Save hard, wait for the cycle to run its course, then take your opportunities, columnist Mark Lister says.
Struggling first-home buyers seem increasingly frustrated, most recently in response to Herald stories of those who've found a way onto the ladder.
It's even been suggested they give up completely, which isn't actually a bad idea for a lot of people. Not because they've no hope of ever owning one, but because home ownership just isn't a great deal at today's prices.
Prices are overheated in many places, especially Auckland. Never before have they risen so quickly or become so detached from what ultimately drives them - namely rents and incomes.
Whenever things have got out of whack like this in the past, prices have fallen sooner or later, so there's every chance that happens again. Choosing to buy at what could easily be the top of the cycle is a big call, especially if you can't really afford it.
I can hear the housing bulls scoffing already, citing numerous reasons the old valuation rules don't apply and "this time it's different". Those words were once described as the four most dangerous in investing.
The same one-eyed property types will suggest I've got a vested interest in beating this drum, because I'd like more people to invest in shares and bonds, rather than houses.
That's true, although I wouldn't recommend taking your life savings, borrowing five times that amount and spending the lot on shares right now either. Or ever, actually.
At least you can stagger your way in to an expensive sharemarket over a period of time. With houses, you have to buy all in one go, so your timing is much more important.
There are genuine reasons house prices have gone up a lot, like building costs, population growth and an undersupply. However, that doesn't mean they can't get overvalued.
Low interest rates have also a big part of the price rises, and these could prove temporary. Borrowing costs have never been as low as they are now, so a 2-3 per cent rise to more normal levels will undoubtedly have an impact.
Auckland rents suggest something is amiss in the housing market. In the last six years the average rent has risen 30 per cent, way behind house prices which are up 85 per cent.
Rents are driven almost solely by economic fundamentals, while house prices are influenced by sentiment and speculation. Over the long term prices tend to follow rents, not the other way around.
If you've missed the housing boat these last few years, think twice about trying to get on the ladder at all costs today.
Sit back, relax and rent something much nicer than you could afford to buy. Let someone else fork out a fortune in interest, maintenance, rates and insurance on their overpriced asset while you get to enjoy it for a fraction of that.
Renting looks like a bargain at the moment, and it's not "dead money" any more than home ownership running costs are.
Don't believe the hype. Just save hard, wait for the cycle to run its course, then take your opportunities.