House prices un­der­state the real rises

The Tribune (NZ) - - YOUR HEALTH -

Per­haps it is time for a new city slo­gan: ‘‘Auck­lan­ders: Ei­ther born rich, or for­ever renters’’.


■ Prices rises have been ris­ing fast ■ So have life­time in­ter­est costs ■ Aim to keep in­ter­est costs to a min­i­mum

The ac­tual fig­ure could turn out to be lower depend­ing on mort­gage rates over that time. It could also be higher.

By Au­gust 2014, the me­dian house price had jumped to $614,050, but fac­tor in an 80 per cent/25-year home loan, and the in­ter­est bill works out at just over $458,000. The house price had gone up by $51,000. The in­ter­est bill had gone up by about $38,000.

Fast for­ward to Au­gust 2015 when the me­dian home sold for $740,000.

That’s a rise of nearly $126,000 in the price in a year, plus ex­tra mort­gage in­ter­est of $94,000.

So, in two years, the me­dian price for an Auck­land house rose by $177,000.

But the in­ter­est bill rose by just over $132,000.

Based on that kind of tal­ly­ing, there are rel­a­tively few sub-$1 mil­lion houses in Auck­land.

That’s no mar­vel­lous boast for a city.

Per­haps it is time for a new city slo­gan: ‘‘Auck­lan­ders: Ei­ther born rich, or for­ever renters’’.

I hear many vari­a­tions of what house prices mean for fam­i­lies’ per­sonal fi­nances.

The first thing is that now, more than ever, there’s an in­cen­tive for peo­ple to re­duce the mort­gage fast to trim the life­time in­ter­est costs.

The­o­ries in­clude a de­cline in cafes and restau­rants as more and more young peo­ple can’t af­ford more than a mort­gage plus ba­sic lifestyle, and the old folk cash up and leave.

Oth­ers fore­see a more Mediter­ranean-style of multi­gen­er­a­tional fam­ily liv­ing un­der each roof.

More stu­dents will study from their par­ents’ home.

More par­ents will pro­vide a mort­gage guar­an­tee for their chil­dren to buy their first home.

More chil­dren will do longer hours in creche and be­fore and af­ter school care so their par­ents can work full­time.

More peo­ple will work in Auck­land and buy else­where, leav­ing when Auck­land has done with them.

More peo­ple will carry lev­els of debt that they will strug­gle with un­less they re­main em­ployed for ev­ery week of their work­ing lives.

And as a re­sult, they’ll have more in­vested in house prices never go­ing down.

Banks, we are told, have been stress-tested and can sur­vive a 40 per cent fall in house prices in Auck­land.

The ques­tion ev­ery house­hold needs to ask them­selves, is could they?

High house prices mean a life­long debt bur­den.

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