Is there an end game ?

I’ve been scratching my head lately, If the housing market is on fire, Why are high end luxury vehicle sales down 13% against their 3 year averages.

Our newsfeeds have been blasted with headlines on New Zealand’s housing market

“Competition fierce in NZ’s hot housing market, Hot New Zealand property market sees mad scramble for real estate, or Housing market continues to hit record highs”

Hordes of would be home owners are falling over themselves to buy, buy and buy.

When I digest all of this, the following word comes to mind:

spruik:

to make or give a speech, especially extensively or elaborately; spiel; orate.

oxford dictionary

Is this housing market surge the new reality, or is this just real estate agents hyperbole ?

Let’s not forget that a large contributor towards media advertising comes from the real estate industry.

In light of record high house prices across the country, a government who has failed to improve legislation that would increase housing supply, and record low mortgage rates, there doesn’t seem to be an end in sight.

For first home buyers are driven by FOMO, the fear of missing out. FHB’s are taking out home loans at rate of $1.3 billion-a-month representing 25% of the housing market.

Investors are also increasingly active in the housing market, just slightly ahead of first home buyers with a 26% market share.

With a market on fire, the Reserve bank of New Zealand has announced it will pour a large can of petrol on the fire, in the form of $100 billion of quantitive easing to ‘stimulate the economy’.

Wait a moment……

How can we have a red hot housing market and the need to stimulate our economy at the same time ? Let’s look at some numbers shall we.

  • COVID19 wreaked havoc on the global economy, including here in NZ, the value of our economy (GDP) shrunk by 12%.
  • We are now officially in a recession.
  • Those who do not have a job, but are available to work and are actively seeking one rose 12%
  • Average weekly earnings (including overtime) fell 2.8%
  • We have a country, along with its citizens that are earning less, with a large chunk of people looking for work.
  • And the scariest statistic of them all is that New Zealanders are borrowing even more, the value of housing loans are at $208 billion, up 6% on 2019, in increase of $26 billion from 2018.

Folks can’t all be thinking things are great if high-end car sales are down 13% against 3 year averages. (MIA, 2020) The one anomaly I spotted was that Ferrari sales were still strong, lets face it, owing a Ferrari is a status symbol that say’s to others, I’ve made it.

I would bet that those mum & pop property investors turned property tycoons are the ones buying up those Ferraris, when the more astute investors (Bentley owners) are holding off to see where this all ends.

Those normally upgrading their existing Audi, Mercedes and BMW’s are also possibly holding off, remaining cautious. You would think that if more people felt wealthier, and are optimistic about the economy, they would be buying more high-end cars.

I often wonder if the masses are literally enslaving themselves in debt to ride the wave of capital gains, in the hope the party never ends.

In fact, I often hear from people who believe that property in New Zealand will never go down.

This might just be the case, but one thing that is certain is that peoples incomes, and their ability to buy property will decrease as the cost of borrowing increases, investors will pass on these costs to renters, and with nobody left who can afford to buy theses homes, with immigration brought to a halt due to COVID19, what happens to house prices then ?

What is certain, is the higher your debt burden, the more likely you will be shackled and restricted in your decision making when needing to respond to any economic shocks.

Is a Home loan repayment deferral the right option for you ?

With the fallout from COVID19 ravaging economies all over the world including here in New Zealand, banks have been quick to offer their customers debt relief by way of mortgage deferrals, also called home loan repayment deferrals.

Home loan repayment deferrals are put in place by your bank for those facing short-term hardship as a result of COVID-19, those who have lost income can essentially apply to their bank for a mortage deferral of up to 6 months.

People need to beware that the interest will continue to accrue on their home loan during a deferral, this will increase the amount owed, potentially prolonging the repayment period of your housing loan.

A deferral can be tempting in the short term, but this needs to be weighed up against your long term finacial goals.

It’s worth asking your bank what the added cost will be to your home loan in deferring for 6 months.

There are other options before going down this track for example.

  1. Reduce your spending habits.
  2. Liquidate unused assets such as a car, the boat or the bach to pay off debt, and reduce your overall exposure.
  3. Take advantage of lower interest rates, test the market, switch banks if you have to.

The issue we all face is the uncertainty, we don’t know the exact impact on our economy of continued lockdowns.

This scenario could well be drawn out causing further unemployment, thus making it harder for you to recover lost income.

The single most important thing is to build equity in your home loan by paying off debt hard and fast, while not over extending yourself.

When the rainy day comes, you’ve built in enough of a buffer to buy time while you make some tough decisions.

If you’ve found yourself in this position, and not sure if taking on a loan deferral is the right thing for you, get in contact with me now, I will help you to understand the cost, and get you on a plan to survive hardship you may be facing.