first home buyer advice

[Schrodinger]

Sub 4% fixed rate? The 5-6% figure is the range for 'line of credit or revolving line of credit' or basically, loans for those that want to borrow against the equity of their homes, such as here:


https://www.bnz.co.nz/personal-banki...ome-loan-rates


NOT sub-4% rates for residential "owner OCCUPIED" as such here:


https://www.bnz.co.nz/personal-banking/home-loans


and I won't get into margin lending rates from brokers like Fosryth Barr etc, they're going to be a lot higher.





Actually no. It has everything to do with the risk level involved. The bank is not going to care what you do with the $ you borrow on a line of credit if they have the house as security. Go try offering the banks that you have shares in a company as collateral and they'll gladly show you the door. The distinction i'm trying to make is, the asset class of a house is world's apart different than owning shares of a company. When it's very clear that banks that do the lending attach different rates (ie go look at lending rates for corporate or business ventures....). If you want to make the risk adjusted distinction of using funds borrowed against the equity of the house, and then go buying shares, then the base break even rate return should be comparable to what banks would lend to corporations - so around 8% or higher. Anotherwords, the person doing this venture should be considering a break even of 5% but rather, 8% or what ever the corporate lending rate would be (to factor the risk the individual is taking).





No it doesn't. The extent of past housing crashes and frequency have been minimal compared to the crash in share market indices etc. As I mentioned before the 2 asset classes are worlds apart. For starters we have the Reserve Bank that put priority to NZ's real estate than any specific corporation or industry sector. It's an issue of too big to fail - the adjusting of the reserve bank interest rate adjusts purely to keep housing prices buoyant (and indirectly, the whole economy). Any such crashes in the housing market are minimised by these monetary controls. They do not care to the extent what happens on the corporate side or the NZ share market, and because of this, this is the key reason why the banks have no issues lending on 1st time buyer of a home with NO collateral, but it's a horse of a different colour when ask to lend on share equities or business ventures without collateral.


Another thing to consider. What would be the extent of the NZ economy if there was a major housing crash? I'm talking say a 50% or 60% drop within a 2 year period? I'll tell you. Your share equities would do far worse. No one is immuned in a market crash but one thing certain is real estate fares better than any other asset class when the whole economy is turned upsidedown.

Your advice is factually wrong. There are plenty of people here using Margin Loans supplied by a bank and doing very well ~ current rates around 6%. If you are returning 12%+ per year (fairly easy) then every year is a win. Go to the bank or even easier jump on Google and find out. They don’t hand a cheque over you have to stump up with equity. Very similar to a house but the returns are way higher.

I also find it amusing particularly in Akl where house inflation will be flat for the next 10 years - therefore reducing CAGR even further below returns from the market - people continually claiming they can’t be beat with property. This is blatantly untrue.

Go build a spreadsheet and put the returns in. Heck you can even make an easy 10% CAGR with infrastructure funds ETF or managed funds with zero effort or risk. 10% CAGR means your money doubles every 7 years. The model you build will answer your questions and prove that property is not the best investment. I have built this spreadsheet and the numbers don’t lie.

I think the long run property returns 30 years CAGR were around 6-7%? This will drop in the next 10 years to zero basically due to structural issues with the NZ economy. Push CAGR to 5-6%? Sure you can drive past your houses and feel proud of yourself while you brag to friends but you could have been twice as rich by understanding the numbers.

Since you bring up the Reserve Bank I will tell you what will happen. There is no way the Labour or National Government will accept house price rises of 5% or more. They can’t afford the wage bills for public servents. If our wage growth is amazing - which it isn’t ( approx 1.1% real yoy) - then they would be more comfortable. The numbers for accomodation supplements and $ needed for the baby boomer super bill, roading, education, means that macro forces will prevail. What I am really interested in is Adrian’s thoughts on a sound housing market that doesn’t eat into our budget and hence international borrowings. I would assume he would like house price growth just above inflation.

I agree that shares have crashes but you ride them out. Longer run the average return should be in the range of 9-15% depending on your portfolio and if you are lucky to have multi baggers.