The longer you wait to buy, the bigger your mortgage payments are likely to be

Some buyers do better than others but one adviser says home ownership always works out better over time.
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Some buyers do better than others but one adviser says home ownership always works out better over time.

If you're a recent home-buyer, it can be hard not to feel a bit envious of those who got in before you.

While you have scrimped and saved a 20 per cent deposit for your first home – as median house prices ticked up near $500,000 in many parts of the country and $1 million in Auckland – those who have been in the market for 10 years or more are paying less for their mortgages than you were shelling out in rent.

Stuff's spending calculator, which is informed by Stats NZ data, shows how your housing costs compare with others in similar circumstances to you. Fill in the calculator below to see how you compare.

How do your rent or mortgage payments compare? Enter your income and household details and how much you spend on housing. Then hit ‘calculate’ to see how you stack up against households like your own.
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You spend {{Math.round(Math.abs(1 - (expense.expense / expenditure[expense.frequency]))*100) | number}}% morelessthe same on housing {{expense.frequency}} thanas the average Kiwi household of similar income and size. Data: Stats NZ

We invented a few different households to demonstrate the differences over time.

The Petrov family, living in Nawton, Hamilton, could have bought a median-priced house in their suburb in 2006 for $269,500.  Assuming they had an 80 per cent mortgage, they could lock in their loan at today's rates and pay $282 a week – almost $50 less than the $320 a household like theirs pays on average.

But if the Petrovs had bought in October last year, they would have to shell out $430,900 – or $451 a week.

The same story is repeated all around the country.

The Seuseus in Papakura could have a mortgage of $349 a week now if they had bought a house for $333,100 in 2006. That's compared to $691 on a $659,400 house now.

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'WORST ON RECORD'

Infometrics chief forecaster Gareth Kiernan said there seemed to be limited upside to buying in 2016 or 2017. 

In previous decades, high inflation and high interest rates meant the first few years of home-ownership were tight but after that inflation helped debt-servicing costs fall away. In the current low-inflation, low-interest rate environment, people were faced with the prospect of debt servicing costs remaining high in real terms for a long time.

"The most recent 'good' time to buy was 2012 before prices really started taking off, although 2000 or 2001 were significantly better because of the sizeable capital gains that occurred last decade before the GFC. 

"Current numbers look like they might be the worst on record – even worse than 1975, which was the beginning of a 38 per cent drop in real house prices by the end of 1980."

THE PAY-OFF

Kiernan said someone on the average income who bought an average house in 1974 would have paid 3.61 years' worth of their 1974-level income in mortgage payments over 25 years, and have been left with an asset worth 3.76 years' of income once the mortgage was paid off in 1999.

Someone who bought in 1991 would have paid 3.77 years of income over the term of their mortgage, and had a property worth 6.36 years' of income in 2016.

But Kiernan conceded that it was easier to spot the best times to buy with the benefit of hindsight.

"Perhaps the best advice I can offer is that, if there's a significant amount of evidence that housing has become overvalued, then you're probably better to wait until there's been some correction or recalibration of the market.  Having said that, there's no indication at this stage of the ratios returning to where they were prior to 2005," Kiernan said.

IT'S TIME NOT TIMING

Others urged new buyers not to be disheartened. There is an investment adage: It's time in the market that matters, not timing the market.

Adviser Liz Koh said the sooner someone could buy a house, the better off they would be, providing what they started with was affordable.

"You will never miss the boat. Property goes in cycles and prices may well fall again, creating better opportunities for buying. It is definitely time in the market that counts. Even if you buy at the peak of the market, over the long term you will be better off than those who continue renting."

She said that was because when people bought they locked in their ongoing accommodation costs to a much narrower range than the cost of rent.

"The amount of money you owe will never increase and, if you are paying principal and interest, will decrease over time. While mortgage interest rates might increase going forward, the increased mortgage repayment costs will probably still be less than rent increases. Inflation works in favour of property owners and against renters."

READ MORE: Provinces suffer big declines in housing affordability: Massey University

There are also benefits to buying now, if you have the deposit. Falling interest rates have helped affordability even as prices rose. BNZ chief economist Tony Alexander pointed out that wages had risen 32 per cent since 2007.

Massey University's quarterly report affordability index was 29.38 in August 2006, compared to 22.4 in March 2017. The increase in affordability has been driven largely by lower interest rates. A higher index indicates less affordability, based on the cost of borrowing, house prices and wage levels.

 - Stuff

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