Homebuyers’ price rise nightmare
GOLDEN RULES
What’s wrong with headlines about house prices going up by $3000 a week?
The answer is they underestimate the real price buyers are paying for a house.
People buy houses with debt, so a $3000-a-week price rise actually means the buyer ends up with $2400 more debt, assuming a 20 per cent deposit.
The interest on that over 30 years, assuming 6.5 per cent mortgage rates, results in just over $3000 extra interest to pay. The true rise in the cost of the house is not $3000, but just over $6000.
Writing money columns for urban first homebuyers, many in their 30s, is tough these days.
I try to keep a sunny tone in columns, focusing on the power of hard work, thrift and care.
But when it comes to buying a house – a normal occupation for previous generations – scrimping, saving, and living a life of pinched frugality aren’t enough.
Hoping for a housing crash is pointless. Even if house prices did suddenly become affordable, banks would be in such a state they wouldn’t be lending to firsttime buyers.
But it’s my job to offer strategies to aspiring homebuyers, so here goes:
❚ One: Have wealthy parents.
❚ Two: Inherit money, win Lotto, or marry someone rich.
❚ Three: Earn an outrageous amount from an early age, save madly, then get an enormous mortgage, hope the market holds up, and you have no breaks in income.
Make yours a really big income. Remember, many homeowners are now out-earned each year by their homes. We couldn’t afford to buy our houses any more than the young can save an extra $1000, $2000 or $3000 a week so their deposits keep up with price inflation.
❚ Four: Don’t have children. They ruin your borrowing power, and earning capacity.
❚ Five: Adopt a shared-space approach to ownership. Buy with friends. Stay at home forever in multi-generation households where the grandparents are on site to provide free childcare .
❚ Six: Buy a house in someone else’s town, and rent it out. You can retire there one day.
❚ Seven: Form a single-issue ‘‘fair priced housing’’ political party. Get elected. Form a coalition government. Take away urban ❚ Take help where offered ❚ Work hard, save hard
❚ Watch for opportunities
planning control from councils. Socialise the costs of building new homes. Ban foreign ownership. Start a vast social housing programme.
❚ Eight: Hoodwink the bank into believing your income is high, then take in lodgers to help pay the interest bill.
❚ Nine: Be a wealthy foreigner. We won’t ask where your money came from.
Strategy number one has been working well, though scuttlebutt is that number eight and nine are winners for some too.
Cynicism aside, what should young people do?
Agitate for change. Focus on career. Be frugal. Save. Take help where its available (parents, KiwiSaver, etc). Be ingenious. Be lucky. Look for opportunities, even in other towns, cities, and countries.
And parents? If nothing changes, money and property will become intergenerational wealth.
Help family youngsters focus on career, live at home longer, avoid student debt, and build wealth, while all along not damaging your own retirement prospects.