Real estate, post level 4

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#2607282 20-Nov-2020 07:20

Batman:

people said it was international buyers, offshore criminals etc that was pushing prices

but now non residents are banned and still it's shot up.

really demand >>>>> supply

and investors have nowhere to put their money?

Its supply, its not there, hasnt been for a long time. Unless you build 80,000 houses next week the core problem remains. You will find that while house ticket prices have risen, one thing hasnt in regards to homeownership, mortgage payments. Clearly plenty are working around the higher deposit = Mum and Dad, Kiwisaver. You could say that affordability probably hasnt changed a lot thanks to interest rates. I know a guy who has no money, no deposit, he bought a tidy wee place, thats a demand that would never arise = Kiwisaver meant that he joined the list of people who represent demand. Now we have thousands of ex pats arriving home, plenty of those wont be backpackers on OE they will be well incomed expats.

IMHO house prices are normal given all these factors.

Investors. Deposits earn practically nothing. Shares are an option, but with Covid, plenty of uncertainty. Pop it into a house? Obviously, can't blame them.

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mudguard

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#2607292 20-Nov-2020 08:18

I wonder if they could tie the mortgage security to only one property. I would say 99% of second house purchases are made using the equity in the existing property at the 'deposit'.

What would be the implications of this? You could retain the minimum deposit of 20%, as it would mean those buying a bach, second home etc would have to come up with the cash.

tdgeek

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#2607303 20-Nov-2020 08:39

mudguard:

I wonder if they could tie the mortgage security to only one property. I would say 99% of second house purchases are made using the equity in the existing property at the 'deposit'.

What would be the implications of this? You could retain the minimum deposit of 20%, as it would mean those buying a bach, second home etc would have to come up with the cash.

I feel that if you bought a second house, pull 200k off the first house, that then becomes cash

Having said that, if you were able to make it harder to buy a second house, which will be a rental, then there are no rentals for tenants. Unless you then had to register as a landlord business, so everyone will do that! It all goes back to when one house is for sale there are 10 buyers, not enough houses. We need to penalise existing purchases and feed that to feed new builds, but then rents will rise due to hugher purchase price, or as rentals houses decline as not worth it.

Not enough houses

Handsomedan

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#2607322 20-Nov-2020 09:21

One of the main issues is the easy access to cheap money, which has been said multiple times before.

I have a real-world example where friends have bought a lavish home in Auckland, which would have been well beyond their means a few years ago, but they have been able to buy this house on an interest-only mortgage fixed for two years and expect to be able to simply roll that over and continue not to pay principal for an additional term...

Their rationale is that the deposit from the sale of their other property is now invested with a higher rate of return than if they'd put it in the bank or another form of secure deposit and they are doing no more or less than paying rent on a home they have more rights to than a tenant would.

They also believe they could cut and run if the shizz hit the fan. They believe they'd still come out ahead of the game. They also have a rental that they have "owned" for a number of years and pay interest only on that mortgage too...rent covers the mortgage and rates and they watch its value increase regularly.

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tdgeek

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#2607333 20-Nov-2020 09:34

They also believe they could cut and run if the shizz hit the fan.

Maybe interest rates were sharply increased? Or the Govt set up a building program that was cost plus, which removes the artificial value attached to new builds?

Both unlikely but if that did happen the run on selling would make it difficult to cut and run as they would be one of many. Its not impossible that interest rates rise to say 7% thats still a nice rate, but for those that bought high and maxxed out their mortgage payment ability, that would also cause a run on sales. More selling, less buying, be hard to cut and run from that probably

Such is the case when prices are artificial, they need to stay artificial to stop a raft of other issues happening. Tough situation

mudguard

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#2607334 20-Nov-2020 09:35

tdgeek:

I feel that if you bought a second house, pull 200k off the first house, that then becomes cash

I thought about that. I guess it depends what it does to your existing equity and whether banks become more cagey to that sort of thing. It would mean a re-doc most of the time and the second loan could be argued that the money wasn't saved (the way they look at 'gifts' now), equity shouldn't be treated the same way as savings.

Perhaps it could be tied into the purchase price.

If you buy for $800K, owe $600k, five years later owe, $500k, then that purchase price is used indefinitely rather than having inflation push the value up. So future borrowing is based on the $800k, not it being worth $1M now.

I certainly agree on your second point, there simply isn't the supply.

mudguard

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#2607343 20-Nov-2020 09:42

tdgeek:

Maybe interest rates were sharply increased? Or the Govt set up a building program that was cost plus, which removes the artificial value attached to new builds?

I actually think that would be the simplest thing. Start hiking the OCR. But I'm pretty sure housing is still outside the Reserve Bank's remit.

But at what cost, and who pays for it?

tdgeek

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#2607348 20-Nov-2020 09:45

Good points. "But it's my money" :-)

What also strikes me is new builds. Back in the day a new buold was worth more than the same house in the same area , same size etc as off course its new

So after a few years of overseas buyers, super low interest rates, FOMO, and now extra demand from Kiwis returning home in droves, how do new builds stack up now?

Say prices are up 40% from a past baseline. I assume a new build is also up 40%? There is no way that in NZ's low wage economy, low inflation, that in these years of rapid house price growth, that drainlayers wages are up that amount, same for plumbers, sparkies, gib fixers and builders, etc, and no way that materials have skyrocketed in price also, to somehow keep the new build a bit more expensive than the same house that is 15 years old? Theoretically, new builds should be cheaper. Marketing 101, what the market will bear. Builders should be creaming it as its cost plus margin plus what house prices are right now.

tdgeek

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#2607351 20-Nov-2020 09:48

mudguard:

I actually think that would be the simplest thing. Start hiking the OCR. But I'm pretty sure housing is still outside the Reserve Bank's remit.

But at what cost, and who pays for it?

Home owners. More interest, less PDI, less savings, less spending in the economy. Not happy. Blame the Govt and vote for the other party that will "fix" that

If we found a way to build a lot more houses, that will take time so the transition will be slow as supply gradually equates with demand, so less noticeable. But that doesnt help now and the next 10 to 20 years

mudguard

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#2607352 20-Nov-2020 09:51

tdgeek:

Home owners. More interest, less PDI, less savings, less spending in the economy. Not happy. Blame the Govt and vote for the other party that will "fix" that

If we found a way to build a lot more houses, that will take time so the transition will be slow as supply gradually equates with demand, so less noticeable. But that doesnt help now and the next 10 to 20 years

I think in perhaps another generation if home ownership continues to drop, then perhaps enough generation rent might say, hike interest rates and enforce capital gains, what do we care? It would be interesting to see a breakdown of voter demographics.

alasta

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#2607481 20-Nov-2020 12:44

It's my understanding that banks are still stress testing mortgage applications at rates around 6.5% - 7% but that doesn't seem to tally with the prevalence of people borrowing more than four or even five times their income.

wellygary

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#2607509 20-Nov-2020 14:10

alasta:

It's my understanding that banks are still stress testing mortgage applications at rates around 6.5% - 7% but that doesn't seem to tally with the prevalence of people borrowing more than four or even five times their income.

On a 30 year loan there is not a linear relationship between the interest rate and the payment amount,

Borrowing 750K@ 3.5% over 30 years is ~775/week @7% its ~$1148 - according to a bank calculator,

if you had a single income of 150K you have $2110 a week net in the hand, so its doable . (if you have a 150K job)

if you have two incomes of $75K you have $2300 in the hand a week ... so even $1148 would be possible...

mattwnz

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#2607517 20-Nov-2020 14:37

wellygary:

alasta:

It's my understanding that banks are still stress testing mortgage applications at rates around 6.5% - 7% but that doesn't seem to tally with the prevalence of people borrowing more than four or even five times their income.

On a 30 year loan there is not a linear relationship between the interest rate and the payment amount,

Borrowing 750K@ 3.5% over 30 years is ~775/week @7% its ~$1148 - according to a bank calculator,

if you had a single income of 150K you have $2110 a week net in the hand, so its doable . (if you have a 150K job)

if you have two incomes of $75K you have $2300 in the hand a week ... so even $1148 would be possible...

It is certainly a lot easier for couples who can split their work/ income, to benefit from the lower tax rate.

But would people be prepared to pay so much for a house and get into so much debt, if they weren't also expecting decent capital gains in the future?

Not a lot of money left over to go into the economy. I wonder how many people then borrow on their house to buy other things.

If we were actually building state houses, and had a glut of houses, then under supply and demand, prices would likely drop.

I remember when it used to be difficult to sell a house, and these things go in cycles. Remember when everyone was leaving NZ going to Oz, and the big brain drain.

mattwnz

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#2607521 20-Nov-2020 14:43

Batman:

mattwnz:

IMO houses are basically being used as a vehicle for banks, to lend more and more freshly printed money at the moment. Lower interest rates allows this, and allows house prices to rise as a result. I see almost every night now on the TV news, the top stories are about all the first home buyers now being able to buy homes. IMO it's almost a form of propaganda, and it is encouraging more and more first home buyers to buy at these hyper inflated prices, otherwise they could be paying a lot more in the future. This increases demand with FOMO. FOMO IMO is a big driver at the moment. IMO someone should be telling people to calm down, and there will be enough houses for everyone, but no they can't say that, because they can't build enough, and we don't know how many empty ones that could be used. As a result of this some people are buying dumps, that they will need to spend heaps on in the future.

people said it was international buyers, offshore criminals etc that was pushing prices

but now non residents are banned and still it's shot up.

really demand >>>>> supply

and investors have nowhere to put their money?

Conditions keep changing.

Certainly there were a lot of overseas buyers buying them (more than we were led to initially believe as they didn't keep records), and apparently overseas buyers are still buying them, just though NZ parties.

I remember when I was at boarding school, we had quite a lot of students come from overseas to learn english, and a lot of those had a house they had purchased to stay in during weekends off. But house prices were a lot cheaper back then, so it wasn't something that we thought, they must be rich to be able to buy a house.

tdgeek

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#2607522 20-Nov-2020 15:00

mattwnz:

But would people be prepared to pay so much for a house and get into so much debt, if they weren't also expecting decent capital gains in the future?

Not a lot of money left over to go into the economy. I wonder how many people then borrow on their house to buy other things.

If we were actually building state houses, and had a glut of houses, then under supply and demand, prices would likely drop.

I remember when it used to be difficult to sell a house, and these things go in cycles. Remember when everyone was leaving NZ going to Oz, and the big brain drain.

Houses are always the largest purchase, but I dont think people are fixated on capital gain. If 80,0000 houses were built next wek, houses would stall, and rise a bit above or a bit below inflation, so essentially a lacklustre market. Its more FOMO IMO

True the economy loses money as that money converts to concrete and cladding. In many years, some may draw down, but the average citizen is happy with a low or no mortgage and will leave it at that

Agree there are cycles in everything. This however is artificial, lack of houses offset by low interest, two wrongs making a bigger wrong. I cannot see it changing for decades. You either build a lot of houses quickly or you, ummm not sure, as there is no other fix.

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