NZ 1st homebuyers are ScReWeD...

[Arbitrage]

So Skol, are you saying that in 10 years time, with Auckland's population heading towards 2 million, that house prices could be less than what they are now?

Residential property is a great long term investment. Sure the cash flow returns may vary but at least they are steady (those rental payments every fortnight are great - even through the recession). The media love the short term changes in capital values to create headlines to sell newspapers. Take out the noise and the upward trend in values, especially in Auckland, have created wealth for many canny (eg Duncan) long term investors.

[fungus pudding]

So Skol, are you saying that in 10 years time, with Auckland's population heading towards 2 million, that house prices could be less than what they are now?

The point is if they have risen only 30% or less in the next ten years, have they been a good investment? Giiven the high maintenance nad management costs of residential, I'd say they would have been a dead loss. So investing in residential real estate has become a gamble on a mix of real and nominal capital gain (inflation). With so many easier opportunities around it beats me why anyone bothers, especially given the 'quality' of some of ther prospective tenants around. It's that last point that finally got me to see the light in res. investment.

[Skol]

So Skol, are you saying that in 10 years time, with Auckland's population heading towards 2 million, that house prices could be less than what they are now?

Residential property is a great long term investment. Sure the cash flow returns may vary but at least they are steady (those rental payments every fortnight are great - even through the recession). The media love the short term changes in capital values to create headlines to sell newspapers. Take out the noise and the upward trend in values, especially in Auckland, have created wealth for many canny (eg Duncan) long term investors.

If house prices double every 10 years that's 10% a year. Do wages and salaries go up 10% a year-no. Eventually either the rents would be exorbitant and unaffordable or the yield will drop to 3% then 2.5% and so on. That's assuming 100% tenancy. When you can get 5%+ at the bank and housing yields are less, something will happen eventually. Who can afford $1000 (after tax) a week rent, because that's what you'd need to make the numbers stack up?

One of 2 things will happen-house prices will drop to their real value or there'll be years of stagnation.

[fungus pudding]

If house prices double every 10 years that's 10% a year. Do wages and salaries go up 10% a year-no. Eventually either the rents would be exorbitant and unaffordable or the yield will drop to 3% then 2.5% and so on. That's assuming 100% tenancy. When you can get 5%+ at the bank and housing yields are less, something will happen eventually. Who can afford $1000 (after tax) a week rent, because that's what you'd need to make the numbers stack up?

One of 2 things will happen-house prices will drop to their real value or there'll be years of stagnation.

Fauty mathematics there. Remember the rule of 72. If house prices increase 10% per annum thay will double in 7.2 years, and if they increase 7.2% a year they will double in 10 years.
Not that it matters 'cos it won't happen like that. Existing housing stock will not double in value in the next ten years. Technological advances etc may see replacement costs rise quite a bit - but that might just leave existing stock looking a bit tired and obsolete. In the next ten years existing houses will rise less than inflation, which is unlikely to average 7.2% per annum.

[Arbitrage]

How come house prices have doubled in inner Auckland suburbs since 2001 during a period of low inflation?

[fungus pudding]

How come house prices have doubled in inner Auckland suburbs since 2001 during a period of low inflation?

They have never travelled exactly in paralell. And aside from that some areas will fall outside the maximum or minimum performance. Looking at a small section of the market tells you little.

[Skol]

Fauty mathematics there. Remember the rule of 72. If house prices increase 10% per annum thay will double in 7.2 years, and if they increase 7.2% a year they will double in 10 years.

Correct, I forgot about the power of compound interest.

[Skol]

How come house prices have doubled in inner Auckland suburbs since 2001 during a period of low inflation?

It's called herd instinct and many families are now paying the price.

[Skol]

Maybe the chickens are coming home to roost. An article in today's Herald says the market is awash with unsold properties and it could take a year to clear the backlog.

[minimoke]

Maybe the chickens are coming home to roost. An article in today's Herald says the market is awash with unsold properties and it could take a year to clear the backlog.

The issue isn't so much "unsold" as it is "vacant". If these unsold properties have people living in them then theres no problem. Indeed it seems even though there might be loads of properties on the market there were loads of sales. In Feb sales were up on January. If we compare this Feb with last the total number of sales were down a tad but time on market was a lot less. Median price is up and the average price is up.

The only way the "backlog" will clear is if more purchasers come to market. More purchasers = driving higher values.

If we want to see the backlog cleared with lower values we need to see more vacant posessions - thus giving buyers more choice and more leverage. We would probably also need to see evidence of people "trading down" - but even then these people need somewhere to live (in a more-in-demand lower priced house: which others are chasing thus keeping values up) or into rental accomodation - which again is a supply demand thing.