By Bernard Hickey
Property Institute Chief Executive Ashley Church has criticised Finance Minister Bill English's suggestion that a delayed housing supply surge in Auckland could cause a US-style housing crash.
Church said English's comments were unhelpful and he compared them to "reading chicken entrails." English made the comments in a speech in Wellington last week, which Interest reported on yesterday here.
Church said Auckland's housing market was nothing like the US housing markets that slumped through the Global Financial Crisis. Auckland was driven by real demand rather than loose lending standards and prices tended to stagnate rather than go bust after booms, he said.
"The American experience in the years leading up to 2008 was basically a comedy of errors. During that time US banks significantly relaxed their loan criteria and were lending to people who were not in a position to pay back their loans," Church said.
"To get around this they were also offering balloon payments which meant mortgage payments started low, but ratcheted up steeply after a few years. There were also a number of States which passed laws allowing homeowners to simply return their keys and walk away if it got too hard to make their payments," he said.
“New Zealand has very tight controls around lending – probably too tight – and the Auckland housing crisis is underpinned by real demand - not an artificial boom created by the banks as was the case in the US."
'NZ supply could overshoot demand, but price bust unlikely'
Church said Australasian banks were much stronger and more responsible than their US counterparts.
He said agreed with English that Auckland's property price boom would end when supply caught up with demand, and that supply may even overtake demand.
“New Zealand has a history of ‘overshooting’ the mark and building more homes than we need – which means we may end up with a surplus of properties that take a year or two to absorb," he said, adding however that a price crash was not inevitable.
'Prices only go up or sideways in Auckland'
“Mr English said he was yet to find a housing market anywhere in the world where prices go up but don’t come down. Well, he lives in one. You have to go back to the early seventies to find a time when there was a significant fall in the Auckland property market following a boom."
Church said Auckland had a history of leveling off after booms, "with prices going nowhere for a few years then starting to rise again when the next boom kicks off."
35 Comments
I know you are being sarcastic mate, but you are quite right... prices will NEVER be this low again!. Sorry buddy, but money has just started flooding out of China and guess where it is going to park... three guesses, come on... the last two don't count... The new normal is upwards till the end of days!
"You have to go back to the early seventies to find a time when there was a significant fall in the Auckland property market following a boom."
What a load of bullsh#t. Following the 87' crash property had a significant fall.
Property values in Auckland have done very well overall, so property spruikers don't need to lie.
Mr. Church apparently is incapable of referencing his own industry statistics.
Fact: The REINZ stratified median index for Auckland house prices peaked in July 2007 and then fell 14.6% by November 2008.
What a muppet - but he is the official salesmen for real estate agents - how glorious.
He has to talk it up. It is his job. Just like the boss of the REINZ. They would be out of their jobs if they did otherwise. Even when things are not so great the REINZ get a PR company to polish the monthly reports to minimise any damage. The whole industry is so tenuous because it is generally built on highly leveraged debt. One problem with housing is you cannot always easily sell it when you want to and the costs to sell are high.
Tomorrow you have to have an IRD number and do a declaration when you buy an NZ home. The overseas buyers will love doing that.
On the first of November you have the 30% equity rule in Auckland for investment homes but some banks are already imposing it.
My relation in Auckland who is trying to buy his first home says there are noticeably less people/ overseas buyers at the auctions he is attending.
More stock is coming on the market.
The September data to be released by B&T, QV and the REINZ might be a little interesting to read.
After 1987 property prices didn't have a "significant" fall at all and if there was a wobble it was only very short term.
Quote:
"Motu Economic Research notes that between 1986 and 2004, Wellington's average house values rose the most around the country, gaining 82 per cent, just beating Auckland's 81 per cent. Other regions rose by between 65 and 80 per cent during that period.
QV figures show that average Auckland house rose 4.6 per cent or $35,000 in the three months to April, though this was down from 5.1 per cent in the quarter to January 31.
Outside of Auckland QV described house prices as "flat" ranging from a 1.1 per cent annual rise in Wellington to 3.3 per cent in Hamilton and 4.7 per cent in Christchurch (though Christchurch prices are easing, rising only 0.3 per cent in the latest quarter".
link: http://www.stuff.co.nz/business/68378529/The-Auckland-housing-bubble-an…
Bollix BigDaddy - spin what you want but I know Auckland property investors who nearly went under following the 87' crash. However the fall only last a few years and bounced back. But that doesn't change the fact there was a significant fall.
And while we have your wise attention, why don't you predict what will happen to the Auckland housing market for the next year or two? Will it continue to climb or go backwards?
I think there is one big difference this time - rental yields are so low that I can't see many investors hanging in there if the market were to 'level off'. Unlike previous cycles, almost all Auckland investors must be in it for capital gains - and if there are no capital gains being had, then a lot of those investors could decide to sell.
Haha, these property guys are such muppets.
You'd never hear a fund manager talking like that about any market.
"... they were also offering balloon payments which meant mortgage payments started low, but ratcheted up steeply after a few years."
We may not have balloon payments but if (WHEN) inflation returns and interest rates rise accordingly then you can bet your bottom dollar that "mortgage payments that started low" will be "ratcheted up steeply".
Fool.
Ashley Church is nothing but a paid shill for property speculators (oh sorry.... they call themselves "investors" )
So to take him seriously is very difficult. He is exactly the sort of talking head that will get many of the greedy in big trouble by over-leveraging since the market "only goes up" blah blah - this is the sort of nonsense that makes me gag
How sure are you? You'd want to be pretty sure if you were betting on one of the biggest housing bubbles (relative terms) in the world.
http://www.wsj.com/articles/china-boosts-efforts-to-keep-money-at-home-…
http://www.wsj.com/articles/china-caps-overseas-cash-withdrawals-144352…
Google search if you hit the paywall.
It is highly concerning when the CE of the Property Institute makes these types of comments!! It is down right ignorant for anyone to focus 'only" on the supply and demand of houses when wider economic conditions actually feed into this supply and demand......Why NO mention of the wider economy? NOT a whisper on exports, employment, business growth, productivity etc.....not a whisper on the $2billion it is costing the tax payer (money earned from the real productive businesses) in subsidies for rent etc......
I think it is right and proper of Bill English to have made the comments he has made......given recent comments that 40% of the housing market is in rental accommodation many people are relying on a top-up for the basic like a roof over their head.....and this top-up is going straight into the hands of the landlord......this is an extremely dangerous exercise to be undertaking when a market has severe restricted supply....once supply is sorted and yes I agree it will overshoot then the Government should be looking at withdrawing these rent subsidies and the like. And what will happen to prices then? especially if this coincides with the Government sell off that is going to happen.
Would Mr Church please explain what he thinks underwrites all debt??? Because I don't see why my business should be subsidising his???
Where in our solar system does this he normally reside ?
The fact is that a combination of factors are driving prices ( migration , Auckland Councils ring around the city , the RMA and cheap money )
In time all these will change .
Anyone who thinks prices wont ever drop is just foolish .
Dipton's paradigm cocoon or is it a chrysalis
paradigm bubble - add to that Bill English's penchant to commute inside his own paradigm cocoon between Dipton and Wellington while making pronouncements about Auckland - saying there will be an Auckland crash in 8 years time
AMP bank in Australia has been the favourite bank for most property investors, they have stopped all lending to investors about 2 months ago, HSBC has followed suit
http://www.businessspectator.com.au/news/2015/9/30/financial-services/h…
How do you keep a ponzi scheme going? You must keep convincing the bottom rung on the ladder to keep entering the scheme. Use fear tactics, "buy before the evil Chinese get everything" or "interest rates will never go up" or Fonterra's gem the "fundamentals of the market are good"( even though the price was falling).
'
'
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.