Real estate, post COVID-19 level 4 (since 2020)

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#3242307 29-May-2024 14:28

alasta:

I can't imagine how anyone would service debt in excess of six times their income. If you borrow $600k on a $100k income (pre-tax) then you would have very little left to live on after tax and debt servicing outflows.

It was a lot easier when interest rates were lower. but banks have been stress testing at the OCR plus a %. Rather than using an income to lending ratio. IMO it was crazy because interest rates can go up, and even now they are historically lowish, and in some cases the current rates are higher than the stress test rates they used for some people.

mudguard

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#3242308 29-May-2024 14:29

cddt:

Explains why stores such as S&C are going under. No one has money to spend at retailers because it all goes to debt servicing, no matter where on the income spectrum you sit.

Retail has been dying a slow death. I live in Auckland and travel all over NZ for work. I can't think the last time I went to Queen Street to actually buy anything. For 99% of my purchases I want it sent to home rather than having to go and get it.

mudguard

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#3242316 29-May-2024 14:36

tweake:

here is a lot of older people driving around in nice new cars, no doubt all funded from house sales.

I think typical old person new car purchase is most likely a one and done type thing. My parents won't be far off that. Just recently retired, everything paid off, and they will look to purchase one new car. That will likely become the classic one lady owner, 10 years old, 10,000kms type of car.

They've had one new car in their life, when they were left some money. But it didn't pay for all of it, the rest was financed. Neither of their current cars were bought new either.

That said, I agree with the DTI, I've no doubt it probably needed to be less, but it's a start, and it will cut into multiple property ownership. Though, personally, as I stare down the barrel of redundancy (it's a quite a long winded one) it will be interesting to see if there is any retrospective issues. Say my next job pays less and I'm suddenly over the six to one ratio.

cddt

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#3242318 29-May-2024 14:45

tweake:

yes, but there is a lot of older people driving around in nice new cars, no doubt all funded from house sales.

current generation is paying for last generations life style, plus the interest rate. the cost of that is going to be with us for many many years to come.

they all talk about not spending due to the "cost of living crisis" but the biggest cost is housing and no one is doing anything on that. most stories are about cost cutting so you can spend MORE on housing. got to keep those profit margins up.

Yeah as someone of the current generation I can attest... in order to have a decent house in a good area, large enough for three kids, everything else has been cut. Clothes are second hand or from Kmart. Lounge suite cost $20. TV is nearly 20 years old. Meat is only bought in bulk. The hope is that pay rises over the years eat away that size of the mortgage.

And I know we're the fortunate ones.

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tweake

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#3242322 29-May-2024 14:51

mudguard:

That said, I agree with the DTI, I've no doubt it probably needed to be less, but it's a start, and it will cut into multiple property ownership.

yes, its a start. it might put a dent into some of it. but articles saying that they are not expecting much change at all.

i would have liked to see investors on the same ratio as everyone else.

wellygary

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#3242323 29-May-2024 14:53

mudguard:

it will be interesting to see if there is any retrospective issues. Say my next job pays less and I'm suddenly over the six to one ratio.

DTIs are not a hard limit, its just that bank's can only lend 20% of their loanbooks (owner/investor) above the line. they are still free to lead 20% of their new loans to those over the limit ( assuming that they think the borrowing can make the repayments)

If your income changes once your loan is written nothing happens, the DTI rules are not retrospective.

(As long as you can still service your loan from your new income, most banks should remain fine)

BUT even if the RBNZ decided to make DTIs cover ALL existing loans, you moving from being an "under" to an "over" would just mean that your bank would have less scope for future "over" loans, and would lend more conservatively.....

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tweake

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#3242325 29-May-2024 14:57

cddt:

tweake:

yes, but there is a lot of older people driving around in nice new cars, no doubt all funded from house sales.

current generation is paying for last generations life style, plus the interest rate. the cost of that is going to be with us for many many years to come.

they all talk about not spending due to the "cost of living crisis" but the biggest cost is housing and no one is doing anything on that. most stories are about cost cutting so you can spend MORE on housing. got to keep those profit margins up.

Yeah as someone of the current generation I can attest... in order to have a decent house in a good area, large enough for three kids, everything else has been cut. Clothes are second hand or from Kmart. Lounge suite cost $20. TV is nearly 20 years old. Meat is only bought in bulk. The hope is that pay rises over the years eat away that size of the mortgage.

And I know we're the fortunate ones.

and i bet there is oldies saying "but that what we did", but i bet your on a lot higher income. the sort of person who should have been in their own home much much earlier and possibly paid most if not all of it off by now. the old thing of one income feeding a family and paying the mortgage off in 10 years has long since vanished.

mattwnz

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#3242335 29-May-2024 15:24

tweake:

yes, but there is a lot of older people driving around in nice new cars, no doubt all funded from house sales.

This isn't always the case, as I know quite a few older people who have only owned one property and have saved for their retirements and worked hard, and have purchased nice cars for their retirement. I understand just investing in stocks have performed better over a long period than housing. There however will always be speculators that time the housing market and can make big capital gains. But there will also be others that purchased in 2020/2021 where the house is now worth a lot less than they paid if they were to sell now. I have been keeping a good eye on the housing maket and there are properties on teh market now that are being advertised for a lot less than they were purchased for in 21. I suspect some are distressed sales.

mattwnz

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#3242336 29-May-2024 15:28

cddt:

Yeah as someone of the current generation I can attest... in order to have a decent house in a good area, large enough for three kids, everything else has been cut. Clothes are second hand or from Kmart. Lounge suite cost $20. TV is nearly 20 years old. Meat is only bought in bulk. The hope is that pay rises over the years eat away that size of the mortgage.

And I know we're the fortunate ones.

I remember in the 90's as a kid, that clothes were really expensive. Even a cheap T-Shirt was $20. So some thing have dropped in price, whiles others have increased a lot. But NZers do get shafted IMO with the cost of many things due to the lack of competition. NZ is seen overseas as an expensive place to travel and live and that didn't used to be the case.

wellygary

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#3242339 29-May-2024 15:36

mattwnz:

I understand just investing in stocks have performed better over a long period than housing. There however will always be speculators that time the housing market and can make big capital gains. But there will also be others that purchased in 2020/2021 where the house is now worth a lot less than they paid if they were to sell now.

There is a big chunk of NZers that were majorly burnt by the 80s wide boys and the '87 crash,

So much so that for many years discussions of share-market investing would get you severely shunned, many swore never to invest in shares again, they focused on property and fixed investments.

20 years later the GFC wiped out large chunks of the fixed investment market when many high profile finance companies went under.

If you were in your 20's in the 80s, you were in your 40s when the GFC rolled round and are now are nearing/are in, your 60s.

Property has been the only friend many of them have had ...

alasta

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#3242376 29-May-2024 18:03

tweake:

but renters do not get anything out of it at the end.

guys at work are paying what i pay in mortgage on a 3brm house for a 1 bedroom flat.

Assuming a 5% rate, the cost of capital on my one bedroom unit in Wellington is about $32k plus another $8k for rates, insurance and maintenance.

That's $770 a week, and there's no way the market rent would be anywhere north of $600. The only reason I own rather than rent is that the stability is important to me and I'll probably get a reasonable capital gain when the market starts to recover.

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tweake

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#3242389 29-May-2024 19:50

alasta:

tweake:

but renters do not get anything out of it at the end.

guys at work are paying what i pay in mortgage on a 3brm house for a 1 bedroom flat.

Assuming a 5% rate, the cost of capital on my one bedroom unit in Wellington is about $32k plus another $8k for rates, insurance and maintenance.

That's $770 a week, and there's no way the market rent would be anywhere north of $600. The only reason I own rather than rent is that the stability is important to me and I'll probably get a reasonable capital gain when the market starts to recover.

i'm in rural aera so prices, and incomes, are somewhat different.

"I'll probably get a reasonable capital gain when the market starts to recover. " and there is the issue in a nutshell, making the next guy pay more. just adding to the problem. what happens when we have squeezed every last drop out of the next guy?, we resort to profiteering from rent. the catch is we have already been increasing rent to cover the high cost of purchase, so it might get interesting.

also keep in mind thats if the market recovers. high interest for quite some time yet, more new builds coming on the market with increasingly despite sellers, quite a few fhb'er have just been stopped from buying (which stops sales further up the ladder). there is a good chance the market is going to start sliding down even further.

alasta

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#3242392 29-May-2024 20:46

I'm no property tycoon. I own one very small townhouse and have a small mortgage, so whether its value goes up or down is academic to me.

mudguard

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#3242396 29-May-2024 21:01

I'd have thought the average rent had increase much more slowly than outright house prices. I should look up my suburb and see how it compares to the mortgage.

So there were seven listings in my suburb (with the same number of bedrooms). Average rent was just under my mortgage payment currently. My interest rates are still lower than the historical average interest rate of 8%. So three years ago the mortgage would have been cheaper, but to be fair I can't check what the average rent was.

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#3242397 29-May-2024 21:09

mudguard:

I'd have thought the average rent had increase much more slowly than outright house prices. I should look up my suburb and see how it compares to the mortgage.

Certainly the numbers I have seen have shown rent increasing very slowly relative to house prices.

There has been a small catchup in supply over the last 5 years but generally price increases have been quite closely coupled to population growth.

https://www.nzherald.co.nz/business/house-prices-twenty-years-of-housing-costs-beating-wages-in-one-heinous-chart

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