Myth 1 – Once I am on the property ladder I will just keep climbing
This was the fortunate position that many baby boomers found themselves in. They bought their first home when they were young and gradually changed it for a bigger and bigger home.
Today’s first home buyers are not going to have this opportunity as house prices rise faster than salaries creating a situation where servicing a home loan on a very modest home will likely be as much as they can manage until their children grow up and leave home.
Instead, new buyers need to accept that the home they can afford now is going to be a long term home.
But what about capital growth I hear you shout? Well, all that happens is that the market moves up fairly evenly across all types and so although your house may go up in value so will the house you want to buy but your ability to pay higher home loan repayments probably won’t.
The truth of the Auckland market is that first home buyers will buy what they can and stay on that first step for most of their lives. So property buyers need to focus on the fact that while smaller may not be better it is their new reality.
Myth 2 – I can’t live without ………………
Whether it’s the wish list for a house or the items you can’t take off your expenses in your budget there are always many things in life you enjoy and want to keep enjoying. The reality of living in Auckland is that while everything is more conveniently available most home owners have to learn to do without those things they used to believe were essential.
Why would anyone be paying for a guest bedroom when it only gets used occasionally? And does anyone really believe that 4 people in a family can’t share a bathroom? Instead of focusing on what you can’t do without try making a list of what is actually essential on an everyday basis.
If you need a reality check I recommend watching a programme like Location, Location, Location when they are hunting down properties in London. Seeing how little you get for your money and how accepting the buyers are is going to give you a view of how Aucklanders are going to have to think too.
Myth 3 – House prices always go up
When I teach a course and show people actual property price trends there is always a great deal of surprise that house prices have gone down many times in our history. They are also surprised at the level of interest that many home owners paid in the past.
I don’t see any indication of a large reduction in Auckland house prices looming or of double digit interest rates but I am aware that even a seemingly small rise in interest rates could spell disaster for those living on a tight budget. This is particularly true for investors who are not currently seeing rent increases which could mitigate any rises.
Believing that interest rates will always be low and prices will always rise could be a total disaster for owners. Everyone needs to factor in some changes and ensure they have a plan B to deal with it.
Myth 4 – It doesn’t matter what or where I buy in Auckland; I will always make money
The Auckland housing market has some types of properties and some locations which will be the first to be unpopular if the market has a downturn.
Although it is expensive and difficult to have properties checked thoroughly it is still the best thing to do if you want to avoid financial disasters later. Research about areas and infrastructure is easily done by you – it just takes time – but checking buildings and titles require expertise.
As you have no doubt realised by now you are likely to own this house for a long time so you need to be sure that you are spending you time and money wisely. Knowing as much as you can about the house and the area before you buy is essential if you don’t want to end up with a lemon.
Myth 5 – I will downsize my house and release money for my retirement when I retire
This financial plan is at the heart of many people’s retirement planning but sadly it is becoming harder and harder to achieve unless you decide to move out of Auckland.
What many Auckland home owners don’t realise is that the building of smaller houses or units pretty much stopped more than 30 years ago. That means that when you come to search for this modern, smaller house to downsize into you are really going to struggle.
Not only that but with increased demand and little increased supply of these properties their prices have risen to the point of being comparable in many locations to that of larger homes. So there is likely to be little choice and less equity released if you do find something suitable.
Many retiring baby-boomers are making the move out of Auckland but for the majority family, friends, hobbies and services mean they don’t want to be too far away from it so choices will continue to be limited.
This probably seems like a bit of a negative post but for some buyers it is time that they recognise the new reality and made plans which will give them a happier future than they are likely to have if they continue to believe these myths.
Advising Auckland property buyers