Real estate, post level 4

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#2750874 27-Jul-2021 17:06

irpegg:

mudguard:

Shouldn't be too hard to work out. Use someone like a school teacher. Like my folks. Historic average interest rate is 8% (that used to be the old bank stress figure I thought)

1997

$220,000, $44,000 deposit, over 30 years at 8% is $1292pm. 32% of gross income

Same house is now worth

$900,000, $180,000 deposit, over 30 years at 3.29% is $3150pm. 42% of gross income

Top Scale Salary for teachers in 1997

$47,100

Top Scale Salary 2021 (requires Masters or PhD)

$90,000

1987 interest rates 20.5%

Average house price was $88,900, $17,780 at 20.5% is $1218 pm

Salary was $39,105 for teachers

37% of gross income

Yeah, I always find it concerning when people just write it off being like "Well back in my day when interest was 15% the buying power was just as hard!!!" yet they bought a house being a milkman or other low-skilled jobs. It's often my parent's friends who are completely out of touch with reality that are now upset that their overly inflated house they did nothing to for 20 years isn't really getting them the massive mansions they believe they deserve because everywhere else has had the same magical value gains. I'm equally disappointed at the market and look forward to a crash so I can upgrade my house, however even a 20% crash would just take us back to 2020 house prices :\

If house prices crash, then it is largely cashed up people that sold at the top of the market that will benefit from being able to buy a more valuable house cheaper. Likewise FHBs will also be able to buy cheaper houses. Everyone else will be buying and selling in the same market.

When looking at houses in the weekend, many of the people were existing home owners.They didn't seem to be shocked at being told that a house was a million dollars. I came to the conclusion that the price isn't all that important, because they are also selling a house for about that value, so essentially they are effectively swapping houses. The difficulty is buying into the housing market.

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#2750993 28-Jul-2021 06:44

antonknee:

Here’s an example of John Key speaking about the “home affordability crisis” in 2007: https://www.nzpif.org.nz/news/view/53038

People buying a house they liked isn’t necessarily the problem - the problem was people buying a house, hoping it would appreciate in value, leveraging, trading up to the next one, or using it to buy an investment property (ie the property ladder). Good on an individual level, not so good on a societal level. But that’s the tragedy of the commons.

Key and Clark talked about affordability back in 2000 or 2001. Nothing happened. Its easy to stop homeowners owning more than one house. Those rentals will have to be bought by professional landlords, same issue.

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#2750995 28-Jul-2021 06:50

mudguard:

Shouldn't be too hard to work out. Use someone like a school teacher. Like my folks. Historic average interest rate is 8% (that used to be the old bank stress figure I thought)

1997

$220,000, $44,000 deposit, over 30 years at 8% is $1292pm. 32% of gross income

Same house is now worth

$900,000, $180,000 deposit, over 30 years at 3.29% is $3150pm. 42% of gross income

Top Scale Salary for teachers in 1997

$47,100

Top Scale Salary 2021 (requires Masters or PhD)

$90,000

1987 interest rates 20.5%

Average house price was $88,900, $17,780 at 20.5% is $1218 pm

Salary was $39,105 for teachers

37% of gross income

Nice work. The house to salary ratio went from 3X to 10X+

The affordability ratio went from 37% to 42% from 1987 to 2021

That shows that buyer demand is still very much there. The house price is just number, its about affordability and that still works it seems

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#2750996 28-Jul-2021 06:52

mattwnz:

They haven't risen as much as NZs house prices. But NZ now has an inflation problem, which means we maybe the first to raise interest rates. But I am sure they will do everything they can to justify not raising them. Interest rate rises may mean that people won't be able to borrow as much as they were borrowing. I hope some people are also fearful of overpaying.

Australia is now 3+% according to news last night. Its a global issue, NZ is no different to anywhere else. If you want to highlight NZ and say its worse, well, they are all terrible, someone has to be number one

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#2750997 28-Jul-2021 06:55

irpegg:

Yeah, I always find it concerning when people just write it off being like "Well back in my day when interest was 15% the buying power was just as hard!!!" yet they bought a house being a milkman or other low-skilled jobs. It's often my parent's friends who are completely out of touch with reality that are now upset that their overly inflated house they did nothing to for 20 years isn't really getting them the massive mansions they believe they deserve because everywhere else has had the same magical value gains. I'm equally disappointed at the market and look forward to a crash so I can upgrade my house, however even a 20% crash would just take us back to 2020 house prices :\

I find that back in the day, it was good and wise to buy an average house, its a starting point. Handyman special, DIY dream. These days they all seem to want a mansion with Miele appliances throughout and a 2yo car. 10 minutes from work. 1/4 acre section for the expected kids. You have to start low and work your way up, not the other way round.

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#2750998 28-Jul-2021 06:58

mattwnz:

Affordability is surprisingly far worse, even with the record low rates. The scarey thing is that the deposit now needed is almost as much as the full house purchase back then!

The thing is that the current interest rates are at emergency low levels. Even the RB Governor recently said they people need to look at what rates could be in the future when borrowing a lot of money, rather than these low rates today. Even 8% is historically a low rate. Do people buying at these low rates and getting Mega mortgages, and pushing themselves think the government is going to bail them out if interest rates rise too much?

These high house prices are going to be terrible for the economy when interest rates rise, as people will have less money to spend in the economy.

Affordability is not that much worse, look at the numbers. Most people buy the best house they can afford, so less money for the economy, more to the mortgage, that still applies.

If interest rates rise, so be it. They budgeted for that....

mudguard

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#2751003 28-Jul-2021 07:13

OCR Rates

tdgeek:

mudguard:

1987 interest rates 20.5%

Average house price was $88,900, $17,780 at 20.5% is $1218 pm

Salary was $39,105 for teachers

37% of gross income

Nice work. The house to salary ratio went from 3X to 10X+

The affordability ratio went from 37% to 42% from 1987 to 2021

That shows that buyer demand is still very much there. The house price is just number, its about affordability and that still works it seems

Ah it depends. So obviously rates didn't stay at that for long, so you could assume that current low rates won't stay either.

Average salary in 1987 $25,270

$88,900, $17,780 at 20.5% is $1218 pm 58% of gross income.

Average salary in 2021, $53,000

$810,000, $162,000, at 3.29% is $2835pm 64% of gross income

So it's worse and is unlikely to get better as rates move.

NB take the numbers with a grain of salt. I just googled averaged salaries and house prices, used the peak interest rate.

You can look at historical OCR from numerous places

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#2751004 28-Jul-2021 07:23

mattwnz:

Affordability is surprisingly far worse, even with the record low rates. The scarey thing is that the deposit now needed is almost as much as the full house purchase back then!

The thing is that the current interest rates are at emergency low levels. Even the RB Governor recently said they people need to look at what rates could be in the future when borrowing a lot of money, rather than these low rates today. Even 8% is historically a low rate. Do people buying at these low rates and getting Mega mortgages, and pushing themselves think the government is going to bail them out if interest rates rise too much?

These high house prices are going to be terrible for the economy when interest rates rise, as people will have less money to spend in the economy.

Bolded, thats always been the case

You often mention that low interest rates have pushed prices up, thats correct, and you also mention that a 20% crash is just going back to what they were, also correct. So, theoretically it wont matter. The number of people that bought in that rising market compared to everyone else in NZ is very low. Interest rates will rise, but that will be slow, predictions at 0.25% early 2022. It may be a few years before that are back to around 6% which I gather was the norm a few years back. You also have to bear in mind that Covid is a big part of recent times, thats not the norm, and its part of the recent blip

No bails out please. House can be downsized, or it can be sold, or mortgage period extended, banks can reduce the repayments for say 3 years, and those shortcomings get tacked onto the mortgage. Plenty of options. Otherwise let me buy shares big time, I'll pocket the gain but if I lose the Govt bails me out...

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#2751006 28-Jul-2021 07:27

mattwnz:

If house prices crash, then it is largely cashed up people that sold at the top of the market that will benefit from being able to buy a more valuable house cheaper.

Yep. If the cashed up seller decided not to buy then house prices crashed. They wont crash overnight. More likely most cashed up buyers are looking for a house at the same time. But yes there will be some winners.

Handle9

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#2751011 28-Jul-2021 07:44

tdgeek:
Affordability is not that much worse, look at the numbers. Most people buy the best house they can afford, so less money for the economy, more to the mortgage, that still applies.

If interest rates rise, so be it. They budgeted for that....

Bollocks.

If you want to use cherry picked numbers you can show whatever you like.

Housing is far less affordable than it has ever been and will get much much worse as interest rates rise.

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#2751019 28-Jul-2021 08:02

Handle9:
tdgeek:

Affordability is not that much worse, look at the numbers. Most people buy the best house they can afford, so less money for the economy, more to the mortgage, that still applies.

If interest rates rise, so be it. They budgeted for that....

Bollocks.

If you want to use cherry picked numbers you can show whatever you like.

Housing is far less affordable than it has ever been and will get much much worse as interest rates rise.

Bollocks back. I guess mudguards numbers are incorrect? Aside from the blip caused by Covid they stack up. When interest rates eventually rise the house prices will ease, simple math

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#2751031 28-Jul-2021 08:45

tdgeek:
Handle9:

Bollocks.

If you want to use cherry picked numbers you can show whatever you like.

Housing is far less affordable than it has ever been and will get much much worse as interest rates rise.

Bollocks back. I guess mudguards numbers are incorrect? Aside from the blip caused by Covid they stack up. When interest rates eventually rise the house prices will ease, simple math

The 30% price rise blip. Yeah it's totally insignificant.

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#2751036 28-Jul-2021 08:51

Handle9:
tdgeek:

Aside from the blip caused by Covid they stack up. When interest rates eventually rise the house prices will ease, simple math

The 30% price rise blip. Yeah it's totally insignificant.