The Unconditional Blog

The impartial voice of the industry

 

Archive for the ‘Buying / Selling a home’ Category

5

Is buying a house really twice as expensive as renting? – observe the wisdom of the crowd

Posted on: July 23rd, 2008 | Filed in Buying / Selling a home, Property Investing, Renting

To buy or to rent – a perplexing question at the best of times, and as with most western societies we are conditioned largely to see home ownership as a logical path to passive investment. Whilst there is much to debate on the subject and mixed opinions, I was taken by the demonstration of balanced feedback presented on the NZ Herald website today in response to the article “Buying house – more than twice as dear as renting“.

The article quoted Property Investors Federation vice-president Andrew King with figures saying to buy the median house in NZ cost $745 per week as compared to the median rental price of $305 per week – on the face of it a bit of a no-brainer! However firstly isn’t this a clear case as “he would say that- wouldn’t he” as representing Property Investors.

However for me the most powerful element of this story is the clear demonstration of the collective The Wisdom of Crowds which is shown in the feedback comments on the Herald’s your “view section” – to provide a smattering of these comments:

Nigel Pinkerton from Lower Hutt:

With respect, F symonds is also not comparing apples with apples.
Say I took out a $400,000 mortgage and payed an average of 7.5% for the rest of my life, not reducing the loan’s value. Bear in mind that mortgage rates are currently at the top of their cycle.
I would be paying about $575 a week for the rest of my life, and by the time I retire $400,000 would not be a lot of money to pay off (prices and incomes keep increasing).
If I am renting, even at say $400 a week. This rent will keep increasing with the cost of everything else and in ten or twenty years time I may be paying $800-$1000 a week or more with nothing to show for it.
Generally, if you are covering more than 75% of your landlord’s interest payments, you are making them richer on paper (which they can cash in by selling up in the future). This applies even if you are not contributing to paying off the principle (book value) of the loan.

Shaun from Karori:

The quoted figures are misleading in the following ways.

1. Most home owners will be on fixed rates. In the worst case where a mortggage has recently been refixed, these rates will still be over 1% lower than the quoted floating interest rate of 10.4%. Many home owners will still be on fixed rates which are even lower.

2. The quoted mortgage repayments figures include repayment of capital – which means that over the term of the 25 years the 90% mortgage ($310,500) is completely repaid. This savings part of the mortgage needs to be taken out in order to compare like with like.

Taking these two factors into account and using an a current bank 3yr fixed term rate of 8.8%, gives an actual annual interest cost of $27324. This is around $7500 less per year ($150/week) than the quoted figures.

Still cheaper to rent, but lets be accurate in the figures so as to make the comparison valid.

ILNZ of Howick:

There is one major point missing here: rent increase every year, 7-12%? so it will possibly takes only 5- 6 years for your current rent to match your mortgage payment, and the rent still goes up in the years to come, but not your mortgage payment

If you do not own a house when you can afford it, then you will forever miss out.

And when you are old, say after 25 years, paying off your mortgage, you have a house that worth a fortune by then, but not those renters.

KatieR of Point England:

Got reminded this week of the benefits of ownership. Renting in the current climate is great financially but terribly disruptive to your life. Theoretically you pay your rent and don’t have to pay another bill other than power and phone. In real life, I am hassled to pay water bills without notice and worry about lawns. I rent so I don’t have to worry about this crap.

In addition, I now only deal with property agents and will not rent from owners- and recently learned that this needs to be written in the tenancy agreement as some owners know this and have it managed by agents for the first two months then start doing it themselves. Agents are contactable 24 hours and get things done quickly. Owners expect me to put up with things not working for their convenience. I don’t pay rent to put up with a broken toilet and pay rent for my convenience.

I am thinking about buying next year as I am sick of the crap- six week evictions because their son is getting back from overseas, landlords visiting at all other than a six month property inspection (I am paying for privacy) and the terrible state of most rental properties – plumbing, electrics alarm and paint matter to tenants.

The key point here is that with the feedback mechanisms of blogs and the all pervading power of Google – so called experts need to be aware that people will seldom take their version of the truth at face value – people are encouraged and rewarded to dig a little deeper and hear the “wisdom of the crowd” before making up their mind.

16

Auckland property market potentially showing signs of stability

Posted on: July 4th, 2008 | Filed in Buying / Selling a home, Real Estate Industry, Regional News

The sales figures for Auckland properties as reflected by the monthly figures released today by Barfoot & Thompson certainly show the continuing sluggish property market with just 556 properties sales in June. This brings the total for the first 6 months of 2008 to 3,363 – a decline of 48% from the same period last year which saw over 6,500 sales.

The figures though on further examination do show some interesting early trends which could reflect a more stable market – one where a smaller set of buyers and sellers are meeting the market at a realistic level.

This pair of graphs track the moving annual total of sales volume and sales value as reported by Barfoot & Thompson over the past 12 months. The blue horizontal bars representing the sharp decline equally reflecting the contraction in real estate business, in the case of sales value from a high of an annualised $6.3 billion to the current level of $4.2 billion.

However when examining the monthly variance to prior year as shown by the yellow line the analysis indicates that the rate of decline in the case of volume sales in June was less severe than for the prior 2 months. Certainly the reporting period is beginning to track against the first months of decline this time last year, however it does at least show some signs of a base level potentially.

The average sales price monthly variance does show a continuation of the range between 0 and a negative 7 percent, with June down 2.3% as compared to June 2007. Certainly not the heady growth seen over the past 3 years, but equally not the crash as yet predicted.

The coming months will be particularly telling with as ever a deficit of buyers eager to negotiate with a continuing surplus of sellers.

12

Should NZ implement the UK scheme of Home Inspection Reports?

Posted on: June 14th, 2008 | Filed in Buying / Selling a home, Green

Since December of last year all properties in England and Wales that have been marketed for sale have been required to have a Home Inspection Pack (HIP). Scotland will implement the scheme from December 2008 and already there are signs of disquiet north of the border.

UK HIP bookletThe HIP is a comprehensive set of reports and documents that bring together all of the pertinent information a buyer would need to be well informed about the prospective property they would be interested in buying.

The UK government are pleased with the implementation of the scheme, the Housing Minister Caroline Flint said:

“Consumers are already benefiting from the introduction of HIPs. Search costs are falling as a result of increased transparency in the market, energy ratings can help people to reduce fuel bills, and first time buyers are receiving important information about their home for free.

“I welcome the fact that buyers are starting to act on their energy ratings, which could cut a million tonnes of carbon a year as well as helping families with their fuel costs.

“However, what is clear from the trials is that more buyers wanted to see the HIP but it was not always made available to them. That’s why we have taken action to increase awareness of the consumers’ right to see a HIP and to remind agents of their responsibility to provide the pack.”

So what does a HIP comprise? There are mandatory documents and optional documents within the pack.

  • Mandatory requirements include a sale statement stating key facts about the property, local searches very much akin to LIM’s. Legal titles and the energy performance certificate – a professional report on the energy efficiency rating of the property and an environmental impact rating.
  • Optional components a house condition report – very much akin to a building inspection report and a legal summary report.

Certainly the objective of the implementation of the HIP scheme was in its ability to aid transparency in the home buying process. The costs of a single HIP does range anywhere from $800 to $2,500 and is paid for by the vendor of the property.

As to implementing such a scheme in NZ. You would have to say that from a consumer perspective the greater the level of transparency and ease of access to pertinent information has got be seen to be of great benefit for buyers. Naturally initial reaction would be cold, especially to the cost; but living as we do in an ever more open and transparent business environment this initiative has got to be of value. We will just have to wait patiently to see if a future NZ government decides to implement such a scheme.

0

Buyer interest for Auckland property remains sluggish

Posted on: June 5th, 2008 | Filed in Buying / Selling a home, Regional News, Website searching

The latest data released by Barfoot & Thompson today continues to show a very soft property market within the Auckland region, and in some way foreshadows the likely story for the national picture to be presented by REINZ in the coming weeks. Just 515 properties were sold by Barfoot & Thompson in the month of May representing a drop of 53% as compared to the figure of 1,100 in May of last year.

A key consequence of the slowing sales is the ballooning stock of property on the market. Currently on the site there are 18,695 residential properties for sale across the Auckland region, some 3,500 more properties than this time last year. Based on the April 2008 REINZ sales figures the current stock of properties represents around 13 months stock, itself up from 8 months stock levels at the start of the year.

The other interesting fact is the extent of property searching for homes in the Auckland region. Seen below on a comparative basis to last year with 2008 represented by the red line, Auckland property is attracting proportionally less web viewings as compared to the country as a whole.

Auckland property web traffic - May 08 realestate.co.nz

It is also interesting to reflect upon the seasonal nature of viewings of Auckland properties; although caution should be drawn to the expanded scale of the graph showing as it does a peak of 37% and a trough of 34% during the full year.

0

First National offers home presentation audit

Posted on: May 23rd, 2008 | Filed in Agent Tips, Buying / Selling a home

First National home presentation offerWith close to 90,000 properties for sale at this time and sales languishing at an expected level of 75,000 for the year both real estate agents and sellers clearly need to look to innovative ideas to get the market moving.

First National have launched what they see as an offer of sound advice to help sellers optimise the presentation of their property – a free assessment to evaluate how best the property could be presented to attract buyers. Probably focusing on the elements, some of which were shared in the blog posts “Thinking of putting your house on the market – don’t be afraid of being a tall poppy!” and “The 3 P’s for selling your property” of a few weeks ago.

Their free home inspection and evaluation is they say, based on research last year showing that 82% of vendors did not receive any kind of presentation help from their real estate agent. As a sweetener First National are offering 25 Fly Buys points just for taking this free offer, and crossing your threshold, just for the months of May and June!

The market is soft and real estate agents need sales to maintain their income, this offer certainly offers them the opportunity to generate new leads, although the last thing that most agents want today is new listings; there is a well known truism that a seller is more than likely to be a buyer so this can fulfil that requirement to find buyers pretty effectively. For the seller the chance to be able to make that house really stand out has to be worth the effort, but at the end of the day the question will still come down to price and if the seller is prepared to meet the market.

3

Applying for the government’s shared equity scheme will resemble a lolly scramble

Posted on: May 18th, 2008 | Filed in Buying / Selling a home, Money Matters

I believe that this pilot scheme for between 500 and 700 second mortgages to assist first time home buyers will be wildly oversubscribed. The result will potentially resemble the share floats of the 80’s and 90s’ as the scheme is likely to appeal to not just genuine first home buyer, but to anyone keen to help out a family friend or relative and make some fast capital gain whilst saving on mortgage payments.

The lolly scramble for a part of the NZ governments shared equity schemeI am not being cynical or attempting to make a political statement, I just want to highlight a potential for the best of intentions to end up benefiting those who would not be classed as the key target.

Let me explain. The scheme has criteria for eligibility as outlined in this newspaper report. The applicants must be first time home buyers earning less than $85,000 as a household income and must have a 5% deposit. They must live in the home.

So let’s take our fictitious couple John and Mary. They are looking to buy their own home – they live in Wellington and have a household income of $83,000. They have a $13,000 deposit and want to buy this 2 bedroom unit in Newtown for $255,000 house. On the face of it (and on the application form) this couple are a perfect candidate. However the reality is not so close to the truth. Mary’s father is a property investor, he has lent them the deposit after he found out about the scheme. Mary and John have no desire to live in the unit as they rent an apartment in the CBD – but having had all the details explained by her father Mary is happy to apply for the loan. Once purchased the couple have friends who will rent the property.

So what benefit can Mary and John derive from the scheme as opposed to just buying the property with a single mortgage?

Taking this real example, assuming the unit is purchased with a government loan of 20% of the value with the balance being from a 9% interest only mortgage for 3 years, and in that time the property has a capital appreciation of 10%. The benefit at the end of 3 years of having the government scheme will be a lower capital gain ($33,800 vs. $39,000) – however this is more than offset by a saving of over $14,000 in mortgage payments over the 3 years.

Whilst there is no doubt that property is significantly more unaffordable than it was 5 years ago, schemes such as these are always going to attract investors as there is no way without extensive and costly beaurocratic screening you can guarantee that the people you want to help will be the ones that are helped. The property market is a free market economy and trying to intervene through protective schemes will more often than not attract unintended consequences, so whilst I do not wish to condone such activity I could not blame you if you got your application form completed pretty damn quick and joined the queue.

3

REINZ statistics for April show significant market correction

Posted on: May 13th, 2008 | Filed in Buying / Selling a home, Real Estate Industry

The language accompanying the release by REINZ of the April sales and pricing statistics was as telling as the data in the release.

The comment “(the) market suffered a further slump in sales in April” clearly acknowledges that what we are seeing in the data has been presented in the past few months but has not been so overtly conveyed. Equally the comment “the loss of confidence in the housing market is deeper than we had anticipated” speaks to the analysis presented in the earlier blog post “Media seriously impacts the psyche of NZ’ers when it comes to property” highlighting the emerging softening in demand as measured in web viewings of property.

There is no doubt that consumer sentiment has switched out of real estate as the dual whammy of rising mortgage costs (whilst rates may be on the way down the refinancing of fixed term mortgages will still be at higher rates than those established 2 to 3 years ago) and the general household costs impact discretionary spend.

Looking in more detail at the latest stats from REINZ data for median prices and sales we see the most extreme downward trend of the past 2 decades. These graphs present the year on year percentage change in median price and property sales tracked from 1993 to date.

REINZ Monthly sales yr on yr % change 93 to 08

Clearly seen here in the median price graph are the key cyclical peaks of pricing (1994 to 1997 / 2004 to 2006) and the lows of 1998 to 2002, plus our new downturn.

REINZ Monthly median price yr on yr % change 93 to 08

The steepness of the decline and the new lows are of an unprecedented level. A very important bell weather to understanding the stage we are at in this cycle will actually come in the May figures. It was May 2007 when we first started to see the signs of the heat coming out of the market in regard to sales volumes. Therefore a continued fall in volume as compare to May’07 would show sales down on a falling base of a year ago certainly highlighting that we are not close to the bottom of the cycle.

As for the trend of median price; naturally this is harder to anticipate as the scale of the falling-off in price growth has not been seen to this extent in the past 2 decades. Simply at this point all that can be stated are the figures.

10

When the sub-prime hits home – this is what it looks like!

Posted on: May 8th, 2008 | Filed in Buying / Selling a home, The lighter side

We have all become exposed to the expression “sub prime” in the last 9 months – it is likely to be inducted into the Oxford English Dictionary pretty soon as a new phrase, in fact it was voted word of the year for 2007 by the American Dialect Society.

However whilst we have all heard that this is driving an unprecedented level of foreclosures (mortgagee sales) in the US and devaluing property prices in parts of the country. All of this is generalistic until you see the reality of a single property – here is such a case study.

Google map of Corona CA

This 4 bedroom house is on a new development south east of Los Angeles nestled in the Corona valley.

Sanctury Drive house, Corona CAThe house was built in 2005 at the peak of the housing frenzy and sold new in May of 2006 for $1.4m, less than a year later in Feb 2007 it was flipped (by an astute person!) for $1.5m.

A year later the buyer or the bank (its is not clear whether at the time it was the subject of a foreclosure or the then owner) decided to bail – anyway it was sold in Feb 2008 for $1.1m – somebody taking a $400,000 hit!

That’s not the end of the story, because the current owner is looking down the barrel of a $430,000 loss as the property today is listed at $669,900!

I am grateful for the assistance of Zillow and their excellent forum for highlighting this listing as part of a very interesting post Who wants to play – “Guess the price of that house?” – well worth a read as there are more examples like this one!

16

Barfoot & Thompson sales figures for April reinforce the trend

Posted on: May 6th, 2008 | Filed in Buying / Selling a home, Real Estate Industry

The figures published today from Barfoot & Thompson speak to a very slow market in Auckland. The month of April saw sales of just 453 as compared to 983 in April last year a 52% decline.

The fact is these figures are not surprising – I think the general public are well acquainted with the fact that the property market in NZ is in a slump. A correction was always going to happen as the level of sales experienced in the first 6 months of last year were unsustainable.

The first 4 months of 2008 has consistently seen volumes down around 50% – this will continues until July when we pass the peak of 2007 sales – the graph below shows this with clarity with the estimated extrapolation of the REINZ data on the red line.

The key question a lot of people are asking and in some ways you almost get a sense that soon we will be seeing the TAB taking bets on, is the latest REINZ sales figures. These figures will probably out next Monday the 12 May together with the latest pricing stats from QV. For the benefit of adding my own perspective I believe the extrapolation of the REINZ sales stats based on the trend of Barfoot & Thompson sales will see a total NZ figure of around 4,700.

That figure for April would result in a total monthly sales the likes of which has not been seen for 8 years; but then again people know that property markets cycle up and down in periods of 5 to 7 years, this has been a longer peak as a function of the easy credit of the early part of the decade.

For the year a total annual sales across the whole country of 78,000 based on the current annualised figures will come as a shock to many in this industry who have only ever experience a buoyant market with annual sales of over 100,000. The likely outcome by the end of the year will be a leaner and more focussed real estate profession, better able to serve the consumer.

30

NZ Property slump is mirrored around the world

Posted on: May 4th, 2008 | Filed in Buying / Selling a home, Real Estate Industry

If it is any consolation we are not alone. Just as the developed economy of the western world (and some emerging countries) partied on the flow of easy credit in the early part of this decade – so one by one they are all facing the grim view of the property market that is looking pretty sick at this time. Take a look at some of our fellow sufferers:

Needless to say the state of the US housing market is well recognised as the home of the sub-prime mortgage debacle. Here in pockets of the US properties are being given away for the price of unpaid taxes at the extreme example and overall prices have come back over 10% at the median level, but for a country with over 100 million properties what a median prices means is a little uncertain.

UK – property sales down by around a half, the UK National Association of Estate Agents reporting their firms selling an average of just 7 homes in March (the latest NZ REINZ data shows a sale of just under 4 per office). Additionally where once a flood of mortgage approvals peaked at 3,000 per day in 2002 a mere trickle of 1,100 per day make it past the post.

Ireland – often so clearly compared to NZ is equally suffering with a 7% drop in prices last year after what had been an incredible run of property development and price appreciation

Spain went through the most amazing property bubble in the past decade with more than 4 million new homes built, more than the combined build of UK, Germany and France. But now no one seems to want to move to the sun, with thousands of properties standing empty and prices now looking anywhere up to 15% over priced ( as assessed by the latest IMF report) after an overall tripling in price in the past decade.

Denmark is a country of very similar size to NZ and a similar economy, although with the benefit greater critical scale markets much closer geographically they enjoy a much higher standard of living. Its property market has been on fire for the best part of 15 years, but the bubble has well and truly burst with prices on the slide.

Australia has long experienced the same explosive growth in property prices as on this side of the Tasman, however despite the demand of all those NZ’ers flooding across the ditch the likelihood from the recent IMF report is that Australia is vulnerable to a market correction. The report sights the Australian property market as the fourth most vulnerable in the world to a painful price correction.

South Africa is experiencing the impact of the global credit squeeze, there a series of interest rate hikes (with more expected) now see their commercial bank’s prime lending rate at 15%. A rampant property market lasting many years has now come to a grinding halt with prices falling.

Such is the overall scale of the issue that there is a growing number of forums dedicated to this subject – the most active one from within NZ (although it is a UK based one) is Global House Price Crash. It is well worth a read as an open forum of opinion and views.

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