| Welcome to the July issue of the Select Wealth Management Dashboard Newsletter. Most of you reading this newsletter own your own home. For older generations (Baby Boomers), home ownership in New Zealand was an absolute given. Sure, you had to work hard, save aggressively for a deposit, pay close to 20% on your mortgage rate, and make material sacrifices - but you were always going to own your own home. Home ownership was inevitable - a right of passage into adulthood. Property ownership was a non-negotiable - and rightly so.
Sadly, younger generations are less inclined to think this way. More and more Millennials and Gen Z's are resigned to being "renters for life". For many, the Bank of Mum and Dad seems like the only gateway into property ownership - and not everyone has a Bank of Mum and Dad. Fewer and fewer young people believe that they can achieve the dream of home ownership by themselves. I find this such a shame. No person should be deprived the pride of having a home to call their own - no matter how humble the place. The recent fall in house prices may be shifting this thinking a bit for younger people. In the past few years, their incomes have gone up, and house prices have come tumbling down. So house affordability has definitely moved in the right direction. The following graph from Infometrics presents a housing affordability index which is the ratio of the average current house value to average household income. A higher ratio suggests that median houses cost a greater multiple of typical incomes, which indicates lower housing affordability. 
Click here to open full size image
Clearly there has been a big move in the right direction over the past couple of years, but houses still cost more than 7 times that of household incomes (a more reasonable multiple would be 5 times). So we are moving in the right direction, but there is still some way to go. Either house prices need to come down more or incomes need to increase (or a combination of both) to make houses reasonably priced and affordable. I recently stumbled upon this article in the New York Times which is worth a read. It seems the New Zealand property market is such an outlier that it warrants airtime in the New York Times! It's really interesting seeing what the outside world's perspective is on the New Zealand property market. It's fair to say that it is less than complimentary. A few quotes from the article: Welcome to New Zealand, one of the world's most troubled housing markets. Over the last 18 months, homeowners and investors have lost billions of dollars in wealth after prices that spiked during the Covid pandemic started plunging as mortgage rates also soared. Property in New Zealand has traditionally been expensive and in short supply. Now a combination of even higher prices, poorly constructed housing and the biting effects of interest rate increases has pushed the housing crisis to the top of the agenda, ahead of national elections this year. Despite relatively low wages and ample land - New Zealand has a population of five million spread over an area the size of Colorado - a dearth of building, coupled with low borrowing costs, meant that buyers had long been willing to pay for older homes that were poorly built and insulated. "You're just lucky to have shelter, rather than worry about the quality of shelter," said Shamubeel Eaqub, an independent economist in Auckland. Housing problems touch virtually every corner of the population, including those on painfully long waiting lists for public housing, underserved renters for whom property ownership seems out of reach, and more affluent people who bet big on property and are now seeing their investments fall in value. It's not particularly pleasant reading... Property ownership is part of our national identity. Property investment is a national hobby. But clearly there are imbalances that we need to address as a nation. Our children are losing part of their national identity by not believing that they will ever own property. I'm not sure what the solution is, but we should be doing all we can to address this issue. I guess one thing we can do is be philosophical about the fall in value of our own homes. Nobody likes seeing the value of their property fall, but surely the pain we are enduring now will be for the long term betterment of future generations. It seems a reasonable trade-off to me... In terms of the markets, the past 30 days have been mixed for share markets. American and Australasian markets were up, whereas Asian and European markets were down. Currencies were also mixed with the Kiwi dollar gaining ground against the US$ and AUD$, but losing ground against the Euro, GBP, and Yen. Mortgage rates crept up a bit further. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, you will be receiving the performance reports for the June quarter shortly. Returns for the quarter were sound - the 3rd quarter in a row of positive performance. Stand out performance from the Devon Aphla Fund, Magellan Global Fund and Apostle Dundas Global Equity Fund. Please note that we will also be asking for your help in the next few days. At Makowem & Isaacs Financial Planning, we are trying to understand how we are doing in terms of our service to you, so we will be sending out a survey on Tuesday next week. It would be great if you could take 5 minutes to give us some feedback on what we can do to improve the service to you. So keep an eye out for this next week. Finally, a quick update on our Giving Back program. I am really pleased to confirm that we raised $2,548 to go towards coffee machines for the Nurses of Lower Hutt Hospital. These will be delivered in the next week or so - a really satisfying campaign with a lot of really positive feedback. A big thank you to Darren at Abode Homes for getting coffee machines for us at heavily discounted prices through his trade account! For the second half of 2023, we are really pleased to be able to support the incredible contribution made by the Billy Graham Youth Foundation. The foundation, in conjunction with its affiliate boxing academies (Cannons Creek, Naenae, Mid Canterbury and Te Awamutu), have a major influence on the lives of many young New Zealanders - often from less privileged backgrounds. They exist to support local communities throughout Aotearoa to champion young people by providing top quality resources, relationships, pathways, and structures. They combine their expertise in the sport of boxing with the principles of best practice youth development to engage with young people from every background. This is done by creating safe spaces, building friendships, and supporting their members to become Champion people who contribute to their communities. This is an incredible group of dedicated people making a real difference in the real world, and we are very proud to be able to make a small contribution towards their awesome cause.To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html That's all for now. Chat again soon Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice.