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  1. #16
    Senior Member Halebop's Avatar
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    quote:Originally posted by Shrewd Crude

    My argument has nothing to do with the outlook on property... it is to do with the first homebuyers outlook on their life long debt ridden goal...
    Shrewd Crude you aren't the only person to come to this conclusion. The relative rise in property capital values to take home pay (compounded by a secular demographic shift from single income to dual income households) cannot be sustained. Unless society moves to three or more income households the impetus provided by the 2nd income is reaching maturity and may even go into decline with more family friendly tax policies prompting new mums or dads to stay at home. Home ownership continues to concentrate into the hands of Baby Boomers who largely did not experience the least profitable periods of home ownership in New Zealand. People in their 20 somethings earning closer to the average wage or less have limited scope to buy the same sort of 1st home their parents could afford in the 60s or 70s. I suspect the consequence will be a prolonged demographic "lag" in learning the wealth building disciplines of saving, budgeting and delayed gratification.

    The original "mainstream" two income family is unsurprisingly the Baby Boomer family. They have reached a mature earnings profile which is likely to go into permanent decline in the near future (if it hasn't already started). More than ever this demands more traditional (and cyclical) drivers of real estate outperformance:

    Demographics (Birth Rates, Survival Rates, Net Immigration).

    Productivity Growth (Technological Improvements, Education, Innovation, Employment Environment and a host of extraneous inputs but particularly downstream impacts of the availability of risk capital).

    Wage Rates and Employment Levels.

    Inflation (Counter-intuitively property underperforms during high inflation as key triggers like Employment, Productivity etc worsen. On the plus the mortgage "decreases" by the rate of inflation adjusted income increases although this may be swallowed by higher interest costs).

    Interest Rates and the availability of risk capital (Changes in banking regulations and prudential requirements have had a huge impact on the attractiveness of home lending in the eyes of bankers - with a consequential "blinkered" shift in the true rather than perceived risk as capital values have increased versus incomes and proportional wealth).

    New Zealand (and cities like Auckland in particular) have demographic advantages that will cushion some of the consequences of an aging Boomer population. With high'ish immigration, natural economies of scale and productivity benefits concentrating populations in larger centres and a less proncounced baby "bust" here in NZ, high priced locations like Auckland are likely to remain supported. It would require an important external shock (Weather related? War? Health Shock?) to shift this trend.

    Can we expect to see the relative "price earnings" multiple of housing continue to expand at a fast rate without the wealth effect of growing incomes (3+ Income Families? Baby Boomers not cutting back their paid hours until well into their 80s - and not dying?)

    As long as you maintain focus, I suspect a program of saving and actively investing your rental vs mortgage payment differential will pay better fiscal dividends as long as you accept the inevitable volatility that comes with it. The emotional benefits of financial wealth versus home ownership is still open to debate. There may come a point in life where you just "want" to own a home more. Keep that in mind when considering demographics. You won't be the only one when that time comes. If it's part of a trend, you are better off being in front of it rather than behind it.

  2. #17
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    SC
    As I said you're a 'shrewd' observer. It ain't nice out there is it; but if you want it bad enough you'll work through it. Let us face it, no one out there is going to make it easy for you or any one.

    Cheers

  3. #18
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    A house costing 7 times the average wage is historically high - suggesting NZ houses are overpriced

    Another ratio is rent versus mortgage repayments.

    Historically it has been cheaper to pay a mortgage then to rent. In Shrewd's example the mortgage repayments are $500 a week. You can rent a basic 3 bdrm house for $300 a week in Manurewa, A nice 4 bdrm place for $400 and a luxury house/small farm in Alfriston/Takininni/Papakura for $500 a week.

    Again suggesting houses are too expensive in Auckland.

    Is a house a good investment?

    Property owners are now getting 5% yeilds gross - A $300,000 house rented for $300 a week. This is a poor investment.

    Of course property investors are hoping for capital gains - whether they will get them or not - who knows?

    Complicating matters of course are the tax breaks available to property investors and the ease with which you can use equity in one house to buy another.

    However if you are leveraging you really, really, really need the value of your houses to be growing. If the growth stops or goes backwards you are in big, big, big trouble.

    I will go back to NZ in a year and will probably be a first home buyer so I have been thinking about this a great deal.

    I could buy a house with cash but all these over priced houses are really pi$$ing me off because I will have $300-$400,000 less to invest in shares.
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  4. #19
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    Sydney's inner-city property blues
    January 3, 2007


    Sydney's property boom has been dead for three years, but that hasn't improved things much for first-time buyers interested in a well-located family home. Changes to the city's median house price over the past decade explain why. It rose an eye-popping 250 per cent between 1996 and the peak of the boom in late 2003. And it is still 2.3 times the 1996 level. So the recent weakness in the housing market has done little to repair the damage caused to housing affordability during the previous decade.

    A Macquarie Bank economist, Rory Robertson, showed just how far out of reach the bands of suburbs close to the city centre and close to the coast have become for most new buyers. He chose five popular suburbs within 10 kilometres of the GPO - Bondi, Bellevue Hill, Bronte, Mosman and Paddington - and calculated the average median price for those neighbourhoods. It was $1.6 million, almost $1 million higher than before the boom.

    The event that made owning a home in a big city so difficult was the halving of interest rates during the 1990s. That structural change in rates, made possible by low inflation, boosted the purchasing power of home buyers by 60 per cent and triggered a surge in demand for well-located houses. The result was a once-in-a-lifetime price increase that permanently downgraded housing affordability for newcomers.

    Robertson estimates that home prices have risen 75 per cent faster than wages over the past two decades. Since buying and paying off a house is the biggest financial event in most people's lives, the gap between the growth in property prices and wages has greatly devalued the lifetime earnings of non-home owners, particularly young people.

    The average price of an Australian house, including land, has risen from four times pretax annual wages to about seven times in 20 years. That means an aspiring first-home buyer on average earnings of about $55,000 a year must contemplate borrowing $350,000 (assuming a 10 per cent deposit), rather than $200,000, to buy an average house.

    Those with average incomes who brave the housing market for the first time must make what Robertson calls the "never-satisfying compromise between house and yard size and proximity". They have been pushed towards the periphery of cities and beyond, priced out of the market for well-located family homes.

    A new housing index in Queensland has highlighted this national trend. The Urban Development Institute of Australia (Queensland)/Matusik Affordability Measure uses average income, interest rates and assumed borrowing capacity to estimate what proportion of housing in 22 urban centres in Queensland is within reach of those wanting to buy their first home. In 2001 the average household could afford 74 per cent of the homes being sold across the state, but that had fallen to 15 per cent by the September quarter last year.

    In Brisbane, just 7 per cent of homes were classified as affordable to first-home buyers and those were probably on the urban fringe.

    "Something similar has happened in the major urban centres of other states as well," Robertson says.

    Despite the compromises being made by first-home buyers, they are being forced to take out bigger mortgages that stay big for longer periods. That means today's young home buyers have far greater financial risks than was typical in earlier decades. They are much more exposed to things such as illness and sudden job loss for more of their lives than people were in the past.

    There are predictable signs that home ownership is falling among those aged under 45. The ratio of owner-occupiers in the 25-35 age group has dropped by 10 percentage points in the past two decades and the rate for 35- to 44-year-old owner-occupiers is also edging lower. For most of the 1990s first-home buyers accounted for more than 20 per cent of home loans but this ratio slumped as the boom approached its peak. By early 2004 the proportion of first-home buyers crashed to just 12.6 per cent and even less in Sydney. The proportion ha

  5. #20
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    gidday halebop...
    You raise a very interesting point, and especially around the whole Baby Boomer thing which I can see will be the biggest issue in my life time...I think the next stockmarket crash, house slump will be contributed by BB's ... In New Zealand our soon to be retiring BB's crisis could be offset by an expansive immigration policy, other countries like the US will be hit hard, where a census estimated that there are currently 78.2 million BB's... roughly 25% of total population... If you have 20-25% people pulling out of property, shares then we are looking at decades of recessions in all forms of investments...

    I can see it starting to begin with my own eyes... I live in Christchurch and the amount of retirement villages pooping up is just amazing... these BB's are selling there houses, internationals are making up with the shortfall at the moment... in 10 years there maynot be enough overseas investors to make up the difference... which could and will lead to house price falls... this could be my entry...

    has anybody actually started a BB thread?
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  6. #21
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    My House, My Castle
    As the number of people able to afford luxury homes grows, real estate agents face another problem - how to separate real buyers from those merely pretending to have the cash.

    Astonishing as it may seem, a small group of "Walter Mitty" types regularly attempt to deceive agents and raise their status in society by demanding circuits of exclusive properties.

    Even if you can't afford it, you can always try and make yourself feel better!
    Death will be reality, Life is just an illusion.

  7. #22
    Senior Member Halebop's Avatar
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    quote:Originally posted by Steve

    My House, My Castle
    The real story here is the increase in high priced sales. Skewing both sales volumes and values at the upper end increases both the median and medium values, "proving" rising or stable values in REINZ blurbs when the overall market is not quite so robust. High end purchases of assets like houses and boats can be counter-cyclical indicators rather than proof of growth. When the business game gets tough, high-end purchasers extract dividends and invest in lifestyle instead of reinvesting in their businesses and investments.

  8. #23
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    If you put aside the love affair/special investment nature of property, and break the options down to a simple choice of renting or mortgaging to buy, then most of the time the answer should be that you are better off renting when you consider rates costs + interest costs vs the cost of renting (even allowing for a fair "comfort" premium/value when taking into consideration the value of owning your own home).

    The question then turns to whether these discrepancies between housing prices and affordability or housing prices and incomes can be sustained. My own opinion is that they can not, at least over the medium to long term, taking into consideration the adjustments we'd expect the market to make as fewer people are able to afford a fixed/growing (in the real sense) pool of housing, and also given the political clamour that will eventually arise if these discrepancies continue (and the current govt we have).

    But my advice to friends is always the same. Rationally, if it is relatively cheaper to rent, then do so and save for a deposit for when this is not the case. I can't see a scenario where house prices continue to rise and we return to a class situation of "landless" and "landed".

    The only thing a prospective home buyer needs to consider at any time is whether buying a house at that stage makes sense to them, at that stage; or whether the value they place on home ownership is in equilibrium with the current market conditions.

    Take the fear that comes when considering a good such as housing out of the equation, and the current situation is simply a matter of current house prices being out of synch with the market that moves those house prices.

    All just my opinion, though.
    Undisputed 2006 World Cup Premierleague Champion

  9. #24
    Senior Member Halebop's Avatar
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    quote:Originally posted by Shrewd Crude

    gidday halebop...

    ...has anybody actually started a BB thread?
    I probably mention Baby Boomers in 50% of my posts. Many demographers and a few demographically focussed economists believe Demographics is the only game in town. They have a huge impact on both long and short term cycles - in any aspect of life that can cycle.

    If you think back to your basic economic theory, there are a number of cycle concepts offered - mostly around the notion of snaking lines cycling up and down on a run chart. Kitchen, Kuznets and others I can't remember right now. There is also the Kondratiev wave (I think called K-Wave but the others start with K too!) - this metric contends that cycles themselve cycle in size over 50 or 60 years. At the moment we are at the top of the last Kondratiev wave that began in the late 70s / early 80s. Being at the top of the Kondratiev cycle is a once or twice in a lifetime event. Lows are higher and highs are highest. Down periods are soft or just don't happen. Up periods are extended and stronger.

    If you overlay demographics on the K Wave you see Baby Boomers as a group entered the work force or at worst university & probably part time employment by 1982. It's no coincidence that this is when both share markets and property markets began a 30 year bull run in most western countries. Just when we were thinking the party must one day end, property and share values accelerated in most countries over the last few years. This is because Baby Boomers are now aged 61 to 43. At worst their children are likely at high school. Mums have gone back to work. As a group they are now in senior management positions, peaks of professional knowledge or have established and properly capitalised their businesses. Earnings and disposable earnings have peaked. This feeds both consumption and the availability of risk capital. Down cycles all but disappear or at least lack conviction.

    Push forward 10 to 15 to 20 years. More Baby Boomers have retired than are working. While with-holding their labour has made you and I feel richer at work, with-holding their risk capital for less risky, income generating assets means our employers have less capital to innovate and invest. To attract investors they take less risks and invest less to maintain profits. Cycles are now more pronounced because investments are only made when the trading environment is clearly positive, exaggerating the cyclical nature of economics and investing.

    The boomers are now costing more in retirement benefits and healthcare. Additionally, infrastructure built by government in the "make hay" boomer years is inadequate for an aging population - it was built for a Boomer aged population. Substantial infrastructure investment is required against a backdrop of falling growth. The children of Baby Boomers are having children themselves, great for the future, but expensive in the moment as this costs more in health care, education and lost labour. Despite the Cullen Fund, Government borrowing hits an all time high. Inflation is difficult to control. Cycles really cycle. In 2028 the bottom of the K wave is reached and the cycle starts up again.

  10. #25
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    HB et al. you might find some of the papers here interesting.

    http://www.rbnz.govt.nz/research/wor...6/2823686.html

    p.s. the Barfoot&Thompson recent sales do not reflect NZ's average agent's sales which have been, erm, average!

  11. #26
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    quote:Originally posted by Shrewd Crude

    gidday halebop...
    You raise a very interesting point, and especially around the whole Baby Boomer thing which I can see will be the biggest issue in my life time...I think the next stockmarket crash, house slump will be contributed by BB's ... In New Zealand our soon to be retiring BB's crisis could be offset by an expansive immigration policy, other countries like the US will be hit hard, where a census estimated that there are currently 78.2 million BB's... roughly 25% of total population... If you have 20-25% people pulling out of property, shares then we are looking at decades of recessions in all forms of investments...

    I can see it starting to begin with my own eyes... I live in Christchurch and the amount of retirement villages pooping up is just amazing... these BB's are selling there houses, internationals are making up with the shortfall at the moment... in 10 years there maynot be enough overseas investors to make up the difference... which could and will lead to house price falls... this could be my entry...

    has anybody actually started a BB thread?
    Wait 10 to 20 years and buy the dying Baby Boomers houses is a good strategy in my opinion - However what if I'm wrong and pirces don't come down much?

    Then you've lost 10 - 20 years.

    For a young graduate now this might be okay but I'm 38 and in 20 years I'll only have 15 years left.

    See http://www.sharetrader.co.nz/topic.asp?TOPIC_ID=23675

    for a discussion of Population Growth and Growth in Property Values - it includes some BB stuff.
    \"The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.\" - <b>Adam Smith</b> - <i>The Wealth of Nations</i>

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  12. #27
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    In terms of cycles the BB will be termed the DG cycle... doom and gloom cycle... I must say that NZ is starting to prepare for it quite well with the Cullen Fund which is also making healthy returns... 17 odd % last year.... but in America they have massive all time high debts,.. housing is already starting to go peer shaped, those current BB's that are expecting 401k plans willnot get them...
    And I no that I definately wont, and not expecting nothing....
    It is such a concern that In Auzzie savings is compulsory...
    BB's hold most of the wealth, and will have to pull out of shares, housing ... because they wont get their superannuation or only a small part of it... which will cause a decade of recessions... I have great fear, but people I tell, just laugh it off, or dont take me seriously,
    It is a real factor and we must wake up... coz even if we in NZ are positioned quite well to take it, If USA sneezes, we all catch a cold...
    Or then again If China is the superpower in 20-30yrs it may not be so bad, they have an inpeckable savings record... (50% of GDP, or something like that) and retirees get nothing... whole generations of families live together..
    If we do have a 15-20% drop in popualation, then it is safe to say that property will slump big time...
    stocks like Ryman will do very well for the BB's, but once BB's are gone these stocks will crash... (genesis research)
    Commdities will be the way to go... and we are only at the start of a 30plus year run on gold,silver, and the lot...
    adjusting Gold for inflation over the long term should put it at $2800us per
    ounce right now... so there is alot of upside scope...
    Kitco.com is quite bullish on comodities, check it out...
    [8D]
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  13. #28
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    whats up rmbbrave.... you said
    "for a young graduate now this might be okay but I'm 38 and in 20 years I'll only have 15 left"...
    we will get early signals...so not 20years but earlier... for most it will be tooo late to start saving...but in say 10 years the smart BB's will sell early... so there will be many years of no growth, but fairly stable before all BB's are retired and then the big crash...
    and remember its not when the BB's die... its when they start to sell out of housing because they need the cash to survive....
    [8D]
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  14. #29
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    Shrewd dude
    You started a bl00dy good thread.
    Lots of good points and thoughts coming out
    Especially yours
    Running with the Bulls!!
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    slimbo

  15. #30
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    quote:Originally posted by Shrewd Crude

    whats up rmbbrave.... you said
    "for a young graduate now this might be okay but I'm 38 and in 20 years I'll only have 15 left"...
    we will get early signals...so not 20years but earlier... for most it will be tooo late to start saving...but in say 10 years the smart BB's will sell early... so there will be many years of no growth, but fairly stable before all BB's are retired and then the big crash...
    and remember its not when the BB's die... its when they start to sell out of housing because they need the cash to survive....
    [8D]
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    Not to shrewd crude. They dont sell to survive they take out a reverse mortgage to survive. You pay it all back when you die.MACDUNK

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