Author Topic: Should I buy in an "over-valued" housing market? New Zealand  (Read 572 times)

dreamer8887

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Should I buy in an "over-valued" housing market? New Zealand
« on: September 26, 2018, 03:31:49 AM »
Just moved to New Zealand, which by various accounts is either the most, or top three, over-valued housing markets in the world (see, e.g., https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12125648

This is a new issue for me, coming from the US where my first home purchase was bought when prices were low post-GFC.

My very vague understanding is that "overvalued" does not mean "inevitable crash" i.e. prices could continue to rise.

How, if at all, do I account for the "overvalued" factor in trying to decide whether to buy? Or is it just not a factor, assuming the rent vs buy calculation says buy? (I'm using the NYT calculator, assuming a 5% growth in house prices, which is conservative based on the last year (20% growth in my city, Dunedin) and 5% growth in rent (ditto).

If you're interested in more numbers:

- current rent is $430, but we expect it to go up in November to at least $450, possibly as high as $500, based on huge growth in rent prices here over the past 12 months
- house is uncomfortable - freezing, not sunny, gross bathrooms - but good location
- we have up to $180K for down-payment (banks require 20% here)
- annual gross income around $120K
- NZ banks don't offer 30 year fixed loans like in the US - we are looking at a 3 year fixed @ 4.29%
- we do not know how long we will be here for - depends on work/life satisfaction over the next few years. Minimum 3 more years, possibly this is "it" while the kids are in school.
- university town so demand for rentals generally exceeds supply - mayor has recently acknowledged city is facing a housing crisis
- "super seller's market" according to the agents - houses are going for $100K over their estimated online value, multiple unconditional offers etc.

Any and all advice gratefully received, this is all really new to me. Emotionally, I would love to be out of our dumpy rental, but we're trying to be level headed about the decision...

marty998

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #1 on: September 26, 2018, 05:41:08 AM »
You're unlikely to get a lot of useful help here.... People said Sydney was overvalued in 2014 and it kept rising for another 3 years.

I'd say it simply depends on how long you will be in NZ. Not much point buying if you are there for 3 years. 7-10 is a different story.

Perhaps just look for a nicer place to rent and invest the difference between that and what a mortgage will be?

tralfamadorian

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #2 on: September 26, 2018, 06:34:56 AM »
You didnít mention how much the houses cost but if they are going for 100k over asking, I presume the pricing is high enough that your mortgage would be much, much more than your current rent or estimated rent for next year. I would stick with renting and as @marty998 suggested, look for a nicer place for next year.

waltworks

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #3 on: September 26, 2018, 08:42:56 AM »
Wait, you can rent a house for $430 a month, and houses are *selling* for $100k over asking (implying house prices of like $500k or more)?

That's absolutely insane. I'd *never* buy a house in that environment. Never.

-W

mustachepungoeshere

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #4 on: September 26, 2018, 12:56:29 PM »
Wait, you can rent a house for $430 a month, and houses are *selling* for $100k over asking (implying house prices of like $500k or more)?

That's absolutely insane. I'd *never* buy a house in that environment. Never.

Rent in Australia and New Zealand is usually quoted weekly, not monthly.

waltworks

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #5 on: September 26, 2018, 01:20:23 PM »
Ah, gotcha. That makes a bit more sense. Still a great environment to be a renter.

-W

dreamer8887

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #6 on: September 26, 2018, 01:45:58 PM »
Thanks for the replies, sorry for the misunderstanding. Yes, rent is per week - $430 per week, going up to $450 (minimum) in a month's time.

Median house price is $420K but those are pretty dumpy - like as bad as our rental, in worse locations.

Do people think the NYT rent vs buy calculator is pretty reliable/helpful? I'm asking because according to that tool, plus our independent calculations of sunk costs (interest, insurance, property taxes) vs. principal build-up etc, it's cheaper to buy up to $550K. If house prices continue to rise as they have been, it's always cheaper to buy than rent even accounting for costs. But obviously annual growth of 20% is unsustainable...I assume?

kenmoremmm

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #7 on: September 26, 2018, 04:11:05 PM »
ptf

Kakanui

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Re: Should I buy in an "over-valued" housing market? New Zealand
« Reply #8 on: September 26, 2018, 09:13:08 PM »
I donít invest in Dunedin but do up the road in Oamaru and Timaru. Dunedin has seen a big jump in the last 12-18 months as the Auckland effect has moved south to chase better yields but the market had been pretty flat for a long time before the current boom.

Will Dunedin rents and house prices continue to climb? Maybe for another 12-18 months but who know for sure. Prices were low for a long time so has been playing a bit of catch up and also a large number of Auckland investors looking to park their money where they can get better yields. Dunedin has always been popular with investors due to the uni but there are plenty of headwinds coming to cool the property market, and it is already cooling in many places.

I doubt youíll see huge growth in rents or increases in prices from now unless you can add value such as by subdividing- proposed govít regulations are currently scaring investors off- ring fencing of losses due to come into effect next year, new healthy homes legislation about to kick in as of July (and more changes possible), 40% LVR for investment properties, changes to Residential Tenancies Act that appear to be making it harder for landlords etc, etc. lots of govít animosity towards LLs and in media. Lots of reasons not to get into property and some landlords are exiting as no longer see it as worthwhile vs the increased amount of hassle for lower returns. That being said, there are always bargains to be had so if you can buy a good property then...

Dunedin typically has had more than its share of poorly maintained Sh!t boxes with no insulation rented to students but the students are wising up and wanting better digs and the new legislation taking effect in July regarding minimum insulation means many Dunedin ďslumlordsĒ will need to upgrade properties. It has always astounded me that anyone lived there in winter the way we build houses in NZ- badly insulated for the most part!

The student end of the market is a bit of a gamble but people do make money out of it but it is a potential risk but also may require closer oversight/management.

If looking for investment rather than PPOR then Iíd join the Otago Property Investors Association (they hold a monthly meeting) and start networking and getting info from those with skin in the game down there- you donít need to own property to join. The OPIA, like all the PIA throughout the country full of knowledgeable investors and many are willing to share their experiences for free so well worth joining. The Otago Property Investors also have a quarterly magazine on investing in Dunedin and North Otago markets and it is always full of useful information- so look at getting hold of a few issues.

Re: what the market is doing- donít listen to the bulsh!t the REAs tell you, talk to the local investors for a true picture of the market as the worm is turning in our over inflated market.

Interest.co.nz compiles monthly changes as well is worth a look, eg:
https://www.interest.co.nz/property/95804/first-rays-spring-are-starting-warm-housing-market-sales-volumes-slightly-and-prices

Finally if only there 3 years or so to rent or to buy? I'd be inclined to rent for 6 months to get a feel for the areas you want to live in and reassess it and get a feel for the suburbs. There are some nice spots in Dunedin but some bloody cold ones in winter so go for sunny sides of the hills!

Good luck

Kakanui


« Last Edit: September 26, 2018, 09:28:16 PM by Kakanui »