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5 reasons why 2012 is a good time to buy a house

I have a funny feeling that this year we’ll be helping more people into their first home than ever before. Yes, I think 2012 is a good time to buy a house.

That’s despite the doom and gloom that keeps coming out of Europe. The ongoing quakes in the garden city. And the downbeat articles that grab headlines and sell newspapers. In October 2011 I followed the lead of my new mortgage clients and bought a house after sitting on the sidelines for a couple of years as a renter myself. The conditions seemed good enough then and I can’t see 2012 being much different.

Below are the main reasons I took the plunge recently – some of them are economic, some of them are entirely personal.

Reason 1 – sick of renting, deposit in hand

Although not a first home buyer I was in pretty much the same position. That is, I had a deposit and was sick and tired of handing over rent money every month. Don’t get me wrong – our landlord was awesome and the place we rented was modern and in a great neighbourhood. It’s just that rent money feels like dead money (unless you’re the one receiving it!!)

In addition there were other intangibles I wanted. I like a nice vege garden but there’s no way I’m investing in one only to leave it behind. I was never going to be a tenant forever so why bother? Plus it’s hard to get rid of wallpaper that drives you insane when you’re a tenant. You know what I mean?

And every tenant knows their stay is not guaranteed even if they’ve been there for years. When you buy a house it’s yours, you call the shots about everything. I like that the most.

Reason 2 – house prices have stabilised

If you had the balls, 2009 was probably ‘the’ year to buy a house in recent times because there were a number of pressure sales. Which we did – as a rental. But taking on another mortgage for our own place was a different kettle of fish. We wanted a bit more certainty in the market before getting back in, we wanted prices to stabilise.

Prices had fallen below their 2007 peak and had stopped falling which was good. Will prices go up in the next year or two? Some will, some won’t but nothing spectacular either way. For the moment, Auckland property prices are pretty much flat as a pancake and I think the same could be said in other regions too.

Reason 3 – Interest rates are good

I think they’ll remain this way for a while too. And with rates so low it gives me an opportunity to make larger mortgage repayments as well as put some money away in my holiday account.

Will rates go up in 2012? Probably. That’s because inflation will grow in NZ and Europe might yet fall apart completely. Even so the increases are sure to be well signalled and gradual. Nothing dramatic and no real surprises which means you can plan for them.

I opted to lock in my rental property mortgage for 3 years at 6.45% just recently. That’s a bit more expensive than current 3 year rates (ooops, I jumped  a bit too soon on that one) but at that rate my tenant covers the mortgage completely so no sleepless nights for me.

For my own house I opted to go for the floating rate as this gives me the ability to jump into a fixed rate whenever I want, to pay more than the minimum and make lump sum payments if I choose plus, at approx 5.50% it can’t get much cheaper.

Reason 4 – affordability is there

Everyone talks about how low interest rates make a mortgage more affordable. Which is true but income is what it’s really about. As a self-employed person my income can be a volatile – sometimes it rains, sometimes it’s a drought. Not the kind of thing that always fits nicely with regular boring mortgage repayments. But I’d worked hard in recent years to get more regularity into my income and in 2011 that work began to bear fruit. Ahhhh.

The point is if you’re going to buy a house you must have a job and a good degree of income security because without it paying a mortgage is hell.

Reason 5 – other considerations

In recent years there’s been talk of a housing shortage in NZ. If talk becomes reality then the price of existing property will tend to increase. The NZ economy is on the improve too, just. Certainly the rash of layoffs that happened in 2008-9 has all but stopped. Both bonus factors as far as capital gain goes.

People seem to moan that there are very few houses on the market and the good ones go almost as soon as they’re listed. True. And it’s always been like that. What I really noticed is that it became really easy to spot good ones amongst the duds. The good one’s really do stand out if you’re vigilant.

Some people are saying rent levels will increase in 2012 and I reckon our landlord was about to start typing the letter so we got a wriggle on.

 

Anyway, that was my thinking then and it remains so now. There are clearly economic considerations behind your decision to buy a house but there are also personal reasons that count for as much – maybe more – than just the pure numbers themselves. What do you think?

$18,000 house deposit – thanks Kiwisaver!

I’ll cut straight to it – if you’re not in Kiwisaver yet (or an equivalent scheme), somethings wrong with you.

Although thousands of people have signed up there is still a group of people who seem paranoid about getting into it. In terms of simplicity it’s a good scheme. That a heap of people who probably weren’t doing anything about their retirement have been spurred into action also makes it a good scheme. As an employee, for every dollar you put in someone else adds another dollar fifty (roughly). And you get $1000 for signing up. What’s not to like?

But the really fantastic part of the scheme in our opinion is the first home buyer subsidy. It’s a massive benefit to anyone who aspires to property ownership. Is that you?

It works like this:

If you have never owned a home*, you can withdraw some of your Kiwisaver funds to help pay the deposit so long as you have contributed to the scheme for at least 3 years. You get $1000 for every year you contribute starting at $3000 up to a maximum of $5000.

You can also take out your own contributions, your employer’s contributions and the interest earned on the lot and put it toward your first home. You can’t touch the government contributions though and there are house price and income thresholds to consider too.

How about some numbers to see how much you’re looking at?

Let’s say you earn $50,000 before tax per year and contribute 2% towards Kiwisaver.

Your annual contributions will be about $1000. Your employer matches this, so add another $1000.

If you’ve been contributing for the minimum three year period that’s $6000 of your own money available for a house deposit. Now add the subsidy of $3000 which gives a total of $9000 for your deposit. Not bad, but here’s the really cool bit.

Most people buy a house with their spouse or partner. If that person has also been in Kiwisaver for three years you can ‘double up’. And if their numbers are just like yours (above) you’ve got a deposit of $18,000!!!

Home ownership might be a whole lot closer than you first thought. Find out if you’re eligible for a first home subsidy and how much you can get by going here. Then call us to arrange for your mortgage pre-approval on 0508 462 489.

*In fact, it may be possible to access the subsidy even if you have owned a home before.

 

To rent or buy?

he Kiwi dream has always included owning your own place, your Turangawaewae, the good old 1/4 acre paradise. But if you take a bare ‘money in vs money out’ approach, renting almost always comes out the better option.

Surely its not all about cost though? If it was then as Olly Newland said in a recent article it would imply “…that an even more efficient way to obtain shelter is to live in a cave, rub sticks for fire and dress in rags!” Indeed. Like, you’re gonna do that!

Personally, I like ownership and encourage people to aim for it.

Some would say that you should put your inflation goggles on when comparing renting and owning and there are two angles to this. Firstly, house prices and incomes tend to increase with inflation so the net cost of owning property might be lower than you first thought and as your income goes up owning gets easier over time. The second angle is that inflation is also a trigger for rent increases so over the long term renting actually costs you more.

But renting is good in that there are no maintenance costs, no insurance, no rates and you can ignore the fuss every time the Reserve Bank makes a noise. Leaky tap? Ring the landlord. Since you’re not forking out for those things there is often more money for fun, maybe a bit of travel etc

The trouble with renting is that

- you pay forever but have nothing tangible to show for it

- you can be booted out at short notice

- rents only go one way, up!

- and any improvements you make to the property ultimately benefit the landlord, not you.

Having said that, property ownership does require you to be in a certain ’headspace’ and in our experience most successful first home buyers are in a settled kind of lifestyle. And those looking to upgrade to house number two (or three) have been settled for a while.

Its likely that both groups have started or developed a career or steady business, haven’t changed address too many times recently and are often in a relationship of some sort. Yeah that’s generalising I know but it makes sense cos if you’re in that headspace you’ll be more likely to have the income required to pay the mortgage you’ll undoubtedly need.

The power of two incomes means you’ll also have a fair chance of being able to save the deposit in reasonable time as well!

If that sounds like you, chances are you’re sick of being a tenant or flatmate too.

In the end, it comes down your personal aspirations and has less to do with the numbers than you might think. So, take my advice - don’t make the mistake of using an accounting comparison to answer the rent vs buying question lest it turn you into some kind of economic robot. Is there not room for pride? For a secure place to raise a family? For capital gain (or at least a chance at it)? For an escape from your dodgy flatmates?