The housing bubble.

On busy days, when I start early, I write the lectionary post the evening before it is due. There is a thing called scheduling, and it is useful. I was in the process of this, when Kea called out. She had been looking at the prices of homes in our local area, and we had the greatest rate of increase in the last year. One of the local real estate groups report that the median price increased by 10% in October.

We both said the same thing: this is a bubble. In part, this is driven by low interest rates. It is also driven by the new regulations of rental properties that are driving small landlords out of the market. We are somewhere, in my view, where prices are irrational. Stats NZ notes the median wage in our region is 1280 a week and median household income is 1536 a week, that is 66,560 per week for wages and 79, 872 for households. The median price here is now $560 000 for a house, which is 8.5 times median wage and seven times median household income.

In the long term this is unaffordable, but it appears these policies are baked in.

But given the RBNZ has been clear from the start of this crisis it’s front-loading its response and using conventional “unconventional monetary policy” like quantitative easing, the onus has been on the Government to respond to the well-known impacts of this.

It admits it hasn’t, and now we are seeing the consequences of that.

The stimulus isn’t being evenly distributed. The haves are getting more, and the have nots are missing out – all the while being most at-risk of losing their jobs.

Lower interest rates are giving residential property owners both relief and capital gains.

Someone with a $500,000 mortgage, who switched from paying the average two-year mortgage rate at the beginning of the year to the average two-year rate now, would save about $54 a month in interest payments.

Someone who owns a median-priced home would have seen the value of their property increase by $85,000 between February and October, to $725,000. That’s a 13% increase in seven months… in the midst of a pandemic.

However, it’s the renters who are disproportionately affected by the crisis. These are typically young people and low-income earners. Their rent costs aren’t falling and they aren’t accumulating wealth, as they don’t own assets.

This is when having a reasonable relationship with the old man helps. One of our financial goals (yes we have them) is to ensure that the kids have a roof over their heads.

But not at the cost of huge amounts of debt. Wait. Bubbles burst.

Time is money, as will become increasingly apparent the more you read. The longer it takes to pay off your debts, the larger they will grow. The later you wait to save an emergency fund, the longer you will spend at risk of getting into a serious pickle. And the longer you put off investing, the lower your eventual returns will be.

To state this in the positive, the sooner you start working on getting your financial affairs in order, the faster you’ll pay off your debts, the sooner you’ll have a good safety net, and the larger your investments will grow. The time to start is today, and three years ago would have been even better.

I learned this painfully, and it was not my life. My oldest kid did everything right — including buying in a town where houses were sane and not where she grew up — and then her husband lost his job, where he was qualified and had a good income, leaving them unemployed and underwater due to house prices during the global financial crisis. They got out of it. Slowly[1]. And when they move to their forever home (his new job moves him around), it will be in a rural province.

Which is lesson one here. You will survive bubbles. When they burst, it is really unpleasant, but you will survive them.

If you have to live in a big city now, rent or live with the parents. Even if you are 50. One of by siblings had to for a year between selling a house and moving into another, and it was one hard year. Bubbles burst. You don’t want to be raising your kids in a city where things can and will go wrong.

Lesson two: you want to not be scratching to live a good life. Use what you have to make things work.[2]

If you are young and wanting to marry and have kids, work together so that you can survive on one salary and spend time with your children. If the worse comes to the worst, move out as an extended family and have a couple of adults looking after the kids and teaching them.

For progressive teaching is child abuse, and the progressive housing market is wage slavery.

1. They got a lot of help with dealing with finances from her husband’s family and me. But we stayed away from the bank’s swingeing demands they pay the mortgage back. That took a decade of tight budgeting, and if we had tried to help the bank would have come after our incomes, even though my wage in her nation’s terms is median to below median.

2. The Financial Samurai likes Range Rovers and Porsches: I like Fiats and e bikes. Because the fun speed factor is easier to achieve with Fiats and e bikes. I would lose my licence if I drove a Porsche as it is designed to be driven.