US inflation expectations ease; UST bond auctions well supported; Japanese business sentiment rises; NZ grocery price pressure high but easing; UST 10yr 4.27%; gold and oil lower; NZ$1 = 61.2 USc; TWI-5 = 70.3

"The math for buying a home no longer works" 

Yes, true that. It's not the right time to buy when the math for renting one does. 

The Math for Buying a Home No Longer Works

Came across the whole article in the WSJ y'day. Bear porn is all the rage in the U.S. at the moment. Among the highlights:

Rents are on the rise, but the cost of buying a home has risen by a lot more. The average monthly new mortgage payment is 52% higher in the U.S. than the average apartment rent, according to an analysis by CBRE. The premium is even sharper in many major metro areas—including 175% or more in Seattle and Austin, Texas, and several cities in California.

Some people, as a result, are just abandoning the idea of saving for a down payment.

The usual tricks aren’t working. For example, when interest rates rise, buyers sometimes turn to a type of mortgage that offers a lower rate for the first few years. But the costs of these adjustable-rate mortgages have also risen sharply this year. They are still a little cheaper than fixed-rate mortgages, just not by as much.

re ... inventories. True.

Smarter shoppers will have substituted 'slow moving' brands for the 'fast moving' lower cost brands, typically own store brands, and started shopping at the high volume stores. The faster and cheaper a product moves off the shelf, the faster inventories are replaced with lower cost product.

Alas ... Most shoppers are creatures of habit. And habits can be expensive when change is needed. (Someone keeps mentioning Kiwis aren't that bright. Maybe they're right.) 

Our local supermarket is just a 5 minute walk away. But it's not anywhere near the cheapest. (Nowhere near cheap, Aussie owned.) So instead we make a list of what we need and shop bulk about every 10 days (or when the wine runs out) at the cheapest NZ supermarket that turns over huge volumes. We have to drive which costs about $2 in gas but we make that back big time on the grocery bills. We cook using lots of spices and home made sauces and we've never noticed the budget brands tasting any different, and nutritional values are virtually the same.

We have decent incomes. So why are we doing this?

Basically, it helps everyone by driving down inflation. Once prices are back to normal we'll switch back to walking, and paying a bit more, to cut back on green house gases. Or maybe we won't because a) they're ego spending $400m on rebranding and b) we've got it in for Aussie banks and they've tarred Aussie supermarkets with their brush. ;-)

He should speak to Yvil because this can't be right. Buying a house is always a good idea and will always make you happy in the long run.

Interesting article that. He places the blame squarely on the previous Government changing the Bright-lines test to 10 years - apparently the plan falls over completely if he had to pay tax on the large capital gain. 

They took on large risks aiming for the moon shot when they had already built up half a million dollars in equity through their hard work. Borrowed another half million to subdivide and blame the Government when it doesn't pan out. 

What I find interesting in the comments is that no one seems to think the lender is involved in outright usury and/or using an oppressive contract to bankrupt a borrower.

So in NZ - a lender can use a contract that essentially protects the enormous profits they must be reeling in but a couple lose everything? 

Fair? Are we all okay with that? I'm not.

In other countries, e.g. the USA (the home of capitalism and banking banditry), they have federal and state laws protecting consumers from such contracts. Such laws are based upon the fact that unforeseen events cannot be loaded onto only one party in a contract and/or the fact that, with time, the situation will correct itself and both parties to the contract will come out okay. A contract is an agreement between two parties. In the event unforeseen circumstances causes loss - or in this case delayed repayment - why should only one party to that agreement be impoverished? Isn't the lender using the 'contract' - that they also agreed too - to ensure they lose nothing when exceptional events should see them share the pain? 

So yeah. Maybe Kiwis aren't that bright? Or maybe 'Mericans are smarter?

Or maybe they just like seeing their neighbor's suffer while they feel superior by never taking any risks while our laws ensure the the rich just get richer and richer?

Too many red flags

it sounds to me that the stuff writter has misused out some thing Has this guy been bankrupt in the past

that’s why he is charged a high rate high rate is high risk

Dave is a business owner who took a punt which didn't work. I did the same but only paid 11.5%. I got away with it, and am now on the edge of the next deal. I have a healthy and well justified hatred of Aussie owned banks. If I can shaft one of them, I will.

Unfortunately whilst I have sympathy for his current situation there were a number of 'flaws' in his original plan-

1. Taking out finance with a non bank 'second tier' lender. The reason the banks wouldn't fund him is they foresaw the risks. That should have been a red light moment. Unfortunately he ploughed on with more expensive funding. He willingly took on the added risk premium.

2. The required 'profit' seemed to be contingent on not paying capital gains tax. That says to me there was never enough profit in his initial feasibility.

3. The cost blowout was so extreme the initial feasibility was clearly flawed and I strongly doubt he had allowed for any contingencies.

Sad story but predicatable and totally preventable.

Multiply this example by 2,000 x and you will start to get a picture of what is likely to happen with DuVal, Williams Corp, Templeton, Oyster Capital and countless Asian developers in the next 12 months.

Lucky you I was paying the mortgage on $750 a week after tax.

How much is a serviced section? Surely someone would be interested at $200k. I would contemplate it, they had decent sea views and not that far from Auckland. If he can flip them for $200k each surely he would be fine. 

Lots of people run a business (which this effectively is), put loads of work into it, pay very high interest rates, and it fails. In their case they will probably still make a profit, just not as much as they hoped. Yet this makes the paper, we are meant to feel sorry for them, but the local restaurant owner who goes under and loses everything deserves it. 

$125k - not even close to lower quartile.



I too know a "bank said no, now paying 13%++" - grim.



There are a lot out there, as mentioned in the article "every mum and dad did it" - subdivided into retirement.

Then don't live near me. Our local lake has them in abundance.

https://nzbirdsonline.org.nz/species/black-swan

Lucky that 44,500 net Kiwis left the country to help keep the overall net migration numbers in check. Net gain of 173,400 non-Kiwis.