QUESTIONS FOR Mc DUNK

[minimoke]

When i see a decline in population, or see building and building compliance costs drop then i might agree that the price of property long term will drop. The new homes being built are not keeping pace with the growth. Builders fleeing the country in droves or dont you know that?.

And a few other things to look out for: expats returning in greater numbers to NZ need somewhere to live; supply of listings is low; interest rates are dropping, OCR likely to come down, Kiwi saver deposit scheme coming online in the next few years; govt assistance for people into homes which National don’t seem to turn off; NZ$ makes our property look more attractive; lots of cheap apartments for battery hen English Language schools. All add up to more ingredients to a turning and positive property market. Lets see where we are at in another year.

[minimoke]

bankrupted 50k in debt by now...
shrewd path...

No, we should put this to bed before it becomes the perceived truth. – actually you’d have the same property capital but your flatmates would be now paying more of your mortgage for you. Check out the properties I found you on the other thread!

[axion]

Except we aren’t looking at sharetrading. SC originally pondered about buying his first home. This is quite a different proposition from trading shares and buying property investments. Heck property investors struggle with the idea that they are in it for either capital gain or income. So many of them were crowing as their properties went up in value (even though they were making 5% on the deal) yet insisted they were in it for income so as to avoid Capital Gains Tax. Likewise for sharetraders – no doubt there are those out there trading who are in it for the “income” but will have Stop Loss limits that kick in if their investment trips below a certain value which is based on Share Price not yield.

But that is by the: SC and others don’t see the value in Fixed Interest mortgages. They are entitled to their view but the problem with looking at interest rates as they down trend is that the purchaser goes “Great 7% I can afford the interest on that mortgage – and look I’ll save even more when the rates drop more!”. Except at some point the interest rates will reverse – and in the mean time a person’s lifestyle will change to the rate they are paying. Then listen to the moan as their 5% mortgages double to 10%. So paying 20 or 24% interest is not irrelevant – property tends to be a long term investment and high interest rates have happened before and will conceivably happen again.

Some posters have very fixed views on their property purchase – and for as long as they hold such views getting into property is going to be a challenge. I’ve posted an update on where SC is at on the other thread.

I can see where you're coming from, and I have been told my view of houses being similar to shares or other assets is quite wrong, I still think they're similar on a fairly crude level--they're both assets, the only difference is one we live in and seem to, imo, have a special type of attachment to it which, for some reason, changes all the rules. I still completely disagree about the it's not a loss until you sell thing. if I pay 300k for a house and now it's worth 200k that's a loss in my book, and I think it's silly to say it's not "until you sell".

I don't think it is that SC, et al don't see the benefit in fixed mortgages, there is most definitely a benefit (and SC isn't foolish so I'm sure he can easily see when there'll be a benefit to it), but at this point in the economic cycle it seems like a poor decision to do it when all indicators are that interest rates are declining.

I was going to say that my post was in context of a new home buyer, I agree with Duncan that fixing now might be a good idea if you're very risk averse to a huge swing (which might occur for some reason), e.g. if you already have a home which is quite highly leveraged and you can afford the interest at the current rate you might try and fix it at a similar rate so that you decrease the risk of default if rates do take a turn around.

Basically it all comes down to risk aversion, and where you are in the market. As I said someone currently in will want to avoid default. SC is more than happy to sit on his hands to try and angle for a better deal, perhaps a newly married couple might want to get a house ASAP and are happy with interest where it is and might purchase and fix their mortgage.

I must say that it is interesting to see the two predominant conflicting view points: new comers who are willing to wait around to get a better deal (lower rates, lower house prices, etc), and the old hands who are saying to get into the property market at any point because, in the long run, it will always go up. I don't think either side is entirely wrong, house prices will eventually go up as Duncan says building costs aren't declining, population is continuing to increase, however conversely incomes are (or most likely will be) decreasing, interest rates are (most likely) declining so basically imo, long term we will see housing go up due to the fundamental costs and population issues which Duncan brings up, however I think short term there is definitely a better spot to enter as time goes on and (short term) conditions are getting worse and worse. And I think it is completely wrong to assume just because SC is putting it off now, that he will continue to put it off for all of infinity, there are clear reasons why he's putting it off now and I assume if those reasons change he'll reevaluate the situation.



NB: I'm not sure what my opinion is worth, I've never owned a home, and I'm at least a couple of years from even thinking about it...


edit - Hmm just reading your post in the other thread, minimoke, very interesting. I'll comment in the thread.

[minimoke]

I can see where you're coming from, and I have been told my view of houses being similar to shares or other assets is quite wrong, I still think they're similar on a fairly crude level--they're both assets, the only difference is one we live in and seem to, imo, have a special type of attachment to it which, for some reason, changes all the rules.

Shall we agree to disagree, or perhaps come to a compromise. What about “unrealised loss”.

I’m not so sure your view of houses is entirely correct either. Assets are often confused with equity – but we don’t need to get into a discussion on asset classes here. With shares you rely on someone else to create an income for you or to build capital. With a home you don’t get an income (indeed it will cost you) and you have to look after it yourself. The Mrs will buy a house based on the colour of the kitchen and cleanliness of the bathrooms – share buying doesn’t use such arbitrary considerations. A decision to buy a home will be made in 5 minutes – you’ll agonise over your next share purchase (with loads of TA / FA) for ages. If you look like making a loss on shares you can flick off instantly – try to do that with a home. You always need a roof over your head – something a home does but shares can’t do. Set it up right and you can write off some of your expenses against your shares – you can’t do that with a home (unless you have a home based business). You don’t buy shares for the great view, leafy suburb, close to schools or work. And there’s not a heck of a lot you personally do to a share to add value to it. With a home you still get an ownership document – you don’t even get that with shares anymore. You can loose the lot on a share – buts unlikely you’ll loose everything with a home (barring of course poor financial management or poor judgement like being sucked into a 110% mortgage). When you own a home you will be forever motivated to get up and go to work in the morning – I love hiring people with a mortgage (the bigger the better) but with shares you can lie in bed a bit longer. As for the similarities, I’ll leave to you.