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## afe66

2464 posts

Uber Geek

#2040957 20-Jun-2018 11:17

The value of some index funds also reflects the higher dividend yields they are paying out. ie fnz is 4.5%. Also available within PIR which limits Max tax rate to 28%.

Increases in value of the units is another source of profit when selling.

## UHD

656 posts

Ultimate Geek
Inactive user

#2041013 20-Jun-2018 13:04

kingjj:

frankv:

tripper1000:

People just don't realise. Sister in-law thought 4.2% is a rip off and cried when I said I was paying 7.8% in the 2000's cos that would ruin them.

We used to dream of 7.8% [/Yorkshire] -- peaked at 21% in the 1980s.

Was waiting for someone to mention rates in the 80's

Difference is back then houses were 2-4 times the average annual income, now days they're 5-7 times or higher. My folks first home in the 80's was 2 x their annual joint income so they could afford to chuck a lot of change at it to reduce it.

I realise your numbers are just made up but remember that the math for those scenarios is quite different. Most people forget that a house worth \$50,000 in 1980 is worth more than \$1,000,000 in 2017 dollars. I know I'd prefer to pay 4% rather than 20% no matter when I bought a house.

Household income: 100,000

100,000 * 4 = 400,000 @ 20% is \$80,000.

100,000 * 7 = 700,000 @ 4% is \$28,000.

## mattwnz

16857 posts

Uber Geek

#2041022 20-Jun-2018 13:32

UHD:

I realise your numbers are just made up but remember that the math for those scenarios is quite different. Most people forget that a house worth \$50,000 in 1980 is worth more than \$1,000,000 in 2017 dollars. I know I'd prefer to pay 4% rather than 20% no matter when I bought a house.

Household income: 100,000

100,000 * 4 = 400,000 @ 20% is \$80,000.

100,000 * 7 = 700,000 @ 4% is \$28,000.

But a 50k in 1980, is only worth 250k in 2018 money when taking into account inflation, and not 1 million dollars, as per https://www.rbnz.govt.nz/monetary-policy/inflation-calculator  That is where the big problem is, as house inflation is far far higher than normal inflation, so house price inflation greatly exceeds wage growth. Back when houses were cheaper and interest rates were lower, far less people go mortgages. Also those that did tended to get them for a smaller percentage of that purchase price. These days people are getting 80% plus mortgages.

I would rather pay 10% interest on a house worth 250k, say going back to an average interest rates say in the 90's, than 4% on a house worth 1 million, at historically low interest rates. We do need to remember that these current low rates are a byproduct of the 2007 financial crisis, so at some stage will likely go up. Apparently the RB is looking at raising rates next year? But the  US rates are already rising. If I had a huge mortgage on a million dollar house, I think I would be a little worried about being able to continue servicing it, if I hadn't factored in that rates could easily go up to 8%+.

## mattwnz

16857 posts

Uber Geek

#2041023 20-Jun-2018 13:35

BlueShift:

mattwnz:

esawers:

We do similar, have 2 ANZ savings accounts (the ones you get penalized for withdrawing money)

When we need to withdraw money I transfer the whole lot into the every day account, and then transfer what we don't need back into the 2nd savings account. Means we don't lose the bonus interest if we do it on the 1st of the month, and if we do it part through the month we are still getting the bonus interest on the remaining days.

I think some banks prevent having two accounts to do this.

It would work just as well with accounts at two different banks, so the bank is only hurting themselves.

It could, except there is usually a days delay, and banks make it difficult these days to move large amounts, as it can take days to clear. Not only that, but we don't have many banks in NZ and not all do these types of account, so if you split you money between banks to spread risk, their is a lot of mucking around involved.

## mattwnz

16857 posts

Uber Geek

#2041025 20-Jun-2018 13:37

tripper1000:

mattwnz: ... But cheap credit can only last so long before something breaks IMO, and IMO it has caused huge damage, especially with how much house prices have risen, which is based largely on 'affordability'....

The papers already have a weekly smattering of articles about destitute home owners who can't afford to eat. Something will break big time when mortgage rates go up and house values take a dip.

I haven't seen many articles recently about that sort of thing. The media instead seem to publish a lot of good news stories, such as people who have recently been able to afford to buy a house, by making some sacrifices, and how buying a house is still possible. etc.

## UHD

656 posts

Ultimate Geek
Inactive user

#2041412 20-Jun-2018 21:51

mattwnz:

But a 50k in 1980, is only worth 250k in 2018 money when taking into account inflation, and not 1 million dollars, as per https://www.rbnz.govt.nz/monetary-policy/inflation-calculator

Correct, housing is not cash. This behaviour is expected from all investment vehicles otherwise investors would not be attracted to them. Take a guess at what the percentage increase of an investment in a S&P US500 index since 1980 would be.

mattwnz:

That is where the big problem is, as house inflation is far far higher than normal inflation, so house price inflation greatly exceeds wage growth.

Actually, this has been the norm for about as long as civilisation has existed. Over the long term housing costs always increase faster than inflation and wages as materials and wages must be paid for any new building and for repairs/maintenance not to mention land increasing in value due to relatively constant demand. Compared to alternative investment vehicles, housing increasing at just under 4x the rate of wages in almost 40 years is not exceptional.

mattwnz:

Back when houses were cheaper and interest rates were lower, far less people go mortgages. Also those that did tended to get them for a smaller percentage of that purchase price. These days people are getting 80% plus mortgages.

Do you have a source for this? Even better, a NZ source stating that far less people in 1980 than today took out mortgages. I can't imagine many people first home buyers had 4x their annual household income saved up to spend on a house any more than Kiwis today have 4x their annual household income saved up for a deposit. If that was the case we'd have a hang of a lot less whinging about being unable to buy a house.

## dunnersdude

160 posts

Master Geek

#2041417 20-Jun-2018 21:55

pom532:

When I was using the Rabo account where you need to add \$50/month, I'd wait until the start of the month when I needed to make a withdrawal and I'd move everything into the normal oncall account and then take what I needed out of that. That way you earn more than the base rate on the premium.

this

This because you can time unplanned events to always fall at the same time each month.

## mattwnz

16857 posts

Uber Geek

#2041440 20-Jun-2018 23:43

UHD:

Correct, housing is not cash. This behaviour is expected from all investment vehicles otherwise investors would not be attracted to them. Take a guess at what the percentage increase of an investment in a S&P US500 index since 1980 would be.

That is where the big problem is, as house inflation is far far higher than normal inflation, so house price inflation greatly exceeds wage growth.

Actually, this has been the norm for about as long as civilisation has existed. Over the long term housing costs always increase faster than inflation and wages as materials and wages must be paid for any new building and for repairs/maintenance not to mention land increasing in value due to relatively constant demand. Compared to alternative investment vehicles, housing increasing at just under 4x the rate of wages in almost 40 years is not exceptional.

I agree that the growth as an investment is not exceptional, and the sharemarket may have done as well. But the big difference is that the 'family home' shouldn't be treated like an investment, as warm shelter is a basic necessity. But the problem is that we have been treating housing as more of an investment over recent decades. The problem is that price rises like that aren't sustainable long term, because people can only afford to service a mortgage based on their earnings. So if wages are only going to increase by inflation, and interest rates stay static, then house prices can then only rise by the wage growth due to supply and demand. Not unless there are external buyers from overseas, which has been happening, and was denied for years as being a major factor in house price growth. However  one major factor that has made a difference, is that back in the 70's,and 80's often only one partner worked, so there was often only a single income coming in. But now it is normal for both partners to work, so people can afford to pay more, and service a large mortgage.

UHD:

Do you have a source for this? Even better, a NZ source stating that far less people in 1980 than today took out mortgages. I can't imagine many people first home buyers had 4x their annual household income saved up to spend on a house any more than Kiwis today have 4x their annual household income saved up for a deposit. If that was the case we'd have a hang of a lot less whinging about being unable to buy a house.

I don't know if such stats exist, and I was too young to go through it. But going by what older people have told me, some said then they purchased a house, they rented for years before buying, and those that did get mortgages said that they only got a small one, due to the very high rates at the time, and they repaid it back as quickly as possible. They also said that mortgages were a lot more difficult to get back in the 70's and 80's, and a bank manager often had to come and visit the house you were buying to see if it was worth them lending on it. I do remember seeing an article that  back then, home lending was not a major part of banks lending, compared to today. But even if the same percentage of people were getting mortgages back in the 70's and 80's, the amount borrowed as a ratio of their annual earnings I suspect would be a significantly smaller percentage.

## mattwnz

16857 posts

Uber Geek

#2041443 21-Jun-2018 01:03

mattwnz:

UHD:

Correct, housing is not cash. This behaviour is expected from all investment vehicles otherwise investors would not be attracted to them. Take a guess at what the percentage increase of an investment in a S&P US500 index since 1980 would be.

That is where the big problem is, as house inflation is far far higher than normal inflation, so house price inflation greatly exceeds wage growth.

Actually, this has been the norm for about as long as civilisation has existed. Over the long term housing costs always increase faster than inflation and wages as materials and wages must be paid for any new building and for repairs/maintenance not to mention land increasing in value due to relatively constant demand. Compared to alternative investment vehicles, housing increasing at just under 4x the rate of wages in almost 40 years is not exceptional.

I agree that the growth as an investment is not exceptional, and the sharemarket may have done as well. But the big difference is that the 'family home' shouldn't be treated like an investment, as warm shelter is a basic necessity. So even if someone makes a loss when selling a house, they have still gotten to live in it during that time, which has a value to it. But the problem is that we have been treating housing as more of an investment over recent decades. The problem is that price rises like that aren't sustainable long term, because people can only afford to service a mortgage based on their earnings. So if wages are only going to increase by inflation, and interest rates stay static, then house prices can then only rise by the wage growth due to supply and demand. Not unless there are external buyers from overseas, which has been happening, and was denied for years as being a major factor in house price growth. However  one major factor that has made a difference, is that back in the 70's,and 80's often only one partner worked, so there was often only a single income coming in. But now it is normal for both partners to work, so people can afford to pay more, and service a large mortgage.

UHD:

Do you have a source for this? Even better, a NZ source stating that far less people in 1980 than today took out mortgages. I can't imagine many people first home buyers had 4x their annual household income saved up to spend on a house any more than Kiwis today have 4x their annual household income saved up for a deposit. If that was the case we'd have a hang of a lot less whinging about being unable to buy a house.

I don't know if such stats exist, and I was too young to go through it. But going by what older people have told me, some said then they purchased a house, they rented for years before buying, and those that did get mortgages said that they only got a small one, due to the very high rates at the time, and they repaid it back as quickly as possible. They also said that mortgages were a lot more difficult to get back in the 70's and 80's, and a bank manager often had to come and visit the house you were buying to see if it was worth them lending on it. I do remember seeing an article that  back then, home lending was not a major part of banks lending, compared to today. But even if the same percentage of people were getting mortgages back in the 70's and 80's, the amount borrowed as a ratio of their annual earnings I suspect would be a significantly smaller percentage.

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