Slightly lower prices, falling interest rates and slowly rising incomes are all helping to improve affordability for first home buyers - but not by much

That would be the ideal case. Look at the amount of IPOs that NZ's had over the last year, 0. At this rate, what's the point of creating innovative businesses we can sell to the world if you can just sit on untaxed property gains.

Maybe a turning point would mean that other investment opportunities would look more attractive.

600k mortage over 30 years at 4.5%
5 years you have repaid 10% of the capital and mortgage is still $550k
10 years you have paid back 20% of the capital and mortgage is still 480K

18 months the market corrects 20-25% and you have a mortgage of 450K - 480K but are 8 years ahead of where you would have been had you bought now and can take a 22 year term to polish of the debt.. Alternatively, you still borrow 600k but for a much better house because the middle market will be knackered. Hell you may even want to stretch yourself to hammer an over-leveraged boomer who has too much debt that the banks want back and pick up that £1.5 million home for 900K.

Just sharing my views with the young.

Ah, the small brain has arrived to brighten my day!

Think about the dynamic again Heavy-G and my response to Printer8 below. Don't think too hard though because you've got to get through to the end of the week on limited rations.

Although not everyone does, people do save the difference between rent and mortgage costs and invest it outside the property market (faaar cheaper to rent where i am anyway, although possibly not the case everywhere) . If you have a mortgage remember you are renting the money LONG term to buy the house, making bankers RICH.

"LONG term renting is making some one else RICH"

There is an important caveat that is missing from your sentence, that gets omitted or forgotten, and is hence incomplete.

"LONG term renting is making some one else RICH, IF property valuations are inexpensive.
LONG term renting is making you RICH, IF property valuations are expensive."

For the same house,
1) at a price of say 70, the valuation may be inexpensive and the price might be expected to increase to fair value over time - buying should be the preferred action.
2) at a price of 100, the valuation may be fair and asset is fairly valued
3) at a price of 200, the valuation may be extremely expensive, and the price might be expected to stay flat until valuation metrics become fairly valued or fall to reach fair value valuation metrics (in this case to 100). In this case renting is the preferred action.

Worse if the situation ends up like in Australia, where the banks are applying much more stringent mortgage lending criteria. What they have found is that the majority of recent borrowers would not qualify for their current mortgages under today's rules, so not only are these borrowers unable to refinance, they also cannot borrow more to upgrade to a more expensive home. A large chunk of the buyer market has effectively been removed.

Hi Nic
Thinking out aloud a good thing. So, here is my thinking out aloud.

I look at a lot of the discussion about FHB (and private home ownership) and property investing and note that a very basic consideration is overlooked. That is the basis for buying.

From an investor's perspective buying a home is simply about making money; i.e. an investment. So considerations are largely about rental yields and what is happening to the property market (both potential capital gains as well as capital losses).

From a FHB or home owner's perspective, buying a home is more about intrinsic value (security, security of tenure, pride, etc). We have a culture that over time a home will take on a lot more intrinsic values, a significant part of family (the "family home") memories of family occasions etc.; I know my children were particularly upset when we sold what they knew as their only home, and I had pangs when my parents sold their home even though I hadn't lived there for over 20 years - it becomes one's turangawaewae .

From an economic perspective of home ownership, the most important factor is being able to afford the home and service the outgoings (especially the mortgage) and any future changes to outgoings (e.g. mortgage increases, significant maintenance etc.). In the longer term, if historical trends are consistent, one will most likely make a considerable capital gain.

So, one needs to keep in mind that a home is that - one's turangawaewae - whereas it is only the second (and any subsequent properties) that are an investment.

Market fluctuations should be less important to the home owner compared to the property investor. It is interesting that we have a culture of thinking about what our house is worth. If its value goes up, we think ourselves as more wealthy; however, we still have the same house/home and are unlikely to realise that increase in value (but will happily go out and spend more as we feel wealthier).

What of potential market crashes. As long as one can service the outgoings there should be no need for concern. The home owner is essentially in property for life. They are likely to trade up when circumstances allow such as significant pay rises over time, an inheritance, of the mortgage paid down sufficiently to afford a larger mortgage. Whether the market is up or down is not that important; the old saying applies "you are selling and buying on the same market", and in fact a decrease in the housing market could just make that better preferred home far more affordable as the price differential is most likely to be less.

Hi Pragmatist
Your snap shot view is of a very unique time in property investment and invalid for the longer term that you quote.

Rental yields are at a historic low over the past 20+ years that I have been involved in property. Talk to any property investor and they will moan that yields are currently abysmal - that is why I sold a couple of years ago.

As you will be aware, we are in a particular period following a very rapid rise in the housing market in which rent increases have not matched these increases. Your landlord is probably currently feeling OK at the moment accepting of a poor yield knowing that he has made significant capital gains over the past decade. Over the medium to longer term future rent yields are going to need to increase significantly compared to property price increases or your landlord - as with other property investors - are going to loose interest in owning rental property.

When I first starting investing in property, mortgage rates were around 7% and a yield of less than 10% was considered to be a minimum.

wait another year and those savings will have tripled

I'm suggesting that all able to get into the market do so, but not because their home will rise in value consistently from this point forward. Property prices go up and down, but over the long run, the trend is very likely to be up. Unlikely to be noteworthy gains for the next 3 years or so.

Nice stats by the way - whoever taught you how to pick cherries did a bloody good job.

David Chaston was thinking of you and Nic Johnson when he posted this picture the other day. You on the left, Nic on the right.

https://www.interest.co.nz/sites/default/files/styles/inline_large/publ…

For most owner occupiers, it is likely that they had worked hard, made lifestyle sacrifices and saved for many years to accumulate their deposit to purchase a house. That is to be commended.

At April 2016, the LVR for owner occupiers was 90%, so this means a 10% initial deposit for some buyers who felt that they had to buy a house. This is the impact of the power of leverage on their purchase price and initial deposit.

Albany Heights – down 7.74 per cent - the owner occupier's equity is now down 77.4% on their initial deposit
Lynfield – down 6.86 per cent - the owner occupier's equity is now down 68.6% on their initial deposit
Pinehill – down 5.84 per cent - the owner occupier's equity is now down 58.4% on their initial deposit
Waitarua – down 5.54 per cent - the owner occupier's equity is now down 55.4% on their initial deposit
Golflands – down 5.53 per cent - the owner occupier's equity is now down 55.3% on their initial deposit
New Lynn – down 5.41 per cent - the owner occupier's equity is now down 54.1% on their initial deposit
Totara Heights – 5.34 per cent - the owner occupier's equity is now down 53.4% on their initial deposit
Flat Bush – down 5.26 per cent - the owner occupier's equity is now down 52.6% on their initial deposit
Sunnyhills – down 5.05 per cent - the owner occupier's equity is now down 50.5% on their initial deposit
Henderson Valley – down 4.92 per cent - the owner occupier's equity is now down 49.2% on their initial deposit

Should a recession occur and the household were to experience unemployment (or other changes in circumstances) and be unable to meet mortgage payments, they might decide to downsize to reduce the debt service burden. The owner-occupiers would experience a loss in value from the initial deposit that they put in. On top of that there are also selling costs which could be up to 2-3% of the sale price of the house (or another 20-30% of the amount of their initial deposit to buy the house). So as a result in some instances, where property price falls are in excess of 7%, after the selling costs of the house, the owner occupier is now in the position of having lost 100% of their initial deposit.

To save for another deposit for another house purchase then might take many more years of savings.

Take another example, a couple purchased a house in Albany Heights but the current house is too small as they want more rooms to accommodate a growing family. After selling the house, they have lost 100% of their initial deposit and are unable to afford to upsize into a new house purchase. They are then forced to rent a larger house.

Owner occupiers are most at risk of being collateral damage should property prices fall further.

For all owner-occupiers, to avoid being collateral damage, the key assumption is the future house price growth from today to the next time the owner-occupier needs to (or is forced) to sell. The house is the largest investment that most households make and that key underlying assumption will likely determine their financial future for many years to come.

Suggests we need pressure on Twyford to push for an end to the RUB. Free up land, watch one issue in the housing crisis start to resolve itself.

TM2,

Once more into battle comes TM2,with his ignorance on full display. Terraced houses are for people to buy and live in-not for speculators. In the UK,many live perfectly happily in terraced houses-my grandmother's had 15 rooms and servants' quarters. Further along lived one of the Coats'(of Coats and Paton threadmakers) family My first home was a very small terraced house in a very good area just outside Glasgow.
Well built terraced houses can cut building costs. .

Then why on earth would you encourage anyone to buy.. financially it makes no sense. Pay $750/week servicing a mortgage on this place, plus all the other bills that come with ownership (rates, maintenance, extra insurance), so call it $850/week or rent the same place for $600 per week, let teh landlord take care of fixing stuff and invest the difference.

You strike me as the type of fellow that is scared of his own shadow.

Pretty much everyone knows what a credit bubble is - it isn’t rocket science. New Zealand’s housing market isn’t the credit induced bubble you think it is. House prices have been supported by credit availability, but there is strong latent demand and lack of supply (among other factors) underpinning land values, which isn’t going away. NZ’s economy also isn’t as fragile or incapable of dealing with an external shock as you may like to think it is.

CN.

You forgot number 5.

5. Then there were just plain idiots who should have been locked in the pokies and never given access to leverage.