A house is not a financial asset

You have to hand it to the Reserve Bank: they’ve done a formidable job in effectively managing our housing market, which just a couple of years ago was widely tipped as being susceptible to a ‘‘crash’’.

Remember those predictions? The bank’s work to manage the market started in 2013 with the introduction of loan-to-value ratio (LVR) restrictions to address the risks from rapid house price inflation and increasing household debt.

Its latest move, effective from January 1, has been to loosen up and let banks issue more new mortgages to owner-occupiers with deposits under 20 per cent and investors with under 30 per cent.

But latest statistics show a housing market that is, in fact, not in a dire state. Real Estate Institute figures for the year to December 2018 paint an interesting and informative picture that’s perhaps less mesmerising than doom and gloom.

They include a House Price Index rising by 3.3 per cent yearon-year, including 8 per cent outside Auckland; a median house price up 1.5 per cent, and better again outside Auckland, and only a slightly more median days to sell nationwide, up two to 35, which still shows a properly functioning market.

Sure, sales activity has slowed, but that’s predominantly an issue for real estate agents and to be expected given the negative talk.

At the same time, we have a Government driving initiatives and policies that will have a direct bearing on housing.

At the forefront of these is KiwiBuild, which, if and when it gains traction, could mean having to import all the extra builders, electricians, plumbers and painters who will compete for rental accommodation and therefore support prices.

Likewise, Government support for the regions, while logical in broadening our economic base, could exasperate demand for housing in those places and hence continue strong price appreciation in regional housing. The best reason to ignore everything being said about house prices is that in my opinion a house is simply a place to live, not a financial asset, regardless of whether you rent or own.

Financial assets generally have a readily observable price, a quote to either buy or sell, for example, in shares. Financial assets respond quickly to volume and price changes and are cheap to transact.

Houses are none of these things, and definitely not cheap to transact.

Only individuals can price houses given the subjective nature of valuation. Only you can work out the price for an endless list of variables, like the happiness of owning your home, or the freedom of renting; or the convenience of being close to friends and family; and how good or bad the local schools and cafes are.

How you really feel about borrowing money and job security are critical factors too.

Be aware that many professionals will offer their ‘‘official’’ view, not their personal view – and ignore anyone who, after telling you the sky is falling in, then won’t say whether they own a house and if they’re about to sell.

The clue being that most commentators own a house and won’t be doing anything, despite being adamant it will soon be worth a lot less.

I won’t be selling any time soon; I need somewhere to live.