Monday, July 2, 2012

Don't Listen to The Property Spruikers

Do not buy a house as an investment. Do not listen to the property spruikers in the New Zealand press.

Olly Newland and his ilk are dangerous.

Here are statements from a man who will drag many New Zealanders to financial desperation:

"Olly Newland is convinced interest rates will stay low for the foreseeable time and it makes sense for young property buyers to borrow as much as they can to get on the property ladder. His advice to first home buyers is to "stretch as much as possible to get into a leafy suburb". He says "borrow till it hurts" just to get on to the property ladder "because prices are rocketing ahead".

Borrow till it hurts. Now let's think about that, Olly didn't, but let us do the thinking for him. Without the vested interests.

Prices are rocketing ahead? Now regular readers of this blog know that prices are increasing, but not rocketing ahead. More importantly, NOT going up in value. Look at the latest figures of housing as against gold. Ponder this, since mid-2005, house prices have decreased back to where they were valued in 1991, the start of the current housing 'boom' (read credit boom).

There is much scope left on the downside as there is much scope left for credit expansion going forward. Does anyone believe the Keynesian Central Bankers will stop printing and let this crisis get worse?

Let us also look at these salient statements from Stuff yesterday.

"The rampant cost of living means two-income families are increasingly worse off than single-income families were a generation ago – and it is threatening to put them under. "

"It is increasingly clear that two incomes have trapped many families under a mountain of long-term financial commitments," said economist Gareth Morgan.

"Borrowing in order to purchase an investment [didn't mention housing] can be a positive approach to wealth creation," said a recent Families Commission report. "Where debt is difficult to service and hampers family functioning, however, it can become problematic."

"What has buried so many families is the level of household debt. In 1980, it accounted for 47 per cent of a family's disposable income. Today, the debt mountain is equivalent to 143 per cent of disposable income."

Buried; now that is a dramatic word and one which the spruikers should be morally aware of. New Zealanders fell into the worldview that housing is an investment as house prices 'always' go up. NZers borrowed more and then believed the second lie. Leave the old house and get something bigger and better. It makes you look and feel wealthy, does it not?

Debt is a trap, the housing investors associations want to lead you into the snare with all the honey talking swankyness of a fox juicing a chicken.

With mortgagee sales on a steep curve upwards and interest rates likely to balloon soon (does Olly really think our debt is going to be this attractive to overseas buyers for the 'long term'?), buying a house will bury you.

Sure, you may get lucky, but please do not let these spruikers get an advantage from your financial death.
Gold in New Zealand dollars: $1984.41 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $34.07 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)
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