Header Ad Module

Collapse

Announcement

Collapse
No announcement yet.

"Now is the Time To Buy"

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • #16
    Even the doomsayer is changing his mind. Figured out its cheaper to own than rent. Forgot to include increasing rents in his calculations though. Tells all the ladies they should now go and have babies; like they haven't already figured that out. More the better.

    Bernard Hickey: Time is right to buy
    4:00AM Sunday Apr 12, 2009
    Bernard Hickey

    For years, the common refrain from potential home buyers has been that it's cheaper to rent than buy.

    The sharp rise in house prices from 2003 to the end of 2007, combined with a rise in the two-year fixed mortgage rate from 6 per cent to almost 10 per cent over the same period, seemed to be the death knell for many dreams of home ownership.

    But that picture has changed dramatically in the past year as interest rates have fallen, house prices have fallen, rents have remained broadly stable and after-tax pay has improved because of wage growth and tax cuts.

    Analysis by interest.co.nz shows it's now cheaper for a typical first home buyer's household to buy than to rent, when rates, maintenance and insurance costs are excluded. It also excludes the opportunity cost of interest earned on a deposit amount instead sunk into a property.

    Measuring these costs is important, but we haven't yet found typical measures given the variances in rates bills, insurance and maintenance depending on the type and location of property.

    But the picture is clear. The major cost of home ownership - interest costs on a mortgage of 80 per cent of a first-quartile home (ie the midpoint between the lowest-priced houses and the median house price) were around 1.5 per cent less than the rent on a similar-sized house in January and February.

    This is the first time since we started collecting the data at the beginning of 2006 that it's cheaper to buy than to rent and is a major improvement on the 10.3 per cent premium for buying over renting in November 2007.

    We're assuming this first home buyer's household is made up of two 25 to 29-year-olds, median salary earners considering moving into a median-priced three-bedroom rental house rather than buying a first-quartile priced house. This is the "classic" couple at that point where they're considering starting a family.

    This is where the dream of home ownership is most potent and we think the decision-making point is most concentrated. We've heard repeatedly in recent years how couples in their mid- to late-20s have come to this point and decided to leave New Zealand because there was no hope they could buy a home and start a family.

    I'm sure it was one of the driving factors in the exodus of young New Zealanders (and their parents) to Australia in the past three years.
    ( No, I don't think so. They left because of Govt. and higher wages unlike in the 90's when the went because they could buy a house that was better and cheaper. You can't do that in Aussie now.)

    Our calculations show this couple now earns $1307.87 after tax each week, up from $1221.13 a week in November 2007, when house prices peaked.

    Then, the mortgage payments on an 80 per cent mortgage for a first-quartile home were 34.9 per cent of take-home pay. The rent on a three-bedroom home soaked up 24.6 per cent of after-tax pay. So the advantage of renting was essentially worth 10.1 per cent of net pay.

    Now that gap has narrowed to the point in February where it has become negative for the first time. It now takes 23.7 per cent of after-tax pay to afford the rent on a three-bedroom house, while it takes 22.3 per cent to afford the mortgage.

    Obviously, the costs of maintenance, insurance and rates will mean it is still more expensive to own a home, but it is now within that margin of error where the heart can conquer the head.

    Another way of describing it is to say the footloose and fancy-free husband no longer has any good excuses to put off the nesting instincts of the wife. In other words, it's time for another baby boom. (Complaints please to [email protected]).( hasn't noticed that already happening. duh)
    So what might this all mean for the property market and New Zealand's demographics?

    For years, real estate agents have told first home buyers that rent was "wasted" money that could be put to better use in "compulsory saving" on the mortgage. Of course, this isn't strictly true and pointing out the the obvious extra expense of a home loan made for an easy rebuff. Not for much longer.

    But it may not contribute to a rebound in house prices. Banks are now tougher with their lending criteria, particularly for those wanting to borrow more than 80 per cent of the value of a home. The lure in days gone by of easy capital gains has also evaporated, discouraging the sort of highly leveraged first home buying seen through 2005, 2006 and 2007. ( Really!!!)

    Sales volumes, however, are already picking up as first home buyers dip their toes back in the real estate market to snap up bargains from distressed sellers.

    This shift in the rent-versus-buy calculation is also great news for New Zealand's population trends, discouraging migration of New Zealand-born citizens and encouraging family formation, with all the social benefits that entails.

    It all depends on house prices continuing to fall,(eh?), interest rates staying low and incomes continuing to rise. This analysis also excludes the effects of rising unemployment. That may be the variable that renders this structural change in our economy redundant for now. ( and rentals rising!!)

    * Bernard Hickey is the managing editor of www.interest.co.nz, a website for investors and borrowers wanting free and independent news and information about interest rates, banks, finance companies and the economy.
    Last edited by Viking; 12-04-2009, 09:34 AM.

    Comment


    • #17
      You read it here first.... get into Gold and Silver coins... not paper spot or hedge per oz... buy gold coins because you will have an historical value and you will have something tangible not a piece of paper!
      Err - no, actually I read it first in about 1983, when I first took a slight interest in such things!

      And as well as not having a piece of paper, you'll not have a 'tangible asset' that can be used as security or one that provides any income. Come 'the revolution' (as we used to say!), it'll be easier to swap a days labour for food that a gold coin, IMHO.

      Gold has no intrinsic worth, it's value is just as subject to the pro- and anti- spin merchants who variously claim that gold will crash to $500 per oz or rise to $2,000+ as house prices can be at volatile times like these.

      Which way it goes will depend, really, on what you can buy with a $1 - if the US $ collapses in the face of a slow but sure Chinese sell off, then of course Gold will rise in US$ terms. The question for NZers is whether the NZ$ will go with the US$ or maintain its value relative to the selection of other major trading currencies (AU$, RMB, Yen, Euro etc) that don't become a basket case.

      Whilst the US$ remains the world's de-facto reserve currency, the price of Gold in US$ will remain important, but if it loses that status, as is being discussed in some quarters, then who (outside of the US) will care about the price of the yellow metal in what will become just another national currency?

      cube
      DFTBA

      Comment


      • #18
        "" get them here, Gold coins... the way of the future ""

        I just love that. Laughed a lot. I pictured Monty Python's Eric Idle.
        You could be right in your suggestion that gold won't be all it is expected to be. But then, it might go through the roof.
        Either way I'd like to place bets.
        I merely enjoyed the timely allusion that you made.

        Comment


        • #19
          So is Bernard Hickey sticking to his prediction of a 30% drop in RE prices by the end of 2009 ... or not?

          What an idiot.

          Comment


          • #20
            Hmmm. Well I just checked Trademe as I do and the Tauranga listings have fallen by 150 from the peak a few months ago. Lot of newly dated listings in the area i looked at so something is going on out there. Consistent with what the agents tell me.
            We are looking forward to a good migration season over the next few years. Looks like the ever hopeful Aucklander's are going to get the egotistical Sir John Banks as Lord mayor. (why else did the other John bring back Titular honours?).
            Now that should encourage a lot of the jaffa's to move South (or North) as they feel even more disenfranchised.
            Lesson, buy Tauranga, Coromandel,North of Rodney even Hamilton.

            Comment


            • #21
              Yep I like Tauranga, the Mount and Papamoa in the tahatai school zone.
              It's been good to me over the years and I am sure it will continue to do so in the future.

              Oh yeah the back porch does great coffee too which also helps my love of the area.

              Comment


              • #22
                FYI - I have moved the 'coffee bean' discussion to the Coffee Lounge: http://www.propertytalk.com/forum/sh...ad.php?t=20962
                Lisa

                Comment


                • #23
                  lol..... sounds like a good place for it to be.

                  Comment


                  • #24
                    Don't count me out guys... When the bottom hits and it will I will be coming back into the market but it's not this year as it's just going to keep falling.

                    Any brokers or real estate websites are going to spin it so it's up to you to see common sense and logic its simply never been this bad - stop kidding yourself.

                    You can't print money that does not exists and that's what our governments are doing... they are paying back privately owned central banks that we the people have no control over! There not our banks and they should have, like any other operating businesses, been allowed to fold - if you owned a business and you faced hard times like these banks you would have no help.

                    But this is not the issue its the printing of trillions of dollars that you need to analyse and not ignore... you don’t just stick your cash in a bank or invest in a property... if you do without research and analyses you deserve everything that happens to you. I pulled all my cash out and sold up 18 months ago... sure I did not hit the peek but I got out with not big losses some folks are not as fortunate but if I had one property on the books now I would get out.

                    For now my cash is tied up in historical gold coins I have already increased by 35%... Terry that's 'H' as in history not a paper contracts spot of hedges! I own my numismatic gold and silver coins unlike folks who buy paper gold. And no I am not here to sell anything Terry just seeing what all the fuss is with clowns who think the market is stable or going to go up in the next 30 or 40 years. If you haven't got it now you never will!!! There is way tooooo much debt we simply cannot come back from this one it's this serious!

                    Comment


                    • #25
                      So you have 100% of your portfolio in gold do you east?

                      Allowing local banks to collapse is probably one of the less educated comments I have heard so far.

                      What happens to commerce if all the local banks collapse East?

                      Do you have a job?

                      How will you be paid if our local banks collapse?

                      How will customers pay your employer if local banks collapse?

                      Systemic risk is not something you normally associate with countries like NZ, OZ , US etc however it is a major risk ight now.

                      Allowing our banks to collapse would put us into the same boat as zimbabwe in about 2 seconds East. Then your gold would be useful.

                      Comment


                      • #26
                        Originally posted by tpr2 View Post

                        Do you have a job?

                        How will you be paid if our local banks collapse?

                        How will customers pay your employer if local banks collapse?
                        Sorry but that was not very educated either Terry.

                        Jobs have existed for centuries before modern banking has.

                        The payment (rather well known and recognised even today by those working in the building and construction traders) can be in:

                        - Cash (real or fiat)
                        - Bartered goods and services
                        - Promises/Obligations

                        The last are no worse but probably better than the promises of disfunctional, state-support needing banks.

                        Zimbabwe has an extremely active central banking system. They're very good at printing large volumes of ever more valueless money, and the Western societies have only started to learn this art.

                        However, I also entirely agree that bailing out the banks was an easier, far less risky option, but I am really surprised that the taxpayer hasn't ALWAYS assumed some or sometimes even sole ownership of the rescued banks.

                        Once you go begging for government money and get it, you're simply not a private party anymore. You're government's little b****, and should be treated as such by every independent private or legal entity out there.

                        Comment


                        • #27
                          Fair call 679, I was being extremely simplistic to make a point.

                          The reality is though that if you let the banks collapse today, then it will take some time for those other methods of payment for example to be organised.

                          Cash is an easy answer but take my Oz business for example. $40,000 per month of fixed expenses. So I need to make sales of $1000,000 per month to pay the sales team, pay the bills and have a bit left over for me.

                          Now $100,000 in cash is a fair bit of money to keep on hand. Not only that but telstra who gets up to $10,000 (max) per month doesn't have an office nearby for me to be able to take that bag of money over to.

                          The landlord gets $8k so I guess he would show up cap in hand with little bag and the staff of course have no trouble in taking their bit home in their wallets.

                          The guys who lease us the copier expect just over a grand each month but they are in Brissy so not too keen on popping down to pick up a lousy $1000 unless they have other businesses in the area they can collect from.

                          The Mercedes boys want their $3500 per month but they are a long way away.

                          So the cash idea probably won't work for a few of those....they could take my "promise / obligation" but wholly crap the whole world has just collapsed so why on earth would we accept a promise from that Terry bloke, after all if the banks can collapse he probably could too.... cash only please but how do we get it?

                          Yes the banks will be the governments little b***** however is this really a bad thing considering how they have performed so far lol

                          Comment


                          • #28

                            The reality is though that if you let the banks collapse today, then it will take some time for those other methods of payment for example to be organised.
                            Not only reorganised, but probably entirely reinvented. Way too much political risk, and way too much work involved to reorganise the financial system essentially from scratch. That option was a no-go from the start.


                            So the cash idea probably won't work for a few of those....they could take my "promise / obligation" but wholly crap the whole world has just collapsed so why on earth would we accept a promise from that Terry bloke, after all if the banks can collapse he probably could too.... cash only please but how do we get it?
                            I'd prolly trust old Terry I know personally over many esentially faceless and shame-free financial institutions out there.

                            Comment


                            • #29
                              Be Patient, and Wait:

                              Current yield on Auckland houses: 3.5-4%.

                              Current on-call rate at the bank: 3.5%

                              Sit tight.

                              Comment


                              • #30
                                Originally posted by 67910241 View Post
                                Not only reorganised, but probably entirely reinvented. Way too much political risk, and way too much work involved to reorganise the financial system essentially from scratch. That option was a no-go from the start.



                                I'd prolly trust old Terry I know personally over many esentially faceless and shame-free financial institutions out there.
                                awww thanks 679

                                Comment

                                Working...
                                X