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  Reply # 2093466 19-Sep-2018 20:37
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mattwnz:

 

My major concern, and perhaps a concern for many home owners with a large mortgage, is what happens if interest rates double. It probably won't happen overnight, but in 5 years time it potentially could be double what it is today. That is when people potentially could get into negative equity if house prices drop, and the house is worth less than the mortgage. That is when banks get worried. 

 

 

If I recall correctly the average floating rate was about 8% in 2004, peaking at 11% in 2007, then it all came crashing down after the GFC.

 

For my own financial planning - which I try to be very conservative with - I have assumed that interest rates will rise at one percentage point per year from late 2019 to late 2022. Guidance from the Reserve Bank and analysts suggests that interest rates will not increase materially between now and late 2019. That would take the floating rate out to about 8.8% in late 2022 as a reasonable worst case scenario.

 

It is widely believed that rates in this economic cycle will not peak anywhere near the peak of the last cycle. Inflation is stubbornly low around the world, including in NZ despite the inflationary pressure that you would expect to arise from rising rents, industrial unrest, oil prices, etc. This suggests a structural change in the global economy that will see a sustained period of low interest rates.

 

However eventually rates will rise somewhat and any property owners who have very tight cashflow now will find themselves in trouble at some point.


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  Reply # 2093470 19-Sep-2018 20:59
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Here's a useful link to historical interest rates.

https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates

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  Reply # 2093834 20-Sep-2018 13:53
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To reiterate what others have mentioned previously, that the cost of housing is a problem all over the world.

 

Here is one documentary about Germany and if we look into the stats of NZ we would probably align closely: https://www.youtube.com/watch?v=AFIxi7BiScI

 

 

 

Many have mentioned that more development is the solution: yet as with the above documentary we may lead down the same path. Those that can afford to invest will invest in property and those that can't, rent. "The rich get richer and the poor get poorer"

 

More development isn't necessarily the solution alone, major policy change is what is required to make change locally and globally. If the NZ Gov could resolve this issue we would create a road map for the rest of the world.

 

 

 

The current kiwibuild model is great move into the right direction. It's great for those in that are in that earning bracket. It provides them a way to get into the market and have a home to live in. But I think there still needs to be bigger steps to prevent abuse for those using it as an investment and flipping properties thereafter.

 

 

 

PS: I am still far away from having the deposit necessary and even further from the salary required to cover a mortgage, even on the Kiwibuild price cap


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  Reply # 2093858 20-Sep-2018 14:38
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MileHighKiwi: Here's a useful link to historical interest rates.

https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates

 

They'd have to double the height of the Y axis on that chart if they went back another 15 years.

 

I was living in Aus at that time, floating rate hit 14.5% - and I thought I was lucky when I saw what the rates in NZ were.

 

It was very easy and affordable to buy in the Sydney market then. Now - IIRC - only 1 in 50 homes sold are to first home buyers.

 

I wonder how that compares to AKl.


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  Reply # 2093908 20-Sep-2018 16:06
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Fred99:

 

They'd have to double the height of the Y axis on that chart if they went back another 15 years.

 

 

https://teara.govt.nz/en/graph/23100/interest-rates-1966-2008

 

 


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  Reply # 2093913 20-Sep-2018 16:18
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1101:

 

Fred99:

 

They'd have to double the height of the Y axis on that chart if they went back another 15 years.

 

 

https://teara.govt.nz/en/graph/23100/interest-rates-1966-2008

 

 

 

 

Yep.  Gosh aren't interest rates so very low!

 

Average rates are over 10% over ~50 years.  $1,000 week repayment on a starter "affordable" home in Akl, bought on 20% deposit.

 

Better hope it doesn't return to normal rates - ever.




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  Reply # 2094025 20-Sep-2018 18:35
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I have no idea if this is possible but I imagine the Government has no sway to regulate house prices do they? eg, houses in this area can't be more than $300 000 or that area $400 000 and so on?

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  Reply # 2094051 20-Sep-2018 19:12
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quickymart: I have no idea if this is possible but I imagine the Government has no sway to regulate house prices do they? eg, houses in this area can't be more than $300 000 or that area $400 000 and so on?

 

Well they could try - they do make the laws - but unless they carried out a coup and replaced democracy at the point of a gun, they wouldn't be government for long.  Many MP's from all parties are property investors themselves - with skin in the crazy game that's been delivering free money for decades

 

 


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Master Geek
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  Reply # 2094059 20-Sep-2018 19:25
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Fred99:

 

...

 

Using RBNZ inflation calculator since 1990, then

 

General CPI + 77%

 

Wages        + 125%

 

Clothing      +9%

 

Transport    + 41%

 

Food           +72%

 

Housing       +335%

 

...

 

That housing cost index is based on valuation. (ie not what people are paying on average on a weekly basis - but what it costs to buy a house).

 

 

So how much has housing actually gone up?  In 1990 interest was 12% but houses cost less but now houses cost 335% more but interest is only 5% and you are earning 125% more.  It would be interesting to see a housing WEEKLY COST graph.

 

 


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  Reply # 2094065 20-Sep-2018 19:38
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debo:

 

So how much has housing actually gone up?  In 1990 interest was 12% but houses cost less but now houses cost 335% more but interest is only 5% and you are earning 125% more.  It would be interesting to see a housing WEEKLY COST graph.

 

 

 

 

Income to price it probably a better metric? I'm sure my father quoted something like buying a house around 1980 for $70k earning $7k as a teacher. But that salary sounds very low. 

 

5% on $500,000 is $25,000 in interest

 

20% on $100,000 is $20,000 per year. And people like to talk about the high interest rates in the eighties but in reality it was for a very short time, and generally, on quite small amounts. 


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  Reply # 2094069 20-Sep-2018 19:48
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quickymart: I have no idea if this is possible but I imagine the Government has no sway to regulate house prices do they? eg, houses in this area can't be more than $300 000 or that area $400 000 and so on?

 

The could do that. Muldoon tried something similar with a general prize freeze in the 80s. But it would be daft to do so.

 

You would have to have a government inspector with a clipboard deciding what each house "ought in their view" to sell for, Plus, if the price was fixed well below the market price then sales would dry up as no one would want to sell, and landlords would run their properties down and do the cheapest shoddiest work possible as they wouldn't be able to capture the cost of improvements and repairs in a sale price. Moreover, if the price cap had real "bite" it would likely kill investment in new houses, and incentivise battalions of lawyers to find was around it. "Sure, you can have this house for $400,000, but you have to use vendor finance which has a 30% interest rate" etc.


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Master Geek
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  Reply # 2094127 20-Sep-2018 20:33
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Here are some recent 60 Minutes on the Aussie housing market.  Very sobering.  I'm now thinking that the biggest threat to NZ housing prices is Aussie contingent caused by a collapse of one of the big 4 banks.

 

 

 

https://www.youtube.com/watch?v=smPR0s2W-Ck

 

https://www.youtube.com/watch?v=BbFvwYVfwq0

 

https://www.youtube.com/watch?v=BNAqA7R95Wo

 

https://www.youtube.com/watch?v=0lrdxpKPocY


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  Reply # 2094132 20-Sep-2018 20:40
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debo:

 

I'm now thinking that the biggest threat to NZ housing prices is Aussie contingent caused by a collapse of one of the big 4 banks.

 

 

I think NZ's pricing is likely to only be affected by something external (as you've pointed out) or our economy could be vulnerable to a more local event, IE another serious dairy shudder.


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  Reply # 2094156 20-Sep-2018 21:10
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mudguard:

 

debo:

 

I'm now thinking that the biggest threat to NZ housing prices is Aussie contingent caused by a collapse of one of the big 4 banks.

 

 

I think NZ's pricing is likely to only be affected by something external (as you've pointed out) or our economy could be vulnerable to a more local event, IE another serious dairy shudder.

 

 

Dairy shudder? Or do you mean Dairy Udder. Or maybe daily shudder?

 

:-)


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  Reply # 2095096 23-Sep-2018 12:21
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mudguard:

 

I'm sure my father quoted something like buying a house around 1980 for $70k earning $7k as a teacher. But that salary sounds very low. 

 

 

 

 

 In 1990 my husband earned $18 an hour, considered good money. He did get double time and all that as well.

 

We paid $23,500 for a house in 1978, interest rates in the 80s were in the high teens, early 20s...

 

 


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