it wrong.

Fortune follows the brave. ;)

P.S I have received 20 calls in the last 24 hours to rent a house in Greymouth.
Looking at trademe, there are some reasonable cheap houses for sale that get u straight into positive return on the next interest rate cut.

[upside_umop]

Upside, my wife and I work as a designers in Auckland. My company does good work for a range of clients, and what we are seeing is that across the board, from suppliers and clients – barring government work – is that things are quite slow and a lot of work is going on hold, layoffs are occurring - nobody is hiring in our industry.

Conversely my wifes' company does a lot of work in Australia, and they are still quite busy. Advertising and media spend is always the first to be cut in a recession, which I think is counter intuitive if you still want to broadcast your products or services to your market, and encourage punters to spend.

We brought our house two years ago on low deposit (I've been out of uni for 6 years, my wife is a 'bit older') primarily for the reason that we wanted somewhere to live. I was in two minds about it – didn't expect any capital gain, and was prepared to weather any losses. Our position is secure if we keep our jobs, under that scenario low interest rates are fine as we can pay our mortgage back faster and move onto other things. If we lose our jobs, then you can buy my place! Life is all about timing, and sometimes you come into things at the right time, sometimes you don't. I hope I'm in the former category.

Point is, if you come out and land a sweet job next year, earning good coin, you'll be sweet and miss any of the uncertainty etc.

On another note, how is your share portfolio going? I am almost back on parity where I was in September, so I'm stoked with that.

Mr D.

I see, its good to get a perspective from business owners/operators to see whats going on out there. I always thought advertising was reasonably resilient, as you say its counter-intuitive. Warren Buffets likes the industry though... :cool:

I see what you mean with your home, and its been stated before with Minimoke being the leading proponent in that there are intangible benefits associated with owning your own home. That's fair enough for your situation. I hope to be able to gain some of them once I settle a couple of medium term financial goals which would enable me to be reasonably doubt free of future finances..

My portfolio held up pretty well this year. I disclosed mostly what I was doing buying/selling etc...was with a couple of the sharetrader favorites! NZO, PRC, PPP...had a few LMPOA's which I sold on April the 8th (my birthday I remember!) and still have a couple VPE to see what happens with them. At this stage I'm around 5% in the market and 95% cash on call. Ended the year up around 50-60%...which I was extremely happy with considering market conditions. If I play it conservatively I'll have the deposit 'required' for my first house purchase...But I'm already eying up a few 'all ins' during the year!

[arco]

.

Anyone noticed how many agents 'For Rent' signs have been appeared recently? (North of Auckland)

Must be a glut of rentals out there at the moment. Never seen agents advertising rental signs outside residentials before

[minimoke]

.

Anyone noticed how many agents 'For Rent' signs have been appeared recently? (North of Auckland)

Must be a glut of rentals out there at the moment. Never seen agents advertising rental signs outside residentials before
Nothing new there. 1991 saw loads of signs on fences. This was a time when property values stagnated for a while before taking off like a rocket in 1995. Its just another natural stage of a cycle.I've seen rental signs on fences in christchurch for years - what we'll see now is more of them.

[minimoke]

Hi Arco ... Could NZ tax law be the reason for it?

Belg. Tax law becomes important if IRD are likely to follow up on compliance. IRD are struggling with property investors who bought for capital gain. It will be a while, if ever, before they chase boarder/ flatmate taxes.

[fungus pudding]

Hi Arco ... Could NZ tax law be the reason for it?

In NZ you can have 2 rooms rented out to boarders for up to $220 per week with each room after that at $179 before you pay tax on it!

If you're an upper income tax payer this is how much extra you'd have to earn to get the same benefit by earning the money ...

1 room - 18k
2 rooms - 37k
3 rooms - 52k
4 rooms - 67k
.. assumed 52 weeks rented per year and 39% tax ...

IRD link for boarders: http://www.ird.govt.nz/income-tax-individual/different-income-taxed/rental-income/boarders/incometax-boarders-flyer.html

IRD guide: http://www.ird.govt.nz/resources/1/e/1efe4c804bbe591281ffd1bc87554a30/ir264.pdf

Sorry - haven't checked the numbers or tax issues very thoroughly as I have to run. ...

PDYOR!

edited: In the IRD guide, poorly worded and lacking definitions!, I understand a 'boarder' to be someone who lives in your property when you own it and pays you rent; a 'flatmate' to be someone who you live with equally when the property is owned and rented from a landlord; and a 'tenant' to be someone who lives with you when you are the leaseholder and you have sub-let an area of the property to someone else. Can anyone confirm my definitions?


A boarder pays board, not rent. Board usually includes items which are normally divided up between occupants in a flatmate situation. e.g. toilet provisions, electricity, telephone use and often meals. There is no reason (unless excluded by the lease) why a tenant cannot have a boarder. Someone renting on a shared basis is a flatmate, and someone renting just a room with nothing else included would most usually be considered a tenant or sub-tenant (lessee or sub-lessee) whether renting from the owner, or a tenant respectively. Definitions do get confused and are arguable due to an almost limitless number of arrangements.

[fungus pudding]

Thanks fungus ...

Is there any IRD guidance or legal presidence as to what one would need to provide a 'boarder' to be absolutely certain to qualify for the (I think) generous 'standard cost method'? ...

The reason I ask is that the media is pushing the 'take in a boarder' option to those struggling to pay their mortgages ... If this is poor advice as they open themselves to unforseen tax liabilies ... I think a letter to Mary Holm to investigate might be useful.


The best place to get an answer is from the IRD. Just phone them - you can be anonymous if you wish. Obviously to get a written answer, which is better, you will need to give a name. Contrary to anything you may have heard they are excellent to deal with in my experience. Obviously if you do own the property and advertise for a boarder, and supply at least some meals, then you are offering board. From there-on you could get into grey areas, which is why you are unlikely to see published definitions. With many things like this the IRD tends to consider each case on its merits. So ask them.

[Dr_Who]

Last chance to get yourself a cheap property. Next year will be too late.

You heard it here first.

[fungus pudding]

Last chance to get yourself a cheap property. Next year will be too late.

You heard it here first.

A matter of opinion - certainly not mine.

[duncan macgregor]

Last chance to get yourself a cheap property. Next year will be too late.

You heard it here first. If you are talking about first home buyers with a limited budget then it is already to late. Increased deposit levels have seen this lot shut out.
All the smart ones got their feet on the bottom rung of the ladder last year. It will be like all the other numerous property down trends that i have encountered and come back trending up higher than ever.
You dont time the property market when buying you can pick up a bargain at any stage in the cycle. You only time the market when selling its faster and easier in an uptrend and less expensive. We have builders getting out the game fewer apprentices learning, which all leads up to an industry full of cowboys charging extortionate prices.
I myself think the downward spiral will last for another couple of years followed by a huge uptrend. Macdunk

[Crypto Crude]

Do you remember the story awhile back about how my great friend bought a house and I posted here about it.... needless to say I was quite dissapointed with him...
Well, the Bank made him get fixed interest...
and now interest rates are falling, and going to fall Later this month with the next cut...
He's now being hung out to dry with these excessive high fixed costs which were paramount to him getting a loan in the first place..... talk about paying for the credit crisis eah...

mackdunk,
You said it in your own words just then...


I myself think the downward spiral will last for another couple of years followed by a huge uptrend. Macdunk


hahaha... do we have our first sign of mackdunk warning first hombuyers off property...;)... thanks for being honest...

increased deposits, harder to get loans... blah blah blah...
Loans shmoans...
hahaha... This is to our benefit mack a dee..less
sophisticated individuals will not be able to buy, driving prices down further.... hehehe... I hope banks tightened the belt further... hehehe...

Plenty of time to buy mackdunk... hehehehe
:cool:
.^sc

[minimoke]

Well, the Bank made him get fixed interest...

Thanks Shrewdy, I try to learn something new everyday and until now I’d never heard of banks holding a gun to a clients head and ordering them to take up a loan. Oh well these things must happen. Care to share the banks name to warn us of this dubious practice?

[duncan macgregor]

Thanks Shrewdy, I try to learn something new everyday and until now I’d never heard of banks holding a gun to a clients head and ordering them to take up a loan. Oh well these things must happen. Care to share the banks name to want us of this dubious practice? Twisting of words to suit the arguement. Nobody is forced to take out a loan fixed or floating. The bank has evey entitlement to offer one or the other or none at all at what ever rate they see fit. Its a business deal go to another bank if their deal is not satisfactory. Thats what is called a free and open market where banks compete for your business. Macdunk

[minimoke]

Twisting of words to suit the arguement.
Oh – I just thought that when Shrewdy said his mate was “forced” to take a fixed interest deal he was uh, forced. But what short memories we have when it was only last year when people were on fixed rates seeing the banks increase their interest rates. Shrewdys other mates were probably the king pin of those negotiations with their own gun to the banks head at the time.

Anyway this current market is why I like my approach – a mix of fixed and floating. I get the best of both worlds. I don’t care about the rates coming down in relation to my fixed loan. I have said earlier a mortgage is simply a personal commitment to repay the bank for the pleasure of the use of their money. My approach to that commitment is not to bleat about it if circumstances change – but I am always free to renegotiate on whatever terms we can agree. I am looking forward to July when my fixed comes off and I’ll be up for a new fixed rate!

[peat]

yeh thats how i handle it to minimoke... %80 fixed and 20% floating - which I pay off faster than required. and yes I feel like i'm getting a bit reamed with the fixed at 9.7 but its only been for one year and ends in April , and I had 5 years at 6.95 before that. I'm thinking a 3 - 5 year one when I renew in a few months time - historically its quite low again. thats not to say it wont go lower but still seems sensible to lock it in for a goodly period of time when its below the long term average.

[Financially dependant]

The big question: is it time to buy?

“Real estate agents say it’s a great time to buy now that prices have come down and interest rates are low.
You’ve been saying house prices have a long way to drop. What’s really going on, and how do we decide whether to jump in to the housing market or sit on the sidelines for a bit longer?”

Don’t listen to the real estate agents—they will always say it’s time to buy. Tell me when you last heard an agent imploring the public to sell up?

As to whether now’s the time, the correct answer of course is that it will be for some, and not for others – personal circumstances are often the most important determinant of timing decisions like that. Only you can make that call. But l won’t wimp out with that excuse.

In general, house prices have some way to fall yet. A couple of years ago I said publicly that they looked to be about 30% overvalued in terms of long term trends. Now we have the correction underway, I guess the call is to estimate how far through it we might be.

The graph shows the problem. The market peak was reached at $351,500 in September 2007. At last count (December 2008) prices had retreated 10.6% from that already, made up of a 6.5% fall in prices over a period where general inflation has totaled 4.6%. So simply on that long term trend analysis, you’d pick a further 17% to go in real terms until we reach fair, sustainable value. I’d guess that will take 24 months and be made up of a further fall of 15% in house prices over that time while inflation is 5%.



But anything can happen to make that simple calculation wrong – most likely we will see an overshoot past sustainable value just as we have seen on overshoot on the upside during the boom years. That’s the nature of markets, the madness of crowds, fear and greed and all those animal spirits coming to the fore.

So you have time to buy yet, that’s the only certainty in all this.


http://www.gmi.co.nz/Pages/MorganOnline.aspx?mid=2

[fungus pudding]

The big question: is it time to buy?

“Real estate agents say it’s a great time to buy now that prices have come down and interest rates are low.
You’ve been saying house prices have a long way to drop. What’s really going on, and how do we decide whether to jump in to the housing market or sit on the sidelines for a bit longer?”

Don’t listen to the real estate agents—they will always say it’s time to buy. Tell me when you last heard an agent imploring the public to sell up?

As to whether now’s the time, the correct answer of course is that it will be for some, and not for others – personal circumstances are often the most important determinant of timing decisions like that. Only you can make that call. But l won’t wimp out with that excuse.

In general, house prices have some way to fall yet. A couple of years ago I said publicly that they looked to be about 30% overvalued in terms of long term trends. Now we have the correction underway, I guess the call is to estimate how far through it we might be.

The graph shows the problem. The market peak was reached at $351,500 in September 2007. At last count (December 2008) prices had retreated 10.6% from that already, made up of a 6.5% fall in prices over a period where general inflation has totaled 4.6%. So simply on that long term trend analysis, you’d pick a further 17% to go in real terms until we reach fair, sustainable value. I’d guess that will take 24 months and be made up of a further fall of 15% in house prices over that time while inflation is 5%.



But anything can happen to make that simple calculation wrong – most likely we will see an overshoot past sustainable value just as we have seen on overshoot on the upside during the boom years. That’s the nature of markets, the madness of crowds, fear and greed and all those animal spirits coming to the fore.

So you have time to buy yet, that’s the only certainty in all this.


http://www.gmi.co.nz/Pages/MorganOnline.aspx?mid=2

I don't disagree with one word of his views on housing.

[Dr_Who]

I dont agree, but then the only way to prove it is to wait and see. I have been putting my money where my mouth is and still hunting for and buying bargains.

The experts got the timing wrong last time during the boom and they will get it wrong this time.

Good investing everyone.

[upside_umop]

There is definitely bargains if you find distressed sellers.

Dr Who, you have the luxury of buying more than 1 house and this gives you the ability to average out your entry price. Its like buying parcels of shares over a period of time - takes some risk away - but your upside is limited to your average price. Your doing the right thing in your situation.

For people like me and shrewdy who have yet to get the foot in the door, timing is everything. I simply cant afford to jump into a house with a 20% mortgage and be told by the bank 3 years later I'm down to 0% equity on their valuation. This would severely affect the ability to go out and buy another place using the original as equity.

Still not time for me yet....should be able to go out end of 2009 and buy a place cashflow positive though. With a few modifications maybe reaping 10%. That would surely get me on my way!

[small fish]

It will be interesting to see how long it takes for the decrease in farm receipts to flow through the economy and what effect it has on the job market.

[lakedaemonian]

Bank Direct: 5.90% for five years

[minimoke]

There is definitely bargains if you find distressed sellers.

For people like me and shrewdy who have yet to get the foot in the door, timing is everything. I simply cant afford to jump into a house with a 20% mortgage and be told by the bank 3 years later I'm down to 0% equity on their valuation. This would severely affect the ability to go out and buy another place using the original as equity.

And there you have another problem. Your 20% deposit is now being eroded by tax and inflation. You’ll be loosing around .8 to 1% of your deposit each year. 4% interest isn’t flash for those holding cash.

Trying to “time the market” is such a tricky thing. In my post at 1354 reviewing Shrewdys 2 year anniversary we have already seen mortgage rates drop and wage growth anticipation shrink. I’m not sure there is anyone out there who can honestly say what economic conditions we will be facing in 2 – 3 years time.

As for buying bargains from distressed sellers – they may be selling properties you ought not be buying. And had they thought more rationally they wouldn’t have bought either in the first place.

[upside_umop]

And there you have another problem. Your 20% deposit is now being eroded by tax and inflation. You’ll be loosing around .8 to 1% of your deposit each year. 4% interest isn’t flash for those holding cash.

Inflation is set to stumble down to low single digits...ie 1-2%. Interest rates are forward thinking, based off expected inflation using a 'real' interest rate as a base and the difference between nominal and real being the inflation component. Whats better? Earning 8% last year with 5% inflation, or 5% this year with 2% inflation? When you think about it...actually better this year! Lets have a look:

8% less tax (19.5%) = ~ 6.44% - 5% (inflation) = 1.44% real rate.

now lets see 5% rates and 2% inflation:

5% less tax (19.5%) = ~ 4.03% - 2% (inflation) = 2% real rate.

How can this happen you might ask? Well, the real rates are staying the same...but the government tax take ends up being less - we savers win.

The situation would be even more beneficial on a 39% tax rate, compared to previously. As you see, my competitive advantage is my tax rate...

This is of course not true for people who rely on interest payments for income because now they might only be able to buy half the goods with their payments than they did before. The thing that has changed is the rate of change...ie the derivative. Its only beneficial for savers. Since house prices are still on their downward march of ~10% year, the inflation to the asset in question is actually deflation of 10%.


Trying to “time the market” is such a tricky thing. In my post at 1354 reviewing Shrewdys 2 year anniversary we have already seen mortgage rates drop and wage growth anticipation shrink. I’m not sure there is anyone out there who can honestly say what economic conditions we will be facing in 2 – 3 years time.

I'm not saying I can time the market, but I'm going to wait until:

1) I am earning a consistent income;

2) Prices have stabilized.

In 10 months time, I will have stable, consistent cashflow. In 10 months time, I'm still thinking prices will be falling. Of course I am biased to think this as I cant (havent tried) buy a house yet. For prices to stabilize, fear needs to be taken out of the market. Fear doesnt get taken out when the likes of the IMF says places are in depression. I dont think we're in a depression like state at the moment, but just that word makes people think.


As for buying bargains from distressed sellers – they may be selling properties you ought not be buying. And had they thought more rationally they wouldn’t have bought either in the first place.

How do you mean?

What I mean is any/all of the following, the type of people who have overextended, lost their jobs, personal circumstances etc etc. Not because they have a faulty house...

You could very well buy a faulty house from a normal seller as you could a distressed seller from external circumstances.

Is that what you were getting at? Still not a good time to buy...

Hey Lakes, thats a good rate. Almost a full 1% less than kiwibank....might have to check it out.

[fungus pudding]

Inflation is set to stumble down to low single digits...ie 1-2%. Interest rates are forward thinking, based off expected inflation using a 'real' interest rate as a base and the difference between nominal and real being the inflation component. Whats better? Earning 8% last year with 5% inflation, or 5% this year with 2% inflation? When you think about it...actually better this year! Lets have a look:

8% less tax (19.5%) = ~ 6.44% - 5% (inflation) = 1.44% real rate.

now lets see 5% rates and 2% inflation:

5% less tax (19.5%) = ~ 4.03% - 2% (inflation) = 2% real rate.

How can this happen you might ask? Well, the real rates are staying the same...but the government tax take ends up being less - we savers win.

The situation would be even more beneficial on a 39% tax rate, compared to previously. As you see, my competitive advantage is my tax rate...

This is of course not true for people who rely on interest payments for income because now they might only be able to buy half the goods with their payments than they did before.


But it still remains true. Even though they may spend interest and capital to survive, they would have had to spend the interest and even more of the capital previously. It is the real rate of return that matters. A 20% return when inflation is 21% is disastorous, particularly with taxation .

[kazza]

upside_umop you make some great points, a 10% drop in house prices means a 50% loss in equity, leverage is great when prices are going up but a total disaster when going down. When the housing market finally does bottom there will be no mistaking it, you will know all about it, just like when house prices started going down there were news articles every day for about 3 months before prices started falling. You would have to of been totally blind or illiterate not to see it coming, it will be the same when they have bottomed. just keep an eye on market sentiment, one thing is for sure market sentiment at the moment shows prices are still falling.

Sounds like you will be in an ideal position to take advantage of low interest rates to get a good quality house in a decent suburb, but I tend to think property will never again be as good as shares or fixed interest as an investment.

[minimoke]

Thanks upsidedownmop – a useful analysis. Just a couple of things though. I’d be plugging in a tax rate of 33% rather than 19.5 for general analysis. Lets face it the tax rate of 12.5% on $12k then 21% to $40k income isn’t really real world for house savers. Somebody wanting a house is really going to need an income of more than $40k to either save enough for the deposit or afford the repayments. Your inflation rates are a bit optimistic – expected to drop to 2.7% but currently at 3.4%. And as for deposit rates today you can get, say 3.75 from Kiwibank (may as well use them since posters like to use their deposit mortgage rates) but either way you’d be doing well to get 4% on call.

So if you plug in 3.75% interest rate, 33% tax and 3.4 inflation you are getting -.89% in a real world analysis. For those looking for your first home your deposit money is going backwards.

You are right not to be buying now and 10 months will be better. Regardless of everything else you do need consistent cash flow to service your debt. Trouble is, as we have seen banks are getting more nervous on what debt they want on their books. Who knows what their loan criteria will be in 10 months time – but good luck all the same.

What I mean by distressed sellers is those people who have leapt blindly into the property market over the past few years thinking that property values only ever go up. Well they don’t – they are like anything else where there is supply and demand: the values will go up but they will also come down – but over time they always head up.

The distressed people will be those that bought land at say Pegasus town hoping to build a spec home and flog it off, Jacks Point might be the same as is coastal holiday homes.

Distressed people will have bought a rental for capital gain only to find that the rent really doesn’t cover outgoings. They will also have discovered that they are in a “service” industry – and if they as landlords aren’t providing the service tenants want they end up with higher vacancy rates. The distressed sellers will have mortgaged to the hilt, thinking negative equity was some magical potion only to find its not a great place to be when property values for non-essential property starts to fall, buyers dry up, their income gets squeezed (or they feel more risk adverse) and people don’t pay the huge dollars for a week by the sea.

Run of the mill brick and mortar family homes are unlikely to hit the “Distressed Seller” market. But your rental properties bought in haste will – which is possibly why Dr Who is buying. But this might mean buying in rental areas – which may not be an area you actually want to live.

[fungus pudding]

Thanks upsidedownmop – a useful analysis. Just a couple of things though. I’d be plugging in a tax rate of 33% rather than 19.5 for general analysis. Lets face it the tax rate of 12.5% on $12k then 21% to $40k income isn’t really real world for house savers. Somebody wanting a house is really going to need an income of more than $40k to either save enough for the deposit or afford the repayments.


Your calculations are questionable. To pay 33% you need to be earning over 150,000. Apporoximately 90% of tax payers earn less than 60,000 per annum; the tax on 60,000 is around 22%. Most tax payers pay around 20% or less.

[minimoke]

Your calculations are questionable. To pay 33% you need to be earning over 150,000. Apporoximately 90% of tax payers earn less than 60,000 per annum; the tax on 60,000 is around 22%. Most tax payers pay around 20% or less.
Income over $40,000 is taxed at 33%. If you earn over $70,000 you get taxed at 39% for the income over $70K. Check the rates here: http://www.ird.govt.nz/how-to/taxrates-codes/itaxsalaryandwage-incometaxrates.html. For home savers their primary income will be their wages. Once they earn more than $40k their tax rate goes up to 33%. Deposit income goes into the overall taxable earnings. Banks will deduct tax at source and then you have to do the usual year end wash up to see what your overall tax liability is.

[fungus pudding]

Income over $40,000 is taxed at 33%. If you earn over $70,000 you get taxed at 39% for the income over $70K. Check the rates here: http://www.ird.govt.nz/how-to/taxrates-codes/itaxsalaryandwage-incometaxrates.html. For home savers their primary income will be their wages. Once they earn more than $40k their tax rate goes up to 33%. Deposit income goes into the overall taxable earnings. Banks will deduct tax at source and then you have to do the usual year end wash up to see what your overall tax liability is.


Using the link you provided calculates the tax on 60,000 to be 13,800 or 23%.

[minimoke]

Using the link you provided calculates the tax on 60,000 to be 13,800 or 23%.
It may well do – thats because its taking the income from 0 - $14,500 is at 12.5%, then income from 14501 to 40000 at 21% then income over 40,000 at 33%. We don’t have a flat tax system here – the more you earn the more you pay.

You have to earn to own a house. If your job pays you $40,000 and have a house deposit sitting in a bank and think you are only going to get taxed at 23% you are in for a disappointment.

[fungus pudding]

It may well do – thats because its taking the income from 0 - $14,500 is at 12.5%, then income from 14501 to 40000 at 21% then income over 40,000 at 33%. We don’t have a flat tax system here – the more you earn the more you pay.

You have to earn to own a house. If your job pays you $40,000 and have a house deposit sitting in a bank and think you are only going to get taxed at 23% you are in for a disappointment.

You have got it completely wrong.
If you earn 60,000 you still only pay 12.5% on the first 14,500, or $1750.
On the next 25,500 you will pay 21% or 5,355.
On the next 20,000 you pay 33% or $6,600.
The total tax you will pay is 13705, which is 22.8%.
You do not pay 33% or 20,000 on earnings of 60,000.
I think you are getting confused with witholding tax.
A flat tax means everyone pays the same percentage, so that someone earning 100,000 only pays twice as much as someone earning 50,000, which would be brilliant, and much fairer, but is as likely as the second coming.

[minimoke]

You have got it completely wrong.
.. you pay 12.5% on the first 14,500,
On the next 25,500 you will pay 21%.
On the next 20,000 you pay 33% or $6,600.

No. Re-read my posts and you’ll see that your post is finally getting to point I am making. Of course you don’t pay 33% on all income – my posts are clear on that (or so I thought – but obviously not). But you do pay 33% once the $40,000 threshold is passed. You, I think are confusing a person’s total tax % with what they will actually be paying on their deposits. If you are in doubt just try getting your earnings taxed each week at 22.8% - that will end up on a Tui billboard.

Alternativly work out how much tax you pay on your wages if they are $40,000. And then work out how much tax you will pay on interst income of $2,000. Doens't matter how you cut it, your combined earngings have pushed you into the 33% tax bracket on those earning over $40,000.


While you are drawing your pay you are enjoying the relatively low tax rates. But the more you earn the higher tax band you will move into for those additional earnings. Its one reason why people find mechanisms to income split.

[fungus pudding]

No. Re-read my posts and you’ll see that your post is finally getting to point I am making. Of course you don’t pay 33% on all income – my posts are clear on that (or so I thought – but obviously not). But you do pay 33% once the $40,000 threshold is passed. You, I think are confusing a person’s total tax % with what they will actually be paying on their deposits. If you are in doubt just try getting your earnings taxed each week at 22.8% - that will end up on a Tui billboard.

Alternativly work out how much tax you pay on your wages if they are $40,000. And then work out how much tax you will pay on interst income of $2,000. Doens't matter how you cut it, your combined earngings have pushed you into the 33% tax bracket on those earning over $40,000.


While you are drawing your pay you are enjoying the relatively low tax rates. But the more you earn the higher tax band you will move into for those additional earnings. Its one reason why people find mechanisms to income split.


My apologies. I think we've been trying to say the same thing in different ways. I read your comment that 19.5% was an unrealistic amount to use for tax, and perhaps took the wrong meaning from that. Incidentally I think it is still possible to recover frrom IRD monthly any overpayment because of secondary withholding tax or interest earned etc. It used to be a matter of filling in a form, but I haven't been a wage earner or payer for over thirty years so this may have changed.

[upside_umop]

I think you two have been getting at different ideas, your both right, just some misinterpretations maybe.

Fungus is right in that the 'average' tax rate is what he has been saying.

Minimoke is also right in that the 'marginal' tax rate is what is applicable to additional savings that are supplemental to income.

[upside_umop]

Thanks upsidedownmop – a useful analysis. Just a couple of things though. I’d be plugging in a tax rate of 33% rather than 19.5 for general analysis. Lets face it the tax rate of 12.5% on $12k then 21% to $40k income isn’t really real world for house savers. Somebody wanting a house is really going to need an income of more than $40k to either save enough for the deposit or afford the repayments. Your inflation rates are a bit optimistic – expected to drop to 2.7% but currently at 3.4%. And as for deposit rates today you can get, say 3.75 from Kiwibank (may as well use them since posters like to use their deposit mortgage rates) but either way you’d be doing well to get 4% on call.

Yeah sure, thats fine. 33% would actually bring it more to the savers advantage than a 19.5% tax rate. As would a 39% over a 33%. In short, the higher your 'marginal' tax rate, the greater your comparative advantage is when interest rates fall as the 'real' interest rate should stay relatively the same.

Using 2% is fair, as we are forward looking, and according to the RBNZ latest statement, they're saying 'comfortably' within the 1-3% band over the medium term. 2.7% isnt very comfortable...

On call at national bank is currently 5.25%, but I'm sure will fall also. Since we're around a year out, we could use a term deposit which kiwibank is offering 4.75% interest.

My point is, as interest rates fall, savers generally should gain as the real rate of return increases. The government loses as their tax take is less.


So if you plug in 3.75% interest rate, 33% tax and 3.4 inflation you are getting -.89% in a real world analysis. For those looking for your first home your deposit money is going backwards.

As above...



You are right not to be buying now and 10 months will be better. Regardless of everything else you do need consistent cash flow to service your debt. Trouble is, as we have seen banks are getting more nervous on what debt they want on their books. Who knows what their loan criteria will be in 10 months time – but good luck all the same.

They shouldnt be too nervous with people who have a decent deposit and secure job. If they are that tight to turn me away, then I will know there will be more declines to come in the market as supply of credit would deal to that. Do you not see it that way?


What I mean by distressed sellers is those people who have leapt blindly into the property market over the past few years thinking that property values only ever go up. Well they don’t – they are like anything else where there is supply and demand: the values will go up but they will also come down – but over time they always head up.

Agreed.


The distressed people will be those that bought land at say Pegasus town hoping to build a spec home and flog it off, Jacks Point might be the same as is coastal holiday homes.

Agreed.


Distressed people will have bought a rental for capital gain only to find that the rent really doesn’t cover outgoings. They will also have discovered that they are in a “service” industry – and if they as landlords aren’t providing the service tenants want they end up with higher vacancy rates. The distressed sellers will have mortgaged to the hilt, thinking negative equity was some magical potion only to find its not a great place to be when property values for non-essential property starts to fall, buyers dry up, their income gets squeezed (or they feel more risk adverse) and people don’t pay the huge dollars for a week by the sea.

Agreed.




Run of the mill brick and mortar family homes are unlikely to hit the “Distressed Seller” market. But your rental properties bought in haste will – which is possibly why Dr Who is buying. But this might mean buying in rental areas – which may not be an area you actually want to live.

Unlikely not to be distressed, but all the same they will have a few casualties. Ie Unemployment, overextended, etc. Same as before. It will still happen with them as their personal assets might not be smartly tied up when their pegasus property fails to sell.

I'm still all for a rental property as first house as the tax, cashflow advantages are still well ahead of trying to buy your own home and struggle away for 10 years before you can do anything else. I dont know whether I have said, but I plan to buy in Ilam, Christchurch which as you know is in the university area, and rubs shoulders with Fendalton, and with some value adding activies, a decent rental yield should be able to be achieved.

Even though these are solid properties, they will fall in value as other surrounding suburbs fall as a flow on effect from pricing incentives to buy there, leaving higher supply and less demand for properties in the more family orientated areas. Ie Riccarton to the likes of Ilam, and Ilam to the likes of Fendalton. Didnt Fendalton fall 13% last year?

[George]

From 1 April the threshold for 21% rises to 48,000 from 40k,
the 33% rises to 70,000.

[minimoke]

Unlikely not to be distressed, but all the same they will have a few casualties. Ie Unemployment, overextended, etc. Same as before. It will still happen with them as their personal assets might not be smartly tied up when their pegasus property fails to sell.

I dont know whether I have said, but I plan to buy in Ilam, Christchurch which as you know is in the university area, and rubs shoulders with Fendalton, and with some value adding activies, a decent rental yield should be able to be achieved.

Didnt Fendalton fall 13% last year?
Yes – there will be a few. But in the main those home owners who have spent /invested wisely over the past few years will be OK. Its those that have bought Pegasus town using their own home as equity with the same bank; those that have mortgaged to buy the boat or overseas holiday will potentially be the ones in trouble. But they will try to quit the second property first – they will hold to their personal home till the end. There will be some that will buy from those selling their home but I’m not one of them.
I haven’t looked at detail at Fendalton for a while. When I last looked my observation was that there were less properties for sale (normally this suburb has the most for sale in all of Christchurch) and those that were selling tended to be the lower end properties around the $5 - $600,000 range.
Interesting choice of rental zone target. Its demographic has my very first tenants and my last tenants. You’ll be learning lots in that area. Hopefully you’ll avoid the mistakes I made.

[Arbitrage]

QV's latest:
"Auckland Property Trends

Property values in the Auckland region declined by 9.0% over the past year (calculated over the three months ending January 2009 in comparison to the same period last year), deteriorating further from the 8.0% decline reported in December 2008. The average sale price for the region increased slightly from $489,737 to $496,618.

Glenda Whitehead of QV Valuations said; "Property values continue to ease in stark comparison to levels this time last year. Some are feeling that values are now stabilising, but each area and type of property is affected differently. Generally speaking, values are definitely well down, presenting good buying opportunities. However, our current property valuation work indicates more people are re-financing their present positions, rather than moving property".

"In the typical investor suburbs such as Otara, Manurewa, Papatoetoe and Mangere, property values have declined to levels where $220,000 will buy a well presented three bedroom home with garaging. Mortgagee sales have driven the low values in these areas. Buyers are bargain-hunting and unwilling to pay full price in these areas, as many believe there is no need to" Glenda said.

"Activity during this December and January season has been light as it typically is at this time of year. Although uncertainty remains in the property market, much of the focus has shifted to other demand-determining factors, like job security. Reduced interest rates are certainly a talking point, but we are yet to see increased buying activity as a result" Glenda said.



NZ Property market continues to ease

The signs of a slight recovery in property values we saw at the end of 2008 have not continued into 2009, with the market dipping further. The number of properties selling remains at low levels which is also typical of activity around the holiday period. "

[fungus pudding]

QV's latest:
"Auckland Property Trends

Property values in the Auckland region declined by 9.0% over the past year (calculated over the three months ending January 2009 in comparison to the same period last year), deteriorating further from the 8.0% decline reported in December 2008. The average sale price for the region increased slightly from $489,737 to $496,618.

Glenda Whitehead of QV Valuations said; "Property values continue to ease in stark comparison to levels this time last year. Some are feeling that values are now stabilising, but each area and type of property is affected differently. Generally speaking, values are definitely well down, presenting good buying opportunities. However, our current property valuation work indicates more people are re-financing their present positions, rather than moving property".

"In the typical investor suburbs such as Otara, Manurewa, Papatoetoe and Mangere, property values have declined to levels where $220,000 will buy a well presented three bedroom home with garaging. Mortgagee sales have driven the low values in these areas. Buyers are bargain-hunting and unwilling to pay full price in these areas, as many believe there is no need to" Glenda said.


The price they are paying is full price whether Glenda thinks so or not.

[Arbitrage]

True. Todays price will be tomorrows value.

[Crypto Crude]

great post Upside down...
Ive said this before, and I will say it again...

Last year the buffs were telling us to find reasons to buy a house, and to not find reasons why we should not be buying a house...
now they are telling us reasons why we cant buy a house, when they should be looking at the reasons why we can...

all in all, we are not the suckers who have been talked into paying ridiculous prices...
Never bought into those ideas... never wanted to be bankrupted...

If you remember last year my dad sold his house for 500k...
he would now only get 450k...
when this is over he will only get around 400k, maybe less.....
at the top of the market he would have gotten around 580k

Im going to standby this big cat Upside Down...
He's one giant tiger on the prowl...
rrraaaaahhhhhhhhhhhh.... meow....
:cool:
.^sc

[minimoke]

....now they are telling us reasons why we cant buy a house, ....
Nope - still suggesting you can buy a house. Just that there are now a few extra challenges which you didn’t have last year.

[minimoke]

On call at national bank is currently 5.25%, but I'm sure will fall also. Since we're around a year out, we could use a term deposit which kiwibank is offering 4.75% interest.

\According to this http://nationalbank.co.nz/personal/ratesandfees/rates/deposit/callsavings.aspx#onlineaccount you'll get 3% on call at National Bank. I'm not sure Shrewdy would agree with you using the fixed interest rate - he much prefers to take the current rate option.

[Arbitrage]

Upside down makes an interesting call on investing in Ilam. Rental yields tend to be less in more expensive suburbs whereas capital gains are usually greater. So you need to be careful to ensure you are clear about your investment goals. That is whether you are looking for income to easily cover your interest payments (eg old renters near Otago University or a nice place in Fendalton for capital gain). I am not sure where Ilam would fit.

[upside_umop]

\According to this http://nationalbank.co.nz/personal/ratesandfees/rates/deposit/callsavings.aspx#onlineaccount you'll get 3% on call at National Bank. I'm not sure Shrewdy would agree with you using the fixed interest rate - he much prefers to take the current rate option.

Haha Shrewdy was bearish on fixed interest rates when borrowing - which would mean he would be bullish on fixed interest rates for deposits. I was looking at the eSaver, which is pretty much oncall...but if you take money out you do lose your high interest for that month. 5.40%. If I'm not to touch my money for a year, I'd put it in a guaranteed well financed, finance company or a sustainable dividend yielding stock (are there actually any atm?! - im still to start a thread on it...perhaps tommorow, keep forgetting!)

Arbitrage, I say Ilam for the following reasons:

-Risk free yields - you will always get tenants around University area and can demand a premium if the house is close. You can then choose your tenants if the house offers benefits over others. Our landlord had all of his houses rented out by the end of July for the 2009 year, and didnt even have to advertise.

-Upward pressure on rents - Rents will track close to the increase in student allowances and living loans, and the way some parties are motivated is moving towards offering universal student allowance....students will just spend spend spend..

-Buildings are solid and in this suburb generally approx ~30-40 years old - still have life left in them and can handle a little bit of biffo if it occurs.

-Section sizes are larger than Riccarton from what I've seen? Can someone verify this? Given this, offers potential for value adding activities by adding a sleep out and still at high rents approx ~ 110 per additional room.

Given this, its still possible to buy a house, for around $400,000 and have six rooms bringing in $660 per week in rent.

There is the problem with picking the right tenants as houses can get trashed.

Ways around this:

-Charge a large bond - our flat is $2560 for a 6 bedroom house. It offers a deterrent as a little bit of money is actually at stake.

-Well maintained house, appropriate heating, and regular inspections being strict but fair. Word of mouth goes a long way which then lets you choose the tenants.

Theres heaps more things obviously, but I like the university area as one of my first purchases, particularly Ilam, although prices are still have abate a little more. Purchasing in this area is not for everyone as it does require a strict, dedicated approach and some people just dont like to deal with students!

Shrewdy, we'll be fine mate. Just gotta rough it out for a while...5.90% at bank direct for 5 years is amazing however. I'd love to see 5.00% at year end for that time period, but I'm not sure we'll get there....

[Crypto Crude]

upside,
Im not so sure about buying near University of C, in Ilam...
When I left home I moved just round the corner of Uni onto Waimari Road and there was serious problems...
Neighbours were drug dealers (I think)...
undercovcer police parked on street weekly...
one night another party had a big fight, and it rumbled into our garden, on the street bottles were being thrown right next to my car...
Always noisey at night...
I wouldnt want students in my house...and anyway, what about the few months at the end of the year when students move out and go back home... 2 months without rent right?

as of now, Im not thinking of where im buying... I just know that there will be a time to buy and you will generally make money in any area... Or if you are a buff, you can find a bargain in any cycle which is true... but not for a first homebuyer...
wheres my mate mackdunk...

start that new thread upside, and I will post my suggestion on where to put money...
:cool:
.^sc

[minimoke]

Arbitrage, I say Ilam for the following reasons:

I looked very closely at Ilam when I made my last purchase but decided against it for a number of reasons.
- sure properties are in the 30 – 40 year bracket but money isn’t being spent on their up keep. The area is deteriorating which will drag values down. They are at a point where the big money needs to be spent – new kitchens / bathrooms, roof recoating – stuff you need $10k a pop to do.
- students are migrating there from Riccarton. With all due respect to you and Shrewdy, students are not the best of neighbours – unless you live in a student neighbourhood where no one minds the late night parties, the drugs, the vandalism, the street litter, wrecked letter boxes and fences, vomit, condoms and the graffiti.
- Property values are still high relative to what you get and what you can earn.
- on street parking is getting to be more of a problem as more students travel by car.
- Likely tenants are students – they are high maintenance. You need to regularly inspect the property, be prepared for phone calls at all hours of the day and night, and repair damage that a bond may cover but opportunity cost doesn’t. (of course there are landlords who don’t mind students – I figure there is an easier way to make a buck)
- Other tenants are likely to be University staff – and some of these aren’t much better than the students.
- land sizes are generally larger but house site leaves little in the way of economic expansion .The alternative being bowl it and rebuild – but the return is hard to get.
- Its handy to the university and riccarton mall but not much else.

[minimoke]

5.90% at bank direct for 5 years is amazing
Back up to 6.2%.

[lakedaemonian]

Back up to 6.2%.

that was quick!

[Arbitrage]

I tend to agree with Shrewdy on renting to students. Sure they are willing to live near the uni, but i know that up here in auckland they vacate in mid November which is the worst time for finding new tenants. Unless you can get a premium during the rest of the year to cover this, you can lose rent for 2-3 months per year.
Better to buy closer to a hospital (ie nurses and doctors) or on the periphery of city centres where professionals like to have a bit of space but a short commute.

[upside_umop]

All student flats in Christchurch are on one year leases, thats the deal when you sign up. So generally, when the year finishes, your still getting rent and have an empty house (a lot go home over summer).

I believe its the same in Dunedin.

[Crypto Crude]

hey arby,
yeah... The flat I moved out of in November is still untenanted...
Over this period the only way to get tenants is to drop rental rates...
Students move out at the end of the year... find a cheap place for two months... then start looking again in FEB...

Its all about supply and demand...
Canty Uni has also built a heap of new apartments flooding the market further...
not a good market... Even if it is marginal now, market conditions will change in years to come...
and who wants to muck around with students...
:cool:
.^sc

[upside_umop]

Sounds like you had a sweet deal shrewdy, your landlord cant have been very shrewd himself though!

Its relatively standard to get a lease with 12 months around university...all the property manangers go with that too.

The ilam village extension is at relatively high rates - $150 per week and regulations on gatherings, its more for international attractions. I dont know of any of my mates who have been or are going there.

[Arbitrage]

Upside, your concern that the new flats in Ilam have a "regulation on gatherings" has ominous undertones. As a landlord, it sounds to me like another reason for not having students as tenants. Burning couches on the front lawn at 2am can lead to some problematic maintenance issues as well as difficulties with the neighbours.

Also, trying to track down tenants that skip 3 months short of the 12 month tenancy is not easy, let alone extracting the money, despite a 4 week bond. Believe me.

[upside_umop]

I see what your saying arbitrage, gathering dont sound 'good.' But it is part of student life, and it will happen at any place that you demand a high rent, as they will only be filled in a room by room basis thus parties will happen. Try and get a decent return with a family in a house...its not going to happen. Philippino's on a room by room basis then? Then you've got hassles of filling individual rooms.

I know there are downsides to student rentals, but as a student myself, I believe I know 'our' kind reasonably well. Also being younger, I'm willing to put up with a bit of the hassle, as I know there will be the occasional bit of it. As for no rent...I'm sure there will be the occasional missed payment, but I'm sick of being stereotyped as that kind. When your a landlord there are provisions you can make to avoid unnecessary pain. You demand references, parental names and address's, regular check ups, show that you are serious, give tenants respect - you will get respect....

Also, I'd be willing to bet that a universal student allowance will eventuate <10 years. Students are virtually recession proof...it would be interesting to see a rent inflation chart of student areas.

[Dr_Who]

You youngsters out there, have you been doing your ground level research by going around to open homes?

I ve noticed an increase in investors and home buyers sniffing around again. This is a sure sign of interested buyers looking back into the market.

[lakedaemonian]

You youngsters out there, have you been doing your ground level research by going around to open homes?

I ve noticed an increase in investors and home buyers sniffing around again. This is a sure sign of interested buyers looking back into the market.

I'd agree there has been an uptick in interest.

But I don't think there will a proportional uptick in sales........anecdotally there seems to be an increasing awareness that this current situation we are facing is not just a run of the mill recession.

[cliff]

I attended a few open homes this past weekend and found myself the only viewer at each home. I'm located in the Bay of plenty where it appears out of town investers are flooding the market as they attempt to off load properties generally in the $150-$300k range. From what i have been told, most recent sales have been well below the listing prices and agents more than happy to listen to any offers presented. Yes, investers are back in the market but are looking more than ever for properties which they can pick up 30-40% below market valuation. In my opinion we are still on a slippery slope...who knows when and where it will level out at, only time will tell.

[duncan macgregor]

WE are all caught up in a deep recession with prospects of a total money collapse. Unemployment, forced sales, share market bankruptses. The safest place to have your money is in practical once its all over material assets, that will hold its value in whatever money system eventuates. The money system is about to collapse in my view, holding money or shares is high risk. Holding paid up income producing property is the only winner that i see on the horizon. Macdunk

[Crypto Crude]

hey cliff,
welcome to the boards...

mackdunk two years ago buying a house would have been the best way to bankrupt a new entrant...
Lets assume you are right about your predictions in that post...
It still does not make sense to throw money at the mole hill, lose money just for the sake of a position in the housing market ....
Theres much better places to put your money....
for example Bonus bonds...
guaranteed mate...

dont flog money at houses just yet...
think with your brain, not with your heart...
and you are in love with housing...
Best advice ever...
:cool:
.^sc

[minimoke]

Theres much better places to put your money....
for example Bonus bonds...
guaranteed mate...





ANZ customers have reported that they were told the investments were "as safe as the bank". Now I reckon you think they were talking about Bonus Bonds. Nope – that was ING they were talking about. There ain’t nothing that’s “guaranteed”!

[foodee]

....
for example Bonus bonds...
guaranteed mate...



.^sc

Shrewd C,
I don't believe BBonds are guaranteed.
In fact if there is a run on it, will the bank cope?

Cheers

[The Great Gold Guru]

I am feeling reasonably positive about the market. I live in Devonport in Auckland , since the turn of the year I would say that 75% of the properties on the market on 1st January have sold ... several fresh listings have sold within a week at prices that are hardly bargain basement. We have been renting since May last year but took the plunge a few weeks ago and offered a cheeky $1.33m for a wonderful villa in Stanley Point that was on the market for $1.595m on 1st January. The house was already under offer at $1.45m but that buyer was subject to sale. Vendor was bridging a purchase in Takapuna and was getting a little desperate so decided to accept our offer hoping that it would force the first buyer into going unconditional to get the house. They decided to not continue so we got the place. The next door neighbours is a slightly larger house but still not "done up" and sold for $1.875m at the peak in late 2006 ... they are going to be spewing when the convesation moves to the property market at our house-warming party !! We are rapped, we reckon the place would have easily sold for around $1.6m when we decided to rent for a year instead of buying ... a nice $270,000 saving and also we may well have locked into a nasty mortgage in the low 9's this time last year which would have been nasty .... much better to be into a mortgage with a 5 on the front of it !!!

He who dares, wins ... buy gold , buy youself a nice/nicer house !!

[Dr_Who]

Gold Guru, you are onto it mate.

I ve been looking and buying in the bays area. Orakei, Mission Bay, Kohi, St Heliers. I am still looking for bargains. One must have patience and look at the long term picture.

I think rates will come down more and the OCR can hit 2% this year. The global economy is totally stuffed. Cant see any signs of a recovery soon. Just have to hold on tight and ride out the hard times. The central banks around the world will start to print money and inflat our way out of this mess.

[George]

Well it looks as if we were a couple of years early buying our little house,
2 br up the road in Glendene with a cv of 390k on sale for 309k. We have a 2 br
for 312k in 2007 cv of 315k so wonder what value is now, although we have a better
location. House over the road (Newington rd Henderson) sold for 305k (very quickly)
with a cv of 360k, full site but big costs to subdivide so probably can't compare
to ours. Our quiet street seems to be in demand with very close access to main hub of
Henderson, so we will be able to sell easily if have to as long as price is realistic.
But we are in for 10 yrs at least and jobs secure so far, if values stay
down for a few years more, we may have the chance to buy another property with
ours as security.
Looks like the shrewd one's call was correct (to wait) but there must be a lot of
first home buyers who thought they had missed out and now will be chomping at the bit
with a bigger deposit and not wanting to miss out again which may put a floor under
the market. I hope the bottom is not too far away and that the 'experts' strategies
work because the alternative is a bit unsettling.
George

[The Great Gold Guru]

Anyone got any rentals in Papakura ??... been looking on the internet and some very smart houses ( 1960's ex-state bullet-proof and modernised ) on the market for the mid 200's. I reckon if you can rent that out for $325-$350/wk with a loan at 5.00-5.50% you will be cashflow positive with a 15-20% deposit ... and P&I over 25yrs. Don't know Papakura that well but with electrification of Auckland commuter rail over the next few years those places near a decent train service that are cheap will probably outperform.

Love to get some feedback ... maybe also look at Manurewa, Manukau City, Otara, Papatoetoe ...

Sharemarket down again today , anyone remember the last "up" day ?? ... makes rental property more attractive by the day !!

[POSSUM THE CAT]

TGGG You get good rental from a P house in this area

[Dr_Who]

TGGG You get good rental from a P house in this area


Rubbish!

I recall P houses being found in good areas like Paritai Drive, Orakei and PArnell.

Manurewa and Papakura is a dying area. These two areas are getting worst. Some parts of Manurewa is very nice, esp near the botanical gardens.

I wouldnt touch Otara. Wont even go in the area without locking the car.

Parts of Manukau and PApatoetoe is very nice with good rental income. Close to motorways, trains, airport and shopping malls (Westfield manukau and sylvia park). The trains now are very good and modern. Alot of people catch the train these days due to traffic jams and parking costs. The govt have upgraded all the train stations.

[cliff]

Interesting reading the latest credit and dept stats from Veda...

If any one was in any doubt about the frozen property market, then Veda's numbers should change their minds, with a 20 per cent fall in mortgage inquiries during the last six months of 2008. Figures for January were little better, with applications at a five year low.

"It remains to be seen what impact falling house prices and cuts to mortgage rates will have on the market, but the trends we are witnessing through the bureau suggest conditions may worsen further before we see any improvement," said Roberts.

Consumer loan defaults are risings, said Roberts, with an 11 per cent jump compared with the first half of 2008. The older age groups, so-called "baby boomers" were up 20 per cent on defaults.

"It is unusual to see such a dramatic rise in defaults amongst what is normally the most financially stable demographic. This may well be a result of Baby Boomers over-extending themselves during more economically healthy times. With payments on highly-geared mortgages, second homes and high-end goods such as boats and jet skis, they are really starting to feel the pinch."

[The Doctor]

Well it looks as if we were a couple of years early buying our little house,
2 br up the road in Glendene with a cv of 390k on sale for 309k. We have a 2 br
for 312k in 2007 cv of 315k so wonder what value is now, although we have a better
location. House over the road (Newington rd Henderson) sold for 305k (very quickly)
with a cv of 360k, full site but big costs to subdivide so probably can't compare
to ours. Our quiet street seems to be in demand with very close access to main hub of
Henderson, so we will be able to sell easily if have to as long as price is realistic.
But we are in for 10 yrs at least and jobs secure so far, if values stay
down for a few years more, we may have the chance to buy another property with
ours as security.
Looks like the shrewd one's call was correct (to wait) but there must be a lot of
first home buyers who thought they had missed out and now will be chomping at the bit
with a bigger deposit and not wanting to miss out again which may put a floor under
the market. I hope the bottom is not too far away and that the 'experts' strategies
work because the alternative is a bit unsettling.
George


looks about right at k309...listing,chop another 10% for buying...and that makes 30%!

[George]

Positive article about AK house prices because of housing shortage
http://www.businessday.co.nz/personal_finance/4858682

[The Doctor]

can attempt to talk it up all they like...if historical ave house prices are on a multiple of 3 re ave earnings...and they blew to 6-7...so now?...optimistic ...bottom 4x..so plenty of pain ahead.

[cliff]

[QUOTE=The Great Gold Guru;244877]Anyone got any rentals in Papakura ??... been looking on the internet and some very smart houses ( 1960's ex-state bullet-proof and modernised ) on the market for the mid 200's. I reckon if you can rent that out for $325-$350/wk with a loan at 5.00-5.50% you will be cashflow positive with a 15-20% deposit ... and P&I over 25yrs. Don't know Papakura that well but with electrification of Auckland commuter rail over the next few years those places near a decent train service that are cheap will probably outperform.

Love to get some feedback ... maybe also look at Manurewa, Manukau City, Otara, Papatoetoe ...

Have you seen your banker lately?
I was talking with a ASB rep the other day and was told that a minimum deposit of 30% was now required on investment properties in most circumstances and 20% for general home ownership.That takes an awful lot of ordinary folk out of the equation.
As for your location, myself i stick clear of some of those suburbs you suggested...maybe take a look at Mt Wgtn or Panmure. From past visits..they did seem rather handy to the city, shopping & transport.

[minimoke]

I was talking with a ASB rep the other day and was told that a minimum deposit of 30% was now required on investment properties in most circumstances and 20% for general home ownership.
Oh dear – then that makes Shrewdys original contention even more awry. Back when he originally posted some of us felt then was a good time to buy. Rather than now enjoying significantly lower interest costs and a drop in value of only 6% from the November 2007 highs buyers are now looking at not being able to get into the market – and if they do they then will have to budget for significantly higher interest rates looking forward. Banks are obviously tightening their lending criteria. With the spectre of higher unemployment the chance of increased earnings thresholds must be there and I bet they will be flogging their income protection insurances which create an even bigger drain on the household cashflow.

[fungus pudding]

can attempt to talk it up all they like...if historical ave house prices are on a multiple of 3 re ave earnings...and they blew to 6-7...so now?...optimistic ...bottom 4x..so plenty of pain ahead.

Yep.
Ditto.
Agreed.
'Zactly.

[Crypto Crude]

minimoke-ANZ customers have reported that they were told the investments were "as safe as the bank". Now I reckon you think they were talking about Bonus Bonds. Nope – that was ING they were talking about. There ain’t nothing that’s “guaranteed”!

foodee-Shrewd C,
I don't believe BBonds are guaranteed.
In fact if there is a run on it, will the bank cope?


bonus bonds have the highest possible credit rating...
In this crazy crazy world, if things were to start falling around us, then Bonus Bonds would be one of the last standing investment classes...

banks would cope, as we have seen in the UK example (rock)... the Government would step in and pump liquidity...



Minimoke-Oh dear – then that makes Shrewdys original contention even more awry. Back when he originally posted some of us felt then was a good time to buy. Rather than now enjoying significantly lower interest costs and a drop in value of only 6% from the November 2007 highs buyers are now looking at not being able to get into the market – and if they do they then will have to budget for significantly higher interest rates looking forward. Banks are obviously tightening their lending criteria. With the spectre of higher unemployment the chance of increased earnings thresholds must be there and I bet they will be flogging their income protection insurances which create an even bigger drain on the household cashflow.


Mini,
Have alittle forsight mate... lets think about this.... The banks are increasing requirements because they are fearful that house price falls/expected price falls/continuing price falls will put pressure on the banks if homeowners become negatively geared in housing...IE the loan taker owes more on the house than they own.... So for example if someone lost their job, the bank could repossess the house, and dump it on the market for 70% of the price (taking into a/c) the deposit already paid and not lose any money...rather than run the risk that the house price would fall more than the lower deposit...

You see mate... its to protect the bank... its bloody good mate...
It will reduce new entrants, making the house price fall swing further...

Higher highs bring lower lows... now we have adding factors... yeah harrghhhh...

If Cliffs post is true then it is yet another signal of this investment sector getting much much worse...


Big time popa fall to come...

Mackdunks most important rule he told me...

1) DONT LOSE MONEY...

we are in love with housing....

dont let your heart blurr what your brain is telling you...

Its a double whammy with the current poor market situation, financial collapse adding to a housing downturn...

there are fireworks in the air...

Never buy in a downtrending sector... no matter what... never average down....
hahahahaha...

Minimoke, when the housing market turns around in prob half a decade then the banks will reduce our deposit requirements....
:cool:
.^sc

[Crypto Crude]

hey upside down...
which option would you prefer mate...

1)a 350k house... 9% fixed loan....10% deposit -> 35k deposit...

2)the same house when this is over for 200k....
fixed at 4% for a decade... with 25% deposit -> 50k deposit...

not a whole lot of difference between deposit rates.... eah dude...

what do others think...
option A or option B...

???
:cool:
.^sc

[Snapper]

I can understand people buying a home of their own at the moment( as long as they screw down the price) but I don't understand why anyone would contemplate buying an investment property unless its cashflow positive from day one on 100% borrowing. The only rationale for buying on lesser terms than these is if you think that the market is going to show significant capital gain over the next 5-10 years. Otherwise I just don't get it.

On the other hand, though, the Auckland apartment market is starting to look interesting...

[minimoke]

Have alittle forsight mate... lets think about this.... The banks are increasing requirements because they are fearful that house price falls/expected price falls/continuing price falls will put pressure on the banks if homeowners become negatively geared in housing...
Hmm – I suspect the banks are more fearful of a person losing their job and not being able to repay the mortgage. It might be of some concern if the value drops but its not a biggy. The first thing the bank will do is put pressure and provide assistance to get the person paying the debt – like for example interest only or payment holidays. They’ll look at your expenses and put pressure on you to cut back on some of the luxuries in life.

If all else fails then they’ll put the house on the block – but that’s not the end of the story. Even if it sells for less than the value of the loan the bank still has a hold on the borrower. Its just that a debt was secured by the property – just because the property devalues doesn’t mean the debt goes away. So then what you’ll see is a person who has lost their home and still owing the bank money – perhaps pushing the person to bankruptcy.

Its going to get harder for the potential first home owner to buy because they don’t have the track record of a commitment to repaying a loan. The lack of evidence of this raises the risk profile of the borrower which means the bank has to put in place things that mitigates that risk

[Dr_Who]

On the other hand, though, the Auckland apartment market is starting to look interesting...

Its been looking interesting for 15 years. I dont know anyone who have money from apartments apart from the developers. Dont even go there.

[Snapper]

Its been looking interesting for 15 years. I dont know anyone who have money from apartments apart from the developers. Dont even go there.

Been there already about ten years ago and did OK. Didn't know what the hell I was doing but just had beginners luck. I agree with your general sentiment though as I seem to know a lot of people who've had their fingers burnt. Still, there comes a point when it msut become good value and there have been some sales recently which smell of capitulation.

If you can buy someting reasonable where the rent covers mortgage P & I and depreciation (a real cost especially with apartments) and have a bit left over then it starts to look a bit better as an investment.

[Dr_Who]

Be very careful about body corporate rates and agreement.

I prefer to stick with residential in a good area close to the beach and/or close to a good school.

Best of luck.

[Serpie]

hey upside down...
which option would you prefer mate...

1)a 350k house... 9% fixed loan....10% deposit -> 35k deposit...

2)the same house when this is over for 200k....
fixed at 4% for a decade... with 25% deposit -> 50k deposit...

not a whole lot of difference between deposit rates.... eah dude...

what do others think...
option A or option B...

???
:cool:
.^sc

Is that a prediction Shrewdy?
40%+ fall in house prices, and 4% mortgages fixed for 10 years?
That's pretty extreme - but I'd expect nothing less from a crazy cat like yourself!

I was telling Strat and FD at Saturday's meeting how 2 years ago I could borrow as much as I wanted just by signing on the bottom line. Now that I'm reducing debt and unwinding the loans the bank suddenly brings out the anal probe! My, how times have changed!

I'm all in favour of it though - it's a better way to move forward for everyone.

[minimoke]

what do others think...
option A or option B...

.^sc
Neither is based on any current reality so its all a bit hypothetical.

[minimoke]

bonus bonds have the highest possible credit rating...
In this crazy crazy world, if things were to start falling around us, then Bonus Bonds would be one of the last standing investment classes...


Bonus Bonds!. BB aren’t an investment scheme they are a saving scheme by which you get your money back but no interest. You don’t even get anything to cover inflation. So you get no earnings and no capital growth. They are not even covered by the Government deposits guarantee scheme.

You’ve got 1 chance in between 9,600 and 11,000 of winning a prize – with prizes starting at $20.. You have 1 chance in 363 of winning $20 on Lotto – but if you don’t win you don’t get your money. So Bonus Bonds is really a vehicles for gamblers not investors.

[fungus pudding]

Bonus Bonds!. BB aren’t an investment scheme they are a saving scheme by which you get your money back but no interest. You don’t even get anything to cover inflation. So you get no earnings and no capital growth. They are not even covered by the Government deposits guarantee scheme.

You’ve got 1 chance in between 9,600 and 11,000 of winning a prize – with prizes starting at $20.. You have 1 chance in 363 of winning $20 on Lotto – but if you don’t win you don’t get your money. So Bonus Bonds is really a vehicles for gamblers not investors.

Very true - but all investments are a gamble to some degree .

[Crypto Crude]

serpie-Is that a prediction Shrewdy?
40%+ fall in house prices, and 4% mortgages fixed for 10 years?
That's pretty extreme - but I'd expect nothing less from a crazy cat like yourself!

I was telling Strat and FD at Saturday's meeting how 2 years ago I could borrow as much as I wanted just by signing on the bottom line. Now that I'm reducing debt and unwinding the loans the bank suddenly brings out the anal probe! My, how times have changed!

I'm all in favour of it though - it's a better way to move forward for everyone.

hey my main man serpie... yup, your one savage cat, I agree.....
My friend bought a house for 230k that was a tiny bit over 300k at the top...
I think 40% falls are in line with whats coming...
30% falls were fair until the financial crisis...
my dads house was 600k, sold at 500k, now its 450k, at the bottom will be 400k.... thats 33%...
simple as that really...

Its not hypothetical Minimoke, my example is very real...

option 1) was the example of when I was told "it was never a better time to buy a house than now", at the beginning of the thread...

and option 2) is a forward looking prediction on what im expecting a similar sort of house to be down the line...perhaps slightly exagerated...
In my first example 350k was abit rich for a house, as I could have got a decent entry at 250k in chch... so the fall will be less in percentage terms...
the 350k example was from a national average point of view at that time...
I think there will be these sorts of examples in option 2) but rare...

The reason why I mention fixed, was 1) us newbies were told to do so by the power house buffs on this thread..
2)my friend had to go fixed term, forced by the bank to get the loan...

Hummm.... I think its time to crunch some numbers and see what I come up with....
humm.... will go through a couple of examples next week....
:cool:
.^sc

[Crypto Crude]

Bonus bonds are an extremely good investment in the current climate...
infact a great investment...yes 'investment' mini....

mackdunk was hootering and hollaring about Housing being a safe investment in the current market, and I pointed out why would a brave soldier want to invest in a downwards sector/averaging down/falling prices guaranteed (pretty much)...
We were talking about a form of investment where you dont lose money...

And Bonus bonds look as good as they come as far as im concerned...

you dont have to be making money to be getting ahead right now...
:cool:
.^sc

[minimoke]

Hummm.... I think its time to crunch some numbers and see what I come up with....
humm.... will go through a couple of examples next week....
:cool:
.^sc
Don’t forget your 350k was 11 months before the peak in November 07 so you need to add in capital gain (the numbers are in this thread somewhere) to get a new value before you knock off 6% (today’s loss); 30% (Bernard Hickeys loss) and 40% (your loss)

[Crypto Crude]

minimoke-Don’t forget your 350k was 11 months before the peak in November 07 so you need to add in capital gain (the numbers are in this thread somewhere) to get a new value before you knock off 6% (today’s loss); 30% (Bernard Hickeys loss) and 40% (your loss)


what capital gain are you on about...?
:cool:
.^sc

[minimoke]

what capital gain are you on about...?
:cool:
.^sc
Ooops fallen asleep on this thread?? Go back to your original figure of $330k. Median then increased up until Nov 07 when it peaked at $352k. It would probably be better to anchor your model on the $330 as this was what you originally worked with and it ties to real estate data at the time. Introducing $350k and using this pre-peak just confuses things.

[Crypto Crude]

OH yes....
I see your point... 330k it should be...
but I still dont get what you are saying about capital gains...

the newbie would not have been in the market because prices were peaking out, about to slide...
and the buff, would not be selling to lock in the profits... they would have been buying... buying because 'it was never a better time to buy'...
so...
let alone profit taking to start with...
:cool:
.^sc

[George]

I received 4 prizes in one draw of the early Bonds in the seventies,
a $500 and three of $10, then the odd $10 for a time. The odds are now
very much worse and I consider them a rip off, although one would have
been better off there over the last year than most other investments.
How about shares? The sharemarket turns before the economy and this
could be sometime this year, no-one rings a bell. Got me a few
TEL shares as they look like at some form of support, not on margin
though, that's too risky at the moment. Can't buy too much as need
funds for our mortgage, probably just as well.
George

[Jay]

Bonus Bonds have been a good "investment" for me.
Have been averaging around 15%pa return for the last 3-4 years.
Don't get too excited, have only a couple hundred dollars that were given to me when I was in my late teens early twenties - a "few" years ago!

[trackers]

Have you seen your banker lately?
I was talking with a ASB rep the other day and was told that a minimum deposit of 30% was now required on investment properties in most circumstances and 20% for general home ownership.That takes an awful lot of ordinary folk out of the equation.
As for your location, myself i stick clear of some of those suburbs you suggested...maybe take a look at Mt Wgtn or Panmure. From past visits..they did seem rather handy to the city, shopping & transport.


At the end of the day, all scaremongering aside, if you have a decent deposit, stable incomes, and a good credit rating you won't have a problem getting a reasonable mortgage...

[minimoke]

OH yes....
I see your point... 330k it should be...
but I still dont get what you are saying about capital gains...

Don’t forget that when you made your call the market hadn’t yet peaked. You were 11 months early. So while in Jan 07 some people were saying property was about to tank there was still 11 months of momentum to keep driving prices (and capital value) up. There was still another 6.6% increase over that time.

So if you’d bought your $330 house in Jan 07 it would have been worth $352 in Nov 07 but in Jan 09 it would be $325k or a 1.5% loss

[minimoke]

So if you’d bought your $330 house in Jan 07 it would have been worth $352 in Nov 07 but in Jan 09 it would be $325k or a 1.5% loss
Now if you had been one of 836,000 fixed rate mortgage borrowers your interest rate on a two year loan would have been 8.2%. If you were one of the 365,000 floating mortgage borrowers your rate would have been 9.5%. Obviously in Jan 09 your fixed term would have expired and you’d now be looking at 5.99% variable rate at Kiwibank. But do your models an the variable rate as this is your preffered option.


If you’d raised your 10% deposit your floating rate interest bill would have been $28,215. But now you are looking at paying $17,790. That’s a $10,425 nett cash saving.

There’s several ways you can look at that saving now. You could either pay it straight back into your mortgage and increase your equity levels and reduce your interest bill by another $600 a year. Or you can think that I now don’t need to be under pressure to earn that extra $15,000 per annum to pay the extra interest. So you could go to today’s Job Talk fest as and say “I’ll do a four day week”. Or you can think “I’m carrying a theoretical $5,000 loss in value but I’m $11,000 ($10,425 + $600) better off in the hand”

[Crypto Crude]

minimoke-Don’t forget that when you made your call the market hadn’t yet peaked. You were 11 months early. So while in Jan 07 some people were saying property was about to tank there was still 11 months of momentum to keep driving prices (and capital value) up. There was still another 6.6% increase over that time.

So if you’d bought your $330 house in Jan 07 it would have been worth $352 in Nov 07 but in Jan 09 it would be $325k or a 1.5% loss

I get it...
Yes that was right... I was 11 months early on my call...
That still does not mean there were cap gains...

Housing is illiquid... we're not trading meat here mate...
Remember that the house has to increase in value more than 10% per year when interest rates are 10%... as the interest payments cancel out the return...
add in opportunity cost... ie the 30k deposit you would have had to invest elsewhere...

id say Buying into housing within the last 7 years has not been such a smart move right now, hence the delay in buying for the new cycle to take pace....

Buffs can buy in any cycle... first homebuyers cannot...
there is a major difference...

Im not being argumentitive for the sake of it...
Just how I see it...
wheres my mate mackdunk?
I miss my sparing partner... hehehehe...
:cool:
.^sc

[minimoke]

Remember that the house has to increase in value more than 10% per year when interest rates are 10%... as the interest payments cancel out the return...

Hmm – not quite. If you want to try a detailed analysis you probably have to put the deposit interest rates against your equity and the mortgage interest rates against inflation. And then tweak them for either gross or net. Then tie in increased equity against reduced interest costs (which then have to be calculated at net, rather than gross interest rates) – and this is getting way too complicated for a Friday afternoon.

[duncan macgregor]

I get it...
Yes that was right... I was 11 months early on my call...
That still does not mean there were cap gains...

Housing is illiquid... we're not trading meat here mate...
Remember that the house has to increase in value more than 10% per year when interest rates are 10%... as the interest payments cancel out the return...
add in opportunity cost... ie the 30k deposit you would have had to invest elsewhere...

id say Buying into housing within the last 7 years has not been such a smart move right now, hence the delay in buying for the new cycle to take pace....

Buffs can buy in any cycle... first homebuyers cannot...
there is a major difference...

Im not being argumentitive for the sake of it...
Just how I see it...
wheres my mate mackdunk?
I miss my sparing partner... hehehehe...
:cool:
.^sc I think SHREWDY that you miss the whole point completely.
First of all lets look at what you did starting from the time you introduced this thread. You stuck most of your money on CUE and now have a paper loss of nearly 50%. Its not to bright to fall in love with anything without having an escape policy if it all turns to custard.
Your second mistake was missing the one opportunity to climb on the property ladder when the window of opportunity opened up with low deposits.
People in your position now cant buy a property simply because of high deposits with much stricter lending conditions. Its pointless saying what a smart move you made by not buying when you now cant buy in the first place. The world economies are all turning to custard, the share markets are crashing, banks being supported by gvts,infact i see the money system in danger of total collapse.
The only thing to hold in times like this is material assets like i told you in our little competition where i am kicking your ar*e. Dont trust money mate its only a promise to pay stampted on to a bit of paper. Macdunk

[Crypto Crude]

mackdunk-First of all lets look at what you did starting from the time you introduced this thread. You stuck most of your money on CUE and now have a paper loss of nearly 50%


What the?
Mate...
I started the thread how long ago, and how many months ago did I get into CUE... Ive done plenty of positive things over the last 2 years in shares...
In housing I would be guaranteed negatively geared... If ise in a full time job Id be reliant on my boss to keep me at work because Id GO BankKRUPT in a week without work as the bank would only be too happy to strip that 'bad boy' away from me...

So I showed an example before...
deposits arent too much of a difference when you look at the crashing value of the house... I have regigged the numbers from what Minimoke said....



which option would you prefer mate...

1)a 330k house... 9% fixed loan....10% deposit -> 33k deposit...

2)the same house when this is over for 200k....
fixed at 4% for a decade... with 25% deposit -> 50k deposit...

not a whole lot of difference between deposit rates.... eah dude...

what do others think mackdunk?...
which option is better?
option A or option B...



Mackdunk... please dont go anywhere....
As I said, I want to post some housing figures to show the finance behind the 'debt ridden' housing loans...
I thought you were my mate, why would a mate want me to go bankrupt?
I will post something over the next few weeks...

All you have to do is say you were wrong...
thats all...
dont debate yourself out of this....
You have fallen into 'the pit of doom' over the last 2 years, trying to hold up your argument...

you at least owe me a response when I supply some figures...
peace out... and have a great day...
;)
.^sc

[The Great Gold Guru]

Interesting views on residential property investment. I got very nervous of the stock market in October 2007 ... a couple of months after the first hint of a sub-prime meltdown. Market sold off heavily in August07 ( I was 95% in Oz stocks ) and then rallied very sharply thru Sept and Oct. I sold 80% of my $600k share portfolio over those 8 weeks. The shares I sold I received approx $500k for in NZD. I worked out this morning that to buy the identical portfolio back on Monday would cost me $118,500 !!!. Three of the stock are no longer around as they have gone bust .... $170k saved there ... phew and four of the property stocks are now worth less than 10% of the value they had back then ... $130k saved there. Not a single stock is higher today than it was when I sold it ... even the gold stocks !!. The $500k went into 3 residential properties ... 1 in Dunedin and 2 in Blenheim. All three properties have been absolutely 100% rented from the day I bought them. The floating mortgage payments have fallen 35% and the rents are all up around 8% from the original levels. After costing me a few hundred $$ each month initially the portfolio is now cashflow positive. I will hold the properties indefinetely as I still see further downside from the equity markets. In a few months I hope to fix all the mortgages for 5 years at rates between 5.50% and 6% ....

Auckland apartments .... DONT TOUCH ANYTHING LEASEHOLD ... EVER !!!!

Thought about buying an apartment in Stratis on Lighter Quay in 2002 ... was on the market for $925,000 back then ( we offered $780k but developer said NO WAY !! ... has sat empty for 7 years and just sold on Thursday at auction for $475,000 ... I estimated the ground rent and body corp over the last 7 years would be around $120k .... Total loss from asking price of .... $565,000.

Even freehold apartments such as Stamford Residences in Albert Street are not selling. Of 147 apartments built and completed about 9 months ago ... two years solid marketing , at last count they had sold ..... 2 .... !!!!!

[fungus pudding]

This may have been posted here before. Worth a look.


http://www.youtube.com/watch?v=kUldGc06S3U&feature=channel_page

[minimoke]

This may have been posted here before. Worth a look.


http://www.youtube.com/watch?v=kUldGc06S3U&feature=channel_page
The analogy is poor. Property values consistently trend upwards over time and I have yet to see a roller coaster do that.

As Shrewdy has correctly pointed out property is an illiquid asset so anyone in property does not get to experience the “roller coaster ride” pictured here. Its simple really: you buy and then either sell at a higher value, sell at the same value or sell at a lesser value. There’s only one start and one dip or rise. Not much a roller coaster there. Even if you are using property equity as leverage it’s a dull ride. You have equity and at some point you’ll use that equity for a bigger loan. There’s no roller coaster there either – just a commitment to meet your extra loan payments.

I’d liken it to a Christchurch tram ride. You get on at some point and trundle along observing interesting stuff (but not affected by it) and at some point you can either jump off at a really exciting place, or wait a bit longer and get off at a boring place – or you just take the trip and get off where you started. If you can afford the tram ticket you can afford to decide where you get off.

[Crypto Crude]

mini-
The analogy is poor. Property values consistently trend upwards over time and I have yet to see a roller coaster do that.

As Shrewdy has correctly pointed out property is an illiquid asset so anyone in property does not get to experience the “roller coaster ride” pictured here. Its simple really: you buy and then either sell at a higher value, sell at the same value or sell at a lesser value. There’s only one start and one dip or rise. Not much a roller coaster there. Even if you are using property equity as leverage it’s a dull ride. You have equity and at some point you’ll use that equity for a bigger loan. There’s no roller coaster there either – just a commitment to meet your extra loan payments.

I’d liken it to a Christchurch tram ride. You get on at some point and trundle along observing interesting stuff (but not affected by it) and at some point you can either jump off at a really exciting place, or wait a bit longer and get off at a boring place – or you just take the trip and get off where you started. If you can afford the tram ticket you can afford to decide where you get off.


Mini,
heres the point ive stressed the whole way along...
unless you are a long term investor who has lots of houses and who is prepared to ride this out, then you are devastated by short term movements...
you and mackdunk, and joe king, and a few others have never understood this...
its always been the same view... buy buy buy....
Fixed term rates in the highest echalon dont mean cook a hoot to mackdunk and never will, (because of his favourable long term position...
His long term buying price for rental rates, covers the interest and then some...
eg you buy a house for 40k, and then the house rises to 80k and rent rates increase, but you still have a 40k loan...
it was bloody brilliant for him and you lot when your mortgage requirements were 200 per week, and you were rolling in 400 per week rent payments...
...
It all changed... and that roller coaster is falling off the cliff, not a ledge...
the leverage was gone a decade ago... it will never be the same... ever...
..
as soon as you fess up and post that you were right but wrong...

IE big time wrong advice for a first homebuyer (or any buyer for a matter of fact) then the better.... mackdunk will never be man enough to admit that....
It could be time to troll the thread and bring up some quotes...
ive only mentioned the famous ones...
Man it ****s me off...

you long term big daddies dont understand, and ive pointed it out many many times... I just dont care.... whos right whos wrong...
whos making money whos losing money...
whos looking for excuses to back up their view.... who wanted us to not look for excuses... who will suit what ever view...
who has a clue... I dont know...
All I know is...
.....
....
...
..
.
Its time to get savaged...
holy schmollars that roller coaster had a savage run and now its time to pay for the last 7 years of housing market madness with a double whammy of credit crisis...
mackdunk picked the sharemarket to a capital T...
why did he then call it so totally wrong with housing.....

All I will say is he has a powerful ticker... ;)

:cool:
.^sc

[minimoke]

Mini,
heres the point ive stressed the whole way along...
unless you are a long term investor who has lots of houses and who is prepared to ride this out, then you are devastated by short term movements...

Shrewdy
And the point you keep missing is that first time buyers do not, generally buy with the idea that they are in property for the short term. They buy with an expectation of getting on the ladder and climbing it. And we should stop confusing first home ownership with owning rental properties – they are two quite different things. If you want to keep bringing rentals into you should start a thread with a different title.

[Crypto Crude]

hey mini...
Im not confused...
I used that example as they way mackdunk looks at the debate,
the way of the buff....



And the point you keep missing is that first time buyers do not, generally buy with the idea that they are in property for the short term


your absolutely right... they look at housing as a 30 year debt ridden life...
New Zealand way of living....
that is why I stipulated that through waiting through the boom, you can cut that mortgage from 30 years to 10 years until fully repaid.....
:cool:
.^sc

[minimoke]

your absolutely right... they look at housing as a 30 year debt ridden life...
New Zealand way of living....
that is why I stipulated that through waiting through the boom, you can cut that mortgage from 30 years to 10 years until fully repaid.....
c
I’ve said earlier that debt shouldn’t be frowned upon –its just a commitment to repay someone for the pleasure of the use of their money. I intend dying in debt.
The risk now of riding through the down cycle is that the hopeful first home buyer has a job or steady income to save enough for the deposit and where are they going to put those savings. It looks like dodgy Finance Companies is the place to go at the moment – and there is some irony that these investors have put their money into property via Mascot and not lost a bean.

[Crypto Crude]

hey mini,
yup debt is a good thing... I totally agree... leverage...

But, dont take on extra debt when its unnecessary...

Your pretty much saying that you want more total debt for the sake of it....
Are you saying that if you and I for example had the same loan amount, and same loan features, (term, int rates etc) that you would pick the loan which has higher total payments even though the two loans are identical?


10yrs or 30yr loan term, for the same house....
which one do you want?
sounds like you want the 30yr....
:cool:
.^sc

[Crypto Crude]

Hey upside,
we should catch up soon....
im not sure if your in kiwisaver or not... IF not get in right away dude...
we are in for one cheap house...
check this out...
if we are in kiwi saver for 3 years then we can get a 5k subsidy from the government, making a total contribution of 10k....
5k can come out of our funds but reducing the size of our funds...
Ive been in one year plus a few months.... im going to wait two years until I buy...
brain haemorrhaging until then...
we need a doctor, this is so sick...
:cool:
.^sc

[minimoke]

hey mini,
yup debt is a good thing... I totally agree... leverage...

But, dont take on extra debt when its unnecessary...

Your pretty much saying that you want more total debt for the sake of it....

Lets see if I can give you a real life example. I recently bought $20k of carpet. I estimate it will add $40k to the value of the property and have a life of 10 years. I could have: saved up for it; used an HP facility; paid on credit card or increased the mortgage.

Saving is an option. Except with the NZ$ rate I figure there is a risk of inflation of imported product. So by the time I’d saved $20k the price might have gone up. I guess I could have paid a deposit to secure a price – but there is a risk of the retailer going out of business and me losing my deposit.

HP is out – haven’t done that for years and can’t be bothered looking into it.

Rang the bank, the manager came to me with the papers and I signed up for another $20k of debt. Why – Well $20k will cost me $1,200 a year plus a bit to pay off the principal – all up that’s about $3,200 a year. If I sell the property today I double my money. If not I get to live in a place with great carpet. If property’s devalue by 24% (the famed 30% devaluation less the 6% its already supposedly dropped) I only loose $10 k – which means I’m still $10K up on my $20k.

But there’s more. Knowing I could buy I was able to put some pressure on retailers with the biggest quote being $26k. A bit of arm twisting got me a better deal. Put it on the credit card – which gives me a month or so free interest plus I get enough air points for a flight to Oz in winter.

Since then I got a bit more cash than anticipated so I’ve flung that $10k off the $20k I borrowed so now I have my $40k of added property value, $10k debt, an instant 6% return on the $10k extra I found by paying off part of the debt, a trip to OZ, and an extra credit line of $10k. So now the debts costing me $600 a year but for every extra dollar I pay off the debt I’m getting a 6% net return on the cash.

I’m not uncomfortable with that position since my net asset position is $30k better (which i can use for extra leverage) plus I have another $10k line of credit pre approved. Oh - and a trip to Oz and I’ve helped a retailer and tradesmen out.

I could of course have exercised some restraint and not bought in which case I’d have no debt, be $10k cash better off but with no added cash line and I’d have to pay for that trip to Oz. And I’d be mooching around on crappy floors.

[minimoke]

sounds like you want the 30yr....
:cool:
.^sc
Yup, sure is!

[Crypto Crude]

your not thinking right mini...
why would anyone in there right mind want to make payments for 30years on an expensive house.... when they can wait 5 years, get a smaller loan, lower interest rates, and have the same house paid off in only 10 years...
think about it...
;)
.^sc

[minimoke]

your not thinking right mini...
why would anyone in there right mind want to make payments for 30years on an expensive house.... when they can wait 5 years, get a smaller loan, lower interest rates, and have the same house paid off in only 10 years...
think about it...
;)
.^sc
Except historically, even through poor times property values trend upwards and I can’t find any five year period where values are significantly lower than five years earlier. History would point to a house today having a higher value in five years time. Back in ’98 it was all “woe is me – prices are going to drop by 40% boo hooo” – but what happened: a bit of flattening out and in 2000 we are off again. Early ‘90s there was a bit of a dip before someone lit a rocket. Early ‘60’s unremarkable growth (but growth) and then early ‘70’s away we go again. Even during the 30’s values in wellington didn’t drop dramatically. Sure building permit numbers dropped in the late 30’s but so did the population – and then what: off things went again after ‘44.

Also consider people on average stay in their house for around 7 years (i think that rate is dropping back). So in 10 years you will have traded – and probably traded up which means a new mortgage. There’s no way I’ll be in the same place for 30 years. Onwards and upwards

The other issue is commitment. If you are committed to a 10 year loan that’s great –but you will find all your energy goes into meeting that commitment, with probably little opportunity to divert from your chosen path. Take a 30 year commitment there is lots of opportunity to come and go and do what you please – as long as you keep the payments up.

No-one I know has a crystal ball that clearly says house prices will be less in five years time than today, interest rates will be low, deposit amounts achievable, repayment terms acceptable, jobs are around that pay enough for to repay the loans of the future. These are all unknowns. What is known is what you commit to today – you then just have to manage that commitment. An as an aside a real good employee is one with a mortgage – they understand commitment.

[Mick100]

Spoken like a buff of buffs minimoke

Your probably right - nominal property prices keep trending up but what about real property prices? Do you take account of inflation when looking at price trends

I would bet that real property prices fall over the next five yrs assuming that there will be inflation at some stage. If we stay in this deflatioary bust then real prices as well as nominal prices will fall.

PS, did you see "close up" tonight - looks like theres a few mortagee sales coming up over the next 6 months. Big layoffs are mentioned daily on the news in recent times - this will add to the number of people who can't make mortage payments
I expect that the high number of mortagee sales will eventually depress the value of the entire county's housing stock

Hang in there shrewd

[minimoke]

Spoken like a buff of buffs minimoke
Y
Mick100
If you look at nominal and real price trends you’ll find they follow a roughly similar path – there are falls and rises – but always consistent growth over time. Same is happening now – same will happen in the future.

There’s no surprise there are mortgage sales coming up – there always have been, there always will be. What we are seeing now is the term “mortgagee” being incorrectly used in marketing collateral. I’ve posted earlier examples on trademe of “mortgagee” sales which clearly weren’t.

And you can’t read that mass redundancies = mass mortgagee sales. Look at who are being made redundant. The majority are minimum wage, low / semi skilled workers – with a number of them in twighlight industries. For example the Pacific Brands layoffs – those people have been on borrowed time for ages. Gunn Veneers have been hanging on by the skin of their teeth for a decade. These people are going to fit nicely into the “renter” demographic – not the home owner demographic. Home ownership has always eluded minimum wage people – always has, always will.



Redundant people need somewhere to live. They may move out of their owned home but where do they go – into a property owned by a landlord. I have not seen one or heard one news item that suggests we are looking at creating tent cities – but you heard it here first – watch out for this expression to be used when the media and personality driven self promoters run out of interesting things to bluster on.


I have no sympathy, nor particular interest in low doc or high risk borrowers who go to the wall – the writing was on it the moment they signed the mortgage document. None of us should read anything into that news other than the inevitable.

The bottom line is that a house today is going to cost the first home borrower more in five years time. Just like Shrewdys $330k Jan 07 house is going to cost him more in Jan 2012. Whether he has saved enough for the deposit, meets the loan eligibility criteria or can afford the repayments has yet to be determined. He probably will. But he will be facing a 10 year mortgage and I’ll have knocked 1/6th off my “30” year one.

[Tok3n]

If you were in your late 20s and can buy a relatively decent 1st home in Auckland (around 550K mark) in cash, would you guys do it? or take on a little debt? to keep some cash etc?

Deposit rates dropping like a stone for savers :( but pyschologically, watching all savings disappear into a home is quite difficult too.

[fungus pudding]

If you were in your late 20s and can buy a relatively decent 1st home in Auckland (around 550K mark) in cash, would you guys do it?


I wouldn't.

[lakedaemonian]

If you were in your late 20s and can buy a relatively decent 1st home in Auckland (around 550K mark) in cash, would you guys do it? or take on a little debt? to keep some cash etc?

Deposit rates dropping like a stone for savers :( but pyschologically, watching all savings disappear into a home is quite difficult too.

Be patient.....then when you have lost all patience...dig deep and find a bit more.

My thinking is the following:

We haven't seen the worst of the real estate slump yet.

I believe the risk of trade barriers being put up is real, but low due to lessons of the past

I believe the risk to "credit barriers" being put up is real, and exceptionally high.

We need about 1 out of 3 dollars of credit in NZ sourced from overseas.

As nationalization continues and continues to accelerate in the banking/finance sector the political problems of lending money to foreigners when the banks are taxpayer funded will grow exponentially.

I think NZ will fair better than most through this mess due to our export production of needs rather than wants , but our Achilles heal is a need to import credit.

Leveraged assets will continue to tumble in my opinion.....we have at least one more leg down to go with property....possibly more.

Sorry to be all gloom and doom, but I think it will continue to get worse before it VERY slowly gets better.

[The GrandMaster]

Mick100
If you look at nominal and real price trends you’ll find they follow a roughly similar path – there are falls and rises – but always consistent growth over time. Same is happening now – same will happen in the future.


The bottom line is that a house today is going to cost the first home borrower more in five years time.

But surely this can't continue forever. If first home buyers can't afford to buy housing, the current oweners will at some stage run out of possible buyers - and then what?

At some stage there has to be a correction, whether that is now or over a longer period of time. But we can't blindly believe that the value of unproductive residential property can increase continuously forever...

[Arbitrage]

If you were in your late 20s and can buy a relatively decent 1st home in Auckland (around 550K mark) in cash, would you guys do it? or take on a little debt? to keep some cash etc?

Deposit rates dropping like a stone for savers :( but pyschologically, watching all savings disappear into a home is quite difficult too.

Depends on your goals. Are you in it for short term gain or long term enjoyment. I bought at the top of the market 25 years ago and have never sold. Sure it has dropped in vfalue at times, but it is my own patch of NZ and is owned by me.
Now it is worth 10 times that. That is only part of the equation. The house is now set up exactly how I like it, not how a landlord made it. The interior decoration and landscaping have been a fun hobby. The growth in value has also provided equity for other investments. You decide but consider your goals carefully.

[minimoke]

If you were in your late 20s and can buy a relatively decent 1st home in Auckland (around 550K mark) in cash, would you guys do it? or take on a little debt? to keep some cash etc?


No answer for that – there is not enough information to even begin to come to a sensible answer. are you on your own, have a family, renting at teh moment; looking at taking in flatmates. Got a steady job; want to travel; want some security, happy with risky investments; into DIY, Why not buy two – a home and a rental?– the list goes on. But there is enough information on this thread to come to an answer that suits your circumstances.

[minimoke]

But surely this can't continue forever. If first home buyers can't afford to buy housing, the current oweners will at some stage run out of possible buyers - and then what?

That whole idea is just a nonsense. First home owners can afford their first home. Always have been able to, always will. Its just that not all will be able and some can’t work out where their priorities lie while others blame someone else for their prior personal decisions or perhaps the timing just isn’t quite in sync. There are always buyers of something that is in demand. There will always be demand for property.

Property is very resilient. It handles depressions, recessions, population swings, SARS – you throw what ever you like at it and property has always increased in value over time. There is one constant – and that is in the developed world we need a roof over our head. A more variable constant is that our population will continue to grow – sure the greenies go on about over- population (actually global warming has distracted that one from them for a while) the world is ending blah blah – but for the next few generations at least the world will continue to expand. Land, bar coastal erosion does not go away and we as human animals have a innate desire to exploit that land to our advantage – that is buried so deep in our genomes that won’t change in a hurry.

Residential housing isn’t unproductive – it provides a roof over your head. Building shoe box apartments for non existent student s or holiday homes that take 5 hours to drive to or a myriad of other areas of property people biff their cash can be unproductive housing.

[Dr_Who]

Keep down ramping the property market. Please d,o cos it will only give me more chance to accumulate more cheap assets. :D:D

[fungus pudding]

Keep down ramping the property market. Please d,o cos it will only give me more chance to accumulate more cheap assets. :D:D

Residential real estate hardly represents cheap assets. House prices will take a big hit over the next few years, so why not wait? They have dropped a little but are still way out of whack with annual earnings. The real estate bargains at present are the listed property trusts, with returns of 15 - 20% available and huge discounts to assett value. And not having to lsten to tenants explain how it wasn't their fault that a hole appeared through a gib-board wall etc. Damn sure I wouldn't 'invest' in a house or flats at present.

[JBmurc]

I'm certainly looking at buying a property here as interest rates are making renting more expensive currently you can buy for between 50k-100k less than cost to build (I've built 4 spec houses here)
and as population is still growing an with the ever increasing tourist numbers(yes even right now theirs thousands of tourist here) outside jacks point sections are far an few between with little land available to use in future booms
In time Queenstown will be fully built with nothing close by available outside high density apartments ,units etc IMHO we'll have 15yrs before the new qtr acre section with 4brd home to be built is long gone ,take jacks point out prob less than halve that time

Queenstown lakes pop growth 06-07=5.5% 07-08=3.8%

[The Great Gold Guru]

I currently own 8 rentals , 4 in Wanganui , 3 in Blenheim and 1 in Dunedin. Have just bought a house in Devonport as a family home as we have been renting since May08. I hope to double the size of my rental portfolio before the end of 2009. All new purchases will be cashflow positive at 100% gearing , hopefully $30-$50pw each. I don't care whether they are in Ponsonby or Putaruru as long as they produce instant weekly cashflow. 3 will go on 1Yr mortgages, 3 on 2Yr and 2 on 3Yr ... all below 6% and possibly all below 5.50% !! I have about 40% equity in my existing portfolio that generates cash at these interest rates ... I'am planning that finance won't be a major problem but realise it won't be a walk in the park either. It IS possible and its a great way to get out of your daily grind job and relatively low risk.

I'll keep you up to date with progress ...