Start saving now for future housing buying
Woo-hoo! We’re New Zealand.
I know this because that’s what the Reserve Bank’s new ‘‘Household Balance Sheet’’ says.
We achieved trillionaire status in June last year when our combined net wealth – the sum total of everything households own minus the debt – passed $1 trillion.
It’s a lot of wealth. More than half of it is in housing.
That makes our trillionaire status a bit wobbly in my book.
Respected economist Sham-ubeel Eaqub this week likened Auckland house prices to a giant Ponzi scheme.
Add to that bank executives reporting ‘‘ridiculous’’ prices being paid for assets and my favourite mortgage broker blogging about houses in Auckland being 25 per cent overpriced in the same week that the Reserve Bank said the factors driving stupid prices – immigration, low interest rates and lack of supply – are ‘‘unlikely to be sustained indefinitely’’.
These days, like most of my friends, I live in a house I think of as a CABIN (‘‘Couldn’t Afford to Buy It Now’’).
But what should a person
trillionaires who lives in ‘‘ mad times’’ do?
Mad times aren’t just to do with house prices being outof-whack with salaries, which is actually the case in many parts of this lovely and sparsely populated country.
They can be times of high unemployment or rapidly rising inflation or, more personally, instability at your work.
We can’t choose the times we live through – though we all voted for the local councillors and MPs who allowed the building of houses to slump to such an extent that prices jacked up and up and up! – but you can decide how to respond to them.
Householders should do in mad times what they do in good times.
In fact, they should do more of it. That means attacking their mortgages with gusto and not simply congratulating themselves on capital gains they haven’t earned.
They should keep away from consumer debt.
If a house price crash happens, there is a very good chance it will be associated with other economic troubles such as job losses. The less debt a person has then, the better.
Householders should also make sure they have a little money set aside outside of the mortgage. Every household needs its troubled-times cash store. It’s also a time to think even more carefully about the risks of investing or taking out a reverse mortgage or using the family home as security for buying a rental property.
If you are not yet a homeowner but want to be, the most important thing is not to lose hope. Keep saving. Preserve any windfalls that come your way. Keep budgeting.
Keep away from consumer debt. Keep looking for opportunities but don’t do something stupid and perilous. Everyone has to adapt to the times but taking out a massive, bankruptcythreatening mortgage for a marginal property that will be first to fall in value when – or if – prices fall (whether by crash or slow unwinding) is risky. Stay fit. Prioritise family time over spending.
Concentrate ahead at work.
Each of these things will improve your position and happiness, whether the mad times persist or not.
I have younger colleagues determined to be ready to swoop into the housing markets in the cities in which they live should the opportunity present itself.
Whether we retain our collective trillionaire status or not, in time I expect them to prosper.