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