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

[LKSteve]

Can't see why you would ever not want to own your own home.

I would imagine that many of the people facing foreclosure & financial ruin in the US wished they'd stayed renting.
Home ownership makes sense if you can afford it. If you've got to borrow against your potential earnings for the next 20 years then it's risky. It's funny you recommend he buy another house, are you suggesting he leverage his $30K equity? In a falling market? In a flat economy?

[Truckie&wife]

We are not in the US.

Home ownership still makes sense to most people in NZ.

Most people who rent the house they live in, do so not because they are actively and deliberately opting to not buy or pay off a mortgage. Usually it is the only choice they think they can afford and have no deposit or equity they can use to get into their own home.

[Rolf]

I would imagine that many of the people facing foreclosure & financial ruin in the US wished they'd stayed renting.
Home ownership makes sense if you can afford it. If you've got to borrow against your potential earnings for the next 20 years then it's risky. It's funny you recommend he buy another house, are you suggesting he leverage his $30K equity? In a falling market? In a flat economy?

It's always possible to make improvements to the property, refinance and get access to more equity. Of course what makes a prudent investment decision depends on personal circumstances, level of income etc. But in principle, yes I'm recommending to buy more.
Do you really know it's a falling market? Do you know it's a flat economy? I think only time will tell. And in the long term I think there is only one direction and that's up.
But I'd be interested in knowing what you thought about the $192,000 net cost of owning a mortgage free property after 20 years?

[Austrokiwi]

But I'd be interested in knowing what you thought about the $192,000 net cost of owning a mortgage free property after 20 years?

But it isn't a $192,000 cost. The $800 difference should be adjusted by the risk free rate of return ie: if you stick the 800 difference in the bank each week and total it with the compounding interest. Assuming a 4% after tax interest rate over the 20 year period the cost is actually $1,275,631. This does not include taking into account rates and maintanance costs.

Mistake i took the 800 weekly monthly it is a lot less $212702 adding in rates at 1200 per year adds another $38,363

[Rolf]

But it isn't a $192,000 cost. The $800 difference should be adjusted by the risk free rate of return ie: if you stick the 800 difference in the bank each week and total it with the compounding interest. Assuming a 4% after tax interest rate over the 20 year period the cost is actually $1,275,631. This does not include taking into account rates and maintanance costs.

Mistake i took the 800 weekly monthly it is a lot less $212702 adding in rates at 1200 per year adds another $38,363

It was always a back-of-the-envelope calculation, but as I said in my first post we'd then also have to consider that rents rise with inflation too and therefore the $800/month extra cost of owning gets significantly less over the years.

So if we use the numbers from LKSteve's original example then we have $525 weekly mortgage and $320 weekly rent.
Lets then assume $1200 annual rates, $500 annual insurance and $3000 annual maintenance, all of which rise with an inflation rate of 3%. The rent rise with inflation too - and the mortgage costs stay the same.
(And please note that when rates, insurance and maintenance are included then it's actually a difference of $1280 per month, not $800)

Over 20 years I then get:
Total mortgage $546,000
Total rates $43,347
Total insurance $18,061
Total maintenance $108,367
Total cost of ownership $715,774

Versus
Total cost of renting $601,074
= Difference of $114,701

So the net cost of owning the house mortgage free in 20 years is $114,701, not $192,000. Seems even better now. Of course that money could have been saved, invested or whatever. But in reality it rarely isn't saved, most likely it'll be spent - but that's another story.
Anyway if we assume 4% inflation rate then the difference is only $22,760...
Or if we assume a 28 year mortgage instead of 20 years, at just 3% inflation it comes to a difference of minus $500, so owning is actually cheaper in that case.
Added to that of course comes the other benefits of owning ie. not having to move at the whim of a landlord. So all in all I certainly don't see why one should not buy a PPOR, if income etc allows for it.

[DaveW]

Plus the value of houses may well double twice over the next 20 to 25 years (if historical trends continue). Your $300k house becomes $1.2mil in 2030s and you'll be kicking yourself for not buying that 2nd house back in the recession of 2010.

[LKSteve]

Hey Rolf & DaveW. You two make a very convincing argument for property ownership. I'm really re-thinking where I stand on all of this! Thanks for helping me see the light. I'll never look at property in the same light again. Why I couldn't see this magnificent opportunity before is beyond me. Thanks Guys.

[One]

And then add in another, say, another 100K for maintenance/renovations and it's about 350K to own the house in 20 years time, in today's dollars. [and that's assuming the 192K first posted here - I didn't see the follow up posts so am late to the maths ]

You're young, right? Let's suppose that you live 40 years after that. Assuming your average rent of $320, in those 40 years you'd pay $665,600 in rent in today's dollars. But your $800/month difference would grow to $2,285,000 at 4%.

If instead you bought the house, you could spend those 40 years investing the whole $525 per week. That'd give you about $2,689,000 at 4%. Then subtract another $300,000 for rates, maintenance etc, to give you about $2,389,000.

So if you buy, pay off the mortgage and then invest the mortgage payments, you're $100K of today's dollars better off than lifetime renting AND you own the house.

Ouch.

Disclaimer: this is assuming a constant interest rate, mortgage rate, rent in today's dollars etc etc. My point is that you don't want to underestimate the consequences of paying rent your whole life.

[LKSteve]

Just checked out prices of houses on Auckland's North Shore on TradeMe. I can't say I see much change from the peak of the boom in 2007. Property in New Zealand does not seem to have been affected by the GFC at all!
Well, maybe the deflation of the Aussie property bubble will have an effect. Rate rise today, the first of many as the RBA tries to control inflation in an overheating economy.

[Bob Kane]

Just checked out prices of houses on Auckland's North Shore on TradeMe. I can't say I see much change from the peak of the boom in 2007. Property in New Zealand does not seem to have been affected by the GFC at all!
Well, maybe the deflation of the Aussie property bubble will have an effect. Rate rise today, the first of many as the RBA tries to control inflation in an overheating economy.

<shaking his head>
You really have no idea of the NZ property market, do you.
Listen to me: houses in NZ never crash.
At worst, the values go flat for a few years.

It might be because the NZ banking system doesn't get into the 'liar loans' scam like some other countries.

[Bluekiwi]

I hope there isnt.

I need to flip as much as I can in the next 5 years so I can afford to buy a whole heap more holds.

I am cash flow nuetral.

Plus its keeping me lean all this waterblasting and painting improving my houses.

[Bluekiwi]

Plus the value of houses may well double twice over the next 20 to 25 years (if historical trends continue). Your $300k house becomes $1.2mil in 2030s and you'll be kicking yourself for not buying that 2nd house back in the recession of 2010.

Yep I am not keen to "Have" to work in 13 years time.
So 2 years into my 15 year plan.

If prices double in 15 years I will be very happy.

If they go up by 50% in the next 15 years, that would still do me quite nicely thankyou.

[Austrokiwi]

If they go up by 50% in the next 15 years, that would still do me quite nicely thankyou.

IF! the big difference now is the population bulge that is just reaching retirement age.........migration to NZ might compensate...... but if it doesn't there could be along period of stagnation.

Based on that, amongst other factors, I sold the family home in NZ( which was rented) and have put the money into our European house. I am gambling that there won't be much movement in house prices in NZ over the next five years, at the same time I am expecting European Interest rates to start climbing from the current 2% to closer to 5%.

[drelly]

Austro, if European interest rates climb... wouldn't ours inevitably climb too?

[Austrokiwi]

Austro, if European interest rates climb... wouldn't ours inevitably climb too?

Probably but that was not my concern. The property in NZ was debt free but required considerable maintenance and with depreciation gone it seemed a good lifestyle choice ( not investment) to sort out the house we live in now. The property here in Vienna isn't debt free but as the new underground line has just opened in our district it has appreciated in value.

Our aim is to clear this mortgage here and then re-enter the NZ market in five years time. As I said its a small gamble but one based on life style choices

Our bank has just raised the interest rate they pay us to a whopping great big 2% . I suspect at current deposit interest rates banks are finding it hard to attract money... so I am sure mortgage interest rates will rise( in Austria).