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Will there be another property boom in the next 5 years?

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  • #31
    Could you have afforded it on a single income?


    Mortgage stress - the share of households paying more than 30 per cent of disposable income on home loan repayments - is now higher in Brisbane than in the Harbour City, with Melburnians under almost as much pressure.
    About 58 per cent of Brisbane residents with mortgages now meet the "stress test", up from 36 per cent a decade ago,

    http://www.smh.com.au/business/mortg...025-16zlf.html

    Comment


    • #32
      nothing arbitrary about it chris

      take it up with people who study these things and publish reports if you like

      And in case you were wondering, the most expensive places to buy a house in the countries studied were all in the U.S. - with the top being Los Angeles, followed by Salinas, California, San Francisco, Honolulu and San Diego. But both Australia and New Zealand were found to have the most unaffordable homes overall, costing buyers 6.3 times their annual income. In Canada, it's just 3.1.

      The Scale
      Affordable: 3.0 or less of household income
      Moderately Unaffordable: 3.1 to 4.0
      Seriously Unaffordable: 4.1 to 5.0
      Severely Unaffordable: 5.1 & Over

      http://www.citytv.com/toronto/cityne...ome-in-the-gta

      The Roost report, published nationwide this week, is calculated on the proportion of a single median after-tax income needed to service an 80 percent mortgage on a median house.

      It takes 43.1 percent of one median income to pay the mortgage on a median-priced Gisborne house bought in September —down from 45.5 percent in August.

      Roost says anything above 40 percent is considered unaffordable.


      http://www.gisborneherald.co.nz/article/?id=19914

      New Zealand cities remain among the least affordable in the world – and the culprit is mainly due to “green belt” policies by local authorities.
      New Zealand ranks just behind Australia as one of the two most unaffordable countries among those measured by the sixth Annual Demographia International Housing Affordability Survey covering 272 urban markets in Australia, Canada, Ireland, New Zealand, the UK and the US.

      http://www.nbr.co.nz/article/zoning-...-a-home-117490
      Last edited by eri; 26-10-2010, 06:13 PM.
      have you defeated them?
      your demons

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      • #33
        I note house prices doubled from around 2001 to xmas 2007. i don't think wages would had doubled (if you stayed in the same JOB (Just Over Broke)). The house my parents bought in 1981 has gone up by a factor of 10.

        So it is probably safe to say the average house price have doubled every 7 or 10 years. No doubt the average is getting more and more stretched both ways... (ie. the gap between the "haves" and "have nots" is getting bigger!).

        I would bet house prices to double again but I can't know when and over how many years (I doubt Warren Buffet could either). Everyone has to live somewhere and the population is going up and land size is staying the same. I also think more and more people will choose to rent over paying a mortgage, rates, insurance, maintenance.
        Profiting from Property, not People

        Want free help on taking your portfolio to the next level?

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        • #34
          Now, this is affordable .


          A property owner was devastated when a building society refused to give him a mortgage - and valued his house at just £1.
          Paul Rooney, 42, spent £10,000 on a new kitchen and conservatory after he bought the two-bedroom Victorian end-of-terrace for £86,000 near Durham in early 2007.
          But the businessman was stunned when he applied for a mortgage on the property with Nationwide and valuation officers who visited the house gave it a £1 price tag.


          Read more: http://www.dailymail.co.uk/news/arti...#ixzz13RlvkEgQ

          Comment


          • #35
            Originally posted by speights boy View Post
            Now, this is affordable .


            A property owner was devastated when a building society refused to give him a mortgage - and valued his house at just £1.
            Paul Rooney, 42, spent £10,000 on a new kitchen and conservatory after he bought the two-bedroom Victorian end-of-terrace for £86,000 near Durham in early 2007.
            But the businessman was stunned when he applied for a mortgage on the property with Nationwide and valuation officers who visited the house gave it a £1 price tag.



            I used to live near there and while it is not a great area, 86,000 pounds does not seem to unreasonable a valuation for that type of house in that area. Maybe the building society were just sending a message. He does after all have 33 properties.

            Comment


            • #36
              Originally posted by ChrisD View Post
              My partner and I have just bought our first home. We're on average incomes, and had only a 10% deposit ($33k) and could afford an average property here in Tauranga. Your (again, arbritrary) label of "unaffordable" belies my direct first hand experience.
              Firstly, I admire the fact that you've stepped up to the plate & bought your first home. Your home cost 330K right? - less 33k deposit. Lets's assume you've borrowed +/-300k (just to keep things in nice round figures)
              Using the Westpac Mortgage Calculator. I've calculated the following.
              Loan A
              Amount / interest $ 200,000 @ 6.69% p.a.
              Type Fixed
              Payment amount / frequency $ 696 fortnightly
              Term of loan 20 years 0 months
              Total interest cost $ 163,008
              Loan B
              Amount / interest $ 100,000 @ 6.10% p.a.
              Type Floating
              Payment amount / frequency $ 722 monthly
              Term of loan 20 years 0 months
              Total interest cost $ 73,330

              If you lived in the house for the next 20 years until it's paid off you will have paid 536,338 for the house including interest. $230K is an awful lot of interest to pay to the banks, even if rates stay at their current ridiculous levels for the next 20 years which they will not. They won't even stay at these ridiculous levels for another 6 months. The cost of sourcing funds offshore is putting a squeeze on the banks margins & soon they will be passing the higher cost of funds onto their customers.

              Your monthly payment, based on the term, split & rates is approximately: $2100. About $525 per week. Compare that to an average 3 X bed rental at about $320 per week and that $800 per month difference starts to look pretty big.

              I think you've taken a big risk buying with only 10% and in my view you could find yourself, without too big a stretch of the imagination owning a house worth less than the mortgage on it. It happens you know. If you needed to get out because of a change of circumstances you could end up taking a bath. It happens.

              Now lets look 12 months into the future. I'm basing the calculations on the not unreasonable presumption of interest rates only 1% higher.

              Loan A
              Amount / interest $ 200,000 @ 7.69% p.a.
              Type Fixed
              Payment amount / frequency $ 752 fortnightly
              Term of loan 20 years 0 months
              Total interest cost $ 191,994
              Loan B
              Amount / interest $ 100,000 @ 7.10% p.a.
              Type Floating
              Payment amount / frequency $ 781 monthly
              Term of loan 20 years 0 months
              Total interest cost $ 87,514

              Now you're getting really close to paying the banks almost twice what you've borrowed & your monthly payment is about: $2285 or $570 per week. I can't see rents in Tauranga rising by an equivalent amount in the next year, if anything, they will remain flat. The Bay's economy isn't all that flash, even though it is a lovely place to live. The inevitable slowing housing market will have a negative knock on effect across the region.
              Council rates will continue to rise, New Zealand councils after all are terribly wasteful entities. They simply don't understand reigning in costs. Insurance will also rise, someone has to pay for the huge insurance bill in Canterbury.

              The truth is: I wouldn't be in your shoes with a 90% mortgage in an uncertain economic climate. Rates could potentially rise by more than 1% in the next year. Let's say they rise by 2.5% over their current levels - it's possible. Your looking at a weekly mortgage payment of $630+ PW.

              These figures are notional of course & you've always got the option of extending the term of your loan or switching to interest only, in which case you are digging yourself an even deeper hole.

              I'm very different than you. I would not purchase a property with 10% or even 30% down in the current climate. We are in an easy money timewarp which can't last. Interest rates WILL go higher, much higher as governments all over the globe attempt to reign in inflation after the crazy spend-up of the last three years. Sure, the hundreds of billions of dollars spent saving the global economy was necessary but so too will reigning in the inflation that will spill-over because of the stimulus. In my view, you've taken a big gamble.

              Personally, I have temporarily abandoned New Zealand, a place I love dearly to come & work in Australia. My plan is to continue to accumulate cash & buy when NZ property becomes affordable. Even if prices stay flat for the next year or so, we will have accumulated enough additional cash to buy without borrowing beyond our ability to repay regardless of the how the economy shapes up.

              Different strokes for different folks.

              Comment


              • #37
                Originally posted by mortgage broker View Post
                I wonder what the next bubble will be. Maybe gold.

                Nah - wool ! You heard it here first

                Comment


                • #38
                  Originally posted by DaveW View Post
                  I note house prices doubled from around 2001 to xmas 2007. i don't think wages would had doubled (if you stayed in the same JOB (Just Over Broke)).
                  Household income went up 60% during this period.
                  Just need another 25% to match the house increase.

                  Comment


                  • #39
                    Originally posted by Munga View Post
                    Nah - wool ! You heard it here first
                    In light of recent events an interesting snippet from 2008.

                    Last week, South Canterbury Finance said it had bought a 44 per cent stake in WSI from Timaru millionaire Allan Hubbard. SCF chief financial officer Graeme Brown said it was a reshuffling of Hubbard's interests because he owned SCF.

                    http://www.stuff.co.nz/business/357091

                    Comment


                    • #40
                      Originally posted by LKSteve View Post
                      Your monthly payment, based on the term, split & rates is approximately: $2100. About $525 per week. Compare that to an average 3 X bed rental at about $320 per week and that $800 per month difference starts to look pretty big.
                      So what you are saying is really that the price of owning your own home mortgage free after 20 years is $800 pr. month. Now let's see what that amounts to: $800 * 12 months * 20 years = $192,000.
                      So (because you'd have to rent otherwise) the net cost of owning the house mortgage free in 20 years time is just $192,000 (+ rates and maintenance of course). Now that's assuming rents stay the same for the next 20 years which of course they won't...
                      All in all that looks like a pretty good deal to me! Can't see why you would ever not want to own your own home.

                      ChrisD, go and buy another one while you're at it
                      High resolution Fractal Art on quality canvas: www.FractalArt.co.nz

                      Comment


                      • #41
                        Originally posted by Bob Kane View Post
                        Can I answer?
                        Investors drive the market down if anything.
                        We're always offering lowball figures, 30% under value etc.
                        If there were only investors in the market then it would have crashed years ago.
                        The housing market is driven by home owners (both 1st home buyers and existing owners), not investors.

                        Well this would be true if you consider the sophisticated investors. However, a lot of the house buying done during the boom was by babyboomers belatedly sinking their assets and inheritances into property as they drift towards retirement. Yes they are 'investors' but by and large, not savvy in property investing. If so they would have been chasing yields in preference to capital growth.

                        A lot of people still just don't get the fact that demographics drive booms and always have done. (ie a bulge in the population at an age where higher income coincides with reduced expenses)

                        Comment


                        • #42
                          There is a lot of media and political attention paid to the statistics on affordability of house prices. We can't deny the statistics are correct and higher than historical. I always reckon that the incorrect cause of the affordability is placed on the house price.

                          Reality is that the income/wages in the equation is equally if not more so at fault. A lot of comparisons also made about NZ incomes relative to Australia and elsewhere that they are low. However, this is forgotten about in comparison to houses. A couple of years of 3-5% wage increases will reset the equilibirum - at least in the NZ house affordability stakes.

                          Recently the tax changes have been used to help compensate for our lower incomes, but that doesn't in itself solve the problem. It is the wages/salaries that are paid.

                          The other topic being covered here on investors driving the market, is true of the bottom end of the market where investors buying on yield can drive prices up and cause competition to first home buyers. At the top end of the market it is driven by other fundamentals of home owners not investors.

                          Comment


                          • #43
                            We can't deny the statistics are correct and higher than historical.
                            Just as in the sharemarket - historical performance should not be used as a guide to the future.

                            Who is to say that, in 5-10 years, NZ won't have become a 'renters' society, with property prices out of reach of all but the top 20% of earners and overseas investors.

                            There is no law of economics that I'm aware of that says that home ownership rates must be sustained at 50, 60 or 70%
                            DFTBA

                            Comment


                            • #44
                              Originally posted by Jumpin View Post
                              A lot of people still just don't get the fact that demographics drive booms and always have done. (ie a bulge in the population at an age where higher income coincides with reduced expenses)
                              Still trying to digest this.
                              Are you saying house prices won't drop while the current population bulge exists?

                              Comment


                              • #45
                                Not at all. The boom is over. It finished 3 years ago. We are on the soft side of the curve. The 'bulge' is now heading towards buying healthcare, small cars, places in retirement homes, mobility devices etc.
                                House prices won't firm significantly until the next spending peak occurs towards the end of this decade with the echo boomers.

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