NZ 1st homebuyers are ScReWeD...

[Crypto Crude]

I might be egyptian macdunk.... I may want to take everything with me to the afterlife..haha []...
does anyone agree with my summation???, because there aint no way that even at 450 after tax plus two flatmates say 100 a pop each equals 650 less weekly loan payments of 512 equals $138 to survive on...

maybe foodee, you could do it real hard for a few years... get your pay rise and then just, use that extra cash to live on... take the 30year loan, and breeze through until your 52 without kids, because you need their rooms for the dough... []...lol

Yes I have a plan macdunk, it aint nuffin to do with property, the cream at the top dont spend 20plus years to gain a 300,000 investment... so nor shall I... and even if your investment doubles... you are still paying $799,000 in total over 30 years...

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...

[Halebop]

does anyone agree with my summation???

Shrewd your original math of requiring 8% growth is close enough but as Duncan points out ignores that there is an opportunity cost of rent. You would have to pay rent if you did not own a house, say 4%, therefore the house has to increase at a rate of less than 8% to break even when this is considered. On the other hand rates, maintenance, depreciation and insurance aren't paid directly by renters so that needs to be factored in to the ownership model too.

It's interesting though that rent more closely reflects the cost of ownership that our parents enjoyed when purchasing property than a purchase itself now costs. I think this is telling of where property fundamentals lie as opposed to a more narrowly driven demogrpahic demand. For those who are interested - Baby Boomers are the largest property owning group, more so than their own parents (they own more rentals, more holiday homes, more property per capita full stop). While not their "fault" for buying property, it would be naive to believe that sentiment would not focus on them.

The current secular trend in expanding price earnings multiples on property (from 3x to 6x) and expanding incomes (from little more than one income per household to something closer to 2) is clearly not supportable unless we believe:

Interests rates will on average fall forever
The numbers of incomes per household will rise forever

The first is improbable and the second will prove socially (and politically) unstable (As growing resentment towards Baby Boomers demonstrates).

We need some smarter compromises and balance between zoning laws, tax policy and banking policy (think how banks are allowed to operate with less capital by lending on residential property - how do we think this is working out right now, particularly in the US?)

I personally don't like debt. Just as on average it constricts returns, innovation and prudent risk taking within organisations, I think it does the same to individuals and entire economies (and I suspect correlates with our appalling track record in productivity as a huge chunk of our debt funds residential real estate while the profits on that debt are exported as a balance of payments deficit).

In terms of passive investing, a debt free policy clearly favours equities over residential real estate. Equities simply deliver higher gross returns and provide simpler mechanisms for targeting macro trends and entering and exiting segments at lower transaction costs.

[George]

I was nervous about buying a house last July so I allowed for that by
locking in the certainty of 8.3% for 5 years. I am paranoid about paying
off the lump sum principal each year as in 5 years if interest rates go
to say, 15%, I want to have as much equity as possible. How can anyone
know what rates will be, I remember 21.5% in 1988.
George

[bung5]

I was nervous about buying a house last July so I allowed for that by
locking in the certainty of 8.3% for 5 years. I am paranoid about paying
off the lump sum principal each year as in 5 years if interest rates go
to say, 15%, I want to have as much equity as possible. How can anyone
know what rates will be, I remember 21.5% in 1988.
George

Back from 2008... Geroge you still paying 8.3% or how much you pay to break that?

[duncan macgregor]

quote:Originally posted by Shrewd Crude

I might be egyptian macdunk.... I may want to take everything with me to the afterlife..haha []...
does anyone agree with my summation???, because there aint no way that even at 450 after tax plus two flatmates say 100 a pop each.

SHREWD If you really were crude at a $100 bucks a pop you would pay the bloody place off in quick fashion.macdunk

[Mr_Market]

Just be patient and keep investing. Prices will not be 7x wages for the rest of your lifetime. Fear will hit the market eventually and will drive out the speculators. Bide your time and you will pick up a bargain.

[STRAT]

Hi Shrewdy,
I went back to your opening post to ascertain your position in this debate but couldn’t find one. If I was in the market looking for a house today to live in I would like yourself be waiting to see what happens over the next wee while ( weeks , months, year ) and adjust my decision to buy as things unfold. I agree we have hit the top of one of the longest property booms ever. If I was looking for an investment property it would be business as usual. If a property can wipe its own ars then its worth buying ( as a long term investment ) irrespective of whether the price dips in the next 3 months to 3 years. If you cant find a property that is cash flow positive then you have answered your own question as to whether you should buy or not but it really comes down to your individual circumstances. Live in or not. Flatmates or not, Joint venture or go it a lone, Deposit size, Current rent and living expenses etc etc. The key thing to remember is that long term RE is a stable investment so as long as you are using someone elses money to purchase and maintain you really cant go wrong. Second key point is with the way mortgages are set up these days ( may be changing soon with the credit crunch and all ) as your equity increases you gain access to credit at favourable rates.
I guess if you add a little detail about your position or create a hypothetical scenario it could be discussed in more detail. I haven’t read the whole thread so forgive me if this has already been done.

[HIDDENGEM]

Analysts were divided on housing market after the peak in2007. Some top investors are very cautious now.

We know property prices plummeted in USA, Some Europeancountries and DUBAI.

Fortunately both New Zealand and Australia escaped from residential housing market crash.

In New Zealand some Finance companies went intoreceiverships due to investment in overheated real estate markets by propertydevelopers.

I had to forget my first investment in stocks in a financialcompany in New Zealand.

Do you think is it safe to buy first home now or wait until 2012? I have some sort of worry about housing market in New Zealand andAustralia.

Even IMF said New Zealand residential market is over valuedcompare with income level.

Thanks.

http://www.stuff.co.nz/business/money/4984743/New-Zealand-property-market-over-valued

New Zealand property market 'over-valued'

Last updated 15:22 10/05/2011

New Zealand's house prices are over-valued by around 15 to 25 per centcompared to the average over the past 20 years, according to the InternationalMonetary Fund.
In its latest country report on New Zealand the IMF said there was someuncertainty though around the estimate which was based on the OECD's house priceto income ratio as at September last year.

That uses a combination of simple metrics and models and fails to take intoaccount Statistics New Zealand's recent upward revision to household income.
Under the OECD model real house prices rose by 150 per cent in the 15 yearsto 2007, the report said, making it one of the strongest increases amongadvanced countries.
Since then though, house prices have fallen by more than 10 per cent.

Alternative models show varying rates of over-valuation but in the sameballpark as that of the OECD.

A new model developed recently that takes account of income, demographicsand interest rates, suggests house prices here are over-valued by 20 to 25 percent, the IMF said.
Yet another alternative model that includes demographics, mortgage interestrates and the terms of trade instead of future income, indicates house pricesare overvalued by 15 to 20 per cent.
That model is sensitive though to terms of trade and interest ratemovements, for example, a 10 per cent fall in the terms of trade could resultin an 8 per cent fall in houses prices over the medium term.

When it comes to residential rents, the OECD's price-to-rent ratio shows amuch higher over-valuation of 43 per cent relative to the past 20 years.

''However, the measures includes government subsidised rents which haspushed up the ratio over time as subsidised rents decreased, most noticeably in2001''.
If you take subsidised housing out of the picture, the rent overvaluationdrops to about 15 to 27 per cent when compared to the historical averages.

http://www.bloomberg.com/news/2010-1...ket-gains.html


IMF Sees Risk in `Mild Overvaluation' ofAustralian Housing Market Gains

By Michael Heath - Oct 7, 2010 1:06 AM GMT+1300Wed Oct 0612:06:49 GMT 2010

The International Monetary Fund cautioned that housing inAustralia may be overvalued and a reversal in pricescould hurt consumers in one of the few advanced economies to skirt last year’sglobal recession. “Given assessed mild overvaluation, a potential correction inhouse” prices “could hit household wealth and consumerconfidence,” the Washington-based IMF said today in its World EconomicOutlook. Housing in many other parts of the world remains a “drag on growth”and a risk to lenders, the fund said.

Myopinions are not intended as financial advice. Any hyper-links are not anendorsement & no responsibility is taken for their content. Please do yourown homework.

[Halebop]

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.

[RTM]

https://seekingalpha.com/article/462...estate-monster

Sounds like its more countries than NZ that have screwed up the housing equation.

SQB....if you stumble on this thread...

"I think there are a few reasons why residential real estate has risen so dramatically in price here. Capital gains on residential real estate are exempt from tax. Thus, I think it’s been seen as a great way for a non-business owner to accumulate capital. "

Sound familiar ?