Quotable Value is warning that the fallout from the Covid-19 lockdown could have an adverse impact on the residential property market until the end of the year.
QV's latest report, based on sales data for the three months to the end of March, showed that the market was in reasonably good shape up until the commencement of the lockdown, with average residential property values around the country rising 2.6% in the first quarter of this year (see the table below for the average value movements in all districts).
"The housing market was ticking along nicely leading up to lockdown, although in the final week we could see the impacts of uncertainty starting to have an effect," QV General Manager David Nagel said.
"Nobody knows what post-lockdown market conditions will look like," he said.
"We've never been through anything remotely like this.
"Up to this point we were seeing multiple buyers, often with plentiful funds available, competing for tightly held stock.
"Going forward, supply of houses for sale will likely be reduced.
"The pipeline for new builds has been impacted as has almost every other industry during lockdown.
"Most New Zealanders will look to consolidate their position in their current home as the country works its way out of a forecast recession.
"Selling an existing property and upgrading to a different home will likely be furthest from their mind, although some may be forced to downsize or even relocate to another city in order to gain employment.
"But banks will be patient, particularly in the short term with a multitude of other, softer options available like mortgage holidays, to avoid a flood of forced sales.
"Demand for buying a house will also likely be down significantly," he said.
"First home buyers that were active prior to lockdown may have lost some of their buying power with both their investment savings and Kiwisaver accounts taking a hit.
"Their house deposit and employment status may look quite different after lockdown ends, delaying their entry into the market."
However, the difficulties faced by some buyers and vendors could be seen as opportunities by others.
"Others that have fared better under lockdown may see this an an opportunity, while interest rates are low, to dominate what's left of the market," Nagel said.
"With many first home buyers no longer competing, plus a likely post-lockdown slashing of net migration numbers no longer feeding housing demand, we could see a buyers' market develop," he warned.
That could lead to falling sales numbers and falling values.
"What's most likely is we will see transaction volumes drop significantly from pre-lockdown levels," Nagel said.
"House listings will dry up with only those having to sell, for work or financial reasons, wanting to enter an uncertain market.
"Buyers that have the means will likely dominate the market, but with limited stock available, buyers will probably exercise patience and this could force prices down for vendors that simply have to sell.
"But by how much? Nobody knows," he said.
That could create a difficult market until the end of the year.
"With limited transactions after the lockdown ends, we can expect a market filled with uncertainty at least through to the end of 2020 as the economy finds its feet again," Nagel said.
The comment stream on this story is now closed.
| QV House Price Index | |||
| March 2020 | |||
| Territorial authority | Average current value $ | 12 month change % | 3 month change % |
| Auckland Region | 1,066,035 | 2.5% | 1.8% |
| Wellington Region | 780,402 | 11.0% | 4.5% |
| Main Urban Areas | 833,489 | 5.1% | 2.3% |
| Total NZ | 728,276 | 6.1% | 2.6% |
| Rodney - Hibiscus Coast | 953,886 | 2.7% | 3.6% |
| Rodney - North | 996,225 | 1.9% | 3.0% |
| Auckland - North Shore | 1,232,887 | 2.9% | 2.6% |
| North Shore - Coastal | 1,404,945 | 3.1% | 2.0% |
| North Shore - Onewa | 993,498 | 3.1% | 2.5% |
| North Shore - North Harbour | 1,206,241 | 2.2% | 4.8% |
| Auckland - Waitakere | 840,323 | 3.2% | 2.4% |
| Auckland - City | 1,257,118 | 2.1% | 1.0% |
| Auckland City - Central | 1,097,652 | 1.0% | 0.8% |
| Auckland_City - East | 1,573,032 | 2.0% | 0.5% |
| Auckland City - South | 1,128,745 | 3.2% | 1.6% |
| Auckland City - Islands | 1,157,851 | 3.0% | 0.6% |
| Auckland - Manukau | 922,785 | 3.4% | 2.3% |
| Manukau - East | 1,182,766 | 4.1% | 2.6% |
| Manukau - Central | 713,105 | 2.5% | 1.9% |
| Manukau - North West | 804,717 | 3.6% | 2.5% |
| Auckland - Papakura | 715,365 | 3.5% | -0.1% |
| Auckland - Franklin | 687,164 | 2.3% | 1.5% |
| Thames Coromandel | 806,190 | 5.2% | 3.6% |
| Hauraki | 458,740 | 9.8% | 4.2% |
| Waikato | 520,203 | 6.6% | 1.4% |
| Matamata Piako | 504,316 | 5.8% | 2.1% |
| Hamilton | 623,287 | 7.4% | 3.2% |
| Hamilton - North East | 773,282 | 7.1% | 3.3% |
| Hamilton - Central & North West | 583,308 | 9.0% | 4.2% |
| Hamilton - South East | 577,963 | 7.9% | 3.2% |
| Hamilton - South West | 550,459 | 6.0% | 2.2% |
| Waipa | 640,756 | 12.5% | 5.4% |
| Otorohanga | 365,746 | 3.1% | -4.2% |
| South Waikato | 298,359 | 18.6% | 11.0% |
| Waitomo | 243,532 | 8.3% | 1.7% |
| Taupo | 559,533 | 8.6% | 4.0% |
| Western BOP | 702,317 | 8.4% | 2.9% |
| Tauranga | 772,443 | 5.4% | 1.2% |
| Rotorua | 515,444 | 9.1% | 3.2% |
| Whakatane | 509,488 | 6.1% | 2.0% |
| Kawerau | 302,038 | 23.8% | 4.8% |
| Opotiki | 369,956 | 19.3% | 10.3% |
| Gisborne | 437,593 | 28.6% | 11.0% |
| Wairoa | N/A | N/A | N/A |
| Hastings | 576,519 | 12.5% | 2.2% |
| Napier | 598,866 | 8.0% | 3.5% |
| Central Hawkes Bay | 402,744 | 6.2% | 3.1% |
| New Plymouth | 506,067 | 9.7% | 2.1% |
| Stratford | 322,841 | 19.6% | 1.6% |
| South Taranaki | 268,667 | 13.4% | 1.3% |
| Ruapehu | 247,865 | 19.8% | -1.6% |
| Whanganui | 355,500 | 31.1% | 6.6% |
| Rangitikei | 285,271 | 22.9% | 3.5% |
| Manawatu | 459,951 | 28.0% | 4.0% |
| Palmerston North | 504,229 | 15.7% | 4.2% |
| Tararua | 275,751 | 21.1% | 6.9% |
| Horowhenua | 431,710 | 27.2% | 6.0% |
| Kapiti Coast | 657,906 | 12.1% | 4.4% |
| Porirua | 683,414 | 14.3% | 4.8% |
| Upper Hutt | 627,215 | 15.7% | 4.0% |
| Hutt | 675,163 | 17.2% | 5.5% |
| Wellington City | 891,269 | 7.6% | 4.1% |
| Wellington - Central & South | 882,653 | 7.3% | 3.0% |
| Wellington - East | 953,072 | 7.0% | 5.0% |
| Wellington - North | 817,906 | 7.9% | 4.9% |
| Wellington - West | 1,012,563 | 8.0% | 3.5% |
| Masterton | 428,484 | 13.4% | 6.9% |
| Carterton | 483,428 | 13.7% | 6.9% |
| South Wairarapa | 568,871 | 10.6% | 3.8% |
| Tasman | 632,074 | 5.6% | 2.7% |
| Nelson | 657,225 | 6.6% | 2.9% |
| Marlborough | 513,656 | 8.2% | 3.4% |
| Kaikoura | 464,981 | 8.2% | 1.0% |
| Buller | 212,475 | 10.9% | 2.7% |
| Grey | 232,138 | 8.1% | 1.2% |
| Westland | 270,686 | 3.3% | 4.2% |
| Hurunui | 410,783 | 4.3% | 2.6% |
| Waimakariri | 461,713 | 3.1% | 1.2% |
| Christchurch | 514,444 | 3.4% | 1.3% |
| Christchurch - East | 391,722 | 4.4% | 1.7% |
| Christchurch - Hills | 703,864 | 3.4% | 1.4% |
| Christchurch - Central & North | 599,697 | 2.2% | 0.5% |
| Christchurch - Southwest | 489,427 | 3.7% | 2.0% |
| Christchurch - Banks Peninsula | 549,573 | 5.6% | 0.3% |
| Selwyn | 563,501 | 1.8% | 0.9% |
| Ashburton | 371,769 | 5.4% | 2.2% |
| Timaru | 387,186 | 4.9% | 2.7% |
| MacKenzie | 570,930 | 11.6% | 1.3% |
| Waimate | 287,992 | 18.1% | 3.8% |
| Waitaki | 336,304 | 4.3% | -2.8% |
| Central Otago | 585,722 | 12.5% | 4.6% |
| Queenstown Lakes | 1,210,549 | 0.9% | 0.7% |
| Dunedin | 538,025 | 19.2% | 4.5% |
| Dunedin - Central & North | 548,817 | 17.6% | 2.9% |
| Dunedin - Peninsular & Coastal | 491,270 | 19.2% | 2.3% |
| Dunedin - South | 523,424 | 21.1% | 7.0% |
| Dunedin - Taieri | 560,581 | 19.8% | 5.6% |
| Clutha | 264,635 | 14.7% | 1.2% |
| Southland | 355,896 | 12.5% | 3.2% |
| Gore | 273,990 | 16.4% | 5.5% |
| Invercargill | 346,822 | 19.4% | 3.7% |
| Total NZ | 728,276 | 6.1% | 2.6% |
114 Comments
Wow my exact sentiment only a matter of hours ago before this came online, however it would appear that people are happy to report and predict gains but ominously silent when predicting losses. Still it is the 1st April so everyone should just throw their prediction out there.
It will be in the hands of the reserve banks of the world. Will they let it all spiral down into economic ruin or not. Either way there will be winners and losers. Forced sales will great buying at below 3% interest rates. All the governments of the world are in the same boat with debt. They need to make the debt go away. The normal way is to print money and debase it. I predict that in 10 years the million dollar AKL house will look very cheap.
https://www.washingtonpost.com/opinions/2020/03/21/debt-jubilee-is-only…
I predict that, with the unemployment raising to 10% and over, and with a mass of mortgagee sales hitting the market, the current million dollar AKL house will look very expensive in one year's time.
I will be surprised and relieved if the price slump is less then 20% within the next 18 months. You can do all the QE you want, and even go into negative interest rates territory, and implement any mortgage holiday you want, but if somebody has lost a job and can't pay his mortgage, he or his bank have to sell.
There is no delusional wishful thinking that can change these fundamentals.
Yeah, why not buy at the peak? With GDP predicted to drop 30% in the US I would be waiting. Probably not wise taking on debt going into a recession either, even with rates at record lows.
During the GFC the same predictions were made "There is going to be a 1930s style depression". You need to look at the policies of that time to see how and why that occurred. It has been studied by the likes of Ben Bernanke and was essentially caused by a reduction in the money supply. The money supply will not fall, it will increase. I was just looking at the real estate section in the Herald from and old 1986 paper. The houses are all around the $70,000 price mark. They have been debasing money for a very long time. You might even see the end of cash as it will be seen as a virus transfer risk. Electronic money and negative interest rates which is basically a form of taxation.
I would not buy a house now. Just wait 18-months or a couple of years and buy it for at least 20% less.
Any ideas on how many signed up sales have fallen over? Only reason I ask is I've heard of two through friends which are probably the only two sales I actually know of from friends in the last year so rather a high incidence. Appear to have collapsed due to buyers further back down the line.
This person is a real doom and gloom merchant. So much negativity.
What could be more fantastic than the cost of housing coming back to reality?
I saw"Buyers market" in the headline on the main page of interest.co.nz thought it the worst euphemism I've seen in quite some time, given the state & shape of things to come.
Yeah, not in the greatest of taste.
Yeah - what buyers ? I can only see many sellers crowding the markets and not able to find willing buyers, until the inevitable price correction takes its course..
'QV delivers a grim assessment of the property market after the lockdown ends'
Tell us something new.
Writting is on the wall. Market will fall and this time it is not When but by how much... Will it be by 10% to 20% as seen between October 2018 to August 2019 or more.
Have you read Robert Shiller's book 'Irrational Exuberance'? There is an entire section on property bubbles - it looks at a number of past events and the build up to them.
Based on that and other reading/research i've done, I see no reason why we couldn't see a 50-60% drop in real estate prices in NZ.
Agree, house prices could drop that much especially if we see 10% plus unemployment.
I see about 18% actually
"I see about 18% actually"
Just to clarify. Are you referring to
1) unemployment rate
2) % drop in median house price in NZ
3) % drop in median house price in Auckland
4) other
50% 60% Alk.
After lock down companies move out of their big office and most work is done remotely. Staff happier and cheaper to run.
Fingers crossed.
Kezza R,
"50% 60% Alk."
Just to confirm, you're expecting a 50 to 60% drop in house prices in Auckland?
One of the key points I took from that book was the 'stories' that were told on the way up during a bubble to support prices - as well as the mania that supports them. Look at things like conversations at social gathers (people talking about their rentals and how much money they've been making), television shows like 'Location, Location, Location', and other shows like 'The Block' or home reno shows. We've had a perfect property bubble culture that could be the next example of a property bubble if Shiller updates/releases another version of the book which has done post cycles/bubbles - it's even more perfect because the general population assumed it was the 'new normal'.
For those knew where to look and recognise risks of asset price bubbles, it was easy to identify that risks were rising. What was impossible to identify is the timing. Or the magnitude.
An old adage for short sellers in financial markets: Markets can stay irrational, longer than you can stay solvent.
"the 'stories' that were told on the way up during a bubble to support prices"
As a reminder, these are some reasons given in the mainstream media, property market commentators, property market promoters, bank lending promoters masking as bank economists, real estate agents, property market mentors & other sources as to why property prices in Auckland will not fall by much and that there is a low probability that property prices will fall dramatically:
1) during the GFC, house prices in Auckland fell only 7-10%
2) over the past 50 years, house prices in Auckland have averaged 7.2% per annum (or commonly referred to as house prices doubling every 10 years). This trend can be expected to continue into the future - https://youtu.be/Agp9xFWoBX4?t=172
3) there is a shortage of underlying housing in Auckland, so property prices won't fall by much - https://www.interest.co.nz/property/97513/auckland-councils-chief-econom...
4) there is a growing population which means that there will be more demand for houses - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
5) we have inward immigration which means more demand for houses
6) Auckland is an attractive city with an attractive lifestyle - that makes it desirable and attracts foreigners to move to Auckland and hence raise the demand for houses
7) lower interest rates are supportive of rising house prices
8) lower interest rates make debt servicing easier for borrowers
9) Low interest rates were also forcing retirees and those nearing retirement to look for investments that would produce income, such as rental property. "Plans of the baby boomers to retire and live off a conservative yet well-yielding portfolio have evaporated with low interest rates," he said. "[They] are seeking assets and buying investment properties. They are also seeking assets they can hold and live off of for three decades in retirement rather than just 15 years given advances in health and medicines." - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
10) we mustn't forget either the vested interests in ongoing stability. No government, central bank or trading bank with mortgage exposure wants materially lower house prices. Nor does an incumbent Beehive want falling house prices going into an election campaign https://www.stuff.co.nz/business/110499233/think-house-prices-are-going-...
11) the economy is doing well, with low unemployment - https://www.stuff.co.nz/business/110499233/think-house-prices-are-going-...
12) there has been insufficient construction of new builds to meet the housing shortage - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
13) there are high construction costs to building a house. House prices cannot fall below their construction cost. - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
14) people don't sell their houses at a loss - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
15) continued inflation means that house prices will continue to rise in the future
16) The fact is, debt levels have barely changed from the beginning to the end of those 10 years, compared to GDP levels, compared to household assets, compared to household disposable incomes. And much more importantly, debt servicing is very much easier now, an item that is almost universally overlooked. We are not pushing out to unsustainable levels now, and even if they creep up a little, we are far from that point. https://www.interest.co.nz/opinion/95894/if-you-think-new-zealands-house...
17) in aggregate household debt servicing is low in New Zealand - currently at just under 8% of disposable income of households - https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-household-debt
18) property market participants & commentators who have been correct in their predictions about recent property price trends have more credibility and hence their predictions of upward prices are believed by a wider audience (such as Ashley Church, Tony Alexander, Ron Hoy Fong, Matthew Gilligan, etc). - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
19) previous warnings about a house price crash have been wrong - property prices have continued rising upward significantly since these warnings were given, so there is little reason to believe these warnings.(such as Bernard Hickey) - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
20) its unlikely Auckland prices collapse. I think the main two reasons though are:a) Affordability has been this bad, and worse, in the past and it only resulted in about a 10% drop. b) The number of homes built over the last decade has been too low and will take some time to recover - https://www.interest.co.nz/property/100670/housing-market-continues-hibe...
That’s been on the cards for ages, with the very high price to income ratio and huge amounts of credit being doled out. This is the catalyst to pop the bubble.
So you think an $800,000 dollar house will be selling for $400,000. A mortgage at 3% would cost about $250 a week to service. Looks very cheap to me. At 2% it would cost around $150 per week. Looking at the house price to income ratio is pointless. In 1986 you could buy a house for around $70,000 with interest rates around 18%. That is a servicing cost of nearly $250 per week - thirty years ago. You work it out.
Dogging, 1986 was also an usual time in market, with interest rates historically high. Are you aware of what happened in 1987? Hit NZ particularly hard. I heard it said the other day that the very high rates and inflation of the 80s is what initially sent central banks on the path of where we are today, of driving inflation down culminating in the very low rates today.
Cheap is relative to incomes, one guesses, which will be a key component of the dynamic in the coming years.
Falls of that magnitude were seen in Japan. We are duffrunt though.
I would be very relieved if we only saw 10 to 20% decrease. I am afraid it might well be higher than that. Let's hope for the best.
To be sure, nobody really knows how it will play out. My thought is there will be a fair amount of drag before any drop in demand kicks in, if it kicks in at all. This is because of the sheer amount of money currently deployed in new build activity around the country which may take a year or more to dissipate. Its whether or not there is enough impetus to carry on with new work after that which should be of concern. The infrastructure projects being steadily announced may well prove to be highly beneficial in the long run, and its not like the country isn't long over due for replacing out of date hospitals and ancient roading networks. As for house prices? I wouldn't bet on them dropping too much due to the low interest environment which will be with us for the foreseeable future, anything deemed an asset will rise in value as a result.
Will banks be happy with their exposure to the property market when numerous borrowers on their books are leveraged up to the hilt and whose LVR's are about to worsen? NZ household 164% DTI on pre-SARS-C0V-2 income!!! What's that number going to be after the unemployment and loss of income figures start coming in?
Will banks want to lend to property investors at all, when they are having to reprice risk and value suddenly? Who will be able to access the low interest rates (I imagine only those with decent LVR and rock solid employment, ie public sector).
We were just about to apply for a Resource Consent for a major addition to our home. Would have been applying for a mortgage around October time. There is ZERO likelihood that we will be progressing that now. ZERO likelihood we would risk taking on debt of any kind at this time. We will be hunkering down, saving every cent and reducing all discretionary spending.
Everybody else has already made similar decisions about their finances or will follow soon (when they penny drops).
If you are cashed up, you will be planning to take advantage, no doubt, but no one who was clever or successful enough to be currently cashed up, is going to rush into the market, just past peak. They will wait for the discount.
I did a major alteration to my house during the GFC and cut an absolute deal as there were plenty of idle builders. You should wait for the booms times again and pay top dollar - not!
I have said to several people who have ended up paying 2-3 times the original quote for renovations in Auckland that if it were me I would wait for the next economic downturn. They just laughed and said we’ll that won’t happen! Well unfortunately, it’s happening.
We've currently just had a consent issued (our second this year). The builders were due to start the week the lockdown started! We have paused submitting the application for the last and major Resource Consent for now (wouldn't have been due to start till spring)...and delaying start on the recently issued consent, probably till after winter now. We have amazing builders, really good people, sharp pricing and excellent quality work. I've done a fair few major renovations and the value of a really good team is hard to put a price on, but we'll see. We may agree to meet in the middle somewhere. I would not want to see them go under either because I wouldn't want anyone else on the job really.
We really have backed ourselves into a corner. In brief, I point the blame towards greed and short term thinking post GFC.
There are now no good outcomes that I can see - but then again I'm probably a DGM or what I refer to as anti-denial.
If it all turns gloomy overseas, I wonder how many foreign buyers will sell up when they realise the 'risk free' house the purchased isn't now risk free at all - and they need the capital back home.
I wonder when we'll see a return of tourists and immigrants...could be years.
I wonder what will happen if/when we see all of the AirBnB's either sold (adding to supply) or converted into long term rental (falling rents).
I wonder what will happen to mortgage payments and rent payments if we see 20-30% unemployment this year and/or significant falls in household incomes.
How many foreign buyers were money laundering, and will seek a 100% gain no matter what price the house sells for?
Just waiting for the property bulls giving the reason to buy at the top just before the fall, as:
'It's not the timing of when you buy, but the time you have owned that is more important.'
Then they might want to put the words, 'Your Honour' after that.
They’ve been fairly quiet lately, perhaps finally seeing the writing on the wall? I don’t feel great about telling them I told you so, but honestly the spruikers have done a lot of damage encouraging people to buy In a very inflated market. Real life consequences.
And ironically Yvil's Auckland March high forecast may indeed be the summit and correct. .
We shall find out soon...
As someone who bought a house during the GFC (March 2009) I can say that buying in a period of extreme negativity requires finding a suitable property on the market, cojones of steel and a bank willing to lend. Finding all three in the next three to five years might be more difficult than people think. I’m letting TDs mature right now and am interested in buying a property for the children but I can see it being a two year timeframe and very specific on the property. I have no interest in renting anything out so it has to be something they would actually live in.
Why do you need to buy a house for your children? Surely it’s up to your children to buy their own homes.
My children could not likely buy on their own for another 10 years. By that time, they may not be able to afford prices.
You make the assumption house prices always go up?
Who knows but I’m picking that the Government will throw everything at this so there’s more risk of nominal increases than decreases after the shock is a few years in.
Just watch out - it is a dangerous game to try and catch a falling knife. But yes, if you do that in one year's time, it might be a high-risk, high-rewards scheme.
"Just waiting for the property bulls giving the reason to buy"
Here you go, courtesy of the property website OneRoof - from Tony Alexander, property market promoter. (Note that there are vested financial interests here.) His argument is that there is an underlying housing shortage.
But does this freezing of activity and of our economy imply a different outlook for the housing market than the one I presented last week? No, if the government, Reserve Bank, and banks can pull this off. I listed six factors so let’s run through them again.
1. Interest rates are at record lows, heading lower, and still set to stay low for years.
2. We enter this period without a boom in housing debt.
3. Banks remain well capitalised and look like they are about to receive even more support for lending from the Reserve Bank and maybe Treasury.
4. China shows us that if implemented early enough lockdowns/self-isolation can work. There is light at the end of the tunnel and inhabitants of Wuhan are slowly leaving their homes, entering their streets and parks to once again start enjoying life.
5. The shortages are there, and now they will get worse because all house building is now on hold for 4-8 weeks.
6. There is a fiscal stimulus coming and the Minister of Finance has even told us when – in the May 14 “Recovery Budget”.
https://www.oneroof.co.nz/news/the-real-estate-market-is-about-to-freez…
I sincerely hope he is leveraged to the eyeballs.
This example of real-estate speak would be so funny if the situation was not so serious.
Housing market will follow the same path as Stock market and with same speed. Remember if 40% is a crash in stock market than the same can be said of housing market if it falls 20%.
Advantage in stock market is that is liquid so can sell anytime and exit but property market is highly illiquid asset more so during depression.
Going future many will be thinking about survival and those who can (not hit hard) even they will be concern about extra spending of even few thousands so investing million dollar will be the last on their list BESIDES in current situation if someone has to invest, Stock market gives better opportunities as money can grow very fast ( in multiples if and when market changes) compare to house and also can invest in small to large denomination depending upon each comfort ( Does not have to commit in millions) and also stock is highly liquid so easy to manage depending how things unfold in future - unchartered territory.
How can it not. Travel sector, RE sector, tourism sector, retail sector, education immigration, general immigration, all hospo, and construction are all effectively moving into a position where they will unable to pay staff and/or rent. Add in they will be putting as much of their supply chain on hold/stop as well. All those staff/other businesses in turn are then unable to pay their rent/mortgage, and so on, and so on. No one is openly talking about this but there is a real possibility that lock down will go on for another month. What if it drags on for three months....?
Property's over valuation and excessive leverage is about to experience something most of this generation has never seen or considered...nil cashflow. Can all landlords go to court or the tribunal at the same time - no they cannot. Some will be fine, but many will not be, especially if they have subscribed to seminar mantra of interest only debt stacking. Leverage acts in both directions.
The really big question is, will the banks accept nil cashflow being passed down the chain, and if yes, for how long? Just like in the GFC those that close their loss position first, have the smallest loss. All it will take is the first lender to shoot a few debt junkie risk proxy's and it is all on.
R Kerr said a couple of days ago that as soon as NZ becomes safe, free of this Chinese virus, tourists will flood here again. WTF??
Future check ins will be like this.
Can I see your ticket, passport, Visa and your Wuhan Flu vaccination certificate?
You know in a lot of Africa you still need a Yellow Fever Vacc cert to get in.
Be interesting to see what happens to the price of international travel as well - what entry costs will need to be covered to get airlines back to the volume they had to support the prices we've had the last 10 years.
There will be a good market for fake Covid-19 certificates, that's for sure.
Nobody will be able to come here to buy anything much: few flights, no money, no jobs, & no easy quarantine clearance.
Everything has changed for good.
A vaccine is 18+ months away at the very best.
Watch the government print 50 billion out of thin air to keep the charade going as long as possible. Free money for everyone
The median RV of residential properties valued by sale price since last wednesday is 0, since no valuations have been carried out. Thats a 100% drop.
There's a statistical distinction between no median, and a median of $0.
I dont see any arbitrage potential in the difference.
I think this is it: the catalyst to finally pop the bubble. People will realise valuations have been ridiculous and high price to income ratios not justified. Immigration will drop, construction industry will be in trouble as the boom ends, unemployment will rise and FHBs will all but disappear until prices drop a lot - it could play out over years. I’m not going to predict how much values will drop but it won’t be pretty. The few left with capital wil get bargains as mortgagee sales abound, such it the brutality of capitalism during busts.
Hi Voiceofreason, agree with you and to add, should also realise that throwing cheap and easy money will also not help and is not the only solution - law of diminishing return - it helped when it falled from 7% to 6 % to 4 % ....but now this low interest rate is the new norm, now where from here....
Yeah all asset class prices will be reset by how much only time will tell so everyone should wait and watch before committing themselves in uncertain time.
I agree 100%
Guys, today I finally did it! After long consideration and taking advice from people both here and on other forums, I bought my first property!
It's a 3br new build in Queenstown, CV 1.2 million, bought if for $1.15 million. I was lucky to get it with a 10% deposit. As I live in Auckland, my plan is to put it on AirBnB as soon as possible. But to be honest the cash flow isn't that important now, as I'm expecting a BIG uptick in house prices by the end of this year. So I might sell in 2022 or earlier (when it reaches $1.7 million).
Feels great, woohoo!
Haha April 1 Jester right there.
That was quick. Don't ruin it for others :)
Yes good April fools joke CourtJester. Though surprising how not that far from the ridiculous departure from reality that some Seller are expecting. Take this example of someone having renovating a 2 bedroom cheap build such as this one which is in the middle of no where, with no economy other than tourism. Yet they're expecting $1,095,000 for it and it's August 2019 RV if $579k (Last sold in 2013 for $350k). Perhaps they took the meaning on million dollar views literally??
37 Te Akau Drive, Russell. https://homes.co.nz/address/russell/russell/37-te-akau-drive/OrY0e#coun…
Good one CJ. Amazing how quickly things can turn upside down in a matter of weeks.
Right? I'm pretty sure just a few weeks ago many would have perceived this as a very good investment decision.
When the Kiwi dollar sinks to 30 cents, you might be able to sell it for $500,000 USD (1.67M Kiwi).
Well. On the bright side your debt of $1M or so will be effectively paid off as money will soon be worthless. A big mac might cost $20 in a year or two
The RBNZ have a mandate to keep CPI inflation at 2%. No deal.
A dual mandate.. inflation targeting and financial system stability/integrity. When it comes to a showdown, which one wins?
Good one ;-)
Like him or loathe him Don Brash was quoted back in 2016 saying "...in Auckland the average house was 10 times the average income, he said. There are two ways of fixing that: one is having a very substantial fall in prices...or if you have no increase in house prices for about the next five decades - half a century, two generations - and incomes would gradually catch up".
https://www.stuff.co.nz/national/politics/81926709/don-brash-auckland-h…
I believe option1 has been selected.
A long and painful hangover after a really wild party.
That article is quite the laugh to read now. You have someone with significant experience (Brash) making comment/assessment (without bias) on where he thinks the market is and then gets rebuked by vested interests (Key/Little). Key says he disagrees that it needs to fall 40%, but then swiftly sells his home the moment he leaves office (a guy with a record like his knows where the top of the market is...). What a hoot!
All the National party landlords, speculators, supporters take JK's word for the truth (I've met many who would have jumped off a bridge for him), not realising he's just saying it for political purposes, while then selling his house ASAP afterwards - question then becomes have all his supporters done the same or are they about to get wiped out because they don't understand bubble finance/economics? And their emperor has sold them down the river.
You dont get a name like Teflon John for nothing! Yet as you say , his followers wont have a bar of it
This was the first one that really caught my attention - David Hisco who at the time, was CEO of ANZ in NZ. He was CEO of NZ's largest mortgage lender and could see the borrowing activity.
Due to rising property prices at that time, he was ignored by virtually everyone. Given the current conditions, his article may now be seen in a different light.
https://www.interest.co.nz/opinion/82697/anz-ceo-david-hisco-argues-sev…
pretty honest assessment by QV I must say.
You know, the crooked valuer Cruella at ANZ used for the Hisco house bung will have a smile on his / her face at the end of the year. It will be worth only $7mill after all....
I bet Key didn’t use that valuer when he sold his Bach to Hisco?
"Demand for buying a house will also likely be down significantly," he said. "First home buyers that were active prior to lockdown may have lost some of their buying power with both their investment savings and Kiwisaver accounts taking a hit."
April fools joke gotcha!
... tourism and international education would no longer be major industries for New Zealand. He believed manufacturing and other forms of industrial production based in the provinces would pick up the slack. Over 200,000 New Zealanders will be out of work...we cannot leave such a large number of, largely, young people on the scrapheap.
Anyone who thinks we are going back to the 'business' model we had 4 weeks ago isn't looking in the right direction.
The days of speculating on the future price of an asset to 'make money' are over.
We are going to have to work for a living in a way that we haven't for over 40 years.
https://www.stuff.co.nz/national/politics/120725850/coronavirus-govt-wo…
Short term pain for long term gain. New Zealand is still going to be a place where people want to live. 20% fall in the regions 5 percent in dorkland.
(More like the other way around? See above)
"Want" is not the same as "can" or "should".
Yeah mate, good luck getting in post this. 12 months maybe ?
Is everyone blind to the fact that our tourism and service sectors are going to be decimated over this next year.
There are going to be massive job losses especially for young people that are highly represented in those sectors, you can expect a lot of people to choose to sell rather than take a mortgage holiday, especially if prices start sliding. There will be a ton of youngsters that are currently renting returning to live with mum and dad. No new immigration to take up those rented properties.
Rents will drop, house prices will drop, consumption will drop causing more job losses, exports will drop, we are in for a hard time ahead
I expect 10% price decrease in the next 6 months alone
Most of the vulnerable don't own, they rent. If you can hold on long enough you'll have a 2% - 2.5% mortgage soon enough. Will be cheaper than renting
Renting is supposed to be MORE expensive than owning.
It come with attendant risks that have to be covered in any rent charged. The norm, as recently as 20 years ago, was 7% over the equivalnet cost of owning the same property.
But we've forgotten that. We think the break-even point is 'when it's more expensive to rent than own, we should buy!" and that is not going to be the case for some time.
Yes, mortgage rates were higher then, and I'm sure the 7% figure is lower - but it's still there
BW,
What happened to your relatives and their property development project? What are they going to do with their newly built houses?
Do they have a timeline on repaying their construction loans?
BW,
On another note, did your daughter's offer on the house that she wanted to buy get accepted? Or is your offer price still falling?
Tourism and services 10 percent of nz economy. What's your thought concerning the Pacific Island economies inpact as I think they would rely even more on those two sectors and the money that tourists bring. Two week isolation on arrival and another two weeks isolation coming home, a big NO thanks. Regarding your other points, this is very early days probably too early to be making extreme predictions.
I was about to buy a business in Rarotonga, managed to escape the deal, decimated is how they are. My wife is a travel broker - income gone, we know a lot of ex air nz staff, at least 5 sets of these where both parties were laid off were getting appraisals to sell the week before lock down. We have friends in travel all over the world, all are bleeding profusely. There will be a lot more blood to come.
IATA are predicting an 88% drop in Asia pacific air travel over the next 24 months. I truly believe many will not want to get back on a plane, or a boat.
The property price promoters gave their reasons for property price rises. Warnings of the property price risks were given on interest.co.nz by commenters to allow potential house buyers to make a fully informed decision.
People made their choice and acted accordingly. People now face the consequences of their choice.
Yes the way I see this is that people have made their beds. Some decided to gloat from them. Now some may claim they want a helping hand out of them.
In terms of learning lessons, I think we should be using sticks and carrots, but make sure they are applied to the right parties (which post GFC I don't think they have been).
Interest rates are likely to be around 3% for quite awhile.
When I buy a property in ChCh for somewhere in the $400’s and get a return between 450 and 520 per week, there is not going to be any major drops, sorry to disappoint.
Yes if you have been paying $800k and getting the same return in Auckland, of course there will be price drops likely.
The ones that are delusional in thinking that house prices will halve around NZ will have egg on their faces.
The pain is going to be felt by the people with big investments inThe sharemarket.
Reality is that the media is overdoing this!
There is 14 in hospital, 2 in ICU and one death unfortunately who already had problems.
They now want to do all these tests for people with no symptoms just to get numbers up to try and justify the lockdown!!
You are dreaming mate. Straight to the pool room.
"They now want to do all these tests for people with no symptoms just to get numbers up to try and justify the lockdown!!"
No, they want to be testing people who are asymptomatic because there's plenty of evidence that it is contagious well before you appear to be ill. that way you slow down transmission rates without needing to lock down the entire country.
https://www.bbc.com/news/world-asia-51836898
https://www.nytimes.com/2020/03/23/world/asia/coronavirus-south-korea-f…
Unemployment is the big worry. Inability to keep paying rent and loan repayments. The GFC and the earthquakes have nothing on what is currently happening. We all need to make sure the lock down only goes for four weeks. When doctors are being laid off by practices you know things are serious.
"to try and justify the lockdown!!" - WTF, this really sounds like some sort of conspiracy theory. Weird.
Agree but FHB will be worst hit who entered last as may see their deposit being wiped.
Anyone who bought home for themselves by not over streching (Highly unlikely) may be fine as long as they are not hit by business or job loss.
Remember that many buyers specially FHB who had been to an open home before the lockdown will get a call or email from the RE Agent, if interested to put in an CONDITIONAL offer (the very word they use to be allergic to) by creating FOMO.
Reason is that RE Agents are well aware that the only time to make a sell is now or just after the lockdown ends to match anywhere near vendors expectation - which when appraised last month was on higher side.
Also buyers should not rush to buy as have to give some time to vendors to understand the new reality - most probably will be 10% to 20% below CV to start with few expectation and also now all mom n dad builders or people selling business to turn builders will hibernate so patience will be a virture specially now when getting an opportunity.
As it is many FHB have missed the bus and have nothing to lose but gain by being patience.
"Agree but FHB will be worst hit who entered last as may see their deposit being wiped."
This was the purpose of highlight risks to owner occupier buyers.
"Anyone who bought home for themselves by not over streching (Highly unlikely) may be fine as long as they are not hit by business or job loss."
Remember, mortgage servicing capacity is calculated using household incomes. In many households, that is 2 incomes. It only takes the loss of one income for a household to come under cashflow stress.
So if a household had a debt service ratio of say 40%, and the household experiences a loss of income of say 30%, that debt service ratio has now increased to 57% (40/(100-30)). How many households on median incomes can afford to pay 57% of their gross salary on mortgage payments for a long period of time?
Some households as highlighted above have lost 100% of their income as both income earners work in tourism, yet they still have the mortgage payments to make. Banks are helping mortgage payers by deferring payments, but if the household is unable to find employment income, then they may need to downsize.
Beware those hidden property fault lines in property investor portfolios ...
https://www.stuff.co.nz/business/120728348/harvey-norman-tells-landlord…
Ooof! That's quick! I would have not expected that kind of move this early. I wonder if it will catch on?
Already hearing of some commercial landlords where their tenants are refusing to pay rent.
Now imagine two different approaches to financing the purchase of that same commercial property:
1) Maximum allowable LVR, has little cash buffer for an emergency / missed rentals (less than 1 month)
2) Minimum LVR, has large cash buffer to allow for missed rentals (say 3 months)
I imagine, many commercial landlords adopted option 1, and as a result have a significant reduced financial flexibility compared to the commercial landlord who utilised a more conservative financing strategy.
LOL what the hell....
I'm gonna send a letter to my landlord that I'm not gonna pay rent anymore, and if he doesn't respond in 24 hours I consider the matter settled.
"Harvey has a net worth of about A$1.9 billion (NZ$1.92b)." - Clearly a case of genuine financial difficulties.
Interesting to note that this article was shared amongst a group of property investors. Their response to the article was generally in one of three areas:
1) there is still an underlying shortage of housing (most frequent comment)
2) property prices do not fall by much - as evidenced by GFC in 2008
3) property prices rise significantly in price every 10 years based on previous property price cycles
A favourite topic in BBQ's was boasts on how much one's property is worth ( often not actual sales but perceived ), .A ravenous appetite to add on to the number of properties & FOMO fuelled by vested interests- real estate agents, REINZ (to whom the licencing fees are one helluva money-spinner), people masquerading as bank economists, media whose fat comes from adverts ,councils who raise rating valuations to take the pain off when they sting rate payers with ever increasing rates. But, how many would dwell on losses in a real estate deal? No, they will not because it is not good for the EGO. But, wait.As the scene unfolds post-COVID-19, there sure will be no shortage of deflated egos. Punctured Tyres
As noble & accurate it is, but sorry Jaf.. to burst your enthusiasm - I've given advised to Orr's & the team via this website to 'Socialise those losses' and assure them the team decision will be backed 100% by any respective govt at the helm. Borrow more, print money more, wages subsidy, mortgage holiday, OCR down to 25, soon to 15 or 10 then before end of this year should be in minus double digits area, to drag the banks into 0% zone loan, CAR kicked from 5 to 7yrs, liquidity from 75-50% further down sooner, torpedoed the deposit guarantee scheme to 2023?, next relaxing LVR, FHB deposit, holiday rental for commercial, Every politicians, Central Bank, Bwankers all properties owner - We are all knew where NZ DNA productions lies, but soo much stake has been put into one basket economy the past 20-30yrs - a 'properties guaranteed securities' to be tied up into Banks business loan - it's too tight of the interdependence, if you're a pilot.. you still want to keep up your ego, with deflated aircraft tyres?.. will be attended by the ground crew, which already bruised by wages cut then deflated ego. But silently, those in concentrate main set of good RBNZ ideal managements, will start pushing the injection of DTI & CGT tools.. to be ready by 2024 that off course just following the 2022 OBR iron out, then 2023 deposit guarantee scheme for 75-100k (as the inital 30-50k being shelved)
.
Very odd headings: 'Grim' when is predicted as buyers market... why? - it's still RE buyers, not a share or burger
Ahh.. I get it so QV is never neutral, their bias towards vendors, hence commission. Any 'Rosy' predictions? - Don't expect them to change tact; 'Rosy' up market for buyers, 'Grim' market for sellers..hints: How many QV staff are still renting?
Very low interest rates, shortage of houses, building industry in crisis, future travelling and immigration issues, QE and plenty of liquidity made available....sure for the next few months the property market will slow down and some with high leverage will be forced to sell, but in a year time is all up again.
Considering that RE is a long term investment actually a slow down period will be benefit all real investors going forward.
"Most New Zealanders will look to consolidate their position in their current home as the country works its way out of a forecast recession."
Not true, most do not own a house and for those that do, a great percentage have a mortgage, so they do not really own their home yet. This statement is trying to involve home owners as beneficiaries of the interest of investors, while they are two very different collectives.
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