The amount borrowed by first home buyers topped $900 mln last month - the first time this figure has been reached since the RBNZ started releasing mortgage borrower by type information in 2014

The amount borrowed by first home buyers topped $900 mln last month - the first time this figure has been reached since the RBNZ started releasing mortgage borrower by type information in 2014

By David Hargreaves

The amount borrowed by first home buyers last month hit the highest level since the Reserve Bank started releasing detailed mortgage-borrower-by-type information in 2014.

The latest Reserve Bank figures highlighting mortgage figures for March show that first home buyers (FHBs) borrowed $911 million in the month - which beat the previous high by this grouping of $897 million in November 2016.

The noteworthy thing about the rise of the FHB borrowing is that it's occurring at a time when overall new mortgage figures are much lower than they were, particularly before the RBNZ put 40% deposit limits in place for housing investors in the second half of 2016.

In recent times the share of the new mortgage borrowing of FHB's has been generally rising, from under 10% during the real market boom times to a recently fairly consistent 15.5%.

For example, if you look at the March figures going back to 2015, in March that month the FHB's mortgage borrowing (at just $596 million) made up under 9.5% of the total advanced in mortgages. In March 2016 that share had risen to nearly 11.5%, by March 2017 it was 13.7%. Then, in March 2018 it was over 15.5% of the $5.852 billion that was borrowed by all borrower types in the month.

It will be worth looking at the trends over the next few months, however.

In January the RBNZ relaxed the loan to value (LVR) restrictions. This meant the deposit limit for housing investors was reduced to 35%, while the amount that the banks could lend on high LVR loans (above of 80% valuation) was increased to 15% of their new lending from the previous just 10%. 

The expectation from such changes might be to see more FHBs in the market - which appears to be happening - as they are most affected by the over 80% value high LVR lending tweaks.

Also, however, the changes were always likely to be an interesting litmus test of the appetite for investors to get back into the market.

Before the 40% deposit limit was clamped on to investors they were galloping away in terms of their share of the mortgage market, with an over 35% share of mortgage borrowing nationwide and rather higher than that in Auckland.

Subsequent to the deposit clamps being put on, however, both the amounts borrowed (which had exceeded $2 billion in many months) and the share of total borrowed had plummeted. 

In December 2017 investors borrowed a little over $1 billion, which accounted for less than 21% of the total borrowed that month - a long way down from the nearly $2.4 billion (just under 35% of the total) borrowed by investors in June 2016 shortly before the RBNZ clamped down on deposits.

However, since January, there has definitely been a discernible rise in the amount borrowed and the share of the market for the investors.

In March investors borrowed $1.373 billion, which was the highest amount borrowed by that grouping since May last year.

Now, of course, that's seasonal to a fair extent. But the proportion borrowed by the investors has definitely increased.

The March investor mortgage figure made up 23.5% of the total borrowed, which is the highest proportion of the total borrowed by this group since June of last year.

The 23.5% figure in March compared with 22.2% in February 2018 and 21.2% in January 2018.

While it might have been expected that the investors' share of the market would increase with the relaxation of the deposit limits from 40% to 30%, it is to be imagined that the RBNZ will be keeping a close eye.

The RBNZ has indicated that it will look at further relaxation of the LVR limits - but only after being satisfied that the housing market is not taking off again.

If anything, the latest mortgage by borrower figures may well encourage the RBNZ to wait some time longer before looking at further relaxation of the LVR rules.

The next logical time the RBNZ might have looked at further relaxation of the LVRs would be at the end of next month, when it releases its latest six-monthly Financial Stability Report.

While the latest mortgage figures for March - which in total show around $100 million less borrowed than for the same month a year ago - certainly don't show a housing market reigniting, the RBNZ's likely to be very cautious about further relaxation of the LVRs till it is absolutely certain there won't be an upward resurgence.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

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I thought there was a housing crisis ?

I thought you were better person than just being a troll?

Well now , who would have thought that First Home Buyers would be such a force in the market ?

We have been led by the Labour party to believe that this class of buyer could simply not afford home -ownership .

Turns out this is not true , first home buyers are certainly in the market for homes , and are buying them , and getting mortgages .

Was there ever a crisis?

Or was this the then opposition banging on endlessly about unaffordable houses were for everyone, to the point we simply believed their narrative ?

15
up

First home buyers are being saddled with debt like never before, both in dollar value but also in house hold income ratios (note: they use house hold income for the calculation as back in the day there used to be one earner now there's more likely to be 2 - an easy way to double the cost of a house but print on paper that the ratio hasn't changed as much ). Every first home buyer getting on the "ladder" is bitter sweet, either they pay rent till the day they die or the bank.

@An_observation , I agree with you , its like a whole herd of elephants in a room , and I must admit , I actually have a conundrum , I have a son aged 25 , who 2 years ago moved back home and is saving for his first home , which we are encouraging .

I am horrified at house price levels and I have told him to sit on his hands and wait as the market will or should "correct "

But will it ?

You see there is not just one elephant in the room , but a whole herd of elephants

The cost of land in Auckland is out of control , not helped by Auckland Councils levies and fees ( and $15,000 for a water meter ) .

Land prices can only keep escalating

Then you have builders charge-out rates , which are as so high as to be ludicrous , $50/hor for a painter , not even a young doctor at Middlemore gets that rate /hour .

Then you have a cozy cartel of the building materials supply chain , with Fletchers as the price maker and the rest happily being price takers ........... the cartel is so strong they have even ensured you cannot import a kit-form house into NZ .

This cartel is the second elephant in the room .

The third elephant in the room is the rampant inward migration which has caused pent -up demand

The the next one is low interest rates at which people have borrowed up to their eyeballs and simply bidded too high on houses .

Add to that some baby elephants like:-
Land bankers
The high costs of servicing a section
The Resource Management Act
A naive and economically illiterate Givernment that has raised expectations of having miraculuosly affordable ' houses for everyone,
And free houses for the indigent .

I don't see house prices going rampant again unless China loosens up their outflow rules and conversely I cant see the market crashing because employment is high and interest rates are low.

So perhaps we're in for a few years of stagnant house prices and therefore continuing to save and waiting for the right place to come along might be the best suggestion.

Boatman,

Back in 2010 I was looking at purchasing my first home. I posted a few messages on here seeking advice.

Various posters told me to sit back and wait as prices were going to take a dive.

I'm glad I didn't listen to them, 8 years in now!

Therefore my 2c is if you can buy now then do it.

Cheers

It's funny how ponzi type consciousness works - once you're in, everyone else should also be in.

Perhaps the most pragmatic advice comes from those that are in the ponzi but still say wait. That doesn't mean this advice will be correct, but at least you know the significance of self interest is subdued and might better reflect the realities of the market rather than the financial ambitions of the ponzi.

Interesting and reasonable call depending on your outlook and purpose on buying a property. If your buying to hold, live in and call home, then why wait. No "ponzi" thinking required.

If your intent is to flip it, make sure you got a good crystal ball

Harden up it has always been that way. You only get what you work for . The Govt should steer the Economy so that wages can rise naturally and not just by increasing the minimum wage.

I suspect the people buying these houses are not the same people who were living in cars and on the streets.

Here's a slightly over-dramatic analogy

http://www.bbc.com/news/world-middle-east-42023625

Plenty of food for sale, plenty of people buying food, probably more money than ever being spent on food, but still a crisis.

Such a force in the market? They are borrowing 15.5% of the money.. given that they can borrow easily 80% and in some cases 95% of the price of the property, what percentage of the houses are they actually buying?

Sadly it just says to me far too many younger buyers are loading up on debt at just the wrong time. FOMO strikes again.

12
up

Boatman

How can you argue about whether there was/is a crisis of affordability when the data is so clear? The fact that FHB have been able to enter the market doesn't mean that their mortgages are any more affordable. The crisis is as much about affordability as it was ever about how many FHB's could actually buy.

It's great that FHB are taking a greater share of the market, but we can't overlook that they are also taking on these mortgages at peak values and when mortgage rates are at historical record lows. Which means these FHB may have very large mortgages, possibly overpriced houses, taking up a risky amount of their household income and with the very real threat of higher interest rates on the horizon. Vulnerable borrowers present a risk to the entire economy not just themselves. It's not something to encourage.

What any sane person hopes for... is that house prices stagnate for long enough for wages to catch up so that affordability measures returns to something safer (x 4 or x 5 even income). However, we aren't there yet and it would be myopic and unwise to deny the risks that recent purchasers are in.

If the market does stagnate but wages go up, the recent influx of FHB who have bought at peak will be okay and they will be enjoying the benefits of home ownership (of which there are many) but they are still very very vulnerable to a change in interest rates and affordability so please think twice before crowing about there being no crisis.

The housing crisis is a crisis of affordability... house prices vs wages. This hasn't yet improved much.

For wages to increase to a level to return price/wage ratios to 4-5x, wages would have to triple or more, and the prices of everything would have to go up more than that to cover the cost of that wage inflation. Retirees would be rendered all but bankrupt overnight as retirement homes would have to triple their fees to cover the wages. Businesses would go bust all over the place trying deal with the inflation. Perhaps Fletcher's would be ok with increasing their forecast loss to 2-3 billion...

All just to protect the banks printed money that is invested in asset speculation (houses). Massive inflation in everything or a housing correction. Not great options really. The lesser evil surely is less profit for the banks and the over leverages going to the wall.

Averageman, if we expected safer DTI's quickly yes, but if we accept that they may take many, many years to reach that level, then there is a chance it could happen!

I know, this is generally not how the world works. The reality has been that some external shock to the economy will occur and those who have overextended themselves will be fucked. But I was just trying to argue with Boatman that affordability is about the DTI rather than just the share of FHB in the market.

DTI's are a ridiculous metric. If the reserve implements a DTI you will be shocked as it will sit around 9:1 or 10:1 and they will vary it as they see fit but always at a very high level. They will effectively use it as a speed limiter like LVR's, they will absolutely never use it to return to some totally pointless pie in the sky DTI like 5:1.

Why were you on your knees with your hands clasped in front of you as you typed that?

Pie in the Sky comment

To return to long term DTI levels via wage growth alone, assuming no increase in house prices, would literally take decades. This type of gentle organic reduction in real house prices just isn’t going to happen, it’s probability is pretty close to zero.

Exactly, the “crisis” is one of affordability created by an investment and credit bubble, not a “crisis” caused by a significant shortfall in housing as accomodation. See rental growth, which is the best proxy we have for demand for housing as accomodation as opposed to an investment class. Yes there is an excess of demand for accomodation and rents have risen, but this shortfall is not the principal cause of the affordability crisis, which is really driven by cheap and loose mortgage credit. I don’t find it at all comforting that FHBs are increasing their share of the market by taking on a level of mortgage debt that is unsustainable in anything other than the short term.

So there's no crisis...but your son can't buy a house unless you help him.

Way to make your son look bad.

All he needs to do is cut back on $5 coffees and avocado on toast.

My children managed to purchase houses in the early 2000’s but only just. Don’t think the same ratios would have got them there when things really took off. & also remember mortgage rates were once 9% plus prior to the 2008 GFC. If there was an housing crisis then can it be explained because there was a subsequent period of highly increased ability to borrow against low interest rates and demand outstripping supply, exacerbated by burgeoning immigration? Was it that simple?

Yes

I thought there was a housing crisis ?

Maybe there is. If the issuance of mortgage debt slows or falls in any meaningful volume, there is a strong likelihood that sentiment would turn negative on many levels. That suggests that there is a reliance on this debt as a primary driver of economic activity. That is more aligned with a state of "crisis" than when reduced mortgage debt issuance doesn't influence sentiment or when the necessity isn't a core pillar in perceived economic vitality.

One can't blame people for purchasing a home of their own. That they continue to do so in sizeable numbers comes as no surprise.

The benefits are large and include financial and non-financial. (Most people are savvy enough to work that out.)

The trick is to find a home that suits your needs as soon as you've got the finance sorted.

TTP

TTP as long as house prices don't crash, mortgage rates don't go up and cause mortgage stress and that over time wages can restore healthier affordability DTI's measures, i then I agree that it is great news that FHB are taking a greater mortgage share. Over the long term, greater percentages of owners occupiers makes for a much healthier economy. However, regardless of how unlikely the risk of a housing crash, or mortgage hikes are, we can't deny that some of these recent FHB's must be in a pretty vulnerable position, which worries me. Because, if something negative does happen, the whole economy will be negatively affected. I know there are a lot of ifs in those scenarios and they might never come to pass, but nonetheless, it's usually best to accept and prepare for risk, rather than to deny them. This is why DTI recommendations exist in the first place. Hopefully, recent home purchases haven't got high and risky DTI's.

I don't think the trick is quite as simple as finding "a home that suits your needs as soon as you have got the finance sorted".

Banks have a history of reckless lending and underestimating risks, so just because they will lend you an amount, doesn't mean you can afford it. Just look at the recent revelations of Westpac! I think, if you can buy a house that is affordable and it's cheaper to buy then rent, then it's often better to buy, yes. But if you are a FHB who is over extending yourself to buy in the current market, my advise would be to try and get a long fix. 5 years if you can, and then spend that time trying to pay down as much of your mortgage as you can, so that when your mortgage is up for renewal, you have mitigated the risk of higher costs.

When we decided to continue renting over buying, it was based on the assessment of the actual cost of buying (ie mortgage interest + insurance+ rates + maintenance). And then another adjustment based on the opportunity cost of house prices stagnating against what our capital was returning us in yield elsewhere. If we didn't have investments elsewhere or the banks here would have given us an easier ride and more tempting mortgage rates, we might have made a different decision (we earn in GBP and work for a UK company so NZ banks will only lend on 50-60% of our income and even then at less competitive rates). So for us, it was a no brainer to wait till we could buy a house outright with house price growth slowing as it is. The decision to buy vs rent has to be unique to each financial situation and to the market conditions as they exist at that time.

Good post. TTP and Laminar are birds of a feather, they say it doesn’t matter at what part of the cycle you buy cos long term you just can’t lose. Whereas you rightly point out there is only a long term so long as you can stay solvent. Point well made.

HI TTP,

People will mourn and grieve not matter what even when some FHBs succeed in passing an important milestone .

There seem to be a crises for those who are expecting to buy houses at 1/2 price, there is also a crises for those who have small or insufficient deposits or short on serviceability.

Obviously there is NO crises for the wise ones who could afford to buy and have found what they wanted, so they made the right choice.

People moaning about the poor FHBs and the problems they would run into IF house prices fall ... etc are just pure DGM hunting for any scenario that could fall in line with their limited thinking and narretive.

FHB who have had approved loans have been checked out and well screwtinized for serviceability at @ least 7.80% interest rate pa ... i.e. the bank is satisfied that they will be able to pay at these rates... but DGMs are still worried for them, lol !! so they are more prudent than the Lender! and

When and if house prices drop a bit ( maybe or maybe Not) , it will have NO effect on current FHB owners as they are not in for a short haul and not trading properties, it will affect potential buyers who count their chooks daily to see if they have reached their affordability level and would pass the serviceability tests of lenders.

So, When some FHBs are buying, the envious DGM are worried and insist there is a crisis and they shouldn't have done that ! -
When investors start buying they worry about their Yields, Sanity, Morality, and how their Greed has left nothing for FHBs to buy .! :)

The " What if " drama continues, the only " What if " that is not considered or discussed is what if house prices start to rise again in the next 18 - 24 months albeit smoothly overshooting the inflation going up with rising IRs ? .. Well, I guess no one want to know about that, as everyone believes that the crash is inevitable. lol

I really want to see FHBs make around 25 - 30% of market lending or purchases. That will make it a healthy marketplace again.

I don't know about you , but I am loving this circus ...

How did the housie go tonight?

FHB who have had approved loans have been checked out and well screwtinized for serviceability

'scew'tinized ? Was that pun intended? Anyways correct to some extent. Banks will screw those borrowers :-)

It is all about 'money creation'. They had to relax it as otherwise there would be no buyers and the marked would gone busted. Now the banks will give big mortgages (even bigger as now you can borrow more) which sets them up nicely for the next 20...30 years. It is all about making people to borrow more - as much as they can to be able to cope with, week by week, year by year.

This is the modern slavery. Long time ago people were working hard to have a roof under the head - now it is the same they are not doing the physical job for the 'lord' but need to pay the money. Essentially the same - just a bit more civilized.

This is the modern slavery. Long time ago people were working hard to have a roof under the head - now it is the same they are not doing the physical job for the 'lord' but need to pay the money. Essentially the same - just a bit more civilized.

What I call "neo-feudalism". The hoi polloi are carrying the can for a banking system that has gone past a point of no return. They really are too big to fail now and there doesn't appear to be any alternatives unless the whole shebang comes crashing down. Institutional power is terrified of this so it's better to pass the buck to the sheeple who are terrified of being cut out of the social contract. The implications of all this are going to be fascinating going forward.

Hi J.C. Have you come across the “Chicago plan?” From my layman’s point of view it seems a plausible way to transition back to sound money from this debt bubble.

Just another case of FHB mortgage themselves to the hilt

... our level of household debt to disposable income is now a higher % than it was just prior to the GFC ...

When all the tax breaks are given to borrowers , nothing to savers , and the Reverse Bank keeps the OCR so very very low .... are we surprised that the nation's focus is on houses , rather than savings and productive investments ...

When all the tax breaks are given to borrowers , nothing to savers , and the Reverse Bank keeps the OCR so very very low .... are we surprised that the nation's focus is on houses , rather than savings and productive investments .

I'm not surprised. The sheeple are behaving "rationally". They're behaving how policymakers would like them to behave. Nudging theory in effect.

House prices in NZ are not unaffordable at all.
Ye Should Auckland prices are expensive but overall in NZ most people who are prepared to work can own for the same or less than renting!
ChCh you can still buy a 2 bedroom unit for 250k not the best areas but less than renting, interest only!
Moan as much as you like about affordability but if you can’t afford Auckland, then move out to where you can.
Rest assured that most people wil not sell their homes for less than they paid for,their homes!

Are you sure Christchurch is the rule and not one of the exceptions? In Auckland, Hamilton, Tauranga, Wellington, I am not so sure that like-for-like mortgage payment (interest + other costs) is less than rent.

ChCh you could buy and end up with an uninsurable lemon, right? Not to mention you need the jobs in the regions to pay for the loans

Hi THE MAN 2,

You write: "Rest assured that most people will not sell their homes for less than they paid for their homes!"

I think that's a valid, if not obvious, point - but one in which some people remain in denial about.

As an economist friend of mine told me, house prices tend to be "sticky-down" in New Zealand. There's nothing too convoluted or mysterious about that. It simply means that over lengthy periods of time (my friend says since data was first collected) house prices have gone up by much more than they've ever gone down.

Sadly, the housing market doesn't tend to stoop down to give a second chance to those people who, like me, missed out on buying before the last boom (or the boom before that).

But, yes, it's also true that there's choice across the country. Sure, not everyone can afford to buy in Ponsonby or Parnell in Auckland - or in a suburb close to the Wellington CBD. But there are a host of provincial cities and towns that offer an entry-level opportunity...... with good job availability and a great lifestyle. And, yes, I've heard that there are currently very affordable dwellings to be had in Christchurch.

Starting with a humble abode and working up over the years/decades is the standard way in which many property owners have accumulated the wealth they have today. Excluding lottery wins and large inheritances, few of them became wealthy overnight.

TTP

While it may be true that sellers with a choice never would sell for less than they bought, there are indeed scenarios which have played out in many overheated markets where sellers may not have much choice.

It may not be less than they bought it for in absolute dollars (think inflation) but if they get behind and/or used the house as an ATM for holidays or cars, or, perhaps they never bothered to pay any principle... then, they very well may sell for less than they have put into it.

The segment being talked about in this article are highly indebted first home buyers (if in Auckland and to a lesser degree outside - not that RBNZ share that info to my knowledge). Recent RBNZ stress testing results showed that a significant portion of recent buyers would be under financial duress even with minor increases in average interest rates. Add to this that servicing often requires both incomes, so families, children and stress levels suffer too.

It's naive to think such a scenario is not possible in NZ. It's dismissive to call a genuine concern over a segment of the community overextending, and a material risk to economic stability for the country as a whole, just mere doom and gloom.

To me it unfortunately seems that the RBNZ data referred to/referenced are only for amount FHB borrowed without reference to the number of FHB mortgages.
I am left wondering if there is there an increase in the amount borrowed by FHB is due to increased inflated property prices rather than - and more importantly - an increasing number of FHBs.
Is there RBNZ data available on the number of FHB mortgages?
As an aside, a drop in value of mortgages by investors (from $2141m in Mar 2016, $1425m Mar 2017 to $1373m Mar 2018) certainly suggests investors are not as active in the market at all. This gives a clear message as to where investors collectively see the market at and as to where it is heading.

Have found the RBNZ data on number of borrowers.
FHB:
Mar 2016, 2044: Mar 2017, 2112; Mar 2018, 2295. Net increase FHB Mar 2016 to Mar 2018 = 251 (+12%)
Investors:
Mar 2016, 6426: Mar 2017, 4314; Mar 2018, 4004. Net decrease INV Mar 2016 to Mar 2018 = 2,422 (-38%)

Market swings clearly some FHB increase (minimal but pleasing) but significant investor decrease (a little worrying as to future of market).

Have a look at the corelogic reports, they do give breakdowns bypercentage of sales. From memory FHBs are in the 22% area, Multiple property owners (ie Investors mostly) are 40% of volume.

Pragmatist,

Multiple property owners are 40% of the volume -

Can you clarify? Is that

1) % of the total participants on both sides of property transactions - both buys and sells - so some investors could be counted as a buyer if they are buyer in a transaction, other investors counted as a seller in a transaction. If a property investor is selling to another property investor, then that would be 2 property investor transactions

Perhaps an example to clarify - 100 property transactions - a buyer and seller on each side means 200 participants were involved. If property investors were 40% under this definition, then that would mean 80 participants (40% x 200 participants). In some of the cases involving 80 transaction participants, an investor could be 1) the buyer, 2) the seller or 3) both (such as a property investor selling to another property investor).

2) % of sellers only

3) % of buyers only

Otherwise perhaps you could provide a link to the corelogic report.

http://www.corelogic.co.nz/news-research/item/strongest-annual-value-gro...

Download link at the bottom, just fill in some BS values to avoid getting spammed.

It is a buyer classification
Summary

National / Auckland:
37% / 40% Multiple Property Owners (Investors (and holiday home owners?)
27% / 23% Movers
22% / 24% FHB
6% / 6% re-entering market
6% / 6% new to market (Does that mean new/returning immigrant?)
2% / 2% Other

Pragmatist,

Thanks.

Unfortunately within the 40% of multiple property owners who are buyers in Auckland, there is no distinction between the different category of multiple property owners.

1) long term buy and hold investors, who become landlords
2) property traders (those that buy property, for renovation, then sell after the renovation is complete),
3) property developers (those that buy property situated on a large section, and construct additional new dwelling(s) on the section) - they may choose to hold or sell ...

In the month of March FHB took on 281 million in over 80 percent LVR mortgages, the highest monthly amount in this RBNZ data series, over half a billion for the two month period of February/March , the highest bimonthly amount ever, not really consistent with a surge in FHB numbers. Given the rise in house prices particularly ex Auckland, it is unsurprising that the value of mortgages has simply increased in this data series. What is surprising is given the surge in migrants that FHB numbers have not risen more significantly. True ,investors or speculators have pulled back more due to the decline in interest only mortgages, but still far outweigh FHB by number. As an aside not all investors require a mortgage( nor do FHB for that matter), the reality remains, home ownership(owner occupier) rates continue to fall, particularly in Auckland and generally nationwide.

Take a look at the c32 series.

29.4% of all new lending was interest only. Owner occupiers took out $1058m of new interest only mortgages.. including 3.6% that were over 80% LVR. Investors only took out 633million of new interest only lending.

Existing lending is running at 27.4% interest only.

Hmmm, is it just me or does that not look healthy? And do investors who take out an interest only mortgage over their existing property to buy a rental get classified as investors in this data.

I just spent another very pleasant weekend in Auckland. It was warm and the traffic was not nearly as bad as I expected. We got from the airport to Remuera in our rental car in probably about 15 minutes or so. The Anne Frank exhibition at the Museum is outstanding. I can see why so many people want to live there. If I was younger and starting off in my profession I would be there in a heartbeat. Plenty of opportunities for recreation, creating businesses and of course plenty of jobs.

... oi ! ... gordon ... you can't say that ... this is the " Kick the Snot out of Orc Land " web-site ...

Be positive , happy and glowy somewhere else sport ... you're upsetting the resident curmudgeons ....

Gordon, jobs and working is over rated!
You would be far better running a landlording business as returns are great, but just not in Auckland.

If you like Auckland in your younger self. That is somewhere really expensive to buy a house, plenty of thing to do, good weather, plenty of opportunities for recreation, creating businesses and jobs. Then why go one step further and head across to Sydney..it's much better pay, better cafes, even more thing to do and house price is just as expensive

The Boy I can only assume there are a lot of happy landlords in Auckland. Unlike in Christchurch where house prices and rents are diminishing landlords in Auckland are sitting on huge capital gains and rents that have steadily increased. If everyone was a landlord The Boy your house values in Christchurch would be even lower than they are now as there would be no tenants. As per usual you show us your lack of education.

Hi Gingerninja,

As usual, you put up a well-considered, coherent argument.

I think you're right to a point: if a single/couple/family really is risk-averse and a mortgage (or home ownership per se) will worry them unduly, then best stay away from buying a home - or any other investment (or purchase) that entails a degree of risk. That might mean avoiding KiwiSaver, managed funds, shares, bonds, debentures, precious metals, art/antiques, race horses, ostriches, emus and personalised number plates - as well as property. Some might even argue that fixed term deposits in trading banks are too risky........

So you're left with government backed securities, such as Reserve Bank bonds. But you pay heavily for the government guarantee by accepting a return that's relatively low over time. Or you could store banknotes under your mattress and hope the house does not catch on fire - or be looted. (Generally, insurance companies won't insure cash.)

If you're risk-neutral or prepared to take a modest risk, I don't see buying a first home as being too bad a bet. Even if you don't get a good financial yield, the non-financial return (intangibles such as household security/stabilty, independence from landlords [and their worst excesses], personal pride/satisfaction etc) might well be sufficient to compensate you, making the initial purchase worthwhile.

Certainly, I think the opportunity cost of not buying a first home is likely to be pretty high over a normal life span. Few NZers would wish to enter their retirement years and still be paying rent.....

An average rent in the main centres for a 3-beddie is perhaps around $500pw(??). That's around $780,000 for 30 years of living in someone else's house (plus the opportunity cost of the requisite bond). But rents are likely to increase because of population pressures, so one lives in constant angst wondering how far off the next rent increase might be. Worse still, the landlord might want to occupy the house (or sell it) leaving you in a very inconvenient situation. Or the landlord might let you stay on indefinitely - but not maintain it adequately, causing you another type of inconvenience.

That the younger generation is as keen as ever to get into their own homes comes as no surprise to me and I anticipate that the situation will continue. Those who purchase a home in 2018 are unlikely to regret it in 2028. (If I'm wrong - and still alive - then I'll take it on the chin.)

TTP

TTP,

I don't think anyone truly regrets a buying a first home, or any home, unless they can't actually afford it and end up having to sell in a distressed situation. So, my concern would be FHB's taking on huge mortgages that they can only just afford, when there is a real chance that mortgage interest rates might rise or that they are unduly exposed to some other economic shock. It would all depend on how easily they can tighten their belts for increased costs.

As a would-be NZ home owner, I completely agree that over the course of your life you are almost always better off buying a home and paying off the mortgage so that your housing costs are much reduced by retirement. However, if house prices are over blown and there is a correction, or some other economic difficulty then even a happy house purchase can become a misery. I understand that this hasn't happened in NZ in a serious way before, but I am wary of it being a Brit, and having seen it a number of times. I think you should ALWAYS be risk averse unless you can afford not to be. We are wealthy, so can afford a degree of risk. We have investments that are high risk under the understanding that we could come away with nothing and still be fine. But then we are likely to be NZ home owners with no mortgage at some point in the next year, so we can afford to take those risks.

I think in an ideal scenario, no one borrows more than 5x their income on a house. Because even though both NZ and Australia have a great track record, external shocks can and do occur.

Hi Gingerninja,

I think we're in much the same boat but you're wealthy - and I'm not!

And there's a bit of an idealist streak in you - which I rather admire.

The main difference between us is that I reckon there won't be a large fall in house prices (despite the hefty rises of 2-4 years ago) but you reckon there could (quite) easily be a hefty fall if there's an overseas shock to the economy, or some other turn of events (such as a big jump in domestic interest rates??). Thus, rationally, you counsel adopting a risk-averse strategy - or risk a miserable outcome.

For me, I watched the oil shocks of the 1970s - but NZ house prices still continued to climb.

And then I watched mortgage interest rates (from trading banks) spiral beyond 20% in the early 1980s - but house prices still climbed.

If house prices come down with a jolt - then that will be great for me personally. I might have a chance of buying a modest dwelling in my favoured city: Auckland.......

You have the means to be in a nice house (in central Wellington??) within the next 12 months - and mortgage free - no matter the course of events in the interim. That's a fantastic position to be in! (Would you consider taking in a boarder?)

Well done and good luck, my friend! (-:

TTP

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I think one key thing to consider is during all of these periods of growth what were wages doing?

Mapped overlays I've seen show commensurate wage growth relative to property prices (the 80's were a prime example - high interest rates but also high wage growth).

If we had solid internally driven GDP per capita wage growth then I'd have no problem with the cost of housing now.... the problem is a complete uncoupling of the two.

There is almost no wage growth now and hasn't been for years hence the massive disconnect in all known key ratios/indicators of income to housing costs (the insane immigration has killed wage growth)

Maybe someone can pull this data and display it- numbers don't lie unlike all our intrinsic biases.

It's worth mentioning - with most investments and purchases the worst that can happen is you lose 100% of your investment. With a highly leveraged investment like most first home purchases, it's quite possible to lose more than 100% of your investment. The addition of leverage significantly changes the risk profile.

Indeed, and if you are in your 20s and have just finished your degree etc its the perfect time to mortgage yourself to the hilt, and if the brown stuff hits the spinny thing just declare bankruptcy and start from fresh a few years down the track.. a bit of a gamble, but the higher the leverage the higher the gains.. and you have time to rebuild. Not so much if you are older.

It's important to do the maths though instead of purely assuming that something that may have been true for some generations will be a right fit for you...

For example, $500 pw would be just the interest portion on about 580k, or about a house worth about $723k if you have 20% deposit. Even saving the $145k would be a challenge for many... but at $723k, there are probably reasonably limited purchase choices in Auckland, sadly. Now add to that rates, insurance, maintenance and the fact it's probably a distant suburb so time and $ on commuting (thanks for all the extra fuel taxes!) ... and it's not so straight forward. It's probably why a scary amount of home loans are in interest only or revolving credit.

There are not just 2 investment choices - government bonds and property ... and the other assets you speak of have different risk profiles and different liquidity (cant sell part of a house) .. plus since you're living in the house, if you buy and sell in the same market, how exactly will you make money unless you downgrade?

Your points on landlord oppression are certainly true - Ive had good and bad, and that's why laws to protect both parties should be strengthened and the stigma of renting removed. One persons security (of owning) could also be a drawback when circumstances change (place too small, overseas opportunity arises, there's an EQ or flood etc).

My point is purely that this whole 'you're a loser if you rent' and associated FOMO is not helpful if it drives sentiment backed increased in price.

What is most noteworthy to me is the halving of investor borrowing.