Where are all the investors?

It’s the middle of 2019 and the property market seems to be slowing up. Both the high value houses and the lower have ground to a halt. This isn’t confined to Auckland either. According to the REINZ the total volume of residential property sales were down 8.5% compared to the first half of last year country wide. 

The monthly sales figures from the REINZ show that in the first half of this year A closer look at the figures shows that much of the decline was caused by lower sales of properties at the top end of the market, those selling for $1,000,000 plus.

We find it more surprising thought that there was an even bigger drop in the number of sales at the bottom of the market. Generally this has been a hot market to operate in if you’re catering to first home buyers. However, properties selling for  $500,000 have taken a tumble in sales, whilst percurlarity those in the middle, priced between $500,000 and $1 million were almost unchanged.

Now this is solely based on the data, so it’s hard to extrapolate why this. For example, it could be argued that first home buyers are purchasing more homes over $500,000 therefore, pushing up the sales statistics of that whole band. It’s hard to speculate. However, In the first half of this year, 4806 properties sold for $1,000,000 or more, which was 734 less -13.2% than were sold in the first half of last year.

Is this an Auckland phenomenon?

RENIZ have published that most of the decline was in Auckland, however this accounts for more than two thirds of all residential property sales in the 1mil plus bracket. The REINZ estimates that sales in this price range are down as much as 17.3% this year compared to the same time last year. In the below 500k bracket, the REINZ estimates that the slow down has caused a 16% drop in sales since this time last year. This is potentially good news for investors. With sales figures dropping it is perhaps now a good time to sniff out a bargain. With interest rates at an all time low, if you can leverage your existing equity, you could end up making a capital growth windfall over the next 5 years. 

But what about sales in the middle?

These are more or less the same as last year. In the first half of this year 11,254 properties were sold in the middle  price bracket, down just four compared to a year earlier, which pushed up that price segment’s share of total market sales from 28.4% to 31.0%.

In the 750k to 1mil price bracket, there were 5775 sales in the first half of this year which is  up just 2.3% compared to the same period of last year.

So what we can assume is that sales in the middle price brackets were more or less unchanged from the same period of last year.

Is is getting harder to get a mortgage?

Worryingly for investors, yes, it does appear to be getting hard to borrow. The Reserve Bank of NZ figures show that there has been a sharp decline in lending to residential property investors and a strong growth in ledning to both existing home owners and first home buyers. In fact the figures show a 20% drop in investor lending from the same time last year. Our pick is that with the new bank capital regulations, banks are more reluctant to place money back into the market thus making it harder for investors to get their hands on cash. This is why we’d recommend you come have a quick chat with us if you’re considering investing. As the capital taps are so tight at the moment, it pays for us to have a look over your assets to structure it in a more favourable light for the banks. Bear in mind that they won’t do this for you. For the last 8 months they have shown a general reluctance to lend at all, other than to first home buyers. 

Summary:

Investors are much less active than they were a year ago, and anecdotal evidence suggests some are concentrating on reducing their debt levels rather than expanding their portfolios. This seems counterintuitive given that the interest rates are at historic lows and going lower, however the banks reluctance to lend is likely the culprit here,

Growth in first home buyer activity isn’t enough to make up for the loss of investors, leading to a net loss of buyers and an overall reduction in sales activity at the bottom of the market.

Increasing numbers of first home buyers are taking advantage of low interest rates and the absence of investors to take the leap and buy a home of their own. Whether this is a positive thing or not is yet to be seen. If you have been considering taking advantage of these market conditions, then contact us today for a free chat at Zebra Mortgages 

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What’s the plan when my fixed rate finishes?

We get this question asked all the time. To start, it’s important that you think about what might happen if interest rates rise. We can help you with a quick budget to plan what might happen if you lose your job, or something unforeseen happens.

In other words we believe it’s about making the best decision to match your current situation and future goals.

How interest rates work

The OCR is set by the Reserve Bank. The rate is set based on economic theory to either stimulate or slow down the economy. As the economy and business confidence are very low, the rate has never been lower,.

What happens in the future

The ANZ as well as many of the major banks bring out a fantastic monthly report that includes graphs at the end of it with indicators of what their team of economists see for the future of mortgage interest rates. Just remember there are many unforeseen events that can change this, so at the end of the day doing a budget and seeing how much room you have for movement is really important.

Whilst it is hard to predict what might happen in the future, the reserve bank have suggested that these rates may fall again. Whether this will translate to the consumer remains to be seen, however what we may see is consumer rates stay as they are for a very long.

So how can Zebra help

If you have a rate ready to expire then Zebra Mortgages can help with your refix. We have the ability with the bank to break down your lending and choose a structure of different rates to help balance any rate increases in the future. A standard structure of a 500k loan may see 100k fixed for 1 year and another 200k fixed for 2 years. It depends on your personal circumstances. That is why it is best to talk to us. We can tailor advice and structures specific to your needs. Contact us here if you have any questions.

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Did you know that Kiwis the third likely to hand in lost wallets?

This is the result from a new study. New Zealanders are the third most likely to hand over a lost wallet containing money than people from any other country.

The study undertook field experiments using 17,000 portfolios and was delivered to public and private institutions in 360 cities in 39 countries. Some wallets  and contained on average $14.

The most honest people was the Danes, who handed in all of the wallets containing money. Sweden was 2nd.

In terms of regions, the Scandinavian countries did best, whilst South America and Mexico were least likely to give a wallet back if it had no money.

People from China were the least likely to hand over an empty wallet for some reason

Whilst the survey wasn’t the most accurate, and was mainly a bit of fun, the results were interesting. In almost all the countries, people were more likely to return the wallet when their money increased.

These results are also correlated with the Corruption Perception Index (CPI), which ranks Denmark and New Zealand among the top two countries in the world in terms of perception of the least corrupt.

However, while this survey highlights the civic honesty of handing over small amounts of money, psychological research also shows that honest behavior is less likely when material incentives increase.

“Self-interest almost always dominates concerns about the well-being of others – we care about others but not as much as we care about ourselves.

Models in the study suggested that people will cheat for profit so long as their behavior does not force them to update their self-concept the report says.

The latest CPI ranks North Korea, Yemen and South Sudan as the three most corrupt countries in the world based on perception, which would come as no surprise to most. The CPI is a handy indicator that also correlates to life.

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Our reflection on real estate

The residential housing market in NZ has now entered a new 15-month cycle.

This cycle is less active in terms of turnover than in previous cycles, which generally began with the exit of the economy from the global financial crisis of 2007, and prices are more stable and have reached unprecedented highs.

This is more of a traditional cycle in which buyers have more time to review their decisions and where the parties involved need to negotiate and reach a compromise. The earthquakes had certainly caused a giant rise in price of real estate, however this quickly plateaued out, only to be overtaken by the steady rises in other centers.

There has however since been a downtrend in real estate recently, however if you reflect on what happened between 2008 and 2017 especially in the North Island and to question some of the claims made and the methods used to control price increases. They were probably a bit premature in predicting a housing crises, so the Government interventions may have actually had an unwanted desire as predicted by many pundits.

Historically what we experienced was a period of rapid price increases and high turnover which has been observed in countries with economies similar to ours such as Ireland, aggravated in our case by a population growing rapidly due to a decade under investment in housing, infrastructure and a global trend residential investment due to TV shows like the block or books like Rich Dad Poor Dad.

Back in 2007, one of the main contributors was the immediate availability of low interest funds. Right now, interest rates are the lowest ever. During the peak period of 2014 to 2019, the percentage of homes that changed hands more than once in six months was 9%, while 74% changed hands only once in this four month period.

There was however no to show that when prices rose, a large number of people made the decision to negotiate to the next level before this higher level was out of their range, while another group made the decision to become long-term investors. In essence, the theory did not play out in practice.

While many first-time buyers and people with limited incomes have struggled to penetrate the market over the years, this has not been the fault of wealthy foreign buyers and local market-dominating investors.

It was the regime that aimed to reduce the Reserve Bank’s rate of price increase, based on the ratio of deposits to loans. And throughout the cycle, their main competitors for the houses were the existing homeowners who traded.

It is our conclusion that the ban on foreign purchasers and the change from a 2 year bright line to 5 year bright line was not necessary, and all the talk about taxing capital gains was political.

It may be able to be inferred that the application of the Reserve Bank’s existing regulations did work and the positioning the traditional housing activity as being in crisis was more of a hype than reality.

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Living longer and longer

As New Zealanders turn 65, we are healthier, more energetic and more engaged than ever.

With potentially more than 30 years of life before us, more and more Kiwis continue to work into our golden years and further.

It seems unbearable to think that you are 65 if you feel good enough and that you may live three more decades without a plan on how you are going to finance yourself, stay happy and healthy.”

Working to old age, if your health permits, has a surprisingly wide range of benefits. Older workers stimulate the entire economy, provide billions of dollars of volunteer work in the community, increase their personal income, and can have health benefits.

Continuing to work can even reduce your risk of death. It is has long been known that loneliness is terrible for your health, and working in a meanigfull job can replace the work stress and boredom that can detrimental to your well-being . Not only that, greater consideration should be given to the source of your income during your twilight years. As people live longer and longer, they’ll need more and more income to sustain them right though until past 90 for a growing number of people.

As well, as considering a job change, to something less physically demanding work, while others want more meaningful careers or volunteer activities. It is discouraging to consider a career change at age 65, but a shortage of skilled labor is more and more an incentive for employers to hire older employees.

We recommend that people need to start investing early to ensure their wealth grows enough to support them. If you’re looking for a mortgage broker in christchurch to get you started in your investment journey then have a chat to us today.

The other investment to consider is KiwiSaver. New changes mean that people aged 65 and over can join as of July 1 of this year, which can be advantageous as these funds have lower management fees than comparable non-investment funds. KiwiSaver. That would still be 25 years of investing if you lived until 90.

If you decide you are physically fit enough to continue to work then you can take advantage of the fact that a large number of local employers also continue to pay KiwiSaver premiums to older workers. With the additional funds to supplement your retirement pension, as well as the benefits of ongoing work, you could end up enjoying the most rewarding part of your career knowing that you are only working to supplement your income.

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Battle of the thermostat. Mens productivity rises in lower temps

The thermostat battle is a common gender conflict in most New Zealand offices, but a new study has shown that women perform better in hot offices, while men’s cognitive performance peak in cold weather. I think anecdotally, we have all known this to be the case.

A laboratory experiment in Germany, supported by the University of Southern California, studied 543 students. All of them were given cognitive tasks such as maths, verbal and cognitive thinking, while the indoor temperature was manipulated for one hour.

Women performed better in mathematics and verbal tasks at higher temperatures than their low temperature results, and the study measuring “sex and the effect of temperature on cognitive performance” was found.

Men, on the other hand, had better test results at lower temperatures compared to the more heated room.

The standard office temperature was originally formulated in the 1960s and was based on the resting metabolic rate of the average man. However, a Dutch study in 2015 found that the metabolic rate of adult women working in an office is significantly lower than men doing the same activities. Some people may find this unfair, as men having to wear a suit may find themselves warmer than a woman in a skirt.

Even a one-degree increase in room temperature resulted in a 1.76% increase in women’s correct mathematics responses. In contrast, correct mathematics responses decreased by 0.63% in men when temperature increased by one degree.

The study states that a normal”body temperature is generally considered to be 37 degrees C. Some studies have shown that women’s hand temperatures are also lower than those of men. A study published in the Lancet medical journal in 1998 found that women’s hands were 2.8 degrees lower than men’s. One of the reasons for this phenomenon is the higher muscle mass that men usually have and the muscle produces about 25% of body temperature.

Office temperature is just one of many areas of life that has been designed for men. Nicknamed “the man of reference”, he is a white man aged 25 to 30 and weighing 70 kg. The man of reference is the representative for the data measuring everything from the average height of tablets to the design of cars, which puts women at greater risk in car accidents, the Guardian recently reported. An obvious disparity between men and women.

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Do you need to use your home equity to buy a rental?

When your home has gained value and you are reducing your debt every month, you can quickly find yourself with a lot of equity in your home.

It may be possible to access some of this equity to invest (keeping in mind that repaying your mortgage is the safest and least risky investment you can make).

The average Kiwi real estate investor starts using the equity in his house to buy his first rental property. Could it work for you? Before you start browsing the properties online, you need to ask yourself some important questions, says Tracy Creswell, one of Westpac’s most experienced mobile mortgage managers.

What is my long-term financial plan? Investing in the property is not an objective in itself. It’s a way to help you reach your money goals, and it may not be the best way for you.

Talk to an authorized financial advisor and suggest long-term financial goals, then think about how to achieve them. If the property suits your plan, using your equity to buy a rental could be the right choice for you.

What is your appetite for risk? Creswell says she has sometimes seen inexperienced investors buy their first rental, spend sleepless nights worrying about their tenants and their property, and then bailing out three years later, panicked, without earning a buck.

If you are not inclined to take risks, an installation in an inexpensive area may not be your best choice. Instead, you may prefer to pay more for a new build and employ a property manager. Or you may prefer to avoid all the stress and just repay your own mortgage.

Do you know how to structure your properties? Talk to your accountant before buying a rental. Good advice on structuring your loans and accounts can save you a lot of money and help you repay your mortgage faster.

Have you been realistic in your calculations? Using our calculator, you can determine the return and cash flows of a rental property. “Be realistic,” warns Creswell: “The bank is doing calculations by assuming vacancies and interest rate hikes. You will also be assessed to make sure you can pay the principal and interest, not just the interest.

“We need to be responsible for this, we make sure you have a safety margin so you can keep your investment.”

Are you ready to use your home as security? Say you have a million dollar house with a $ 700,000 loan. Provided your income supports the larger loan, you can borrow up to 80% of the value of your home, up to $ 800,000.

This means that you can potentially borrow an additional $ 100,000 from your home as a deposit in an investment property.

Investment properties currently require a down payment of 30%. With $ 100,000, you could therefore spend up to $ 333,000 on renting (again, assuming you and the property meet the loan criteria).

The loan would be secured on both the rental property and your home. “So, if something goes wrong and you do not repay the loan on your rental, the bank has the right to rent, but also to your home,” says Creswell.

“You have to be able to accept the risks, think long-term and have a plan. This is not a quick enrichment ploy, but ownership can be a great way to secure your financial future. “

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