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

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#2744607 15-Jul-2021 14:39

mattwnz:

Based on all the Teslas I have seen driving aroud Wellington in the last year, I wouldn't be surprised if some people have used that free increased equity to shout themselves one as a bit of a reward. Plus they now also get the free rebate. Basically it is a free car. Although yes you are buying and selling in the same market, your equity percentage has increased if you have a mortgage, and potentially more leverage and borrowing potential from your house, due to that free equity boast to your house value from the QE. So the effects of covid has helped some people increase their wealth a lot. I know of someone who is borrowing money against their house from the bank, which is called 'wealth builder', to then buy ETFs and shares. IMO it all sounds a bit risky though, but I guess banks are looking at new ways to lend. They are already getting into buying rentals in some countries like the UK

Remember that if you draw down on your house, its a loan its not a free car

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#2744612 15-Jul-2021 14:47

mattwnz:

And this is why there are now a lot of TV ads for this service appearing on TV. As inflation increases, many of these older people could struggle. Especially as things like rates are increasing in many areas by far more than inflation. But it seems central banks around the world see inflation as short term. But how many times has NZs central bank been wrong recently?

Ill correct that, as well as your spelling :-)

Every economist and otherwise well qualified expert got Covid's economic impact wrong. All of them.

Big recession No (we did get a technical recession though, when I think 2 successive quarters had reduced GDP (due to lockdowns)

Unemployment will be high then take x time to recover No, it never got close to prediction and we right now have excellent low unemployment

The economy will suffer for a long while. No, we are almost booming right now. Some sectors hit hard, others booming

But everyone got it wrong, so its clearly difficult in a new scenario, as distinct from the usual highs and lows of economies

mattwnz

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#2744619 15-Jul-2021 14:54

tdgeek:

mattwnz:

Based on all the Teslas I have seen driving aroud Wellington in the last year, I wouldn't be surprised if some people have used that free increased equity to shout themselves one as a bit of a reward. Plus they now also get the free rebate. Basically it is a free car. Although yes you are buying and selling in the same market, your equity percentage has increased if you have a mortgage, and potentially more leverage and borrowing potential from your house, due to that free equity boast to your house value from the QE. So the effects of covid has helped some people increase their wealth a lot. I know of someone who is borrowing money against their house from the bank, which is called 'wealth builder', to then buy ETFs and shares. IMO it all sounds a bit risky though, but I guess banks are looking at new ways to lend. They are already getting into buying rentals in some countries like the UK

Remember that if you draw down on your house, its a loan its not a free car

If someone completely cashed out and paid off the mortgage etc tomorrow, then the net effect would be that you then end up with a car plus any balance on the increase in equity. Assuming one was able to sell the house for the new higher estimated price.

eg A house was worth $600,000 at the beginning of 2000 with a $300,000 mortgage. So they would be left with 300k of wealth if they sold back then. In 2021 it may now be worth $1,000,000, and one may still have the 300k mortgage. They then buy a tesla for 70k against the house, so the mortgage is now 370k. If they sold the house today they would be left with $630k of wealth. So that is a an increase in wealth of $400k including the car, largely thanks to covid. Or a increase in wealth of $330k, plus the car. But it does benefit people who have more than one house, eg a holiday home, otherwise you do still have to find somewhere else to live in unless you rent. But what would people do with all that additional 'cash', that can generate good returns?

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#2744623 15-Jul-2021 14:58

mattwnz:

If someone completely cashed out and paid off the mortgage etc tomorrow, then the net effect would be that you then end up with a car plus any balance on the increase in equity. Assuming one was able to sell the house for the new higher estimated price.

eg A house was worth $600,000 at the beginning of 2000 with a $300,000 mortgage. So they would be left with 300k of wealth if they sold back then. In 2021 it may now be worth $1,000,000, and one may still have the 300k mortgage. They then buy a tesla for 70k against the house, so the mortgage is now 370k. If they sold the house today they would be left with $630k of wealth. So that is a an increase in wealth of $400k including the car, largely thanks to covid. Or a increase in wealth of $330k, plus the car. But it does benefit people who have more than one house, eg a holiday home, otherwise you do still have to find somewhere else to live in unless you rent.

Yep that's the deal. Plus you might be lucky enough to get a transfer from Auckland to Gore!

quickymart

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#2745219 16-Jul-2021 15:45

Interest rates have started to go up. Does this mean house prices go up, down or stay the same?

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#2745222 16-Jul-2021 15:50

quickymart:

Interest rates have started to go up. Does this mean house prices go up, down or stay the same?

Theoretically it means that the cost to service a mortgage goes up. So FHBs can't afford to borrow as much, so house prices 'should' slow or come down. It is potentially good news for FHBs if house prices start to drop becuase it means that FHBs don't need to get into such high levels of debt, and won't needs a large a deposit.

But knowing the insane NZ housing market, it may not do much to stop the crazy house price growth,. I just hope we don't get hundreds of sob stories in a year, of people who over paid for a house, and now can't afford to service the mortgage after rates have risen. People overpaying , partly due FOMO and greed due to the cheap money, have been partly to blame in house prices rising at these crazy levels.

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#2745225 16-Jul-2021 16:05

mattwnz:

Theoretically it means that the cost to service a mortgage goes up. So FHBs can't afford to borrow as much, so house prices 'should' slow or come down. It is potentially good news for FHBs if house prices start to drop becuase it means that FHBs don't need to get into such high levels of debt, and won't needs a large a deposit.

Not if you watched the dopey TV1 story last night,

They interviewed a couple of potential FHBers who were moaning that the increase in rates would force them to redo their sums and would make it harder for them to buy....

I almost screamed at the screen "SO YOU WOULD LIKE ANOTHER YEAR OF 30% HOUSE PRICE INFLATION".....</rant>

mattwnz

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#2745240 16-Jul-2021 16:36

Unfortunately it is not something that is taught much, if at all, in schools. Property and investing are such important things in NZ.
The record low rates plus record low inventory on the market are the main reasons for the crazy house piece rises, and getting more FHBs into even more debt, or being locked out of the market. The higher the interest rates and the more supply we get, the more chance of downward pressure on house prices.

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#2745501 17-Jul-2021 08:11

mattwnz: The higher the interest rates and the more supply we get, the more chance of downward pressure on house prices.

How do you figure that? The supply we have is how many people want to sell, they don't care about interest rates the buyer will pay. IMO with Covid, uncertainty, those people who think it would be good to upgrade are staying put

tdgeek

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#2745506 17-Jul-2021 08:31

quickymart:

Interest rates have started to go up. Does this mean house prices go up, down or stay the same?

House prices are a consequence of interest rates and salary levels. Buyers tend to focus on repayments as regards affordability. Higher interest rates mean we can only afford a lower repayment, so we shop for lower priced houses. The sellers aren't getting as many offers or are getting lower offers so they will accept less.

In the olden days when interest was 15% +, houses were cheaper, say 3 to 4 times salary. But the house to salary metric is a bit of a misnomer, its about repayments.

Say years ago, there was a house at $250,000, interest is very high, I can afford that on my salary. Next year the same house is $400,000 but interest rates are very low. Same house, same salary, same repayments, I can afford that. But the House to Salary ratio has slipped, but to me its all the same affordability.

Back then, inflation was high, interest was high, house prices had to be low. But they broadly changed in sync as there we no other material factors at play.

Today, inflation is low, interest is low, house prices would have sort of aligned with al that, but these days there are other, new factors that affect house price by why of extra demand. Immigration has been thing for a while now, good for businesses to employ lower paid workers, good for the economy to have more customers. But they have to live somewhere. You aren't going to see a planeload of immigrants arrive for their new low paying jobs, and go to G J Gardiner homes. Gradually that squeezes demand, a new demand. Similarly, overseas students has also been a thing. Often they come here, get a qualification, get PR and often the parents join them. Thats a more affluent sector, but they will buy instead of build in many cases. More new demand. On the opposite side there has "probably" been more expats take off, Im unsure on that.

Today, investors are now a thing, competing with regular home buyers. Many expats are returning home due to Covid. Maybe 100,000+ going to by the stats we see re Covid MIQ.

Ultimately , and prior to the recent years of house price inflation, affordability was dropping, as inflation, while you salary may keep up, the tax holds you back, and over time affordability drifts. In my parents day you could buy or build on one income. Later it was wise to have a part time income, yourself or the wife, then it was wise to say, lets hold off kids, lets both work and use one income to live on, the other to save for a deposit. Good plans, but they sorta insulated the declining affordability. Immigration, then students, then Covid and 2.6% interest rates, thats quite a storm

mattwnz

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#2745769 17-Jul-2021 14:30

tdgeek:

mattwnz: The higher the interest rates and the more supply we get, the more chance of downward pressure on house prices.

How do you figure that? The supply we have is how many people want to sell, they don't care about interest rates the buyer will pay. IMO with Covid, uncertainty, those people who think it would be good to upgrade are staying put

New houses. Supply will increase going into spring and summer. The covid effect will end at some point. The US is getting back to normal and living with it due to high levels of vaccination. There is now huge growth and inflation, meaning interest rates have to rise, and other investments maybe come more attractive. Income from rent can't keep up with house price inflation, as rent is largely based on wages. So potentially houses as investments, may become less attractive. I suspect many people have purchased houses as some sort of protection against inflation?

Plus people eventually have to or want to move. Babyboomers etc will be moving into rest homes. Whether they sell or keep the house as a rental is the question, except many will need to sell to buy into a rest home.

These things tend to go in cycles. I suspect the banks are currently playing a bit of a game with rising interest rates, as they can still borrow on the funding for lending program at 0.25%. I suspect they have increased them now, and they will then offer specials in spring to get people buying. But IMO, it largely comes down to immigration, and whether the government will again turn on the tap, even though there is already a lack of houses available. Vacant houses IMO are still a major issue, I see many of them in my town. Many are used for air bnb etc. But it seems for some reason, it is a tabo topic in NZ, and there aren't official stats on it. Yet other countries have introduced vacant house taxes due to the problem.

It is funny that in NZ people just seem to accept NZs crazy house price inflation over the last year as normal. But commentators overseas see what is happening in NZ as completely nuts. Even in Australia where house price inflation is crazy, you can still earn more money, and buy cheaper houses. Their house price inflation hasn't been as high as NZs either, and there are places where houses are still cheap. It is why some professionals in Wellington can't afford to live here anymore and are leaving for far better pay in Oz and cheaper housing.

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mudguard

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#2745792 17-Jul-2021 15:28

mattwnz:

It is funny that in NZ people just seem to accept NZs crazy house price inflation over the last year as normal.

It's not that people accept that it's normal, it is just that very little can actually be done about it. I am in a bit of dilemma where I've made an offer on a place, and if I don't get it, there is very real likelihood of not owning ever.

mattwnz

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#2745878 17-Jul-2021 18:12

mudguard:

mattwnz:

It is funny that in NZ people just seem to accept NZs crazy house price inflation over the last year as normal.

It's not that people accept that it's normal, it is just that very little can actually be done about it. I am in a bit of dilemma where I've made an offer on a place, and if I don't get it, there is very real likelihood of not owning ever.

The problem is that many people seem to think the same, which seems to be causing the whole FOMO problem. People are willing to offer crazy high prices, just to win a tender and blow other people out of the water. I have been outbid by 100k twice due to some crazy offers, and my offers were high and higher and inline with other peoples. The Prime Minister did say last year that house prices just couldn't continue to rise as much as they have been. But they did, and they have said that other changes will follow. Something has to change in NZ, otherwise we are going to end up with some major social problems as a result..

tdgeek

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#2745880 17-Jul-2021 18:15

mattwnz:

New houses. Supply will increase going into spring and summer. The covid effect will end at some point. The US is getting back to normal and living with it due to high levels of vaccination. There is now huge growth and inflation, meaning interest rates have to rise, and other investments maybe come more attractive. Income from rent can't keep up with house price inflation, as rent is largely based on wages. So potentially houses as investments, may become less attractive. I suspect many people have purchased houses as some sort of protection against inflation?

Plus people eventually have to or want to move. Babyboomers etc will be moving into rest homes. Whether they sell or keep the house as a rental is the question, except many will need to sell to buy into a rest home.

These things tend to go in cycles. I suspect the banks are currently playing a bit of a game with rising interest rates, as they can still borrow on the funding for lending program at 0.25%. I suspect they have increased them now, and they will then offer specials in spring to get people buying. But IMO, it largely comes down to immigration, and whether the government will again turn on the tap, even though there is already a lack of houses available. Vacant houses IMO are still a major issue, I see many of them in my town. Many are used for air bnb etc. But it seems for some reason, it is a tabo topic in NZ, and there aren't official stats on it. Yet other countries have introduced vacant house taxes due to the problem.

It is funny that in NZ people just seem to accept NZs crazy house price inflation over the last year as normal. But commentators overseas see what is happening in NZ as completely nuts. Even in Australia where house price inflation is crazy, you can still earn more money, and buy cheaper houses. Their house price inflation hasn't been as high as NZs either, and there are places where houses are still cheap. It is why some professionals in Wellington can't afford to live here anymore and are leaving for far better pay in Oz and cheaper housing.

Supply will increase into Spring and Summer? Yes thats normal, no more than any other time, so no effect of note

Covid effect will end at some point? Agree, but thats a long way off.

US getting back to normal? Thats won't cause me to put my house on the market

Huge Growth and Inflation? Well, higher growth and inflation. The latter is just offer 3%, that will rise, its still low. Yes, interest rates will rise but the Economist/Banks feel is that will be slow, it will creep up. As an investment , its less attractive, I agree, I don't see masses flooding the market though. The interest deduction hast been slammed on investors, its staggered.

Immigration? They are now allowing that for essential workers, such as orchards etc

Vacant Houses? If they stay vacant then there is no effect. If I had a vacant house, I paid for it, thats my business

NZ isn't completely nuts, its nuts in many places. Australia? Move there. Wellingto is an anomaly as its popular but it cannot be expanded, there is no solution to that unless it goes apartments and looks like Hong Kong

There are places in NZ where housing is cheaper. Perhaps consider moving there? Early on many moved from AKL to Hamilton, etc. Cash up, get a better place, cash in the bank. I recall many media articles on that. Im not sure that the cheaper housing in AUS is that viable. Is it a 10 minute bus to Melbourne CBD? probably along commute, as can be done here

tdgeek

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#2745882 17-Jul-2021 18:22

mattwnz:

The problem is that many people seem to think the same, which seems to be causing the whole FOMO problem. People are willing to offer crazy high prices, just to win a tender and blow other people out of the water. I have been outbid by 100k twice due to some crazy offers, and my offers were high and higher and inline with other peoples. The Prime Minister did say last year that house prices just couldn't continue to rise as much as they have been. But they did, and they have said that other changes will follow. Something has to change in NZ, otherwise we are going to end up with some major social problems as a result..

I dont disagree, but what changes? Not bagging you, but many seem to complain but dont offer solutions.

My solutions are:

Feebate. if mortgage interest rates happened to be say 4%. If I buy, I pay 5%, if you build you pay 3%. My extra interest subsidises your lower interest. That reduces demand on buys and incentivises builds. Easy to manage accounting-wise

Govt and all builders (The GJ Gardiners down to tiny homes businesses) can band together and select subdivisions. Govt buys them. They get infrastructred, Govt recovers that from section sales, builders build. Not a few acres here and there, BIG developments.

I can't see any other solutions. Interest rates need to be weaned into the market. That takes time. Salaries wont suddenly grow big time. House price = Salary + Interest rates, so no show of any large movement there.

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