Stealing from our Children

I’ve been speaking with some younger people recently, a number of them the family members of existing clients. Some are looking for investment options, but a number have been asking questions about real estate - about buying their first home. They’re asking how to do it, when to do it, indeed should they do it? They’re all very good questions.

Today I won’t go into the detail of the grants and access available from programs such as KiwiSaver, but will share with you a slide that recently came to my attention which reminded me to be cautious. This image was buried in a much broader document from Deutsche Bank. The heading on the page that grabbed my attention in this regard was:

“Canadian housing needs higher, not lower interest rates!”

It’s a bold statement and one that pushes back against most Canadian home owners. The researcher is actually lobbying for an interest rate hike, to punish home owners. Yikes!

I recall Canada has some of the most expensive house prices in the world, but clearly things have got more expensive since I last looked. So, I turned the page with intrigue, knowing how insane our prices have become and hoping to see the Canadian’s were more nuts than us.

The page that followed reflected data from twenty different nations. Guess who was at the top? Yip, New Zealand’s house price/income & house price/rent is 73% overvalued!

73%!! As a nation I know we need to build something like 30,000 homes to meet current and expected immediate population growth. It’s a big number and so simple rules of supply and demand dictate that an extreme shortage creates an extreme demand and what usually follows is irrational pricing.

No one should root for a housing market collapse. It takes years to recover such events (just ask anyone from Europe, Japan or the USA). So if our children are to ever afford to own their own home “New Zealand needs higher, not lower interest rates” but the concern is what would that mean for our exchange rates and our ability to sell our goods and services overseas? So we steal from our children their option to buy as we did. One could argue their opportunities and choices are greater in others areas. The trick is to keep looking forward.

Conclusion: If you are buying your own home and you intend to stay there for many years, if your job is secure and if you haven’t borrowed too much then it doesn’t really matter what housing does but, any uncertainty around these factors then, at these levels do be cautious.

I manage and advise on investment portfolios. Ensuring clients avoid permanent financial harm has to be the most important part of my job. If I can be of service to your family, even if it is to refer them to specialists I trust on matters or risk management (insurance) or gearing (mortgages), do please have them contact me. On investing, I especially enjoy those calls.

Tony Munro CFP AFA

The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.

A disclosure statement is available on request and free of charge.

#housing #homeownership

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