Them­selves out of the mar­ket’

Horowhenua Chronicle - - OPEN HOMES -

the trade-off be­tween smaller re­wards that are avail­able soon com­pared to larger re­wards avail­able at a point in the fu­ture.

“Sav­ing up to buy a house presents this trade­off be­tween smaller-sooner ver­sus larger-later re­wards in it stark­est form. When you add a sig­nif­i­cant amount of un­cer­tainty and a nega­tive fram­ing to the mix, the choices be­come even more chal­leng­ing, which may well prompt peo­ple to walk away,” Chaud­huri says.

He also points out that many peo­ple, when mak­ing this de­ci­sion, of­ten tend to look at their cur­rent sit­u­a­tion and make fore­casts based on that with­out tak­ing into ac­count that for most peo­ple cir­cum­stances change. Salaries might in­crease, for ex­am­ple, mak­ing mort­gage re­pay­ments eas­ier.

He says a be­havioural eco­nomics con­cept of “loss aver­sion” may be at play. Be­cause they can’t cal­cu­late what their fu­ture earn­ings will be, the re­pay­ments ap­pear larger than they may be in the fu­ture when they are earn­ing more.

“This of­ten leads to an un­der­es­ti­ma­tion of one’s abil­ity to pay over the 25 to 30-year life of a home loan,” he says.

Chaud­huri sug­gests that any­one look­ing to buy their first home should avoid erring ei­ther on the too pos­i­tive or too nega­tive side. He sug­gests sit­ting down with an ob­jec­tive per­son and do a re­al­is­tic as­sess­ment of fu­ture mort­gage pay­ments and fu­ture in­come po­ten­tial. This gives a bet­ter pic­ture of whether home own­er­ship is af­ford­able or not.

Psy­chol­ogy is not the only rea­son peo­ple are not sav­ing. It’s one of a host of fac­tors. Sim­ply say­ing: “I’m go­ing to buy a house,” won’t sud­denly magic up a de­posit. Sav­ing is con­tex­tual and de­pends on a whole lot more than just psy­chol­ogy. Skills, knowl­edge, con­nec­tions and priv­i­lege all come into the mix.

Some peo­ple from lower so­cio eco­nomic groups do defy the odds de­spite in­ter­gen­er­a­tional in­equity and other road­blocks.

“I’d ad­vise first home buy­ers to look in­ter­na­tion­ally, to shift away from the Kiwi quar­ter acre dream,” says Wil­son. “First home buy­ers should em­brace more in­ten­sive hous­ing op­tions and reap the life­style re­wards of these prop­er­ties be­ing more cen­trally lo­cated than free­stand­ing al­ter­na­tives.”

Wil­son also says buy­ers shouldn’t ex­pect to live in a first home like the one they were raised in “They don’t call it the prop­erty lad­der for noth­ing!”

They need to think long-term, not spec­u­la­tive or quick buck re-selling.

Say­ing it’s im­pos­si­ble, how­ever could turn out to be a self-ful­fill­ing prophecy.

“Most im­por­tantly, don’t give up hope,” says Wil­son.

“This ‘I will never be able to af­ford a home’ mind­set quickly be­comes self-ful­fill­ing and can quickly drive be­hav­iour away from even try­ing to buy.

“Stay fo­cused, keep sav­ing, use your Ki­wisaver fund wisely and fo­cus on prop­erty which is re­al­is­tic to your cur­rent life­cy­cle.

“You will find a way to en­ter the mar­ket.”


MANY Ki­wis are not buy­ing new home through a lack of self-belief, ac­cord­ing to re­search by Massey Univer­sity.

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