Housing prices....

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#1640851 26-Sep-2016 17:54

dickytim:

Apparently all people who scrimped and saved before the prices went crazy are money hungry slum lords who deserve a market crash to bring them down to earth.

If you bought before the prices went crazy and the market crashes it shouldn't matter anyway, as the prices would just come back down to sane levels that are a better reflection of the value you will still have equity.

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MikeAqua

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#1640853 26-Sep-2016 18:04

Fred99:

MikeAqua:

A decrease in property value does not force a sale. It doesn't effect your ability to service the debt.

As long as the debt is serviced, the bank don't care

Those statements are both true.

Problem is that the cause of the decrease in property price is very likely to be something which also affects your income and ability to service the debt - and then the banks will care.

Just because what many independent economists have been saying will happen hasn't yet - doesn't mean it won't.

That depends what your income is based on. If you rely heavily on rental incomes and if rental rates follow property values down then yes. If you are on a salary then it depends on how your industry is related to property values and the wider domestic economy. In our case, we are largely independent of the domestic economy.

Also it all depends on how interest rates move; how much equity you have; how much scope you have to restructure your borrowing, for example extending the term of a mortgage and how much you can tighten your belt and divert disposable income into servicing debt.

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tdgeek

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#1640864 26-Sep-2016 18:25

Lets forget demand, lets forget immigrants. Is it fair to say that the very low interest rates are a major cause of the bulk of price increases?

If you bought a home, your mortgage payments start out as heavy in interest, light in principal.Say interest rates went to 10%. Well thats not what I would call exorbitant, looking at past history. That almost doubles repayments from 5% interest rate now. Theoretically you could say the people can afford to buy a house at almost twice the price then when interest rates were 10%. Unlike most things, a house is a personal purchase. I love it, lets buy it, so a premium is considered. Problem is salaries can afford the payments, but the deposit is what gets out of reach. I reckon I am onto something. While people say they have a budget of $500,000, no, thats wrong. They really mean our income can cover a mortgage on a house up to a value of $500,000. If home loan rates went to 1%, then we could all afford to pay a lot more. The end price is merely a function of income, principal and interest.

ajobbins

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#1640869 26-Sep-2016 18:28

tdgeek:

ajobbins:

dickytim:

Take a look at Melbourne, Sydney etc. and see what a first home buyer can afford close to the city.

Been looking at this very scenario recently actually.

Could buy a brand new 4 bedroom house within 40 mins drive (or less) of Melbourne CBD with change from AU$500k.

Example from just one suburb, near a beach even

Land is small. Does the package includes driveway, paving, fences?

Will depend on the house but most packages do include those things (Would be a council requirement to do these things).

Sure, the land is small - but as the boomers keep telling us, we need to look at smaller sections further out. For some reason they think we're all look for a 6 bedroom mansion in Parnell with a pool.

But the comment was 'Take a look at Melbourne, Sydney etc. and see what a first home buyer can afford close to the city.' and this was my response. There is basically nothing left to buy in Auckland for under $500k, let alone 4 bedrooms within 35-40 mins of the CBD.

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tdgeek

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#1640871 26-Sep-2016 18:31

ajobbins:

tdgeek:

ajobbins:

dickytim:

Take a look at Melbourne, Sydney etc. and see what a first home buyer can afford close to the city.

Been looking at this very scenario recently actually.

Could buy a brand new 4 bedroom house within 40 mins drive (or less) of Melbourne CBD with change from AU$500k.

Example from just one suburb, near a beach even

Land is small. Does the package includes driveway, paving, fences?

Will depend on the house but most packages do include those things (Would be a council requirement to do these things).

Sure, the land is small - but as the boomers keep telling us, we need to look at smaller sections further out. For some reason they think we're all look for a 6 bedroom mansion in Parnell with a pool.

But the comment was 'Take a look at Melbourne, Sydney etc. and see what a first home buyer can afford close to the city.' and this was my response. There is basically nothing left to buy in Auckland for under $500k, let alone 4 bedrooms within 35-40 mins of the CBD.

Good points. The prices seem to compare ok with non AKL homes? Oz has big cities, thats normal. Here, there is one, which seems to be a magnet.

mattwnz

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#1640873 26-Sep-2016 18:39

tdgeek:

Lets forget demand, lets forget immigrants. Is it fair to say that the very low interest rates are a major cause of the bulk of price increases?

If you bought a home, your mortgage payments start out as heavy in interest, light in principal.Say interest rates went to 10%. Well thats not what I would call exorbitant, looking at past history. That almost doubles repayments from 5% interest rate now. Theoretically you could say the people can afford to buy a house at almost twice the price then when interest rates were 10%. Unlike most things, a house is a personal purchase. I love it, lets buy it, so a premium is considered. Problem is salaries can afford the payments, but the deposit is what gets out of reach. I reckon I am onto something. While people say they have a budget of $500,000, no, thats wrong. They really mean our income can cover a mortgage on a house up to a value of $500,000. If home loan rates went to 1%, then we could all afford to pay a lot more. The end price is merely a function of income, principal and interest.

There is no single point of failure, although investors are one of the main reasons for the increases, mixed with low interest rates, and low supply. This is shown by at least 50% of houses in Auckland being purchased by investors. Once there is plenty of supply, then house prices should level off or drop.

Low interest rates play a major part, as the low rates mean people can afford to service a higher mortgage. But it is also because people are taking their money out of the bank and buying houses, because the interest rates are so low at the banks. It is why banks have now started raising term deposit rates

This is why we need earnings to loan ratios brought in. If people can only afford to house up to a certain amount based on their earnings, then that should bring down the prices down to what people can afford to buy. Apparently the government are happy with such restrictions. So don't be surprised to see something introduced, and it will likely be before the election.

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mattwnz

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#1640874 26-Sep-2016 18:41

ajobbins:

But the comment was 'Take a look at Melbourne, Sydney etc. and see what a first home buyer can afford close to the city.' and this was my response. There is basically nothing left to buy in Auckland for under $500k, let alone 4 bedrooms within 35-40 mins of the CBD.

Although that could be closer in terms of time, if it had a decent public train system that serviced all areas. Rather than spending huge amounts of money on a city loop.

JimmyH

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#1640877 26-Sep-2016 18:53

tdgeek:

JimmyH:

It's not the government's job to regulate the soundness of someones investment decisions.

The Crown regulates the banking sector because of systemic risk issues - there are hurdles and regulatory barriers in return for being allowed to call yourself a bank, and benefits as well. If you put your money in a bank you can have some confidence that they are being monitored (and implicitly supported, to at least a degree) by the central bank. If you put you money with a finance company you passed on the benefit of having it as closely regulated as a bank, and explicitly took on more risk, in return for a higher interest rate.

If finance company investors wanted less risk they should have deposited their money in a bank. If they wanted basically none, they should have bought government bonds. Instead they deliberately took on more risk to try and make more money. For many years that worked for them and they did better than being in a bank, until the risk materialised. Not the government's fault (either Labour when the crash started, or National's later on) at all.

Investors took a risk, and lost money when it didn't turn out for them. Move along .... nothing to see here.

Not quite correct.

Non bank financial institutions are regulated, and were regulated before the small handful of inept and illicit finance companies folded. In 2007 regulations that existed were enhanced, and in a rush, to improve this situation.

So it it is the case that it is the Govts job to regulate investment decisions, that has been the case for non banks for a long time. Little different to many parts pf our lives where Govt regulatory behaviour exists.

Yes, there are rules around finance companies, as there are for any company - disclosure when issuing a prospectus, financial reporting etc. There were some shady and illegal practices and people went to jail. In my view more of them probably should have.

But the government doesn't regulate what they decide what investments they decide to back (apart from disclosure rules around related-party transactions), or monitor their balance sheets. Nor should they. That's up to investors who take the risk in return for being promised a higher interest rate than the banks. If investors don't like those rules, and want the government to look after their money, they should buy government bonds.

The failure of finance companies wasn't remotely "the Govts fault 100%". It was a combination of greedy and negligent investors, greedy and neglignet directors, and a global credit crunch combined with bad lending on property developments and other risky ventures. I fail to see how you can remotely pin this on "the government" - either national and/or Labour.

mattwnz

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#1640880 26-Sep-2016 19:04

JimmyH:

tdgeek:

JimmyH:

It's not the government's job to regulate the soundness of someones investment decisions.

The Crown regulates the banking sector because of systemic risk issues - there are hurdles and regulatory barriers in return for being allowed to call yourself a bank, and benefits as well. If you put your money in a bank you can have some confidence that they are being monitored (and implicitly supported, to at least a degree) by the central bank. If you put you money with a finance company you passed on the benefit of having it as closely regulated as a bank, and explicitly took on more risk, in return for a higher interest rate.

If finance company investors wanted less risk they should have deposited their money in a bank. If they wanted basically none, they should have bought government bonds. Instead they deliberately took on more risk to try and make more money. For many years that worked for them and they did better than being in a bank, until the risk materialised. Not the government's fault (either Labour when the crash started, or National's later on) at all.

Investors took a risk, and lost money when it didn't turn out for them. Move along .... nothing to see here.

Not quite correct.

Non bank financial institutions are regulated, and were regulated before the small handful of inept and illicit finance companies folded. In 2007 regulations that existed were enhanced, and in a rush, to improve this situation.

So it it is the case that it is the Govts job to regulate investment decisions, that has been the case for non banks for a long time. Little different to many parts pf our lives where Govt regulatory behaviour exists.

Yes, there are rules around finance companies, as there are for any company - disclosure when issuing a prospectus, financial reporting etc. There were some shady and illegal practices and people went to jail. In my view more of them probably should have.

But the government doesn't regulate what they decide what investments they decide to back (apart from disclosure rules around related-party transactions), or monitor their balance sheets. Nor should they. That's up to investors who take the risk in return for being promised a higher interest rate than the banks. If investors don't like those rules, and want the government to look after their money, they should buy government bonds.

The failure of finance companies wasn't remotely "the Govts fault 100%". It was a combination of greedy and negligent investors, greedy and neglignet directors, and a global credit crunch combined with bad lending on property developments and other risky ventures. I fail to see how you can remotely pin this on "the government" - either national and/or Labour.

I wouldn't regard most as greedy investors. Especially as the percentage return was often not much more than the bank. Infact banks in some cases offered better returns than the finance companies were offering. But even banks can fail and in NZ, deposits aren't guaranteed. So people could lose some of the savings at least when a bank fails. They were under the impression that their were system in place to protect them, and some were even advertised as being resistant enough to withstand all conditions. Infact the returns they were getting, were nowhere near good enough for the risk they were taking on. I had some money I a finance company, but took it out just before they collapsed, only because the bank offered a better rate. But it was found that the prospectus on that had incorrect information and the directors were apparently fined and there was a tiny payout to investors. The government though did bail out some investors, but that was purely luck for those investors, as they were able to be covered by the deposit guarantee scheme..

I would regard people who lost money in this, along the same lines as people who purchased leaky buildings. With enough due diligence they should have been able to pickup the problem, and not invested. Eg. Leaky buildings are fairly easy to pick based on their construction methogs and telltale signs. Although with finance companies, it can be pretty difficult if the prospectus had incorrect information, but you would have expected that sort of thing to be audited and peer reviewed.

But things have moved on, and we now have supposedly better protection for consumers.

dickytim

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#1640881 26-Sep-2016 19:09

mattwnz:
ajobbins:

But the comment was 'Take a look at Melbourne, Sydney etc. and see what a first home buyer can afford close to the city.' and this was my response. There is basically nothing left to buy in Auckland for under $500k, let alone 4 bedrooms within 35-40 mins of the CBD.

Although that could be closer in terms of time, if it had a decent public train system that serviced all areas. Rather than spending huge amounts of money on a city loop.

That is more equal to Pukekohe etc. so my point still stands.

tdgeek

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#1640882 26-Sep-2016 19:10

JimmyH:

tdgeek:

JimmyH:

It's not the government's job to regulate the soundness of someones investment decisions.

The Crown regulates the banking sector because of systemic risk issues - there are hurdles and regulatory barriers in return for being allowed to call yourself a bank, and benefits as well. If you put your money in a bank you can have some confidence that they are being monitored (and implicitly supported, to at least a degree) by the central bank. If you put you money with a finance company you passed on the benefit of having it as closely regulated as a bank, and explicitly took on more risk, in return for a higher interest rate.

If finance company investors wanted less risk they should have deposited their money in a bank. If they wanted basically none, they should have bought government bonds. Instead they deliberately took on more risk to try and make more money. For many years that worked for them and they did better than being in a bank, until the risk materialised. Not the government's fault (either Labour when the crash started, or National's later on) at all.

Investors took a risk, and lost money when it didn't turn out for them. Move along .... nothing to see here.

Not quite correct.

Non bank financial institutions are regulated, and were regulated before the small handful of inept and illicit finance companies folded. In 2007 regulations that existed were enhanced, and in a rush, to improve this situation.

So it it is the case that it is the Govts job to regulate investment decisions, that has been the case for non banks for a long time. Little different to many parts pf our lives where Govt regulatory behaviour exists.

Yes, there are rules around finance companies, as there are for any company - disclosure when issuing a prospectus, financial reporting etc. There were some shady and illegal practices and people went to jail. In my view more of them probably should have.

But the government doesn't regulate what they decide what investments they decide to back (apart from disclosure rules around related-party transactions), or monitor their balance sheets. Nor should they. That's up to investors who take the risk in return for being promised a higher interest rate than the banks. If investors don't like those rules, and want the government to look after their money, they should buy government bonds.

The failure of finance companies wasn't remotely "the Govts fault 100%". It was a combination of greedy and negligent investors, greedy and neglignet directors, and a global credit crunch combined with bad lending on property developments and other risky ventures. I fail to see how you can remotely pin this on "the government" - either national and/or Labour.

They regulate to provide a level of consumer protection, as is the case everywhere. The Govt shouldnt babysit every company in NZ, finance or otherwise, but there are regulations and statutes to provide a level of protection. Sure, they cant cover mis management, but when they all went belly up, that shows a large gap. No point providing regulations and then not tracking compliance. Its higher risk, and thats the risk the investor takes, but take South Canterbury Finance. Lovely guy, salt of the earth, but that company was mismanaged to the hilt and no one knew. So, whatever the regulations or compliance that existed, it meant nothing. Auditing to check the finance company regs would surely have shown gaps. But that industry, or at least many players, got away with outlandish behaviour. There are rules, but they played the game with no ref.

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NzBeagle

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#1640888 26-Sep-2016 19:46

dickytim:
mattwnz:
ajobbins:

But the comment was 'Take a look at Melbourne, Sydney etc. and see what a first home buyer can afford close to the city.' and this was my response. There is basically nothing left to buy in Auckland for under $500k, let alone 4 bedrooms within 35-40 mins of the CBD.

Although that could be closer in terms of time, if it had a decent public train system that serviced all areas. Rather than spending huge amounts of money on a city loop.

That is more equal to Pukekohe etc. so my point still stands.

Pukekohe is OK, but 35-40mins might be a challenge.

mattwnz

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#1640891 26-Sep-2016 19:50

tdgeek:

They regulate to provide a level of consumer protection, as is the case everywhere. The Govt shouldnt babysit every company in NZ, finance or otherwise, but there are regulations and statutes to provide a level of protection. Sure, they cant cover mis management, but when they all went belly up, that shows a large gap. No point providing regulations and then not tracking compliance. Its higher risk, and thats the risk the investor takes, but take South Canterbury Finance. Lovely guy, salt of the earth, but that company was mismanaged to the hilt and no one knew. So, whatever the regulations or compliance that existed, it meant nothing. Auditing to check the finance company regs would surely have shown gaps. But that industry, or at least many players, got away with outlandish behaviour. There are rules, but they played the game with no ref.

Also the fact that they changed things as a result of the problems, showed that there were problems. Ambulance at the bottom of the cliff stuff again, which is typical in NZ.

PhantomNVD

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#1642970 29-Sep-2016 21:52

30-40mins from Pukekohe is only at stupid-O-Clock in the morning with perfect weather. 1hour is a 'good day' morning commute and 1:20 is more common. Also, a friend just sold their 3 bedroom in Puki North (not a good area) for $486,000 so a 4 bed for $500 is also a dream out here.

For reference, I was lucky 2 years ago to get a 4 bed in Tuakau (10 mins further out still) for just on $600K and it's now worth around $740K according to
https://homes.co.nz/app/homes

mattwnz

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#1643010 29-Sep-2016 23:14

PhantomNVD: 30-40mins from Pukekohe is only at stupid-O-Clock in the morning with perfect weather. 1hour is a 'good day' morning commute and 1:20 is more common. Also, a friend just sold their 3 bedroom in Puki North (not a good area) for $486,000 so a 4 bed for $500 is also a dream out here.

For reference, I was lucky 2 years ago to get a 4 bed in Tuakau (10 mins further out still) for just on $600K and it's now worth around $740K according to
https://homes.co.nz/app/homes

This is the crux of the NZ housing crisis. Most people who have purchased a house to live in now feel rich, as they feel they have made a tax free capital gain, more than they would probably make at their normal job. But the vast majority won't be selling, or will be buying and selling in the same market with houses of similar prices, so they never get that gain in their pocket.

On the back of feeling rich with that paper gain on their house value, many are borrowing against their house to fund other things, such as big ticket consumer items and holidays. Some are also buying other houses, because they think that it will happen again and again. For some it will. But houses don't always go up in price forever. Those who have purchased just a single house to live in aren't really any better off owning a more valuable house on paper, infact they maybe worse off, eg they may have higher rates, insurance, and when they sell they are unlikely going to see any of the gain, unless downsizing. However it is really bad for first home buyers, because they need to borrow so much more money now to buy one of these shacks, and NZ wages are just too low, because they haven't kept up with true inflation. It is a vicious circle, because it relies on interest rates continuing to drop to fund the housing rises,and interest rates will continue to drop as the is the way the world is going. No point in saving with such poor interest rates

Also noticed that the official population of NZ is currently projected to be 4.7 million, 3 years ago it was 4.2 million, that means that NZ has half a million extra people living in NZ in just 3 years. That is a big reason why we have a housing shortage, as he have to house that extra 500,000 people, and I can't see 100-200 thousand houses to home them, having been built in just 3 years. So it is a self inflicted problem.

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