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  1. #1
    Join Date
    Sep 2003
    Location
    High up above and deep down under
    Posts
    10,915

    Default All about Housing Affordability

    Hi Guys

    Came across this statement in an article about housing affordablity.

    The affordability of home ownership is a product of three factors: the price of homes, the level of incomes and the level of interest rates. Whenever the property market booms, house prices rise a lot faster than incomes and so affordability worsens.

    Property booms generally start at a time when interest rates are low. They reach a peak at a time when the rest of the economy is booming and the authorities start worrying about mounting inflation pressure.

    That's when the central bank acts to cool things down by raising interest rates. Initially, that makes affordability even worse. This is the point where people, having been sitting back gleefully watching the value of their home soar, start worrying about how their kids will ever afford a home of their own.

    Eventually, however, the authorities achieve - or, more usually, over-achieve - the desired slowing in the economy. They then start cutting interest rates, which improves affordability.

    But by then the property boom has turned to bust, the banks are more reluctant to lend and many people, being uncertain about hanging on to their jobs, are reluctant to take on the onerous commitment of a mortgage.

    Falling house prices are, however, a two-edged sword. As homeowners perceive their wealth to be diminishing, this can encourage them to cut back their spending, contributing to the downturn.

    And were the fall in prices to be too precipitous it could give a lot of home owners - particularly those with big mortgages - a bad scare.

    I think people with negatively geared investment properties are particularly vulnerable. They've structured their investment to run at a cash loss in the hope that big capital gains will make it all worthwhile in the end.

    But when prices start falling, why hang on?

    Why not cut your losses and sell before prices fall further?

    Trouble is, the more investors who head for the exit, the more prices fall.

    It's possible that owner-occupiers who bought at the peak of the boom may find themselves facing "negative equity" - owing more than their house is now worth. This is unlikely to induce them to sell up and crystallise their loss, however. Only if they lose their jobs and can't keep up their repayments are they likely to be forced out.

    I have a feeling that the next few years are not going to be terribly pleasant.

    Long before they're over, however, people will have stopped worrying about housing affordability.
    The whole article can be read at:
    http://business.brisbanetimes.com.au...e#contentSwap1
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  2. #2

    Default

    "...This is unlikely to induce them to sell up and crystallise their loss, however. Only if they lose their jobs and can't keep up their repayments are they likely to be forced out....
    If you will remember, in earlier posts, I stated that an increase in unemployment figures will precipitate the housing market downturn. We are not there yet – not even close. I’m still waiting for the Sub-Prime Crisis to strike. With New Zealand officially in a recession – either New Zealanders are the most optimistic people on the planet or they are the most clueless.
    Last edited by exnzpat; 07-08-2008 at 12:07 AM.
    Erewhon is still erehwon, I donít see it changing anytime soon.

    http://exnzpat.blogspot.com/

  3. #3

    Default

    Quote Originally Posted by exnzpat View Post
    If you will remember, in earlier posts, I stated that an increase in unemployment figures will precipitate the housing market downturn. We are not there yet Ė not even close. Iím still waiting for the Sub-Prime Crisis, to strike. With New Zealand officially in a recession Ė either New Zealanders are the most optimistic people on the planet or they are the most clueless.
    Just for clarity, the article was about Australia. NZers are generally realistic and conservative about economics, even if the property bubble did its best to disprove that.

  4. #4

    Default

    Quote Originally Posted by tanmedia View Post
    Just for clarity, the article was about Australia. NZers are generally realistic and conservative about economics, even if the property bubble did its best to disprove that.

    I think we will have to agree to disagree on this one Tan. My opinion of New Zealanders and economics is well… think of a chicken with its head cut off, running in circles… and there you have it.

    Ask yourself this: have you or anyone else you know ever paid for groceries with a credit card or a card tied to your home equity?
    Last edited by exnzpat; 07-08-2008 at 01:04 AM.
    Erewhon is still erehwon, I donít see it changing anytime soon.

    http://exnzpat.blogspot.com/

  5. #5
    Join Date
    May 2004
    Location
    Bay Of Plenty, NZ
    Posts
    3,604

    Default

    Quote Originally Posted by exnzpat View Post
    Ask yourself this: have you or anyone else you know ever paid for groceries with a credit card or a card tied to your home equity?
    Here's me being naive ( ) WHY WOULD ANYONE DO THIS!! The quickest and slippery-est (sp?) way to get into trouble.

    I do not believe that we (NZ in general) have felt the full impact of the sub-prime market. We are such a tiny, tiny country in relation to the world economics (smaller economy than some USA states for heavens sake!), that to think we won't be affected is naive, ignorant and down-right stupid.

    Don't believe the spin by those economists, property gurus, media managers about what is happening.

    There was an article this week about the recession - and it was completely under reported because of the big hoo-ha was all about Winston Peters and NZ First donations.
    Patience is a virtue.

  6. #6
    Join Date
    Feb 2008
    Posts
    287

    Default

    What is wrong with using the credit card for all expenses and pay back in full each month to take advantage of the interest free period?

    This makes even more sense if you have a revolving credit mortgage.

  7. #7
    Join Date
    May 2004
    Location
    Bay Of Plenty, NZ
    Posts
    3,604

    Default

    Quote Originally Posted by SmallBrain View Post
    What is wrong with using the credit card for all expenses and pay back in full each month to take advantage of the interest free period?

    This makes even more sense if you have a revolving credit mortgage.
    SmallBrain, if everyone did this, it would be great. But what happens, is that people DON'T pay off the credit card to take advantage of the interest free period. It takes strong financial skills to be able to manage it, most people can't.

    Some people have the attitude that it's "free" money and use it all and THEN realise that it has to be paid back.
    Patience is a virtue.

  8. #8
    Join Date
    Mar 2008
    Location
    Auckland Wide
    Posts
    1,244

    Default

    Quote Originally Posted by essence View Post
    SmallBrain, if everyone did this, it would be great. But what happens, is that people DON'T pay off the credit card to take advantage of the interest free period. It takes strong financial skills to be able to manage it, most people can't.

    Some people have the attitude that it's "free" money and use it all and THEN realise that it has to be paid back.
    Yeah some people while some other people don't. I always advise my clients to do this(use credit cards to take advantage of the interest free period) who seem like they can manage it.

    Most people who have saved enough for a deposit for a home, can manage their own finances ok.
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