The new question for 20-somethings
For the past two years the pressing question for many young Kiwis has been whether they can afford a house but, as the borders reopen, there is now also the question of travel.
So, house or travel? Because it’s becoming increasingly clear it’s near impossible to do both.
People in their late 20s who haven’t bought a house by now are likely to choose travel.
While the housing market might be starting to turn in Wellington, interest rates are headed in the opposite direction.
Property sector research company CoreLogic’s latest data shows property values are on the downturn across the country, with Wellington recording a 0.8 per cent drop in the last month.
But annual inflation has hit 6.9 per cent for the year to March 31, the largest movement since a 7.6 per cent annual increase in the year to the June 1990 quarter, StatsNZ has reported.
Meanwhile, the official cash rate has been lifted by 50 basis points to 1.5 per cent, signalling the Reserve Bank is prepared to move faster to head off inflation.
That could see one-to-two-year fixed mortgage rates topping 6 per cent in the coming months, according to CoreLogic.
The current climate is hardly an affordable one, especially in Wellington. If the 20-somethings have been putting away cash for a house deposit, they might decide some of that money is better off being spent overseas on some fun for a change.
I’m 28 and don’t have a mortgage nor own a house, but I have been working hard to save money over the past couple of years.
While I don’t feel quite ready to make a decision on whether to embark on an OE, I am desperate to travel overseas this year for a holiday.
I’ve been dreaming of a Euro summer for two years.
I was meant to go to the likes of Italy, Spain and Portugal in April 2020, but I made the call to pull the plug before Covid-19 was officially reported in New Zealand.
I cancelled my Airbnb reservations and wrangled a flight credit. Next thing I knew, the country was in lockdown.
I was in a privileged position to have even booked that trip in the first place. Thanks to the democratisation of travel, it’s a privilege more people than ever before have been able to enjoy.
I also understand there are people in this country for whom home ownership and travel don’t even come into the equation as they face the soaring cost of living.
Nevertheless, the great Kiwi OE, or at least a couple of months abroad, has become somewhat of a rite of passage for many young people.
A lot has changed and travelling is not going to be as cheap or as carefree as it once was.
My original flights to Europe cost $1678 return. The flights I was looking at last week were anywhere between $1200 and $1600 one way.
I probably couldn’t even afford to go if I didn’t have my flight credit, which will at least cover one flight.
You also have to factor in what you’ll do if you are infected with Covid-19 overseas. What are the airline policies? What are the isolation rules in different countries? What if I need to go to hospital?
For example, I didn’t realise anyone flying to or from Italy must wear an FFP2 mask.
Back home, there’s also a camp of people who did manage to buy their first home in the past two years.
Once upon a time in a land of low interest rates they might have thought they could travel overseas for a few weeks when the borders were back open.
But as inflation soars, they’re probably more worried about paying the bills than thinking about going abroad.
That makes me sad. I feel like a lot of people my age prematurely turned to the housing market because of the fear of missing out on red hot capital gains.
The reality is many will have found they in fact purchased property at the very peak of the market. As they watch their property values fall, they are facing the alarming reality of interest rates heading north.
They will be nervous and potentially feeling trapped. With mortgages up to their eyeballs, homes could feel more like a millstone around their necks.
So, house or travel? In many ways the answer for the 20-somethings has already been decided.
Anyone who bought a house in the past two years is effectively stuck with it and doesn’t have a choice.
Those who missed out are probably more than ready to leave a housing market that continues to provide little hope.