I'm 25, married, earning just over $62,000 a year, living in Auckland. In order for my wife and I to buy a property to live in, I would need a deposit of between $50,000 to $100,000. That alone is no small feat.
I would then need between $684 and $769 per week to pay for the mortgage. Considering my weekly wage is $806 after tax, student loan and KiwiSaver, and we would like to have kids in the next couple of years with a parent at home, this becomes literally impossible.
One thing I've never understood is how the average house price in Auckland can be around $500,000 and the average salary is only around $50,000. If interest rates are only at 7 per cent and somehow a deposit of 20 per cent was paid, Joe Average still ends up having to pay $400,000 x 7 per cent = $28,000 a year in interest before paying any capital back.
Compare this to the US where the average salary may be about $50,000 but the houses are only about $250,000 on average. My numbers will be a bit off but I trust you get my point. Why is there such a disparity? Are we just heading for a massive meltdown like in the US?
Mary Holm: Who knows? But I agree with you that house prices are out of whack, and logic says they've either got to fall fast or perhaps just go nowhere for quite a long period, while wages catch up.
While any fall in house prices this year is likely to be blamed on whatever's in next week's Budget, I reckon that the unaffordability situation as you've described it is likely to be just as important a factor.
And it's not just wages that seriously lag behind house price growth. Here's an excerpt from another reader's letter: "I have been a residential property investor for about 17 years. In my first property, the rent paid for the mortgage. Since then house prices have increased 400 per cent but the rent only 90 per cent."
That huge difference in growth rates can't last either. Normally, low rent relative to house prices will depress demand for houses because:
* More people will see renting as better value than home ownership.
* Fewer people will want to own rental properties, because the income they generate is low.
In recent years, though, rapidly rising house prices have buoyed demand - which in turn has further pushed up prices. First home owners have sacrificed lots to get a place of their own, fearful it will cost much more next year. And landlords have invested with both eyes on capital gain.
But once these two groups realise the fast growth is over, I suspect economics will kick in.
As yet another reader has put it, "If some property investors can come to accept that the average house price should not, in the long run, rise faster than average rents, and if they come to fully appreciate all the hassles, expenses and risks involved, they may finally give residential property a miss ... allowing prices to fall back to a sensible equilibrium - defined as an economically viable relationship between rents and prices."
Hang in there. There might be a longish wait. House prices could even rise fast again before sanity prevails.
In the meantime, it's great that you are in KiwiSaver. When you finally do get in a position to buy a home, you can get considerable help from the scheme - the right to withdraw much of your money, and perhaps to get a subsidy.
Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.
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