NZ 1st homebuyers are ScReWeD...

[Crypto Crude]

quote:MrDevine
Junior Member
8 Posts
Posted - 24/02/2007 : 10:21:32 AM
I'll add my two cents to this discussion.
I just brought my first house in Auckland last week – and yes the numbers are daunting
For first home buyers its a tough call. Yes property prices will fall, so you must ride out the cycle. I've got a 30 year mortgage

I just don't understand why anyone would want to invest any asset if they think the price will fall...(unless they went short)
why not just wait it out... and get the house when the price is lower?
yes property has made many a fortunes... certainly not by choosing investment in expensive areas, or into falling asset value....
[8D]
.^sc

[MrDevine]

Thanks for the encouragement shrewd.

You're not a landlord though are you? Cos' I thnk there is building resentment towards property investors (baby boomers like my parents) who have helped to screw up the market, ditto the banks. Rents haven't increased much yet, but many people are getting weary of paying them. (sweeping generalisation, excuse me).

MrD.

[Crypto Crude]

Mr devine. I am no landlord.... I am just bambozzled by what you said...
it would be different if you bought a house because you thought the price would rise...
wrong time buddy.... all the best to you...
I'm currently in the US at the moment and they have had a falling property market for two years now...
although property is falling, the economy is still holding up, and has not impacted on consumer spending as first thought (IMO due to Baby boomers).... But none the less, there are plenty of contract foreclosures and many banks that were taking on high risk property investors are being liquidated... initially these banks were setting higher interest rates on their loans, to compensate for the higher risk... it is now backfiring on them...
those that got into housing here in the US within the last 5 years are now getting shafted...
and are now finding that the banks are re-possessing their houses,
ads, for quick sales from liquted banking firms, are on the tv all the time....
Govt has ads for quick cheap property selling....
will the same happen to NZ... hum hum....
reverse mortages are now starting to hit here as a reverse mortgage can only be taken out once you turn 62years old in the US.... and the first big wave of BB's is one year away from that age....interesting times ahead with the BB's
ignore the BB issue, ignore the fundamental idea about what such a market force will create....
If you follow the markets then don't ignore this most important senario that will
unfold which will be the most important issue in my life other than the environment...

quote:
Steve
At the end of the day its better to be in, than out on the sidelines watching...

steve, sitting on the sidelines watching, (well not for me because of opportunity costs)
is not a problem at the moment.... ask US first property investors if it is currently better to be in the market at the moment than out....?
[8D]
.^sc

[MrDevine]

Thanks for your views Shrewd. Guess we'll all just have to wait and see how this all pans out, there are some interesting vaiables (like reverse mortgages) that haven't played out before.

My main concern is geopolitical tensions in the Middle East, and what effects any action there will have on economies worldwide. Markets look well priced too, but the bulls keep on running.

[Dimebag]

Cantab,

Typical of bull market frenzy, you have conveniently omitted several more bearish points from that article. For example:

By contrast, houses in Grays Point are expected to drop between 8 and 5 per cent, while Carss Park and Monterey are set to experience falls of up to 7 per cent. APM operations manager Michael McNamara summed up 2006 it as a "tale of two cities".

Overall Sydney's median house price increased 1 per cent in the 12 months to December 2006 - from $524,000 to $526,000 - while the median unit price dropped 3 per cent to $352,000.

The median house price in East Hills, near Bankstown, dropped 16 per cent last year to $420,000. Although the area is predicted to drop another 5 per cent this year, PRD Nationwide Riverview's Jerry Kurzveil said business was up on 2006.

"I think prices will be stable this year but I can't see them going up before 2008," he said.

"There's a possibility they will go down because there's a lot of mortgagee possession sales coming on."

This is precisely the risks people like me point to. Can you imagine what your equity position would look like if you had bought a property in East Hills with 5% down a year ago? The price is now down 16%. Mortgagee sales abound of aspiring up & coming property investors who have been wiped out in this "low risk" investment class.

Yes, the high end is still doing well. Palm Beach up 35% for the year. This is consistent with a well documented world-wide trend, driven by huge strength in financial markets leading to outrageous bonuses in the financial elite and other upper echelons. This is finding its way into premium property.

If one wants to speculate as to the continuation of this trend, be my guest. But you will need a huge deposit to get in, you will take enormous cash-flow losses during the holding period, and there is a risk that if the economy slows & financial markets tank, these properties will suffer a correction.

The average punter cannot afford to play in this market. Those buying/investing in less prestigious suburbs in Sydney over the last 3-4 years have been absolutely crucified - fact.

I'm not a huge bear on property. I'm just temporing people's tendency to be irrationally exhuberant and assume that property is exempt from the laws of economics. That kind of mentality has always preceeded the subsequent unwinding of a boom, whatever form that may take. In property's case, typically via an extended unwind over decades to correct past excesses.

Dimebag

[cantab]

quote:Originally posted by Dimebag

Cantab,

Typical of bull market frenzy, you have conveniently omitted several more bearish points from that article. For example:

Dimebag

Dimebag, I haven't conveniently omitted anything. My post was as follows:

Tale of two Sydneys as property divide widens
Michelle Singer
February 18, 2007

An Australian Property Monitors rating of the growth of property values of about 700 suburbs in 2006 shows the city's affluent enclaves surged ahead, while areas in the west and south-west languished.

"There's a lot of young money coming in," he said. "I spend so much time out of Australia and I can see that we just take what we've got for granted. Foreigners come in here and can't believe the prices."

Source: The Sun-Herald

I provided the link to the article as well. What I was getting at was that sometimes people make the mistake of assuming that there is one big property market when in fact there are a whole lot of markets. That applies to Christchurch as much as it applies to Sydney. Recently there was a table in the Press that compared the performance of Christchurch suburbs over the last 6 years and the performance was not uniform, far from it, there were major differences. My post had nothing to do with being a property bull. You yourself made the mistake of treating Sydney as one market.

On 9 Feb you posted (an extract):

"This will cap price inflation, and bring it more in line with rental growth (or even worse). This is what has happened in Sydney. Since 2003, prices have not gone up and have in fact slipped back a few percent.

Studies have been done which have shown that in the very long term (centuries), price appreciation has only averaged 0-1% above the rate of inflation.

To assume anything more is irrationally optimistic. In the scenario I ran above for SC, I assumed 5% pa which I think is generous enough. This still ignores a scenario where yields actually increase, which is possible. This would most likely be achieved by years of stagnating/very graudually easing price rather than a large crash, but it could easily happen (as it currently is in Sydney).

Another post from you on 9 Feb (an extract):

If you had bought a house yielding 2.5% in Sydney 3 years ago, using 7.5% money, the price would not have increased, so you've essentially lost 5% of your asset base every year. If you put 10% down, that is a ROE of -150% to -200% (you've lost almost double your capital). People who did buy at this point in time will be making catestrophic losses at the moment, and at the moment there is little indication when conditions will improve. Rental yields are still at record lows and a long period of price stagnation to rectify this situation is a real possibility.

[Dimebag]

Cantab,

Point taken. That is something I'm guilty of doing - assuming there is only "one" property market.

Agree that in the right spots, there has still been plenty of money made in Sydney property in recent years.

Cheers,
Dimebag

[Dimebag]

PS long time no debate Cantab. Where have you been. You still holding a few ATR?

[cantab]

Hi Dimebag, I do like your PE approach to property investment. It doesn't make sense to buy a property on a 5% gross yield. Over the next couple of years I'm neutral however over a longer period of say 10 years I'm extremely bullish about property investment. I think rents will increase significantly. NZ is going to continue to attract immigrants because it's such a good place to live and it's safe. I recently heard that 400 people move to Christchurch each month.

There was a graph in the Press comparing the rise in Christchurch land prices with the total property value over a number of decades. Land values are increasing at a much faster rate than building costs, although it doesn't feel like that.

Yes still got a few ATR. I miss your comments.

[cantab]

Aspex, they may chip away at depreciation allowances although the latest reduction had no affect. Too many voters own a rental compared with those owning over $50,000 of overseas shares which makes shares an easy target.

Foresters aren't too happy either.