Rising house prices and falling interest rates have brought pennies from heaven for first home buyers who purchased 10 years ago

Property

The first home buyers of 10 years ago should be well placed to keep moving up the property ladder today

19th Aug 20, 8:00am by Greg Ninness

By Greg Ninness

The generation of home owners who purchased their first home 10 years ago should now be in a strong financial position and well placed to move up the property ladder and buy their next home.

Perhaps surprisingly, that applies almost as much to homeowners who purchased their first home with just a 10% deposit, as it does to those who had a 20% deposit.

A combination of high capital gains on housing throughout the country over the last 10 years should have allowed first home buyers to build up a significant chunk of equity which could be put towards a substantial deposit on a better quality home.

And the steep decline in mortgage interest rates that occurred over the same period means the mortgage payments on a next level home should be extremely affordable.

In short, people who took the plunge and bought a starter home around 10 years ago, should now be sitting pretty.

Those conclusions are the result of some major new features interest.co.nz has added to its Home Loan Affordability Reports.

The reports have long measured changes in housing affordability for first home buyers in all regions of the country, by tracking the monthly movements in the REINZ’s lower quartile selling prices, mortgage interest rates, and after tax incomes for people aged 25-29, and measuring the impact of those factors on the deposits required to buy a lower quartile-priced home and the affordability of the mortgage payments relative to incomes.

The new features of the report allow us to measure how well first home buyers who purchased their first home 10 years ago would have fared, and whether the traditional kiwi dream of buying a first home and using the equity that’s built up in that to move up onto the next rung of the property ladder is still a realistic goal.

The numbers suggest that those who climbed onto the first rung of the property ladder 10 years ago should now find that second rung well within reach.

Ten years ago in June 2010 the REINZ’s national lower quartile selling price was $253,000.

By June 2020 that had increased to $452,000 (+78.7%), which would have added $199,000 to the equity of the home owner.

If that first home buyer of 10 years ago now wanted to sell their home and use their equity from it as a deposit to purchase another home at the current median selling price, how would that stack up?

Over the last 10 years the increase in the REINZ’s lower quartile and median selling prices have been very similar.

The national lower quartile price has increased by 78.7%, and the national median price by 81.5%, rising from $352,000 in June 2010 to $639,000 in June 2020.

Interest.co.nz estimates that if someone had purchased a home at the national lower quartile price of $253,000 in June 2010 (with a 20% deposit) and sold it at the June 2020 lower quartile price of $452,000, they would have equity of $280,003. That would equate to a 43.8% deposit for a home at the at June 2020 median price of $639,000.

If they had originally purchased the same lower quartile-priced home with a deposit of just 10%, they would have equity of $247,695, equivalent to a 38.8% deposit, still a substantial amount.

The equity calculations take into account the amount of the deposit originally paid to buy the lower quartile-priced home (10% and 20%), the increase in the home’s value over the last 10 years and the principal repayments on the mortgage, which would have reduced the amount payable to the bank at the time of resale.

An allowance has also been made for real estate agent’s commission at the time of sale.

That means a couple who had purchased their lower quartile-priced home with a 20% deposit 10 years ago and sold it at the current lower quartile price, would have $280,000 to use as a 44% deposit on a home at the current median price of $639,000.

So they’d need a $358,997 mortgage.

The mortgage payments on that would be around $338.46 a week assuming a 30 year term at 2.76% (the average of the two year fixed rates offered by the major banks in June.)

The median take home pay for couples aged 35-39 who both work full time is $1942.37 a week, which means the mortgage payments on their median-priced home would take up just 17.4% of their take home pay.

The combination of a near 44% deposit and mortgage payments that were well less than 20% of their net income make it comfortably affordable by almost any measure.

If the same couple had purchased their first home with just a 10% deposit, they would have a 38.8% deposit for their next home and the mortgage payments would take up just 19% of their take home pay, which is still very affordable.

Although the calculations assume a 30 year term for the second rung purchase, the relatively low ratio of mortgage payments to income gives a fair amount of financial flexibility to the buyers, meaning they could choose to reduce the term of their mortgage, make lump sum payments from time to time or build up their savings and investments.

It also gives them a fair amount of wriggle room to restructure their finances if they were to suffer a loss of income or if interest rates rose significantly.

Although there are regional variations in the above figures, the general conclusion that making the move up on to the second rung of the property ladder should be affordable for couples on average incomes who purchased their first home 10 years ago, holds true for all parts of the country.

The two tables below give a regional and district breakdown showing how much equity they would have built up over the last 10 years, how much of a deposit that would give them towards a median-priced home, how much they would need to borrow, and the amount of their repayments in both dollar terms and as a percentage of median income.

The first table assumes they would have originally purchased their first home with a 20% deposit and the second table assumes they would have purchased it with a 10% deposit.

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Second Rung Home Buyers - 20%
Affordability of a median-priced home, for buyers who purchased a lower quartile-priced home 10 years ago with a 20% deposit

	Equity from sale of first home $	Deposit for median-priced home %	Mortgage required $	Weekly mortgage payments $	Median take home pay $	Affordabilty (% of income)
Region
Northland	$258,219	49%	$266,781	$252	$1,783	14.1%
Auckland	$495,523	53%	$432,477	$408	$2,059	19.8%
Waikato	$313,700	51%	$301,300	$284	$1,863	15.2%
Bay of Plenty	$331,652	51%	$316,348	$298	$1,555	19.2%
Hawkes Bay	$262,456	46%	$302,545	$285	$1,742	16.4%
Taranaki	$179,167	43%	$240,833	$227	$1,792	12.7%
Manawatu/Wanganui	$236,626	55%	$190,974	$180	$1,792	10.0%
Wellington	$342,083	50%	$342,917	$323	$2,137	15.1%
Nelson/Marlborough	$324,934	56%	$255,066	$240	$1,770	13.6%
Canterbury/Westland	$209,402	45%	$259,598	$245	$1,867	13.1%
Otago	$289,865	53%	$260,135	$245	$1,820	13.5%
Southland	$164,691	48%	$175,309	$165	$1,754	9.4%
New Zealand	$280,003	44%	$358,997	$338	$1,942	17.4%

City or District
Whangarei	$231,491	44.1%	$293,509	$277	$1,899	14.6%
Rodney	$489,567	54.2%	$413,434	$390	$2,059	18.9%
Auckland North Shore	$565,305	53.3%	$494,695	$466	$2,059	22.6%
Auckland West	$486,493	59.7%	$328,507	$310	$2,059	15.0%
Auckland Central	$566,176	49.3%	$581,324	$548	$2,059	26.6%
Auckland South	$452,101	50.8%	$437,900	$413	$2,059	20.0%
Papakura	$427,379	65.3%	$226,622	$214	$2,059	10.4%
Franklin	$411,762	55.3%	$333,238	$314	$2,059	15.3%
Hamilton	$362,546	54.9%	$297,454	$280	$1,857	15.1%
Tauranga	$404,664	56.2%	$315,336	$297	$1,804	16.5%
Rotorua	$260,713	54.7%	$216,287	$204	$1,851	11.0%
Gisborne	$205,189	46.6%	$234,811	$221	$1,620	13.7%
Napier	$312,218	51.2%	$297,782	$281	$1,749	16.1%
Hastings	$255,107	45.2%	$309,893	$292	$1,742	16.8%
Wairarapa	$282,375	61.4%	$177,625	$167	$1,477	11.3%
New Plymouth	$219,679	45.3%	$265,321	$250	$1,763	14.2%
Wanganui	$215,506	59.4%	$147,044	$139	$1,655	8.4%
Palmerston North	$274,751	53.6%	$238,249	$225	$1,898	11.8%
Kapiti Coast	$341,497	54.2%	$288,503	$272	$1,909	14.3%
Porirua	$326,449	47.0%	$368,551	$347	$2,026	17.1%
Wellington Hutt	$375,047	56.4%	$289,953	$273	$2,078	13.2%
Wellington City	$408,455	49.5%	$416,545	$393	$2,430	16.2%
Nelson	$324,903	54.0%	$276,597	$261	$1,770	14.7%
Christchurch	$192,524	40.1%	$287,476	$271	$1,861	14.6%
Timaru	$188,540	50.3%	$186,460	$176	$1,703	10.3%
Queenstown	$534,340	58.1%	$385,661	$364	$1,820	20.0%
Dunedin	$297,591	58.4%	$212,409	$200	$1,702	11.8%
Invercargill	$185,829	53.4%	$162,171	$153	$1,671	9.2%

Second Rung Home Buyers - 10%
Affordability of a median-priced home, for buyers who purchased a lower quartile-priced home 10 years ago with a 10% deposit

	Equity from sale of first home	Deposit for median-priced home	Mortgage required	Weekly mortgage payments	Weekly take home pay	Affordability (% of income)
Region
Northland	$231,785	44.1%	$293,215	$276	$1,783	15.5%
Auckland	$453,101	48.8%	$474,899	$448	$2,059	21.7%
Waikato	$281,775	45.8%	$333,225	$314	$1,863	16.9%
Bay of Plenty	$298,450	46.1%	$349,550	$330	$1,555	21.2%
Hawkes Bay	$231,808	41.0%	$333,193	$314	$1,742	18.0%
Taranaki	$152,350	36.3%	$267,650	$252	$1,792	14.1%
Manawatu/Wanganui	$216,705	50.7%	$210,895	$199	$1,792	11.1%
Wellington	$305,050	44.5%	$379,950	$358	$2,137	16.8%
Nelson/Marlborough	$292,338	50.4%	$287,662	$271	$1,770	15.3%
Canterbury/Westland	$177,860	37.9%	$291,140	$274	$1,867	14.7%
Otago	$265,985	48.4%	$284,015	$268	$1,820	14.7%
Southland	$146,558	43.1%	$193,443	$182	$1,754	10.4%
New Zealand	$247,695	38.8%	$391,305	$369	$1,942	19.0%

City or District
Whangarei	$195,735	37.3%	$329,265	$310	$1,899	16.3%
Rodney	$439,125	48.6%	$463,875	$437	$2,059	21.2%
Auckland North Shore	$512,565	48.4%	$547,435	$516	$2,059	25.1%
Auckland Central	$523,997	45.7%	$623,504	$588	$2,059	28.5%
Auckland West	$446,395	54.8%	$368,605	$348	$2,059	16.9%
Auckland South	$411,875	46.3%	$478,125	$451	$2,059	21.9%
Papakura	$394,815	60.4%	$259,185	$244	$2,059	11.9%
Franklin	$372,175	50.0%	$372,825	$351	$2,059	17.1%
Hamilton	$326,752	49.5%	$333,249	$314	$1,857	16.9%
Tauranga	$369,598	51.3%	$350,402	$330	$1,804	18.3%
Rotorua	$232,300	48.7%	$244,700	$231	$1,851	12.5%
Gisborne	$179,164	40.7%	$260,836	$246	$1,620	15.2%
Napier	$279,987	45.9%	$330,013	$311	$1,749	17.8%
Hastings	$225,634	39.9%	$339,366	$320	$1,742	18.4%
Wairarapa	$258,943	56.3%	$201,058	$190	$1,477	12.8%
New Plymouth	$187,269	38.6%	$297,731	$281	$1,763	15.9%
Whanganui	$198,203	54.7%	$164,348	$155	$1,655	9.4%
Palmerston North	$246,747	48.1%	$266,254	$251	$1,898	13.2%
Kapiti Coast	$307,338	48.8%	$322,663	$304	$1,909	15.9%
Porirua	$279,954	40.3%	$415,047	$391	$2,026	19.3%
Wellington Hutt	$344,833	51.9%	$320,167	$302	$2,078	14.5%
Wellington City	$357,005	43.3%	$467,996	$441	$2,430	18.2%
Nelson	$292,302	48.6%	$309,199	$292	$1,770	16.5%
Christchurch	$155,096	32.3%	$324,905	$306	$1,861	16.5%
Timaru	$164,660	43.9%	$210,340	$198	$1,703	11.6%
Queenstown	$485,175	52.7%	$434,825	$410	$1,820	22.5%
Dunedin	$274,312	53.8%	$235,689	$222	$1,702	13.1%
Invercargill	$165,780	47.6%	$182,220	$172	$1,671	10.3%

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161 Comments

by Brock Landers | 19th Aug 20, 8:10am 1597781427

They would be paying much less to upgrade if house prices hadn't risen of course.

Not sure how paying 78% more for the same thing is "sitting pretty" unless you are peddling debt.

That couple both working full time were smart enough not to have kids at least.

by printer8 | 19th Aug 20, 8:20am 1597782039

Brock
Much as it it is hard for some to accept what is the bitter truth for them, homeowners are not the losers here.
" . . if house prices hadn't risen of course", but of course that has happened every decade.
. . . . and those who continued to rent just got further and further behind, and been both been paying off their landlord's mortgage and gifting him/her all the capital gains.

by Uninterested | 19th Aug 20, 8:40am 1597783256

Which in the very near future will stop.

by printer8 | 19th Aug 20, 8:59am 1597784375

Uninterested
. . . not according to King Kanute. :)

by StuckAtHome | 19th Aug 20, 8:42am 1597783329

I think what he is saying, is that everybody has lost (other than those living in the largest house they hope to own, or those with several properties).

by StuckAtHome | 19th Aug 20, 9:11am 1597785068

Oh I forgot to mention the banks too (they never lose). They're now making a margin on a larger loan book.

by tothepoint - d… | 19th Aug 20, 9:27am 1597786022

Then go buy a bank, StuckAtHome.

TTP

by StuckAtHome | 19th Aug 20, 9:44am 1597787048

No thanks - they're rotten businesses run for the benefit of their overpaid staff.

by MadMax | 19th Aug 20, 2:20pm 1597803634

Get a job at a bank then!!!!
Buy some bank shares(cheap at the mo)
Buy a house that needs some tlc, work hard
Hunt for value add opportunities
Stop hunting for excuses
# lifeplansorted

by StuckAtHome | 19th Aug 20, 3:02pm 1597806178

Wasn't aware that I was making any excuses? I'm actually pretty flush thanks, following a couple of decades of 'hard work' overseas (ironically, at an investment bank). I'm just slightly concerned that the whole NZ economy seems to be unsustainable and focused around housing speculation. I suspect it will all come to an ugly crescendo in due course - either when interest rates can't go any lower, or younger generations revolt.

by MadMax | 19th Aug 20, 3:20pm 1597807208

Sorry Stuck, excuses thing was a generalisation to those excuse type ppl.
Good on you for getting Stuck into it ;)

by Averageman | 19th Aug 20, 7:32pm 1597822332

They have been revolting. Usually by exporting themselves to the UK or Aussie. Not an option right now.

by grum | 20th Aug 20, 11:27am 1597879628

I know it's an article about property. But don't forget those who rented while doing their own thinking and investing in other things that have also gone up in value...some (gasp!) even more than houses.

by Brock Landers | 19th Aug 20, 8:54am 1597784097

The winners are those wishing to downsize or dispose of surplus houses.

The losers are those wishing to buy or to upgrade their house. It is now significantly more expensive to do so. Sharpen up. The bitter truth is that this isn't rocket science.

by RickStrauss | 19th Aug 20, 9:16am 1597785410

printer8, so you're saying this perpetuating of the housing crisis has had some very serious consequences for younger and upcoming generations of NZers? What do you think NZ should be doing about that?

by J.C. | 19th Aug 20, 10:35am 1597790105

Actually, it has consequences for everyone.

by printer8 | 19th Aug 20, 11:19am 1597792780

Rick
As previously posted, I am concerned that home ownership - which unlike say many European countries - is part of our culture and that home ownership for 25 to 35 year olds over the past 30 years has fallen from 65% to 35%.
What should done about it? Well to blunt, at a personal level, many on this site have got to stop claiming bubble burst, bubble burst which for some seems to either an excuse or sign of defeat. The reality - whether one agrees with RBNZ action or not - in the short to medium term further cuts in OCR and QE are on the table and are likely to continue fuel property prices - one personally has no control over that so you need to accept that is the reality and adapt to it. In connection with this, short term falls in property prices are irrelevant just like a KiwiSaver growth fund because both are about long term; I have experienced three downturns in house prices - so I don’t subscribe to the view that house prices always go up certainly in the short term - but none of my experiences had any consequences in the medium term.
Talking to my son a couple of days ago, he was saying that in his Auckland based team of eight five years ago - six moved from Auckland and now own their own homes (and they reckon better lifestyle such as less travel time) while the two still in Auckland are crippled by high rents and higher costs such as daily travel. Do not think that this is just a current phenomenon- it is exactly the conclusion I came to 40 years ago when living in Auckland. Living in Auckland for young people comes at a price - if one wants to remain near to friends and family, that’s fine but it has a price.
I accept that there are affordability issues - plus this generation is often carrying student loan debt which my generation didn’t have - and that is frustrating many young. However, they are not alone and need to also need to recognise that under the current situation those actions leading to house price inflation have been about economic stability which has been maintained and businesses and jobs protected and others- such as those in later life - who were anticipating 5% secured returns on td are also disadvantaged.
At a wider level there is need for government to act but that will not be a priority in the short term.
Government solutions could include strengthening the FHB aspect of KiwiSaver. (It has never seen it recognised on this site, that in the 1970s there was a very heavily government subsidised Home Ownership Saving Scheme.)
In the meantime, in the short term I see government and NZRB continuing to endeavour to maintain economic stability and leave housing to market forces which with likely further OCR cuts and QE is likely to see increasing house prices . . . but nothing is certain.
Will there be a bubble burst? Again nothing is certain, but contrary to those claiming FHB “are stoopied” (Foreign Buyer’s comment some five months back so proved to be incorrect) they need to take the risk, extend themselves, and as long as they are prudent and pay down the mortgage as quickly as possible they will be fine in the short term and advantaged in the longer term.

by cmat | 19th Aug 20, 3:17pm 1597807062

That's all fine and well but you're neglecting the huge, and inevitable, demographic changes that are only just starting to play out with Boomers reaching retirement age.

Screwing the young may have been a fun sport for the past 30 years but now it's coming time to pay the piper.

The demographic changes coming are analogous to Japan over the last 25-30 years where their aging population drove a wave of deflation, including an extended period of stagnant house prices.
The same demographic phenomena is occurring here as younger generations have delayed having children and this massive rump of asset holders come to the point where a) they want to downsize or require care; and b) they have less discretionary income / have a rational desire not to spend but save.

You can believe this party can continue ad infinitum based on history but you can't ignore fundamentals forever.

by RickStrauss | 19th Aug 20, 3:54pm 1597809253

Yeah, I would posit that transferring wealth so blatantly and consistently from struggling young workers and savers to older asset holders creates serious risks for our society.

NZ has long had the idea of fairness as central to our society (where else has a top running show for decades based on folk getting a fair go). This is being undermined by those enjoying the wealth redistribution while tut-tutting at younger generations...and expecting to also take their wages for their pensions. This sort of carry-on had serious moral consequences in other societies in history.

by RickStrauss | 19th Aug 20, 3:19pm 1597807144

Thanks printer8, there's lots of talk there of young people just continuing to suffer the consequences of govt / reserve bank actions.

It's concerning that the only measure you suggested was for the government to increase the amount of money available for FHB at the bottom of the market. Not sure adding fuel to the fire is the best tactic to help younger and upcoming generations. That seems more like another way to push up portfolio values at their expense.

It's worrying if folk who have made plenty of money still have no willingness to advocate for generations who have not even had a chance to begin saving yet, for the same sort of opportunities that were afforded to the older generations. I mean, sure, it's easy to denigrate those who had a chance but haven't bought over the last decade or two, but there are plenty of young people coming through who have never had that chance and now face the consequences of the wealth transfer approach from workers / savers to asset holders.

by Sluggy | 19th Aug 20, 9:44am 1597787053

"and those who continued to rent just got further and further behind, and been both been paying off their landlord's mortgage and gifting him/her all the capital gains"

This is a very one eyed comment. I have rented for the last 12 or so years while building a business. Roughly the business is worth 8 times what I have personally put into it, but it was never about a gain in value. It pays me very well, has no debt, has great staff, will pay me even if I dont show up to work most days and affords me a great life work balance. Ill take that over mortgage slavery and working for someone any day.

by Rubb3rduck3y | 19th Aug 20, 10:04am 1597788249

If it pays you really well, you'd be able to purchase a house no?

by Sluggy | 19th Aug 20, 10:37am 1597790227

Why ? Personally I refuse to partake in the ponzi. I have no desire to own a house.

by Te Kooti | 19th Aug 20, 11:40am 1597794037

You are correct Sluggy, there are alternative portfolio's that can do as well as, or exceed, houses. The one thing you get with a house is leverage, so a 5% increase becomes 25% ROE if you put a 20% deposit down. It may not be right, but it is.

by gingerninja | 19th Aug 20, 1:45pm 1597801539

But would you also have to deduct off the cost of renting from your gains elsewhere. Unless you're living gratis in your moms basement or something.

by grum | 20th Aug 20, 11:33am 1597880023

Yes but - come on Ginger, you know owning a house isn't exactly a cheap thing to do... be sure to deduct the odd new roof etc off those gains elsewhere for fair comparison.

by MadMax | 19th Aug 20, 2:39pm 1597804787

Some ppl like building a garden, repainting a bedroom for a kid, improving a bathroom or kitchen. Add a deck, add a spa pool. Get a pet.
I personally don’t like having my living quarters inspected by some property manager every 3 months.
Most importantly for my businesses I can raise capital against the improved value add at 2.5%
Few other benefits like someone else NOT selling your place of residence ....

by tothepoint - d… | 19th Aug 20, 2:49pm 1597805340

Hi Sluggy,

The housing market is not a ponzi scheme and never has been. Labelling it a ponzi is emotive tripe.

Housing is based on tangible assets - land and building - or bricks and mortar.

Time you got in touch with reality.

TTP

by Crazy Horse | 19th Aug 20, 5:04pm 1597813486

@ ttp .......read my post here at 3:05pm ......housing, especially in Auckland is a "ponzi" scheme, as the price when a property is sold, is relying that someone in the future is going to pay "X+" dollars for it. .....don't you realize when an economy is doing well interest rates will go up, while if it's doing poorly, interest rates go down.....look around you and what's happening OUTSIDE the world of residential real estate....or is all that to you "emotive tripe" as well ?

by tothepoint - d… | 19th Aug 20, 6:26pm 1597818408

Time you got in touch with reality too, Crazy Horse.

I know the DGM have taken a walloping this year (and last year) but you only have yourselves to blame.

TTP

by Crazy Horse | 19th Aug 20, 6:47pm 1597819636

ttp .......so making a statement like that, you are disagreeing with me and the NZ residential property market will carry on it's merry trajectory, upwards ad-infinitum !!!......no matter what so ever is happening in NZ and the world outside it ? ..... best of luck mate :) ....and for the final time, I am not a "DGM" .....just a realist. Have a lovely evening and bask in the glory of whatever goes through that mind of yours.

by printer8 | 19th Aug 20, 8:29pm 1597825755

Crazy Horse
To most home owners and investors would tend to agree that "Ponzi scheme" is a little out there.
A ponzi scheme is fraudulent behaviour driven solely about trading for profit for items for which there is generally little or no need, and eventually will collapse not only because of inflated price but importantly there is no want or need for the item.
In terms of being a homeowner, the motive for buying is simply buying a home and in choosing a house making a capital gain is not usually a factor regarding choice - one is in for the very long term and one would not be seeing that cash and if one was trading up selling and buying will be on the same inflated market. Long term capital gain is at best very much a secondary thought if at all - although one in general would expect that it would appreciate in value but if that is the prime motive then the the effective CGT kicks in.
Equally, as an investor, the prime consideration was about cash flow and yield. The potential for any capital gain is not guaranteed - and although over time likely - it is a secondary consideration.
A ponzi housing market would be one dominated by speculators and the bright line test is a disincentive to that.
Housing markets do have contractions - I've experienced three but there is always going to be a demand for houses and since European settlement of NZ, the general trend has generally - with only a few specific exceptions - been upwards. Most view the "housing ponzi-perception" as one being based on envy.

by Crazy Horse | 20th Aug 20, 12:18pm 1597882683

Howdee printer8 .......OK, first point is when I talk about the residential property market, I am always talking about the investors market NOT the homebuyers (place of actual residence) market. So for the investor market and for impartiality and clarity of points I have raised, I will drop any reference to the PPP or "property ponzi party".

So on that basis, I must address your comment regarding "envy" and to say personally I have done well out of property, in fact it has earned me more in the last 8 years, than my current salary - so no envy here BUT that is where the problem is ....for an economy to function well, surely small businesses and employees should be able to earn more than net rental gains and capital gains pa than their salary or business profit !

Of course when this happens, people think they can make more money buying some cold and damp dump, in a not so good area and renting it out, than working in their job or small business (while they keep working in that job/business anyway) so initially, like you I would say "good on'em".....and so it continues, as friends, family and colleagues latch on to this and it eventually becomes the "only game in town"

However, my point is this the "only game in town" has gone too far and we now have an economy that is reliant on either buying and selling these properties to each other, rental income, and all the maintenance and capital improvements that goes with this. That's when I made a previous comment on this thread as to "what would of happened in the last 10 years" if all that money going to mortgage/interest repayments and rents went into the creation of new businesses, innovation, niche markets, upskilling employees, expanding export markets etc etc

So now we have one of the most expensive residential property markets in the world, especially when it comes what people earn, to what a house actually costs - Auckland is a classic example. And who has really benefited from all this ??? ....... I just see it as another "cog in the wheel" for the greatest wealth transfer in history - low incomes and high asset prices is the name of the game now, championed by the government, banks, MSM etc etc ......truly wonderful and this only advances an ever decreasing group, while the increasing group or "rest of them""just suck it up" and drink the coolade !!! .....it will not end well.

by printer8 | 19th Aug 20, 11:23am 1597793011

Sluggish
That’s fine and congratulations. There is always exceptions to general comments.
Like a FHB, you have got off your butt, taken aboard all the associated risks, and done well. I don’t put you in the category I refer to.
You have my best wishes and admiration.

by Crazy Horse | 19th Aug 20, 5:15pm 1597814117

Good stuff Sluggy .....sounds like you are doing really well .....I would rather be in your shoes, than be with 2 - 3 rental properties, mortgaged up to the eyeballs !

by straw_man | 19th Aug 20, 8:53am 1597783980

Exactly, how are people "better off" if they are selling and buying in the same market. Sure you have more equity to leverage but you also need to go into more debt to trade up. This line of dialogue around around house prices increasing at rapid rates benefits all home owners needs to stop as it is crap. The only people who benefit are those that own multiple properties and speculvestors.

by Independent_Observer | 19th Aug 20, 8:58am 1597784330

Expensive houses within an economy is a disaster not a success- but only if you’re able to look beyond your own self interest and see how it will impact future generations and division of society.

by npc | 19th Aug 20, 9:54am 1597787669

Couldn't agree more. The opportunity cost of all of this money flowing into banks and interest payments, rather than into productive pursuits (or even plain old consumerism!) is enormous.

The housing market is a destructive parasite feeding from our potential.

by realterms | 19th Aug 20, 11:40am 1597794008

This is us personally and totally agree that the price increases do not aid trading up. Bought 8.5 years ago. House has nominally soared in value. But the step up to the "next" property is so big now that it seems insane. Keep our 3br/2ba? Or put in at least 400k to upgrade? We'd be better off, at least in terms of upgrading, if 2012 prices were still here.

by Averageman | 19th Aug 20, 11:45am 1597794354

Do the upgrade to the existing house. People are also finding that private schooling is actually cheaper than moving as well unless you have 8 or more kids. #dothemath

by realterms | 19th Aug 20, 11:59am 1597795163

Have sketched out some plans. The boss isn't keen on the disruption of a major reno though.

by gingerninja | 19th Aug 20, 12:54pm 1597798487

Looking at my current reno spend and wincing 0-o

by realterms | 19th Aug 20, 1:14pm 1597799640

Yeah, that too. It's not as if builders are sitting around twiddling their thumbs and looking for work.

by gingerninja | 19th Aug 20, 1:42pm 1597801376

Housing is also a consumption cost. You have to pay to live somewhere and there is a dollar tag attached to a spectrum of quality and preference within that too.

by VeryInterested | 19th Aug 20, 5:21pm 1597814461

But the few Builders I know are concerned that they will be twiddling their thumbs in 4-5 months time. Workflow is drying up because people are concerned about the economy, their jobs etc so are not signing up for renovations/ New builds. New building in my area of Auckland is going on but these projects would have started the process 12 months ago.

by Te Kooti | 19th Aug 20, 11:06am 1597791968

You are correct Brock.

If you own a single house you are only "square" and indexed to the market of whatever you bought. You are only relatively wealthier if you own >1 house - then you are long. This is why not buying is such a high-stakes bet, why anyone would choose to be short in the face of such over-whelming market forces has always been a mystery to me (unless you are levered into stocks and hard assets). You are putting your faith in a fiat currency, a risk no sane person would ever take.

by Audaxes | 19th Aug 20, 11:30am 1597793435

You are putting your faith in a fiat currency, a risk no sane person would ever take.

It still astounds me how many accept this devaluing form of payment for work done and commodities sold.

But since all my current wealth has been sourced from unearned income and capital gain I continue to accept it as payment on this basis.

by Crazy Horse | 19th Aug 20, 3:05pm 1597806350

@ Brock Landers and FHB's ......"there is none so blind, than those who cannot see" ....people in NZ are just so "blinded" by the banks, property spruikers , RE agents, friends and family, all backed up by MSM, that property is the "B all and end all". This article is only promoting property to those who have not yet joined the PPP (property ponzi party) so prices can keep increasing for those who ALREADY own property !

No thought has been given at all to the current worldwide COVID-19 pandemic, around 20% of GDP being lost through no inbound tourism, the government paying for employees/businesses who in theory haven't actually got a job or income, the losses incurred by small and medium business around the country with COVID-19, overseas funds from foreign students diminished, accommodation supplement and WFF required as wages and salaries don't cover rent and mortgage costs, people confined to their homes, can't travel overseas for business, let alone a holiday .... I could go on but you get the drift.

So here they are, as you said BL "peddling debt" on these unsuspecting FHB's, as it's the banks and their "hangers on" that are really "making the money" ....while the FHB lives a very meagre life paying off a mortgage way into the never-never ! ......and those that already own property sit there smugly urging the FHB's on, when they themselves are not buying at all .

With the PPP, so much money, especially over the last 10 years has been sucked out of the economy through mortgages, interest and rent payments - has anyone ever wondered what NZ would look like today if house prices had only crept up slowly .....all those funds could of gone on to support new businesses, especially niche ones, which NZ is good at. There would be more jobs and higher salaries, not to mention export earnings with these new businesses ......and then it would be a natural progression, while way more cost effective and viable to upgrade your house !

by printer8 | 19th Aug 20, 8:13am 1597781616

The FHB who purchased 10 years ago also not only saw house price inflation during this period they also saw considerable falls in mortgage rates and consequently their mortgage payments. They have won on two accounts.
Boomers are often criticised as being gifted , but as I have previously posted it this cohort have done exceptionally well.

by northman46 | 19th Aug 20, 9:24am 1597785865

So what we're saying is us Millenials should hate GenX just as much as the Boomers! And lord have mercy on GenZ/Zoomers.

(Joking!)

by printer8 | 19th Aug 20, 11:28am 1597793306

No issue Northman, but be very, very careful that GenX and boomers could be looking at an alliance. :)

by Independent_Observer | 19th Aug 20, 1:05pm 1597799130

No point being in an alliance when you’re dead there P8 - the boomers don’t have that much time left on this earth - so best make the most of the expensive house with the short amount of time left. And if that means hanging out on a site baiting other people good for you. But if I only had 10-15 years of life left before dribbling into my PJs at the Summerset village (or being 6ft under) I’d be finding some more productive things to do with my time.

by Te Kooti | 19th Aug 20, 1:01pm 1597798870

If thinking that makes you feel better, but I have 35 to 50 years left and I often post while out fishing in the boat!

by printer8 | 19th Aug 20, 2:16pm 1597803393

IO
Thanks for caring about me.
May have only 10 to 15 years, but currently really enjoying carefree life. Home ownership in retirement and a bit of additional income gives the freedom to be really enjoying those 10 to 15 years.
However if I have if my mother’s genes who is still alive and really astute at 94, I may be a little longer to bring a sense of balance and reality to some on this site like yourself who as you admit have predicting bubble bursts for five years and expecting crashes of 50%. :)
I wish the younger generation a similar comfortable life to one I have been fortunate to have.

by RickStrauss | 19th Aug 20, 3:21pm 1597807291

I wish the younger generation a similar comfortable life to one I have been fortunate to have.

Perhaps in addition to wishes, a little advocacy and voting? There are plenty of young people now leaving school who will have to suffer the consequences of central govt /banking wealth transfer from wage earners to asset holders.

by Averageman | 20th Aug 20, 8:42am 1597869743

Then they should vote for the tax changes proposed by TOP.

by Independent_Observer | 19th Aug 20, 7:17pm 1597821428

By balance do you mean confirmation and recency bias?

by mikekirk29 | 19th Aug 20, 8:34am 1597782859

2010 to mid 2020 eh?
Bottom of cycle to top virtually
Not v useful or interesting
Try early 2017 to now and then calculate 15% median drop on equity
Then what do you see

by Laminar | 19th Aug 20, 10:19am 1597789143

But it looks like prices are up nationally and in Auckland over those three years?

by mikekirk29 | 19th Aug 20, 11:04am 1597791897

In Auckland v slightly and my point is about FHB and coming equity drop

by CJ099 | 19th Aug 20, 12:26pm 1597796770

Laminar you have to remember what's been happening over the past 10 years to the NZ property market and how prices we're so drastically pushed out of reach of wage earners.

2010 - Home prices at affordable levels but rising quickly in Auckland mostly due to surge of foreign buyers from China.

2010 - 2015 Surge continues in Auckland property buying, National Government claims Foreign Buyers only account for 3% of the Auckland property purchases. JK decided to punish resident Landlords by imposing a 40% LVR restriction on them, forcing them out to other investment areas; Hamilton, Queenstown, Tauranga etc.. prices increase there. Auckland prices continue to surge due to Chinese buyers and money laundering, National does little to nothing to stop it.

2016 - 2017 Peak of Auckland property surge, China steps in to try to stop Capital Flight and money laundering from China, this slows down the market a bit.

End of 2017, New NZ Government, Labour introduce Foreign Buyers Ban and see though effective Anti Money Laundering measures further slowing down the Auckland property market.

2018 - 2019 - Auckland property market stagnates due to enforced measures, banks start to lower mortgage rates to help prevent Negative Equity, Property repossessions (Mortgagees) and to help people repay their mortgages.
With much lower mortgage rates, property prices start to increase around the rest of NZ.

2020 - Pandemic, Banks rapidly drop mortgage rates. Big changes in China, they grab Hong Kong as the global pandemic rages around the world (Money on the more again). Pandemic creates uncertainty, NZ loses major International Tourism industry, more unemployment and huge increase on government support and wage subsidies. Yet oddly property prices keep increasing even in areas very dependent on tourism which had been recently stagnating (Queenstown, Auckland).

by Uninterested | 19th Aug 20, 8:35am 1597782938

10 years is arbitrary. Substitute 30 years (in my case) for 10 years and what is mentioned goes doubly.

by Foreign buyer | 19th Aug 20, 8:39am 1597783176

There is a game of thrones sized Ice wall separating the 'haves' and the 'have-nots' in NZ with Orrs henchmen protecting the 'haves' interests at ANY cost.

by printer8 | 19th Aug 20, 9:11am 1597785101

So FB
Your history of comments indicate that you are content staying on the wrong side of that wall.

by Foreign buyer | 19th Aug 20, 9:15am 1597785356

.... but the right side of history.

by printer8 | 19th Aug 20, 2:18pm 1597803515

Cheers FB :)

by Ocelot | 19th Aug 20, 8:39am 1597783195

Enough free money for landholders. We're long overdue to bring back land tax. Some semblance of meritocracy would be nice. Approaching end game of Monopoly is also a little concerning. That game was meant to be a cautionary tale, not an economic strategy.

by Uninterested | 19th Aug 20, 8:42am 1597783320

The problem here is that rents will be higher than what they otherwise would have been....

by Ocelot | 19th Aug 20, 8:52am 1597783965

I suggest investigating the incentives of land taxes. LVT pressurises landholders to improve efficiency and productivity of occupied land. It increases development and would have the effect of increasing housing and tenancy supply. It would actually push rents down in New Zealand.

Have a read of this excellent explanation for how land taxes affect rents: https://np.reddit.com/r/newzealand/comments/6b6qy5/landlords_threaten_r…

The best example of how landlord expenses are disconnected from rents is that last 10 years mentioned in the article. Interest rates have fallen significantly. To about 1/3 of where they were a decade ago. Rents have risen in that period despite the majority of property owners seeing their expenses fall significantly.

by Uninterested | 19th Aug 20, 8:57am 1597784221

Rates have gone up hugely over this time period. Insurance too. New insulation. Heaters etc.
But sure, there are more than these issues at play. Crazy immigration numbers etc.

by Ocelot | 19th Aug 20, 9:36am 1597786609

House prices have doubled in that time. Landholders have had an average windfall in the hundreds of thousands just looking at land values. Average rents are about $25k a year, over 10 years $250k, I dont think heaters and insulation have made too much of a dent in that. They would have spent on average tens of thousands on rates. I do agree with you that immigration is too high and does affect NZers ability to secure housing and start families. Insecurity of housing is probably the biggest reason why we dont even have a self sustaining birth rate in NZ. But the main issue is that without land taxes, we're simply playing Monopoly in the long run. High land costs also affect the cost of everything else in society. The banks love it though, their mortgage books are jam packed with this hard asset that only goes one way. In effect, LVT would offset what people end up paying to the government in tax by how much less they pay to the banks in interest more or less. So instead of having both the banks and the government taxing us significantly, we'd be sending far less to the banks and more to the government, which would mean that we could reduce the economically destructive taxes with poor incentives, like GST and create a tax free income threshold to say... $20k. We really do need to disincentivise inefficient occupation of land and improve incentives for work, productivity and trade.

by Dumb itch | 19th Aug 20, 10:52am 1597791147

Great comment Ocelot and I like your thinking.

by Ocelot | 19th Aug 20, 12:22pm 1597796535

Thanks. If you're interested in going deeper. I recommend Henry George's "Progress and Poverty".
http://www.henrygeorge.org/pdfs/PandP_Drake.pdf

by GV 27 | 19th Aug 20, 8:49am 1597783780

Ah yes, tax the thing that governments both central and local have managed to strangle the supply of. Can't see any agency issues there.

by Ocelot | 19th Aug 20, 8:53am 1597784023

Land is fixed in supply. Taxing it only affects the price and the burden of exclusive title.

by GV 27 | 19th Aug 20, 12:42pm 1597797763

Land is in fixed supply on a purely theoretical basis, but in reality that supply is strangled by the same authorities who people want to suddenly have a financial incentive in keeping land prices higher. It doesn't take a rocket surgeon to guess what the likely outcome would be.

by Ocelot | 19th Aug 20, 5:11pm 1597813870

Go on, how do you think LVT would affect the supply of land?

Had you considered that more land supply might equal more LVT?

by Pragmatist | 19th Aug 20, 6:47pm 1597819634

So more supply, same demand = prices drop. And LVT is levied against value(price), so less value * more sections = same LVT collected?

by SimonRo | 19th Aug 20, 8:42am 1597783338

It's a good analysis of something we commenters know (in our gut, or through our own analysis).
Those who bought 30 years ago, should be set. 20 years ago and life is easy. 10 years ago, and you are thanking your lucky stars you weren't born a decade later, and the dream of the upgrade is very realistic. Looking to buy today - you have no choice to accept the bizarre NZ housing culture and gamble on it continuing.

My question - is the above calculation twisted by the movement of the lower-quartile ideal home into unattainable territory. a FHB 10 years ago got a 3 bedroom cheap but water-tight old home in a marginal location. A FHB today would like that home, but they're all gone, the few that remain are rising in price $1000 per week. The jump to a median home hasn't actually extended much over the last 10 years?

by CJ099 | 19th Aug 20, 8:47am 1597783655

Ten years ago house prices were at much more affordable levels, even in Auckland. I remember when you could easily afford a nice good sized home in the central suburbs of Auckland in 2010 for around $500k to $600k. Since then house prices have risen considerably in Auckland and else where but wages haven not risen to keep up, in fact most of wage earners have seen our salaries remain at the same over that time period.

We all know that the market has been hugely distorted by various means; Overseas Investors, Money Laundering, creating a false economy. And the repercussions of that has created even more debt for everyone then ever before. Hence the falling mortgage rates to keep the ponzi scheme going.

by RickStrauss | 19th Aug 20, 3:22pm 1597807361

Another distorting factor: landlord subsidies.

by Averageman | 20th Aug 20, 8:44am 1597869878

Agreed. That same house is still $5-600k, it just has $1-3 million in front of it now. Crazy. And why a tax base change is needed.

by Foreign buyer | 19th Aug 20, 9:07am 1597784835

I think the time has come for ALL tenants to stop paying rent until Orr stops favouring the rich. Then the less fortunate peoples voices will finally be heard !

by Brock Landers | 19th Aug 20, 9:06am 1597784784

Probably better to wait for the summertime ;)

by Foreign buyer | 19th Aug 20, 9:14am 1597785256

A nationwide collective renters union would put the fear of god into the greedy elites.

by Yvil | 19th Aug 20, 11:53am 1597794797

FB, your blind hatred is not helping you getting ahead in life

by printer8 | 19th Aug 20, 2:30pm 1597804241

Yvil
There are still some who think that mortgage deferrals mean that the government is meeting the cost of one’s mortgage or that banks are forgoing interest and/or principal repayments.
FB’s comment seems to be based on the mistaken belief that home owners are somehow getting a free lunch.
The reality is that mortgage deferral does not mean subsidised costs or free money; but rather accruing additional - i.e. greater - costs to the mortgage holder.
RBNZ is simply underwriting risks to banks, but not providing any financial assistance to mortgage holders.

by cmat | 19th Aug 20, 2:51pm 1597805462

At some point the brakes come on to these holidays.
Banks need cash, they can't survive on building accruals and IOUs forever.

by printer8 | 19th Aug 20, 3:42pm 1597808528

cmat
Couple of things
- To your first point: I agree there will be a point at which the brakes do come off. However, the Government seemingly introduced mortgage deferrals - as with job subsidies and business support - for economic stability reasons over what initially appeared to likely be a short sharp economic downturn. It is now recognised that the economic implications of Covid are likely to be for an extended period hence a number of programmes including mortgage deferrals have been extended. It seems that the Government is of the mind to extend their programmes - as seen in the $20billion (?) they have as a contingency - until such time that risks to businesses, employees and those with mortgages subside. It seems likely that RBNZ will continue deferrals until the situation does not pose a risk so don't get too worried about implications of the brakes coming on.
- To your second point: The mortgage deferrals are not directly financially advantaging mortgage holders but rather are underwriting the implications of the mortgage deferrals to the banks, hence you need not worry regarding the banks either.
Note that the bank evaluates those who it grants mortgage deferrals to; there has to be a clearly identified need and significant number of applications were initially declined, and recently many have not been extended by the banks beyond the initial period where it has been identified that a deferral has been demonstrably not necessary.

by cmat | 19th Aug 20, 4:26pm 1597811210

"The mortgage deferrals are not directly financially advantaging mortgage holders"

They absolutely are when paired with loose monetary policy.
These people are having their assets inflated, and thus debt inflated away, when in a free market they would be selling assets to meet their cash flow requirements.

I'm sorry, this makes me furious, there is absolutely a benefit to these people.
It's like saying there's no benefit to traders if they were allowed a stay of executions on margin calls through March and April. Of course there would have been, they would have ridden out the storm and be back at record high prices all off the back of reckless monetary madness.
That's *exactly* what is happening in property. It's an outrageous joke.

You have the Real Estate Industry puffing their chests about a shortage of stock leading to record pricing.
Meanwhile *83,000* people are in a deferral scheme that is preventing the market from returning to planet Earth.

by printer8 | 19th Aug 20, 6:34pm 1597818867

Cmat
My comment was to mean that they are not getting something at no cost and in fact any deferral is costing them.
Defer interest payments, you pay interest on the outstanding interest due.
Defer principal payments, you accumulate interest on that.
Yes, there are some who are using the money “freed up” instead of making mortgage payments under deferral for other purposes. They will still need to make not only those missed payments but will have added interest costs. Many on deferrals have not got the extension as banks are looking very critically at the spending patterns of those applying - if you are buying a new tv or car while on deferral don’t expect an extension.

by Quiet Desperation | 19th Aug 20, 3:11pm 1597806675

Agree. If only enough people were willing to actually act together on this. There are hopeful signs that more and more people are starting to consider acts of civil disobedience as necessary to bring about any change in this area.

by MadMax | 19th Aug 20, 2:57pm 1597805820

by mikekirk29 | 19th Aug 20, 9:11am 1597785066

% of under 30s able and willing to buy fallen each year since about 2006. Unaffordability in Auckland shot up from 2013 onwards
Also how often does anyone mention length of tie debt takes to repay and as a % of earnings over lifecycle how much total repayments are in prospect compared to 30 years ago?

by RickStrauss | 19th Aug 20, 9:19am 1597785569

Question is how the politicians and central bankers who nurtured the problem to as big as it's gotten now can really justify their wealth transfer from following generations. Did they not back their own generations' ability to productively create wealth, that it had to be pulled forth from the future not as a product of work, instead?

by Ocelot | 19th Aug 20, 9:23am 1597785803

Also, home ownership fell below 50% for the first time in 2013 and has been accelerating down ever since.

https://www.interest.co.nz/property/69025/census-figures-show-home-owne…

by GV 27 | 19th Aug 20, 9:25am 1597785948

Or how many incomes and hours worked make up a household income for the purposes of DTI comparisons? If you have two adults working full-time to pay down a mortgage at 9x household incomes then it's a lot less affordable than a single person working full-time to pay down the same amount.

by Jaf | 19th Aug 20, 9:12am 1597785150

Selling & Buying in the same market.How does one gain?

by Lanthanide | 19th Aug 20, 9:31am 1597786277

There seems to be an error in your first table. The second section for cities shows every city has a take home pay of $1,899.

by Greg Ninness | 20th Aug 20, 8:42am 1597869754

Thanks Lanthanide. Well spotted. The error has now been corrected.

by Lanthanide | 19th Aug 20, 9:35am 1597786526

The odd thing about this table is you're using median take home pay, presumably of a double-income family, but you also seem to be talking about FHB or those who are upgrading to a second rung house.

These people are likely to have less than the median take-home pay, particularly as they're likely to have children and thus one partner is not likely to be earning full time.

by SimonRo | 19th Aug 20, 10:22am 1597789367

The article you have missed (and I guess it hasn't been written yet, or hit mainsteam) is the one that explains that home ownership is officially out of reach for anyone less-than median well-off. I'd say it is almost official one needs some combination of the below

- double income / high income
- no kids or maybe 1
- inheritance or generous parents
- overseas earnings brought back
- frugal beyond the norm
- downsizer (i.e. was working in Auckland CBD, purchased in Te Kuiti)

by Greg Ninness | 20th Aug 20, 8:55am 1597870505

The wage rates used in the Home Loan Affordability Reports (from which the data for this article was drawn) uses the median pay for couples (a male and a female) aged 25-29 to calculate the after tax pay for First Home Buyers. The pay rates used to calculate the after tax pay for the Second Rung Buyers which are in the tables in this article, are for couples aged 35-39, and both assume that both of the partners were working full time. You could have endless variations on that, but the full time wage is probably the most useful indicator to provide an apples with apples comparison over time. I think most people will undertsand that if one partner takes a cuit in income, for whatever reason, they'll have less money to play with.

by Cowpat | 19th Aug 20, 9:46am 1597787193

Ten years ago, I was seven years younger, the OCR ( I am sure the O stands for Orr) was 3 percent after the last get out of jail card , two year average fixed mortgage was 7.19 percent, housing wealth at 600 billion was impressive at three times GDP and housing debt was 163 billion Today our banks are warning, our housing wealth has increased to over four times GDP at 1.25 trillion , mortgage scheduled repayments reached their highest ever in the March quarter as mortgage debt added in net a further 120 billion, household debt/GDP is about to blow, and New Zealand will take monetary policy deeper into the deep world of printers and Alice. Just as a passing thought, New Zealand would normally expect 1.9 million visitors in the coming six months , they are not coming.

by Dumb itch | 19th Aug 20, 10:48am 1597790924

"Ten years ago, I was seven years younger". Umm ok, smh.

by printer8 | 19th Aug 20, 2:34pm 1597804487

Dumb itch
Nothing surprising or unusual; that is the common standard of validity of many posts. :)

by Cowpat | 19th Aug 20, 3:23pm 1597807399

Printer8, perhaps you should take heed of Interests commenting policy, not that you should not know
"Remember we welcome robust, respectful and insightful debate" If you are questioning the validity of the facts within my post, please do so , otherwise your comment and tone and attempts to belittle , and I would add frequently it is so, do nothing more than give credence to your flaws. .

by printer8 | 19th Aug 20, 3:51pm 1597809100

Cowpat
This was a valid comment within Interest.co guidelines.
I was specifically criticising the quality of many posts (and in particular reference to a specific comment), and not belittling a person. Within debate it is entirely appropriate to criticise comments and is correct and proper to do so.

by Cowpat | 19th Aug 20, 4:10pm 1597810252

Disagree .Which comment, and I can only assume that it somehow relates to Dumb itch's remark, or why in particular would you comment upon the facts that I provided within my post, as requiring your "appropriate' criticism, or determination that it lacked your standard of quality" Amuse me.

by Pietro | 19th Aug 20, 9:59am 1597787946

People who want to upscale are best placed with falling prices. Downscalers, rising prices. Simple matter of percentages. I’m neutral on property, basic need turned into speculative investment, but prices do seem to outpace inflation over time.

I got this as a subscriber, but see if you can open it. An eye opener.

https://craigsip.com/-/media/craigsip/insights/2020/in-article-images/w…

by Final Account | 19th Aug 20, 9:47am 1597787273

Bother in law bought in North Shore for $400k in 2010, sold Dec 16 for $985k.

Bought in Tauranga Dec 16, had a 30k mortgage at the age of 40. Now he's mortgage free at the age of 43.

Yes I am absolutely jealous.

by Audaxes | 19th Aug 20, 10:24am 1597789489

Indeed. And it's not magic. Unfortunately, only the creditworthy minority are eligible - hence the fall in house ownership levels.

We start with the idea of credit creation, specifically a swap of IOUs between a bank and myself involving a bank loan that is my IOU and a bank deposit that is the bank’s IOU. Nothing could be simpler, and yet the mind rebels, especially the well-trained economist’s mind, because this simple operation increases my purchasing power without decreasing anyone else’s. It seems like alchemy, or anyway a violation of some deep conservation law. Real productive resources are the same as they were before, and the swap doesn’t change that, does it? Spending of the new purchasing power adds another layer of perplexity. If spending increases but real resources do not, then it seems logical that the increased spending must exhaust itself in higher prices—that is the intuitive appeal of the quantity theory of money. My purchasing power may increase, but everyone else’s decreases because their money balances buy less. From this point of view, the alchemy of banking seems like a kind of theft, something to be deplored in the name of economic science and if possible outlawed in the name of the general good.Link

by Crazy Horse | 20th Aug 20, 11:26am 1597879585

Brilliant !!

by Mountie | 19th Aug 20, 10:29am 1597789760

That's because he bought into a different market. If he had stayed in Auckland it would not have worked out so well for him. Auckland buyers have been the drivers of higher prices in the BOP to the detriment of local buyers and renters trying to get a first home. It used to be farmers from the Waikato who did the buying at the Mount. Not any more.

by Final Account | 20th Aug 20, 11:33am 1597880029

I understand this, I just wish I had won the Chinese lottery.

Of course he also outbid a local tradie at auction for their Tauranga place.

by Shoreman | 19th Aug 20, 9:56am 1597787787

I think the article illustrates that no matter when you buy you will benefit more than not buying !
10 years ago the media was full of the same stories after the GFC, markets over priced, FHB's shut out of the market, price correction due... etc.
I first looked at buying in 1979, the economy was bad, interest rates very high 14% ish, bad commentary in the press of the markets future correction. Well I didn't buy so by 1983 I really had to make a move but prices had risen approx 40%.
Since then we have had the massive recession from Rogernomics , Asian crisis, GFC, Pandemic, and same same commentary in the media.
Of course over that time new house price costs have sored from the RMA, and building material monopoly ! Interest rates have continued to decline, and all households have gone from 1 income earner to 2.
NZ on a world scale has become hugely more attractive to live in.
After all of the above events property is still a great investment and house affordability is the best it's been in a decade.
Who knows the future but as stated above there are endless reasons not to buy, and at any on time there are issues going on out of our control.
My point is we don't make the rules but individually have to decide if we join in and participate or sit on the sidelines and moan that things shouldn't be this way and it was all easier in the past !
Happy Investing

by SimonRo | 19th Aug 20, 10:16am 1597789010

Yep correct. The commenters here know the rules of the game more or less. But we are terrified that the game is completely out of control, and as much as we can benefit from playing it we know it is one day going to explode in a ball of crime, poverty, and dissent.

by Mountie | 19th Aug 20, 10:31am 1597789862

Agree. Classic risk management. How bad? How likely? I wish I knew.

by Due Diligence | 19th Aug 20, 10:46am 1597790819

So many examples of 10 year old comments on this website discouraging first home buyers. Feel sorry for those who listened. Still happening to this day. New DGMs, same comments.

by cmat | 19th Aug 20, 12:00pm 1597795247

Feel sorry (no, not really) for those who have drunk the kool-aid and are too stupid to realise that this fantasy will end at some point.

The distortion is reaching its final end game.

by Due Diligence | 19th Aug 20, 1:16pm 1597799762

And as if to prove my point, you respond with a baseless assertion parroting the other DGMs that have come before you over the past decade. History has proved them wrong. You should learn from their mistakes.

When did you sell? Make a note of what the REINZ HPI was. It will be higher if/when you ever get back into the market.

"ThIS tIMe iS DIfFeRenT"

by cmat | 19th Aug 20, 2:57pm 1597805851

LOL, OK pal.
I've been heavy in Gold since September last year, so have done just fine compared to HPI thanks.

My "baseless assertion" that this time will be *exactly* like every other currency debasement in history. No different at all.

It's funny you mention history, coz that's exactly what I studied though 10 years of economics and finance.
But, sure, all I'm doing is just parroting DGMs on interest dot com - you have your oracle Ashley Church and OneRoof to tell you all the truth about life and history that you need so don't let anyone tell you any diFFeRenT.

by J.C. | 19th Aug 20, 10:57am 1597791462

I wouldn't worry about NZ house prices. In a best case scenario, prices keep rising and the houses are owned by fewer people (neo-serfdom). In a worse case scenario, they collapse to a point that is more indicative of the past (a kind of return to mean).

Because house prices area a result of banks 'lending into existence' to an extent that appears to have no control, people should be thinking about what this means about our monetary system. There is a reason why Bitcoin is attracting so many now for this very reason. In fact, if you'd worked this out early, you'd be far wealthier if you'd been buying Bitcoin instead of NZ houses. The way things are going, that could very well happen into the near future. Unfortuantely, everyone seems to have no money at all, whether you're a home owner or not.

by cmat | 19th Aug 20, 11:58am 1597795116

Got your "best" and "worst" cases around the wrong way.

Even under your 'best' case there will ultimately be a collapse to reality at some point, either by voluntarily letting the market operate freely (unlikely, as RBNZ and Govt seem intent on distortion ad infinitum) or revolution.

by J.C. | 19th Aug 20, 1:19pm 1597799951

Got your "best" and "worst" cases around the wrong way.

It's all semantics anyway. IMO, NZ and Australia are both 'worse case' scenarios right now because of the bubble. The wealth effect in NZ is too strong and the nation's savings is wrapped up in houses. It's ripe for disaster. It would be better if h'holds had more liquid savings and 50% lower house prices.

by stuart786786 | 19th Aug 20, 10:59am 1597791568

Buy house Now ASAP

by meh | 19th Aug 20, 11:00am 1597791651

Is it really the kiwi dream or has the story been peddled that way to blind everybody, to keep the banking masters in power?

It's obvious that increasingly unaffordable homes (forget the "affordable" mortgage part) does not improve the economy or peoples wellbeing. It's only creating more insecurity.

It appears it's only emotional FOMO driving the market.

One has to wonder why we are demanding this?

by CTK | 19th Aug 20, 11:11am 1597792304

House price increases doesn't make you any richer unless you sell or downsize. I bought my house 9 years ago &
the biggest mistake as a FHB at that time was believing everything that the real estate agent told me :). So watch out FHBs

by Yvil | 19th Aug 20, 11:57am 1597795074

So are you saying you would be better off if you didn't buy and kept renting for the last 9 years?

by ZOG | 19th Aug 20, 1:06pm 1597799172

A house from and investment standpoint is really a liability unless it can generate more cash flow than the cost of it's upkeep, the real old estate alligator "feed it or it'll eat ya"

by printer8 | 19th Aug 20, 2:42pm 1597804932

CTK and ZOG
First house is a home, second and subsequent houses are investments for purely financial reasons.

by Yvil | 19th Aug 20, 11:44am 1597794277

Great article Greg, clearly and precisely showing the benefits of owning a home for 10 years. Very helpful for FHB

by realterms | 19th Aug 20, 11:56am 1597794971

for *the last* 10 years

by Yvil | 19th Aug 20, 12:01pm 1597795261

and the 10 years before that and the 10 years before, before that and the next 10 years… Things won't be different because Joe Bloggs is contemplating buying a house now, it's just that Joe Bloggs is scared, which all FHB are, no matter when they bought their first house.

by realterms | 19th Aug 20, 1:18pm 1597799930

the next 10 years: maybe, maybe not. Past returns are not necessarily indicative of future performance.

by Davo36 | 19th Aug 20, 5:23pm 1597814592

Doubling of house prices every 10 years is a logarithmic relationship - it doesn't end well.

by cmat | 19th Aug 20, 11:56am 1597794966

I bought 10 years ago.
I'm more concerned about first home buyers today, 10 years from now.

This system is an absolute charade and needs a reality check.

by Andrewj | 19th Aug 20, 12:03pm 1597795380

I watched TV3 this morning and John Campbell was talking about child poverty, to my mind the biggest cause of this is high rental prices, a result of the bubble in house prices.

by Ngrrk | 19th Aug 20, 6:18pm 1597817909

Exactly but you ever hear this discussed in any serious way in the media?

by Chairman Moa | 19th Aug 20, 12:30pm 1597797027

Not predicting anything but NZ housing trend is mirroring what happened in Spain and Ireland. During the last GFC, the market surged and then flopped dramatically soon afetr. Buy hey it's seller market so rush in and buy now

by Te Kooti | 19th Aug 20, 2:54pm 1597805684

That's a largely uneducated statement. Prior to the Irish property market crash there were something like 230k properties completed, or near completion, unoccupied. They had huge oversupply. Spain and Ireland are also part of the EU and did not have the fiscal and monetary policy independence to respond to their needs, like the RBNZ can. House prices in NZ can fall, but your examples are poor.

by Chairman Moa | 19th Aug 20, 3:41pm 1597808517

You can cheery picking on anything. Anyhow, on the other token, NZ doesn't have a big union like the EU to catch it when it fall.. gonna be a mighty hard landing!

by ZOG | 19th Aug 20, 1:03pm 1597798996

Hmmm $2059 take home pay for Auckland, Obviously that's a couple both working and with reasonable jobs, Doesn't look to good if you plug in the figures for a couple both now on the subsidy with shakey prospects for future employment. 83500 home mortgages using the deferral scheme, and 13500 mortgages with missed payments that aren't part of those figures.
Huff and puff all the spruikers want but the market looks like it is running out of steam.

by Chairman Moa | 19th Aug 20, 1:17pm 1597799862

I don't know how young couples managing their finance these days. I know of one couple on 240K with and mortgage of 1.1 mil, then a car loan 45K..

by J.C. | 19th Aug 20, 1:21pm 1597800084

I don't know how young couples managing their finance these days. I know of one couple on 240K with and mortgage of 1.1 mil, then a car loan 45K

Don't forget the winter holiday to Fiji or Wanaka. It's not just the lower SECs living paycheck to paycheck (or benefit to benefit). It's right across the spectrum.

by Chairman Moa | 19th Aug 20, 1:46pm 1597801613

What I am alluding to is what if they lose one income.. For now 240K is manageable for that amount of mortgage

by gingerninja | 19th Aug 20, 1:56pm 1597802206

What's a "young" couple these days?

by cmat | 19th Aug 20, 3:01pm 1597806105

That's it right.

People use the term Millennials as if they're talking about kids in their early 20's on Tik Tok.
That's a whole 'nother generation now.

Millennials are now in their mid 30's with young families but still get the patronising narrative that their sights are set too high, they're entitled and they want too much.

by gingerninja | 19th Aug 20, 4:28pm 1597811314

The oldest millennial is 40 (usual measurement is that the generation begins in 1980/81).

by refactornz | 19th Aug 20, 2:15pm 1597803307

You don't know how they manage the weekly $540 mortgage interest payment? Their weekly take-home pay is over $3,000 so it sounds pretty manageable to me even when adding in principal payments.

by Chairman Moa | 19th Aug 20, 2:29pm 1597804194

$1,100,000 mortgage at 2.9% interest rate over 30 years term is about $1100 a week. $540/wk seems a bit too low

by refactornz | 19th Aug 20, 3:14pm 1597806886

$540/week is just the interest, at 2.55%

by WellingtonInvestor | 19th Aug 20, 4:44pm 1597812296

There doesn't seem to be much talk these days about the ratio of income vs house value, which in NZ is very high. The problem then is what happens when interest rates rise. IMO the problem in NZ is the high house price and dramatic increases, and how wages haven't increased to match this.

by Brock Landers | 19th Aug 20, 6:24pm 1597818269

Orr's magical solution is that interest rates never rise. Even the zero bound isn't a problem anymore.

by ZOG | 19th Aug 20, 1:24pm 1597800244

Dont forget the smashed avocado that puts a big dent in the finances

by WellingtonInvestor | 19th Aug 20, 4:45pm 1597812345

Often $1 each of 4 for $5, at least in the Wellington region. People just need to shop around.

by Chairman Moa | 19th Aug 20, 5:42pm 1597815738

In another few years, avos grown (organically) from China will be $2 for a bag of 12.

by Pragmatist | 19th Aug 20, 6:51pm 1597819865

ignoring for the moment that 'organic' is a complete crock of shite.. would anybody actually believe that anything labelled organic coming from China was actually organic?

by Averageman | 19th Aug 20, 7:41pm 1597822874

Agreed.

by WellingtonInvestor | 19th Aug 20, 4:40pm 1597812032

Why would people necessarily need to upgrade to a more expensive house? With all the talk about tiny houses etc, people don't necessarily need larger houses these days. I guess if someone purchased 10 years ago and didn't have kids, they may need a larger house if they are now having kids. But adding on maybe an option. As would doing the house up and improving it, such as insulating all walls and ceiling, floor etc, and maybe retrofiting doubling glazing.

by refactornz | 20th Aug 20, 10:35am 1597876510

They need larger houses because everyone needs a home office or two now.