Amanda mulls over five reasons to buy a house in over-priced Auckland. Your view, should she or shouldn't she?

Property bubbles have been bursting all round the world; USA, Europe.  It looks like Australia is faltering as we speak.  New Zealand hasn't experienced the pop yet.  Auckland is the most over-priced part of New Zealand.  Maybe ask yourself this question, if prices dropped significantly, and perhaps your income too, then would that would that significantly impact you?  Just my 2c...

no.........my 2cents....

regards

Do you want to live in your own debt free home in your retirement?

I bought an overpriced, rotting dung heap at the 2007 peak for $295000, and have since poured enough time and money into it to ensure a return of nothing. On the balance though I now love the place and have 3 kids who have 800sqm to play in and call their own. It's this emotional side of things that square the ledger.

Mortgage repayments are now 26% cheaper than in 2008. This allows you to set your repayments on a 10 or 15 year term rather than 20-30 year term.  Forget market conditions etc,  you don't buy a home for an investment-for-income/capital appreciation - you buy for increasing power over your accommodation, location, & positioning in the market, and a debt-free (free) accommodation. 

Here is an offshore take on the topic Amanda. I posted it on Alex's thread also.

Biderman states the crumbling house prices in Australia, New Zealand and Canada have removed them as safe haven currencies for him.

My partner and I finally pulled the trigger and brought in Burwood, ChCh April 2010.  Our house was written off in the Sept 2010 quake.  The red zone offer worked out OK for us fortunately, and now we're back to square one, facing the same decision, but with added dimensions, such as build new, or buy existing?  Which earthquake-affected suburb to buy in?  What is an acceptable level of risk regarding dwelling style, land classifications, insurability, demographic changes etc?  It's a complex decision, and we're happy to rent for a bit longer, although the rental price increases down here are scary, and only going to get scarrier.  Yikes.

...if you think prices will go on up, then I guess there is some logic to getting in now.  But will they continue upwards, hold or decline? 

All very well and good paying big bucks when both ma and pa are earning a couple hundy each.  How many have budgeted for one loosing job or at least a sizeable pay cut?

Wages are going nowhere fast....I'd be waiting till the midst of winter when we are well into job cuts, business failures, rates  & insurance increses ... all topped with some winter depression......then we might see some reality setting in.

Factor in that the banks are ready, willing and able to do some very sharp deals - ignore their published rates as they are flush with cash, making huge profits and are prepared to negotiate excellent floating or fixed rates!

Shouldn't - on a financial basis

• Rentings cheaper, easier and flexible 
• NZ and global credit crunch issue has not been resolved but bandaged and supressed
• Banks over loan on housing relative to incomes
• Interest rates will go up
• Affordability is affecting Aucklands economic growth and quality of labour
• A major financial commitment well leave one with vulnerable - employment, health, natural disasters, chnge of personal circumstance. Worry
• Its so very easy to buy but hard to sell

Should - non financial basis

• Emotional basis - Shelter, home, nest, security
• Longterm commitment 10 - 20 years

IF everybody in Amanda's position formed a "first home buyers society" and boycotted the market, prices definitely would come down.

Young 1st home buyers are the subject of financial abuse, pure and simple, at the hands of the older generation. They are like the cannon fodder in wartime, only in this case they are the foreclosure fodder for the coming crash.

Owning a home can be a lovely experience if you want to put roots down.

And if it's not an investment - why use investment measures to decide?

Much appreciated everyone. Stay tuned....

Open homes tomorrow then. Once you see your kids racing around on a property, it's all over..

If you go house shopping do it on dreary days, cold ones if possible and after or during a lot of rain. Good way to see all sorts of issues. Be prepared to poke, prod and crawl and that's all on the initial foray.

Personally I bought for nesting not investment but yeah, make sure you can afford it when or if rates go back up.

Dont Buy, you will only be supporting the Ponzi poperty scheme for longer.  Look at your income and see if where you are in the NZ income bracket matches the level of property you could buy.  I bet it doenst, i.e If you are in the top 10% income earners in this country can you buy the top 10% of poperty, I doubt it.  Its all out of wack, it has to correct its just the speed of the correction that is frustrating.  Wait it out, but make sure you are saving the diff between renting and buying.  Your time will come.

MB, you amuse me, paying 1/3 off in 4 years, most people have 25year plus loans?? Why are people so ready to accept that while propertys went up 100% in 8 years and believe they will do the same in the next 10years inflation and your wages lagged by more than half that.  Yet when someone suggests they could fall 15-30% thats crazy??  Are your wages going to double in the next 10years?? Opps I forgot its just house prices that go up regardless of what happens in the real economy.  The two have to reconcile at some stage, I guess the  issue in NZ is that the economy is the housing market so we are stuffed.  No worries though the solution seems to be - sell everything to forgieners, we will see how long that works before there are riots in the streets.

1) Interest rates: Any amount of interest on a loan created from nothing is STILL a con and rip-off. BH should know better

2) Ownership: You don't own a thing until the loan PLUS interest is paid in full. 

"Doesn't thrill me but I have come to accept that life is a series of trade-offs." Only because we tolerate corruption! On a global and governmental scale 

In Auckland where Amanda is talking of buying having a 300,000 mortgage means you will need a deposit of $300K.  I don’t many people who can save that sort of money, and before you say she should buy in the 300-400K house price bracket, have a look at what you get for that and see if a middle to upper income person should  be living in it.

 Besides all that I get your point about buying being an enforced way of ensuring you have something in 20 years’ time, however if you are disciplined and save the diff between renting and buying I maintain you will still be better off in the long run.  There is a much greater chance that properties will increase less than inflation over the next 5-10 years along with a good probability they will decrease in real terms as well.  The affordability issue cannot go on forever, something has to give soon.

Like I said are our wages going to double or are prices going to drop away?  Could be a bit of both.

Forget the house..this is what you want...http://www.trademe.co.nz/motors/caravans-motorhomes/motorhomes/9-metres-and-over/auction-465481034.htm

Forget buying a house in Auckland Amanda, come shopping with me instead.  I will show you how to spend your money. 

I put this on the wrong thread Amanda, it should have been here.

Amanda there is also a moral and ethical question over the use of leveraged money. If you read that article in sent you on the quantity theory of money again, you will see that interest on money created from nothing consumes an incrementally greater portion of the money available. That is why houses are becoming increasingly unaffordable, that trend won't stop until the money system fails or debts are forgiven. It is simple maths.

 

The other problem is the criminal aspect to this. You know the money supply grows each year as new money is introduced to cater for the interest from the previous year. So prices in general are going to go up on average by the increase in the inflated money supply. But when you take money that isn't yours (a loan or mortgage) then you also get an inflationary gain in value in your home on the money that isn't yours. So for simplicity say you start with $100K and were able to buy freehold, at 10% inflation then the chances are your house will be worth $110K the next year If you borrow $900,000 loan and buy a million dollar house with the $100K down, then the next year your house is worth $1.1Million and you have doubled the value of your initial investment. It seems like a smart thing to do but you are getting a capital gain for something you didn't actually earn. Ask yourself where this money for nothing actually comes from. Was this money introduced to match an increase in the production of goods? No it wasn't, it is pure artifice. That is how bubbles form, as real estate is one of the few outlets that permits this crooked money.

 

It is actually criminal fraud in intent, as you are taking a pecuniary advantage for something you didn't rightfully earn. This is why I level the accusation at property investors that they are behaving in a criminal manner, this still stands unrefuted. 

 

Don't forget that the bank created the money for nothing, and leverged it 9 to 1 before you get your hands on it. So if you leverage at further 9 to 1 then your overall leverage is 81 to 1. All very nice for those morally bankrupt enough to take advantage of it, but think of the consequences of the leverage in reverse.

I will add the the crime of property investment keeps getting perpetuated because there doesn't appear to be a victim, but victims there most certainly are.

But Bernard and others predicted house prices would fall 30 %.......

Dec 21st 2008 "Since February, I have been expecting house prices to fall 30 per cent over the next couple of years from their peaks of last November and to take another decade to recover to those peaks." - Bernard Hickey

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=105…

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=106…

If you followed that advice, sold in Auckland in 2009 then became a renter you would have missed out on some significant capital gain over the last two years. Quotable Value say house prices in many Auckland suburbs have increased over 25% in the last two years!

Gareth Morgan also got it wrong and was still sure prices would drop when interviewed in June 2011:

http://www.gmi.co.nz/news/1199/why-gareth-is-thrilled-about-falling-pro…

Rodney Dickens was also way off the mark:

http://www.interest.co.nz/news/40732/opinion-why-real-house-prices-are-…

Looks like Olly Newland is the man to follow!

Some observations:

• Auckland is more than its central isthmus, even though you might wonder reading Granny H or the Star Times
• eschew table mortgages, opt for reducing mortgages; that way you are paying off principal from the first fortnight's mortgage payment and you have a built in buffer; take the mortgage for 25 years and aim to pay it off in 10; my rule of thumb is: if you can't afford the high initial repayment of a reducing mortgage, you can't afford the mortgage
• irrespective of what you can borrow from the banks, don't borrow more than 80% of valuation and don't spend, on interest & principal repayments, more than 30% of your income

AM, its all round the wrong way.

Its not what should I buy.....

Its what can I afford ....

You have the opportunity to be known for your deeds, not your mortgages.

Interestingly Amanda, I was faced with exactly the same conundrum a few years ago.  We'd been in NZ for 6 years or so (coming from the UK) and had never found a property that we liked and felt represented "value for money". 

We weren't looking for an investment, just a family home - whilst we looked we simply lived in low cost rental property so as not to unneccesarily burn cash on somebody else's mortgage.  I never rented in the UK, I always owned my own home.

A few years ago we finally found a place that we liked - reasonable size, on a full section and built in the 60's, it looked like the ideal family home for us.  Simple weatherboard construction, native hardwood flooring and frame, it looked ideal.  Out in West Auckland (but not too far) we purchased for $480K which was exactly what we were looking to spend.

It was lovely to have a family home that we could make our own.  We enjoyed the sense of stability that owning your own property gives you.  However, we had underestimated the amount of work and cost involved in maintaining a NZ home.

The first thing we did was insulate the property, top and bottom, taking advantage of the governmental grant available that certainly took the sting out of the overall cost.  We also installed an HRV unit that cut out all the "morning moisture" on the windows and mould on the sills/curtains.  Most NZ properties don't seem to have these features, despite desperately needing them. 

We then discovered that the roof had rusted through - it had been repainted days before sale to look new and our builders report had not picked up any problems.  No liability there, of course.  New roof's are not cheap, we discovered.  It also became evident after 6 months or so that the property had been given a very "quick & dirty" lick of white paint prior to sale that was now peeling off.  We had to re-paint the house.  Also not cheap.

Then we noticed that the front, concrete "deck" by the front door was sagging.  A crawl under the house confirmed that the timber framing was rotting and on the verge of collapse.  We had the place fully re-braced with marine-grade timber to ensure that it was solid - again, not cheap. 

There were other problems with wiring, plumbing, fencing etc... that I won't bore you with, but the upshot was that the property (which was one of the nicer ones we viewed) cost us a lot to "get right".

2 and a half years later, I was made redundant for the first time in my life.  No problem, I'm highly skilled, I'm very good at what I do and there is a skills shortage.  We had savings and a contigency plan.  After 4 months the savings ran out and there was still absolutely no work out there.  We decided to sell the house and move back into low-cost rental accomodation - we sold the house for $540K, which basically covered the cost of the maintenance we'd had to undertake.

Several months after selling the house (ourselves, very easy, highly recommended), I re-entered the work-force on a contract basis for 7 months, before finding a permanent position with a reputable firm.  I am now once again enjoying an extremely succesful secular career.  However, we are still in the low-cost rental! 

Once again, I cannot find a property that I am willing to spend money on - anything that looks reasonable and appears to be well maintained is now ridiculously expensive. 

I believe that if you are committed to an area here in Auckland, it probably makes sense to simply "suck it up" and go for it as long as you can afford it.  Be prepared to spend a lot more money than you want to, but I only see prices continuing to rise, particularly if you get a well presented home.

Personally, we will be moving to Australia in 18 months or so.  We're lucky enough to have secured very low cost rental accomodation and are consistently saving 70% of our monthly income.  We will ultimately be spending our cash on an undoubtedly overpriced house in Melbourne instead.

The difference for me is that there is some level of job and salary security over there.  We'll be building a new, environmentally sustainable home so as to enjoy some level of certainty around ongoing costs and quality of construction.  We have done our homework, we have counted the cost and we feel that we have to do it. 

I hope our experience provides you with some insights Amanda and helps you decide what to do!  At the very least, I hope that it perhaps helps you to avoid some pitfalls - believe me, there are many, many properties out there that are not what they appear.

That's why I said be prepared to poke, crawl etc. and go on a rainy day or after a heavy rain. Lots of houses that LOOK ok aren't. It's amazing how many have surface water issues too. Good to go on cold, windy days to check out drafts.

When we first looked at our house I took along a screw driver to thump and poke and find any rot, etc. that paint might be hiding, crawled under the house to check the pilings (remember to check the sewerage pipes and so on under there too), pulled up rugs to see what the floor was made of and so on.  Remember to run the water to check pressure, talk to the neighbours, check the roof cavity for signs of leaks, look carefully at heating systems and water tanks.

We ended up buying the house I poked to death but we went into it with our eyes open.

Also don't be put off by ratty looking property ie. overgrown gardens or a bad paint job. Those kinds of things can be fixed easily and help keep the price lower.

You're absolutely right, it's ideal if you can do all those things - I had a look around the place and to my untrained eye everything looked ok, largely because a lot of superficial cosmetic stuff had been done to hide the problems.  

This is common - people painting over bora holes in woodwork, hiding poor wiring installations up underneath the house where you'll never spot it, boxing in terrible plumbing so you don't notice it, laying turf over the manhole cover smack in the middle of the lawn etc...  There are heaps of tricks that I didn't know about.

Unfortunately I largely relied on the building inspector that the bank insisted I obtain a report from, and he completely failed to pick up any of the real problems too!  Hopeless.  The general consensus seemed to be "ah yes, a good solid weathboard property, she'll be sweet, none of that monolithic-cladding rubbish, this'll be fine."

You're right about untidy gardens and bad paint jobs possibly representing opportunities, but there are 2 considerations - if the garden has been left to grow wild and the paint has been left to flake and peel, you can bet your bottom dollar that there are other less obvious problems.  The boiler won't have been serviced in years etc.... It's a sign that no maintenance has been done, so be careful.

The other consideration is that not many people have heaps of cash left after putting a deposit down and paying a mortgage to start doing home renovations.  Re-painting a house can cost thousands and takes time, even if you do it yourself.  Getting somebody to sort it for you is 10 thousand plus.  

That is why well maintained properties are selling at a premium - the purchaser can just fold the whole cost into a single mortgage and hope that everything is done.  They haven't got to worry about finding 5 grand in 6 months to re-paint the house, 20 grand in a years time to put a new roof on etc, etc, etc....  It gives them time to build up a maintenance fund that probably won't need to be tapped for a good few years.

That's the theory, anyway!

Mozart:  used a "building inspector that the bank insisted I obtain a report from"

Wasn't that a red flag?

Unknown to many.

If you are ever buying a house and want an expert building inspector, try this. The "Law Society" has an independent panel of experts in various professions, reputable experts who are of such standing that other people sit up and take a lot of notice of when they appear on the scene. Contact either your solicitor, or, the Law Society directly.

Similarly, if building a "new build" use their inspection services prior to making progress payments. They are not cheap. But then what price peace of mind?

My husband and I bought our first house a year and a half ago in sunny Whangarei for 250k. An amazing opportunity with the house pricing here and especially attainable and affordable for a newly married couple (I'm 24). We plan to pay it off fully within 10 years. There is NO way we could do that in Auckland - I went to uni down there and even rent for a single person was beyond expensive.

What I wanted to get across is well I think Whangarei will be the next Tauranga with many new developments unfolding in Whangarei such as the multi-million dolllar Port and Marsden Point expansion, industrial and business centre in Ruakaka the upcoming yacht racing leader Oracle team coming to Whangarei this year.

I would encourage anyone seriously looking for alternatives to give Whangarei a chance, I've lived here for most of my life and from talking with friends of ours still currently living in Auckland they see home- ownership as unattainable, with a lifetime of renting.

I find that seriously wrong don't other people?