House prices for the past 2 years have been more or less stable, so buying and selling is now a lot more predictable.
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True story…
Paul wandered onto a car yard and was just casually looking around when a salesperson came up to him and said “Tell me”, if price wasn’t an issue, what you buy here?”
Paul glanced around spying
what looked to be a relatively new, red BMW Z4 and pointed to it saying, “The Beemer would be nice, I’ve wanted one of those for a long time.” The price on the window: $49,990.
“What do you drive now?” Paul told him, describing make, year and mileage. He stood silent in thought for about two minutes, clearly doing some calculations. He then looked up and said, “For your car plus $950 a month for 12 months you can drive the BMW home today.”
Paul was quite taken aback by this. He quickly calculated that the $950 was well within his ability to pay. “So what would you give me for my car?” “Does that matter?” came the reply. “Well, what interest do you charge on finance?” “Once again, does that matter? Would you be happy to see that showroom condition BMW in your driveway TODAY, for $950 a month?” Paul couldn’t argue with this logic. But, when he first walked onto the car yard, all he could see was a $50,000 car and imagined 30%+ interest payments on car yard finance.
What’s this got to do with buying a house? It’s the same process. It’s all too easy to be put off by the $500,000 price tag on a new house or the 7.5% mortgage rate. The real issue is neither of these. It’s the cost difference to change homes. If you could change to the home you really want for an extra $X per month – and you could comfortably pay the $X, what does the rest matter?
Our advice is that if part of your new home needs financing, talk to your bank or a competent mortgage broker and then talk to us. Work out the financial implications of changing homes. See what might be around that fits your requirements. Ask us to value your home. Remember that it’s only the difference that matters.
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Prices are edging up, but only very slowly. The price trends over the last 10 years (1999 to 2009) and the average price of $168,000 in October 1999 has risen to the mid $300,000s, where it has hovered for a few years now.
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Rental demand has increased over the past three months with both vacancy rates and rent drops decreasing. First National Group’s quarterly property management survey of its network offices across NZ shows vacancy rates have decreased from an average of 6.3% to 4.9% in the past three months.
First National Group General Manager John Stewart said many people looking to buy were now renting longer, some being apprehensive about taking out loans and job stability. Additionally, some landlords had retrenched, down-sold properties and moved into houses they previously rented out, resulting in displaced tenants seeking new homes.
58% of offices reported rents being static but 32% reported rent increases, varying in amount between 1% to 20%. The most notable average increase was in Taranaki where rents for properties around Stratford have gone up an average of 15% in the past 3 months.
However, business closures, for example Bridgestone Tyres in Christchurch, would continue to affect house sales, causing unemployed people on one hand to sell or need to move to seek a new job and creating rental vacancies as tenants move on.
Supply/demand trends
• Oversupply of 2brm properties was reported in Rotorua, Manawatu, Johnsonville, Cromwell and Coromandel.
• Shortages of 3brm properties was reported in Waiheke Is, Hawera, New Plymouth, Coromandel and Richmond.
• A severe undersupply of 1brm properties was reported in Papakura and Whangarei.
• Tough economic times causing people to downgrade their rental was cited by areas including Rotorua, Taranaki and Whangarei.
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All logical, statistical and equity arguments say YES, but political desire to stay in power says NO.
Since property investment should be viewed as long term (10 years plus) then even with a cap gains tax, rents would increase to compensate, so just as in other countries, it is still viable to invest albeit with a slightly different formula for the same gains.
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You will often hear how you should buy in “up and coming” areas. But what does this mean? Well there is a test for this. English firm Virgin One created the “Cappuccino Test” for an area, based on interviews with over 1,100 buyers and real estate agents.
The test showed up trends or signs to watch for that helped define an area as “up and coming”. The first part of the test is to see if there is a decent cafe within reasonable walking distance of the home you are looking at (hence the name of the test)
The next thing to look for is a shopping centre nearby that offers trendy shops and particularly a bookstore that is part of a national chain. Also important apparently are the makes of cars in driveways and how well kept the houses and gardens are.
On the other side of the ledger, groups of youths hanging around shops, lots of traffic, older cars, unkempt sections and barking dogs give the impression that the area is declining in value.
The final piece of the jigsaw in determining whether an area is “up and coming” is its name. But that’s a story for next time.
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Remember that if the value of your house rises, so will the value of the one you want to buy. It’s worth noting that if you sell now for $400,000 and buy for $500,000, that’s a $100,000 shortfall to fund. If prices rise say 20%, then you sell for $480,000 but buy for $600,000, the shortfall now being $120,000 to move to the same house you could have for $20,000 less. Worth thinking about.
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It’s a fascinating fact that you go house shopping by initially looking and judging the outside of homes, but once you are in it, you live on the inside and more or less ignore the outside.
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The median house price for all of NZ from September 06 to August 09. In these three years prices have risen and fallen by small amounts as you can see, hovering around $330,000 to $340,000. The bottom line is that prices are very stable right now.
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Typical six month and one year rates are around 5.6% with 5 year rates at 8.6%. At 3% higher, this shows that the lenders expect a rise in mortgage rates over the next few years. But it’s not all bad news. These high rates are there partly because lenders have become very competitive, all trying to get us to use their floating and short term money.
However, the most important part of mortgages however is the STRUCTURE of the borrowing, NOT the rate and that all depends on your circumstances. Some prefer the certainty of fixed payments while others like flexibility in repayment options and the lowest short term rate possible. Part floating and part fixed is very common so you can get the best of both.
The key to saving is a competent mortgage broker or banker. Have them show you various options and explain the implications. And do NOT be guided by your neighbour! Their personal circumstances may be
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