I am aware that we are likely to have inflation in New Zealand, because our government is running an unprecidented deficit, using money ‘loaned’ from the reserve bank. Modern Money Theory will debase our currency fairly well. But I hope instead for deflation, particularly for proprety prices. Because I have kids who rent.
House prices in New Zealand are stalled. At unaffordable levels. On Monday, this was in the business press.
Because the size of the decline was small at less than 7000 for the month overall, it could probably be characterised as more of a stalling in the upward price trend that has been apparent for most of the last year, rather than the start of a decline.
It will likely take another couple of months before it becomes apparent whether April’s figures represented nothing more than a blip in the upward trend, a flattening of prices, or the start of a decline.
Aspiring first home buyers will obviously be hoping for the latter, especially if they live in Auckland.
The Home Loan Affordability Report shows first home buyers in Auckland would need to save 84,400 for a 10% deposit on a home at the region’s lower quartile price of 844,000 in April.
That would take a couple working full time at the median rates of pay for 25-29 year olds in Auckland just over four and half years if they were able set aside 20% of their after-tax pay each week, which would be no mean feat.
However their problems wouldn’t end there, because if they were able to scrape together a 10% deposit, the mortgage payments on a lower quartile-priced home would chew up 42.6% of their take home pay, putting it squarely into unaffordable territory, even though interest rates are at record lows.
That would leave them especially vulnerable to any interest rate rises.
I’ve said it before. Don’t stay in Auckland. The cities are unaffordable. Get rural, get safe, and do not over pay. Southland has jobs, for instance. Avoid the tourist towns which make most of their money our of property speculation.
And this is a bubble. Do not buy, yet. Wait. Either the dollar will hyperinflate, and we move to another means of transactions, or the bubble will burst.