NZ 1st homebuyers are ScReWeD...

[Dr_Who]

Very well said Mcdunk.

[Ptolemy]

Very well said Mcdunk.

I always love the statements from the property bulls that property will rise faster than inflation (wages) ad finitum. Like it is just one of those things that will always happen and has no bearing on fundamentals and the the ability of people to actually afford to pay for them.

Please do the affordability figures for me on an average house based on doubling of the median house price from today $360k to $720k. Please use a long term average interst rate of 8.5% and median household income of $62k with average growth of 3% (which has been the average for the last decade).

Usually when I ask this question I get told that there are cheaper houses available than the median (true) but that is why median household income is used.

Please pick a reasonable deposit / equity for the household - say 20%.

Then can you explain how house prices are going to double again in the next ten years.

[fungus pudding]

I always love the statements from the property bulls that property will rise faster than inflation (wages) ad finitum. Like it is just one of those things that will always happen and has no bearing on fundamentals and the the ability of people to actually afford to pay for them.

Please do the affordability figures for me on an average house based on doubling of the median house price from today $360k to $720k. Please use a long term average interst rate of 8.5% and median household income of $62k with average growth of 3% (which has been the average for the last decade).

Usually when I ask this question I get told that there are cheaper houses available than the median (true) but that is why median household income is used.

Please pick a reasonable deposit / equity for the household - say 20%.

Then can you explain how house prices are going to double again in the next ten years.

Another interesting point: imagine a house that over a 50 year period has had no maintenance expenditure or captial expenditure, still with a 50 year old bathroom, kitchen, roof needing replacing, recarpeting, complete renovation of paint, paper etc. and generally modernising. Sure as hell won't pass the 'double every ten years' test. So often the capital introduced after purchase gets swept under the carpet. Yet landlords snap them up ar yields that don't even cover interest let alone the above costs. As I said before - quite a good compulsory saving scheme, but nothing more.

[duncan macgregor]

Another interesting point: imagine a house that over a 50 year period has had no maintenance expenditure or captial expenditure, still with a 50 year old bathroom, kitchen, roof needing replacing, recarpeting, complete renovation of paint, paper etc. and generally modernising. Sure as hell won't pass the 'double every ten years' test. So often the capital introduced after purchase gets swept under the carpet. Yet landlords snap them up ar yields that don't even cover interest let alone the above costs. As I said before - quite a good compulsory saving scheme, but nothing more.

Simple facts it seems that you want.
1, A fifty year old house cost in todays market value divided by six.
2,landlords in general make a prodit at your expence.
3,landlords pay for, or do themselves simple little tasks that you might enjoy doing yourself.
4, The fewer landlords there are because of penalties will only increase the level of rents.
5, Get into the public library and look at what you might have purchased ten years ago on ten pc deposit and what its worth today. I bet you havent saved that much in that time with that money doing anything else.
6, continue to question the reality of home ownership landlords love people that do.
7, The cost of compliance has gone up at an ever increasing level, the price of houses must rise faster than inflation in the short term.
8, It does not matter who the landlord is be it the GOVT, council, or private individual, it makes no difference to the big picture.
9The level of property is controlled by supply and demand, with the costs tied to replacement value.
10, Since the cost of replacement value has increased dramatically in the last few years the price of property must follow.
Macdunk

[fungus pudding]

Simple facts it seems that you want.
1, A fifty year old house cost in todays market value divided by six.
2,landlords in general make a prodit at your expence.
3,landlords pay for, or do themselves simple little tasks that you might enjoy doing yourself.
4, The fewer landlords there are because of penalties will only increase the level of rents.
5, Get into the public library and look at what you might have purchased ten years ago on ten pc deposit and what its worth today. I bet you havent saved that much in that time with that money doing anything else.
6, continue to question the reality of home ownership landlords love people that do.
7, The cost of compliance has gone up at an ever increasing level, the price of houses must rise faster than inflation in the short term.
8, It does not matter who the landlord is be it the GOVT, council, or private individual, it makes no difference to the big picture.
9The level of property is controlled by supply and demand, with the costs tied to replacement value.
10, Since the cost of replacement value has increased dramatically in the last few years the price of property must follow.
Macdunk

You assume a lot. I have been a full time landlord for about forty years, although I have dabbled with a couple of minor activities occasionally. I started with residential property in the late 60s, when the fundamentals were quite different. Nowadays I do nothing other than my real estate interests, which is the same as doing nothing at all. I only have commercial roperties plus a small holding in LPTs and some proportional title stuff just for fun. I haven't bothered with residential stuff for years - and wouldn't. It's a ridiculously competitive market - hence ridiculously low yields. I know several res landlords with a large no. of properties, but still fall short of making a living from them. One associate has 21 houses and a block of flats, and seems to be rapt because he shows a loss! Ridiculous. Surely the object of investing in property is, or should be, to free yourself from the hassle of having to work for a living. I see no sense in running losses for years, just so you can die worth a few more bob on paper. With your enthusiasm and interest in property all I can say is get out of residential, collect all the equity you can and get into commercial. It's bliss in comparison - dealing with mainly sensible tenants, and only ocassinally beats the bloody riff-raff that turns up as res. tenants; not to mention the massively higher returns from day one. 8-9% compleltely net sure beats 6% with rates, insurance, maintenance etc to pay for. Plus you'' have long term leases with personal guarantees. It's just no contest.

[Arbitrage]

I think it is difficult to compare commercial vs residential property. Vacancy risk is a major problem with commercial and having experienced it in central Auckland, I know that some commercial properties here have been vacant or only partially rented (including negotiated reduced rentals) for several years now. When the valuations come out this year here I think you will see drops in value since the last one done 2 years ago. Residential properties may have lower yields, but at least people have to live somewhere, and cashflow from rents is more steady.
If you buy in the right location and choose properties and tenants carefully, the down-sides you describe with residential property can be minimised.

[Dr_Who]

It comes down to demand and supply.

At current rate of immigration and very little new houses being build thanks to the credit crunch and finance co collapse, demand will exceed supply. Abit like the crazy gold and copper prices lately, it defies fundamentals, but there is a huge demand out there and the price will go up.

I will always be much wealthier than my accountant, cos I have a feel for such cycle and experience. I recall my broker and my accountant warning me not to buy anything a year back, cos they did the numbers and thought the market will drop another 30-40%. Now, if I had listen to them I would be a very poor man. My property portfolio is doing very well and my equity portfolio is doing extremely well.

[The GrandMaster]

3,landlords pay for, or do themselves simple little tasks that you might enjoy doing yourself.

I can assure you I would not

5, Get into the public library and look at what you might have purchased ten years ago on ten pc deposit and what its worth today. I bet you havent saved that much in that time with that money doing anything else.

I can assure you I have

[duncan macgregor]

We have people here saying commercial property is better to rent out than houses. Who cares? this thread is about first home buyers and whats best for them. The average joe bloggs is a complete fool if he chooses to rent if he can afford to buy his first home regardless of the cycle. A couple of years savings tied up with an ever decreasing mortgage against paying market rent at an ever higher level for the remainder of your life.
I would simply hate the insecurity of renting in my old age hoping that my savings would hold out until i kicked the bucket. I once bought an eighteen month old house at a mortgagee auction. I rented it out to the govt with a lease who gauranteed the rent, plus any malicious damage repairs. I sold it to my daughter and her friend who never even entered the property for a twenty pc profit. They on sold it two years later at more than double what i paid for it. They only entered the property once. The rent covered the mortgage payments, the govt did everything they even had a six month working holiday to Australia during that period. Macdunk

[Ptolemy]

Seems no-one wants to try and have a go at working out the affordability of a home in 10 years if houses double in price as they are forecast to do by some here.

Here let me help.

Median today 360k, doubled 720k
Median household income today $62k pa pre-tax. Based on average income growth of 3% (long term average) this would equate to a median pretax household income of $83k in 10 years time. Ater tax this equate to roughly $60k depending on tax rates of individuals in the household.

Assuming our householders have 20% equity or deposit (which will become increasingly difficult) then the mortgage on our median house will be $576k.

The mortgage payments on a 30 year mortgage at 8% (long term average) would equate to $1940 per fortnight of our households $2307 per fortnight income. Clearly not possible. The banks wouldn't lend on it.

Sure there are some assumptions built in here -
1) that income growth will be 3% long term. If it is more than this it will suggest that inflation has taken hold and interest rates will have to be higher to compensate.
2) that median income householders live in median households. A fair assumption one would think.
3) only a 20% deposit / equity in the house. I think there will obviously be many have more who bought earlier - this example is to illustrate how people getting into property say in the last 5 years would be able to afford a house. If there are no new buyers then there will be no new building as demand will dry up except for renting. Incidentally the rent on our median house would have to be over $1000 a week to give a landlord a fairly poor rental yield of 7.5%. Incomes will need to increase massively for people to be able to afford that.

I am interested in those here who think property is set to double in the next 10 years views on affordability. All I usually hear is that their is no supply, demand is high, property always doubles every 10 years etc etc. But never any discussion on people ability to pay for it.