The growth of our housing markets may be reaching a 10-year high. Indications are that the recent rapid run-up in values may be topping out, and falls are now a real possibility.
Our housing markets are large.
The value of all houses topped NZ$1 tln in mid 2016, having grown by a remarkable +55% in the past five years. In dollar terms, that is a rise in asset "values" of more than $350 bln. In 2016 alone, those values rose +$140 bln, a gain of +16%.
To put that in perspective, our economy grew by $261 bln in the same period, an impressive +7% rise in nominal terms. (Housing value growth is not included in GDP. GDP is a measure of economic activity, not values.)
So, in 2016, housing values rose at more than twice the rate the general economy did.
While that is probably no surprise to interest.co.nz readers, today's values are clearly not sustainable.
It is likely that housing values now represents about 20% of all the country's domestic assets1. We estimate that is up from 16% just five years ago. But interestingly, ten years ago after the heady days pre-GFC (and pushed ahead by the 39% income tax rate that encouraged many taxpayers to seek 'tax-advantaged investments') the value of housing represented 25% of all the nation's assets.
The languishing of house prices in the five years post 2008 were crucial in getting the balance back to 16%.
New data can allow us to drill into the nature of these remarkable changes - even if we can't drill into regional components.
The RBNZ now classifies investor housing as a business asset. We can track that by deducting owner occupied housing from total housing values, as this chart does.
Further, Statistics NZ publishes data for the tenure of housing. By relating the value of all housing to the number of houses, we can get an average value and track it over the past 18 years.
As you would expect, that confirms the value of owner-occupied houses is much higher than houses rented. But the calculation also reveals the size of the housing wealth divide between owners and renters. Owners live in houses valued at about +75% more than renters do.
The data behind the RBNZ series comes from CoreLogic, and the base is LINZ title transaction data. That is different to what we often publish, which is REINZ data, which in turn is based on 'unconditional contracts'. So a final review matches these series and is best done by showing how each tracks changes in values.
New Zealand's housing markets may have come to the end of a cyclical upturn. What happens from here is uncertain, but looking back over previous cycles is one aspect to consider.
If history is any guide, (and if we are really at a real estate market turning point), we may be in for five plus years of stagnant or declining house values.
The last time this happened, housing moved down from 25% of the nation's assets to 16%. The removal of the 39% tax rate had households reassess the attractiveness of tax-free housing gains, and the real economy's assets grew strongly.
But the sharp drop in yields driven by international quantitative easing and drop in interest rates for savers, changed the game again, and tax-free housing gains became popular with a renewed splurge. Excess liquidity fueled an asset boom, and New Zealand's housing values rose quickly to claim the 20% share.
Now, the tables are turning again. Without capital gains, housing 'investors' face capital losses that can easily overwhelm the very skinny earnings yields that are committed to. A new, more fierce reassessment is upon us. Quitting rental investments may well involve the choice of 'losses now', or break-even cash flows and potentially larger 'losses later'. Unless your outside cash flows can last at least five years of holding cost.
And if the real economy trucks along as well as it is currently, that share of the national assets represented by housing could fall quite quickly.
In these circumstances, small business ownership is likely to make a strong comeback for investors who don't want to suffer the tyranny of low yields.
And, in case you were wondering, here are the average loan size by tenure, and the average LVR. This data does not tell us what new loans are being committed at, but rather the average over the whole housing market.
Note:
1. The RBNZ and Statistics NZ produce a valuation of all house values quarterly (M10). Separately, Statistics NZ produces annual balance sheets for the New Zealand economy - that don't seem it include housing values. We have added the house values to the Annual Balance Sheet data, and made some simple timing adjustments to make the data consistent. The resulting percentages referred are ours, and not sourced directly from either Statistics NZ or the RBNZ.
162 Comments
David might be too busy to answer, I'll offer my perspective.
Our economy especially in Auckland has been significantly (temporarily) boosted by massive expansion of debt against houses in Auckland, alongside high immigration. If the housing market turns south, and the debt starts to deleverage, the economy will quieten, and immigration will turn around with the employment prospects, which will feed back into lowering rents, and further falling property prices as the yields decrease further.
There is no escaping the feedback loops of one of the largest property bubbles the world may have ever seen.
Tempering this, there's no saying what the government might do to try and prop up property prices. At some stage though, there will be nothing they can do. If there are a lot of defaults on debt, the interest rates have to increase to compensate which force more defaults. So many feedback loops.
Nobody can tell for certain what the future holds, there's many external factors. Most significantly foreign money buying our land. But NZers tolerance for that has fallen significantly and may be the single biggest risk to National forming the next government.
Great analysis - just as all the feedback loops compound to reinforce the trend on the way up the same happens on the way down.
Would add a couple more though - look at the Auckland skyline - all that new supply about to collide with a falling market. Plus, end of the construction cycle - where do all those tradies go?
Crisis, what crisis?
Feedback loop, We sold 94629 (REINZ ) homes to one another year ended June 2016, 81455 homes year end June 2017. Nationally real estate commissions Y/Y down 400 million , Real estate commissions account for 1.3 percent of Auckland regional GDP, down $200 million Y/Y.
Yes agreed, thanks for the article. What I don't understand is how housing values grew 55 percent last 5 years and are much higher than 2007 values yet make up a smaller proportion of total assets than 10 years ago. 20 percent in '17 vs 25 percent in '07. Total assets must have grown even faster than house prices although I thought the opposite was true
Perhaps it's because a bank's assets are its loan it makes to its customers? Property 'values' can increase ( it's a revaluation of all property, whether it's transacted or not) yet the loans the banks have made to fund those transactions has increased nominally, but at a lower amount versus the 'value' increase of all stock? ie: most people look at how much 'richer' they are on a revaluation basis, but only those that actually borrow add to the nominal value of the bank's asset base.
Toronto Home Prices Crash 192k since April.
https://www.youtube.com/watch?v=hGL0ysImPCo
Auckland Albany House Prices Dive 13.5%
https://www.stuff.co.nz/business/property/94154549/house-prices-dive-in…
The Crash Is Coming.
In the last graph, its good to see that the loan value figures have slowly dropped over time. I assume that it only includes houses for which there is a mortgage.
If house prices drop, the lines will spike upwards.
If the house values and outstanding loan values associated with this graph are updated regularly, then this will be a good one to keep an eye on. Its perfectly fine that this graph is not just Auckland, the viability of the NZ banks is linked to the whole of NZ not just Auckland.
Though there are number of reason for the housing market to slow or fall but everyone should not forgets that this ponzi was supported and prompted by national and now being election year are not able to manipulate with their policy / system as are too exposed to people.
Whatever they denied earlier has been exposed be it housing crisis or panama papers - that NZ is not used for money laundering (Overseas trust reduced from 12000 to 30000 and still no acceptance of the fact from our government whom people voted 3 terms).
Few rich and non resident have benefitted by their scheme (as it happen in any ponzi scheme) but all thanks to National have created a Working lower class - Inequality gives rise to unrest and if national manage to grab power by chance it will be disastor not only for NZ but also people who have been benefitting till now by their policy / ponzi.
National may have encouraged the problem we have today ( and, yes, it is a problem) but let's not forget that Helen Clark had, what was it, 8 investment properties and happily told anyone who asked that 'They are my superannuation fund' - forgetting that she had and will enjoy a taxpayer sponsored superannuation fund for being an ex-prime minister for the duration of the rest of her life. It was just such superannuation schemes that were designed to remove a point of conflict for our politicians when they were enacting regulations to ensure the good health of our economy. No Party in New Zealand politics for the last 40 odd years has tried to address the problem of rising asset value that aren't backed by productivity increases. There is NOTHING wrong with high property prices IF they are encouraged by productivity gains - workers are paid more, and so can spend more, because they create more, in effect.
So Is National to blame .YES! But so is Labour, NZ First, The Greens, and all the minor parties. The only Party advocating change is Gareth Morgans and his TOP. And sadly, his party has too many controversial policies to see it gain any sort of influence, above mere discussion.
In short WE ARE ALL TO BLAME!
To me it is corrupt that politicians who have multiple rental houses can vote on any housing policy. It is the same as if a politician has a business and votes in such a way it will be beneficial to the company he owns.
It is self interest and to me it does not seem right.
It's ok to have an end of the current housing price-rise cycle and previous cycle-ends have taught us that there will be a flattening of price level until the election is over instead of a major correction/crash. It's a 'draw' and a win-win for all until the next cycle.
Double-GZ I would like to respectfully ask you some questions this Sunday morning.
Where do you see our city and country going?
What if any things do you think should be done around housing?
Do you support the current scenario, with housing out of reach of most younger people?
Are you not concerned at growing levels of inequality, poverty, violence and homelessness?
(which ultimately don't only affect those suffering from these things, but all of us)
Despite your own wealth and comfort, do you not worry about how unsafe and unpleasant our city is becoming?
Or are you happy to live behind comfortable high walls whilst the world around you turns to custard?
First of all thank you for asking me these relevant social questions. I really just want to provide some short and simple answers from an 'average Joe' perspective. I am afterall just an ordinary 9-5 worker commuting to and from the CBD Mon-Fri. I see our city (Auckland) booming with lots of construction happening. I love the different colours and culture we have in Auckland and that's why I am living here and have been for over 25 years. I am particularly excited by the recently opened Waterview Connection and the CRL project which I think will benefit most if not all Auckland residents directly and indirectly. I see New Zealand as one of the most beautiful and respected countries in the world from tourism to sports, and from politics to equality. I don't believe we have a housing crisis, but we do have a housing challenge. I have witnessed myself that there are a lot of houses being built in Flat Bush, Pukeno, Hobsonville Pt, Albany, Millwater, Riverhead and Kumeu. With so many listings on TradeMe there are a lot of choices and options for all home buyers, including FHBs. The so called inequality, poverty, violence and homelessness you mentioned have been there since many decades ago and they are not isolated issues for this government. I don't think they are growing out of proportion with the increase in net migration we have...it's all relative. In terms of my own wealth and comfort, I think you have over-estimated me, as I don't see myself in a better position than an average Aucklander. I have not witnessed our city becoming more unsafe and unpleasant, but quite the opposite - I am really enjoying the multi-cultural aspect of where I live and where I work. I just counted the number of countries my co-workers come from the other day and there are more than 20. There are no high walls in the world I live in, I travel to Pakuranga Night Market most Saturdays and love driving around Pukekohe and Waiuku. There is no-one to blame. We are blessed we live in such a peaceful country and Auckland is a bloody good place to be. Be positive and be happy in life.
DGZ, apologies if this wasn't you, but I think you said something around Auckland being nothing like Dublin, Dublin was caused by over-supply of housing, you've now just pointed to 7 large areas of new builds.....
Anecdotally I'm not sure if this is related but we had a house pulled down in my neck of the woods, Mission Bay, and two to be put up in its place. The first part went up relatively quickly, since then there's been nothing for about 2 months, the plot has sat there with no builders, a portaloo and a a third of two houses built for ages. Another sub-division behind me has been cleared and a basic foundation put in, but again nothing has been heard or seen for months.Could be weather-related? If so that first build has been left open and exposed to some pretty filthy weather recently.
It must be someone else as I don't have a clue about Dublin. Well actually I have at least 3x Irish co-workers and they are really funny. Many people here think I am the same person as Zachary for some reason. So is it possible that it was Zachary who mentioned the housing over-supply in Dublin?
With such wet weather we have been having (until yesterday and today) I wouldn't be surprised to see building activities being halted. You're not near Godden Cres by any chance?
The place is on the corner of Godden, yes, it was owned by an elderly Chinese fella, seemed a nice bloke, that's going back a few years now though. Weather could definitely be an issue, every time I stroll past it, it does make me wince though, it looks mostly uncovered and open to the elements, which even with decent materials isn't great.
Apologies for confusing you with another, if you don't have a clue about Dublin, it might be worth reading up on - the Celtic tiger.
Sorry DGZ I don't agree with you on the homelessness front. What I've witnessed over the last seven years has been a steady increase in the number of homeless especially up and down the CBD areas.
And it's not any particular nationality, I see just as much caucasian people on the streets as I do people from all ethnic backgrounds and it's getting worse and spreading to the inner city suburbs.
I remember when I first visited NZ, seven years ago with my Kiwi other half. And was very impressed that there were no homeless people on the streets and properties were affordable in comparison to the Greater London area from where I'm from. Now sadly I see more people on the streets in Auckland's CBD then I ever saw in central London.
Well I work in the CBD and I walk up and down Queen St during lunch time. Yes I do see some homeless people, and maybe a few more than 7 years ago but as I mentioned above it is all relative to the increase in population. I bought McDonalds for these people from time to time and I got to know that some of them choose to have this 'homeless' lifestyle for various reasons not because they don't have a home to go back to.
Sorry you say some of them have chosen a 'homeless lifestyle'! In all honesty do you really expect us to believe that?? I'm sure some of them are running away from unfortunate and probably violent home lives especially the younger ones.
But I can't believe for one second that anyone would 'choose' to live on the streets.
Potentially, mental illness concerns me and attitudes towards it, (I haven't experienced it, so can't comment from a position of authority), I have read up on people's experiences, it seems as though some is manageable with drugs etc, others are quite rapidly degenerative, seemingly manageable and then not. Without the correct/appropriate support these can have devastating consequences.
@DGZ: I expect their life expectancy on the streets is short but then you shouldn't expect the situation to improve by don't nothing and allowing them die on the street like piles of human garbage, they are still people.
I suggest you listen to this radio article from the BBC it may help to give you some further perspective; Should We Give Homeless People Homes?
http://www.bbc.co.uk/programmes/p04kj3kc
I agree there are plenty of options for FHB. I'm 32 so can speak direct to the experience of my peers. Some genuinely are struggling to get a 20% deposit together which is hard. But when I suggest properties in that $400-$600k bracket, most of these 2-3 bedrooms likely in areas such as Papakura and the like, noses are turned up. But my parents and probably their parents did the same, struggled to save to buy a dump in a less desirable area to get a foot on the rung. Back in the 70s and 80s interest rates were double digit so whilst home affordability to incomes were closer in relation, just servicing the loan was difficult. But they did it. I can say this as I am among the younger generation; we're too spoilt!!!!
Jump to conclusions much yourself there. I assumed you were a home owner and/or investor, and I'm sure all your friend family and everyone around you knows it too.
By the way there is a difference between people asking you for advice and you throwing it at everyone. take it slow you'll get there =)
Nothing wrong with Epsom either. Just found this mortgagee sale - someone might get a bargain! http://www.trademe.co.nz/property/residential-property-for-sale/auction…
There's been plenty of maths done on affordability and the housing equation, and it's pretty evident young Kiwis are facing a much harder situation [Source] - without the backstop of things such as government builds and Housing Corp loans that also helped many in previous generations and were part of NZ's high rate of home ownership achieved by the 1980s.
I agree with almost all of what Double-GZ says - but I'd like to see young Kiwis afforded the same opportunities for home ownership as people born earlier were, and I don't hold any illusions that they currently do.
. I am particularly excited by the recently opened Waterview Connection and the CRL project which I think will benefit most if not all Auckland residents directly and indirectly.
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Govt makes the problem then gets credit for solving it
I see New Zealand as one of the most beautiful and respected countries in the world from tourism to sports, and from politics to equality.
..........
You should have seen it 30 years ago. Same scenery fewer people.
I am really enjoying the multi-cultural aspect of where I live and where I work.
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Diversity is the inverse of social cohesion. You don't disprove that - you may be the exception that proves the rule
http://archive.boston.com/news/globe/ideas/articles/2007/08/05/the_down…
We are blessed we live in such a peaceful country and Auckland is a bloody good place to be. Be positive and be happy in life.
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Unafforadle and off limits to anyone who doesn't have a house in Auckland, high net worth, or high income. I see it as another country. Unless you have stayed there and captured the house price increase it is out of bounds - use the airport and that is it.
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Auckland is a white elephant - a giant ponzi scheme.
If the ethnic diversity is extreme (see Birkenhead/Highbury) everyone feels fine and they trust their neighbour. Just have the same number of immigrants from a single place and identity politics starts. It requires a modicum of democracy but then you get ethnic leaders saying 'vote for me because of my identity not what I will do'. And the troubles can start. Nothing to do with race or religion everything to do with identity. Ref Northern Ireland, Rwanda's Tutsis &Hutus, breakup of Yugoslavia. You can even have different groups living side by side fairly peacefully for over a thousand years and then descend into a totally destructive civil war as per Lebanon. Countries with multiple ethnicities need a strong top identity and that is what the USA attempts.
That would be true if the drivers of the cycle were the same. It's very difficult to predict when other levers are at play - foreign investment, cheap and readily available credit, immigration, something that hasn't been prevalent in other cycles to the same extent.
A gradual decline over time is the best case scenario, however, all over the globe, interest rates are rising, mechanics have been put in place to stymie foreign investment, immigration is a hot button topic, the rise in populism - see Brexit, Trump, rise of Le Pen in France, WP here, the rebirth of Pauline Hanson in AU. It's unwise to assume just because we saw x,y,z play out here last time, that it will play out again.
At some point the govt is answerable to the people, I'm a whiny liberal, champagne socialist by nature, so get a bit concerned by populist rhetoric. My prediction for the election - WP to take older votes off National, Labour to take centrist votes from National, Greens to pick up youth vote, TOP to register as a minor protest vote (votes to come from left and right).
This is a lose/lose election for National, if they carry on their current immigration policies, they'll alienate more of their traditional vote who will head over to WP next time. House prices will still stagnate/fall as they are subject not to local pressures but global ones.
If they're forced into a coalition it will be with WP, that means immigration becomes central - turn immigration down, the economy takes a short-term tumble, house prices fall faster, hurting their core property owning/speculating base. There is precious little left to strip and sell, the silverware has mostly been sold already, they could open more mining and oil, but that would involve decimating NZ's clean, green image, which could undermine our second biggest economy - tourism.
I'd feel sorry for them if it weren't a position of their own making
Looks like you are in the denial phase, dont worry though, theres a bull trap just around the corner for you :)
https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/stages_in_a_bubbl…
Well researched and written article.
Hopefully this "new, more fierce reassessment" of housing investment will get rid of the punters in the market. "Punters" being those that are using a model of negative gearing and propping up their speculative purchases with outside income and relying on capital gains to get them over the profit line. Anyone that does not constantly assess their risk in the housing market (or any market) will be subject to an increased risk of an unpleasant correction.
The RBNZ is correct to class investment housing as a business asset
"Quitting rental investments may well involve the choice of 'losses now', or break-even cash flows and potentially larger 'losses later'. Unless your outside cash flows can last at least five years of holding cost."
Bona fide property investors should not break a sweat looking at this article, but rather take encouragement from it.
I reckon NZ is a pretty bloody good place to be when you consider the alternatives. National, as much as you can pick holes, has kept this economy churning and to be honest a strong economy benefits more people than a weak one. Labour would be a disaster. Like with absolutely anything in life though, you're never going to keep everyone happy and I know one thing for sure; I'd rather be here than in a country like Venezuela- socialism is working out well for them (not).
Box of fluffies this morning are we? Ok sure let's explore some less "basket case" countries; Australia. Nup. Oh wait England... no no that's sliding down a hill fast. Hmmm Germany? No wait.. not so great there either. Italy? Hmmm no no they're about to go bust too. Hmmmmm.... USA? No that's a silly suggestion as well. Yep, NZ is looking pretty good.
England is indeed 'sliding downhill fast ", but does that mean we should follow? Shouldn't we learn from the mistakes of others?
"Britons face lifetime of debt as Bank of England warns over 35 year,or more, mortgages"
http://www.telegraph.co.uk/business/2017/07/15/britons-face-lifetime-de…
It is indeed a pretty bloody good place to be, however, it can be better. That's what we should be striving for not engaging in "whataboutery".
Venezuela's an interesting one, they picked an oil and ideology fight with the US and lost, oil prices fell through the floor and that was the backbone of their economy. If, and it's a bloody big IF, oil prices had remained the same the country may have succeeded, it did for a while there were improvements in literacy, health and inequality, until the fall out in oil.
... yes ... except for the handful of countries which are actual war zones , most places have a healthy mix of positives and negatives about them ... having lived for a few years in both Australia and in the Philippines , I find myself torn between them and NZ ... everywhere is good , if you have the means and attitude to make it so ...
But , onto the macro economic picture , it seems to me that interest rates are ticking upwards worldwide ... and , as most of the money borrowed to fund our property market is sourced offshore , there's little that our banks can do , when rates are forced higher ...
.. and at that point the Reserve Bank's OCR setting will be as ineffectual as a rule book at a French refereed rugby match ...
" I've been to New Zealand , it's quite nice at this time of the year "
Don't forget to take your rubberized waders and gummies , 'cos 90 % of the freshwater rivers and streams are not fit for being touched by naked human skin , let alone to let your pet doggie drink out of .....
Propertyminx, I just love your logic. The one interesting thing is your referencing to National's " churning " of the economy. That bit you got right and we all know what a churning economy will lead to. We just need to keep on selling property to each other while the overseas speckys get off the bus at the top of the hill.
Any fool could keep an economy "churning" with massive immigration, not exactly rocket surgery. Trouble is it is little more than a great big ponzi scheme and we all know how those end.
And on the socialism thing, you might want to use somewhere like Scandinavian countries as a judge of how socialist policies work, rather than pick one country that probably had the US working against it to ensure it failed. The US cannot abide any country anywhere near it calling their own shots.
... let me figure it out for you ... ummm .... dum dumb dumb dumb ...
Ah yes ... a modern genetically modified euphemism of the expressions " rocket science " .... dumb dumb de dumb .... and " brain surgery " ...
... yup ... dum dumb de dumb ... think that covers it ...
Auckland is quite a nice city , with quite a few issues.
But this best city in the world nonsense?
That is such a subjective thing. If you love arts, culture andmusic then Auckland is nowhere near the best city in the world. And you would go with London, Paris, Barcelona, Berlin, Tokyo or New York.
if you love beaches and outdoors Auckland is undoubtedly one of the best.
If you want social equity and harmony then Copenhagen or Stockholm might be the best.
If you want a place with a good overall lifestyle and one that is highly affordable then you would go with Houston.
'Again - 'Best city in the world' is a nonsense as it's such a subjective thing.
You've found me out.No car.
OK I borrow a daughter's car for shopping and use a goldcard (wonderful invention - everyone should have one). In 2003 standing in a queue at 5am waiting for my residency visa (2003 - that's how they did it) a fellow Londoner who had been here for a few years and commuted across the bridge daily told me "if you are from London you must never complain about traffic in Auckland". Are you suggesting congestion has got worse since 2003? Not with all those new motorways and tunnels surely!
Great article. Given its weight in the economy will the end of this housing cycle have implications for the broader economy and wages? Also, given the ongoing supply constraints and RBNZ talking about holding rates low long into the future, do we actually really face any likelyhood of a sharp or deep reassessment of housing values?
In a memorable line, JF Kennedy said we would pursue the many elements of the space program "not because they are easy, but because they are hard."
Our national philosophy now is "we do these things because they're easy"-- and relying on debt to pay today's expenses is at the top of the list. What's easier than tapping a line of credit to buy whatever you want or need? Nothing's easier than borrowing money, especially at super-low rates of interest.
We are now totally, completely dependent on expanding debt for the maintenance of our society and economy. Every sector of the economy--households, businesses and government--all borrow vast sums just to maintain the status quo for another year......Borrowing more money from the future is easy, painless and requires no trade-offs, sacrifices or accountability--until the debt-addicted economy collapses under its own weight of debt service and insolvency. People keep repeating various versions of the story that "debt doesn't matter" because "future growth" will outgrow the skyrocketing debt, or inflation will make it all manageable, or that central banks will do whatever it takes to make sure everyone has enough money to service their debt burdens: negative interest rates, helicopter money, etc. etc. etc.
We want to believe in financial magic because we want things to remain easy.Borrowing from the future is easy, making sacrifices and being accountable is hard.
But eventually the cost of servicing even low interest-rate debt squeezes spending, eventually capital tires of chasing negative interest-rate bonds, eventually lenders realize that leverage has skyrocketed along with the debt and risk is piled up (waiting to explode)
(CH Smith)
With any luck, this thought is 'sinking in' countries across the globe. Those that adapt first, will be the winners. Let's hope that is New Zealand.
The impact of New Zealand real estate is usually boiled down to the regional level. At a time when multiple sites can estimate the value of your home in any street let alone region, when we are given monthly updates on median and average pricing for any region and sub region ad nauseum , when the RBNZ can report mortgage growth and so on, we ignore other simple metrics. What is Auckland's regional household debt, Auckland's household debt/income, Auckland's household debt /GDP. Auckland has skewed national aggregate data , that we hide the problem ,yet monetary policy will be dictated by the rise and fall of real estate prices in one city. Bizarre .This century, only in 2008 have the day's to sell ( and I use this metric with caution )an Auckland property been higher .I am told there is a housing shortage.
Spring is going to be awesome. Remember a large percentage of listings that have come off the market in the past few months have been withdrawn as they couldn't sell (or at least weren't willing to meet the market). I know of a few of these anecdotally, and they will be sorely disappointed when another 5,000 listings hit the market in Spring. I think Auckland listings will hit 13,000-14,000+ (just a guess).
The election is a downside risk. If National form a coalition with NZ First, immigration will be cut and the property downturn will accelerate. If Greens-Labour-NZ First manage to form a coalition the acceleration downwards will be even faster.
What we haven't seen yet is a major shift in psychology. As we see on this website there is still a deep seated "can't go wrong, you'll always win" mentality. Auckland isn't different. Once sentiment breaks it'll be on like Donkey Kong for a good 2-3 years.
Yes it's very interesting times and the market downturn is far beyond our and even our Governments controls no matter who gets in at the next election.
There's a nice article on Better Dwelling that discuss the differences between a correction and a crash.
Here’s The Difference Between A Real Estate Correction and A Crash
https://betterdwelling.com/heres-the-difference-between-a-real-estate-c…
I would suggest that everyone on this site take a short amount of time to read that artical in the link provided, it presents some good information. If you take into perspective the drivers that are required to result in a true "Crash" you see that they currently do not exist in New Zealand.
In these circumstances, small business ownership is likely to make a strong comeback for investors who don't want to suffer the tyranny of low yields.
What does this mean? Property investors are going to switch to running a Dairy, car wash or ironing business? Sounds like too much hard work for us. Or is there going to be a swathe of small businesses we can invest in, sit back and enjoy a +10% yield?
Sounds kind of wishful to me.
Indeed, While I appreciate David's effort and presentation in the article which was good as usual, but the small business statement is a bit rich, it suffices to have few contacts with small business to know that the margins are getting very thin and most are in business because they cannot get out of it , selling businesses are tougher than selling houses nowadays ... the epic of buying small businesses ( be it accommodation, food, cleaning, liquor and hospitality) is over ...we witnessed that fever 3 years ago and it was worse than the housing market... I have first hand experience in that.- starting a new business is even more difficult unless you have a brilliant idea and deep pockets ...
Property investors will only get out of residential houses if they can be offered a viable alternative returning a solid 6-8% pa in dividend .. something like PPP in infrastructure, housing, communications, transport Food, Forestry ... etc
On the side, I had the pleasure of attending an auction on the Shore today to have a feel of how the market was doing ... a small tired old 1950's average 3 beddy loaded with makeup sitting on flat 400m2 cross lease house needing at least 100k to get it back in shape was sold for an eye popping $838K to everyone's surprise ... bids were between two Asian buyers ( Not Chinese) .... I personally agreed with the RE's assessment of 700-750K mark .. but, hey who are we to know better than the buyers !!.
Another one on the side - looking at new built houses South of Auckland on the net - There is plenty of NEW 3 bdrm 2 bath houses in Pukekohe, Papakura and even Takanini for very reasonable prices starting from $573K - 600K ... So for those who like to buy new and affordable there is enough stock out there to start with .. these places can be considered closer than Waiuku and Huntly ( even Hamilton) to commute from.
Hi Double-GZ, yes median on Home.co.nz is 835K and low is 775K , house condition was more like the lower price end in the range because it was tired .... you can really buy a clean new 400m2 something section now not far from this house in Glenfield for mid 500Ks and build whatever you like on it - I might end up going for such an option but need to do more homework .
Trademe property price estimations are generally a bit lower and more realistic in my view ( as far as i have compared so far) ...but yeah this one today was a bit odd ...
I spoke to many kiwis attending the auction on the side , they were all there to check prices as they had property to put on the market or already selling, all four parties agreed that it is a Good time to buy than to Sell .. two had their property on the market for 3 months now, there were simply no serious buyers , some blamed the media for that!! -
I noticed a sad grin on the face of the RE agent at that point !!
Thanks, Not a family home, I was planning to buy another investment property, preferably a home and granny ... ... there are few tired ones on the market but need some TLC, so I was trying to evaluate whether it is worth building a new H&G as rental like the good old days ... so far the results are not that encouraging but there is a bit of hope. cheers
Harcourts ... you might be right in getting confused ...but anecdotal examples like these could remain Odd - it is indeed a buyer's market ..but the sellers are not budging !!
The owners of the property sold today had 850K reserve in mind, it was a long auction .. the auctioneer got too excited when he reached 831K and had a long talk with the owners, then it was put on the market .. if it wasn't for these challenging two bidders, I reckon this would have stopped at much less and wouldn't have sold today.
Most of the auctions I see nowadays are one single low bid and that's it ... out of 25-35 people attending the auction... It sounds like a funeral !!
The only businesses that are tough to sell are crap businesses. If it makes money and is steady or has growth potential a typical yield for buyer is 30-40% per annum, depending on industry (for owner operator).
You can still pick up businesses in Auckland for less than avg priced home, put in a manager and take home six figures a year. Double it if willing to operate it yourself.
Best gross yield I've had in property is sub 12%. For businesses SAAS etc would command higher multiples, cafes, franchises etc likely lower multiples.
Was going to say that most PIs would shudder at the option to build something creative for export, employ other kiwis and pay more tax, but Zach covered it nicely.
Easy to see why tax on capital has been raised as an election debate. Pumping tax credits into property speculation is going nowhere real fast.
To put that in perspective, our economy grew by $261 bln in the same period, an impressive +7% rise in nominal terms
For the twelve months ending Dec 2016 nominal GDPE totals $260.778 billion. Right?
Well, the twelve months ending Dec 2015 is recorded at $247.517 billion. Hence, the increase is 5.3576%.
Your nominal 7.1% growth calculation claim compares the Dec 16 quarter with the Dec 15 quarter.
My predictions:
Winy will be part of the new government after the election, house prices will tumble (due to reduced immigration and rising interest rates, there will be an increase in the number of stressed/mortgagee sales), less Asian money coming to invest in NZ inc; Asian investor leaving this shore in drove (due to the business and investment environment becoming less friendly towards them). If you are cashed up, wait for a few months after the election before you purchase your property, when the full effect of the new government's policies kick in, you will be able to pick up some great bargains, a win win situation for Kiwi FHB. Anyone with negatively geared investment property should consider exiting now to reduce your losses before more are heading to the same exit door.
Housing affordability calculation should be based on one's net income, not gross income.
If net income is use in this calculation, to buy a typical Auckland house (say in the $1 million price bracket), affordability will be 20 times of your income (assuming your net income is $50k /yr).
The current method of housing affordability calculation does not reflect the true picture of housing affordability problem.
interest.co.nz's home loan affordability measure is based on 'net income'. It uses after tax take-home pay as the basis, including WFF tax credits if they apply. And for a 'household', just as banks do their assessments. (Income tax rate changes can be among the biggest influences on affordability - as we saw the last time there were tax cuts.)
Evidently you can find negative sentiment all over the internet too. Im not too sure 'internet trolls' seek out positive sentiment though.
Yes you can. Brands and companies track negative and positive sentiment using the appropriate tools. It helps them shape their strategies. Internet trolls are usually more selective and have different objectives.
J.C. after reading David Chaston's piece I just thought I would take a quick spin on Google, typed, "House prices Vancouver", clicked on news and then saw that all the articles were about prices continuing to rise. I did the same for Sydney with similar results. All articles from just the last few days. Also not 'positive sentiment' just news articles about current stats.
Indeed, and I will re-post the link CJ099 posted earlier - it shows the Action and reaction of market corrections clearly :
https://betterdwelling.com/heres-the-difference-between-a-real-estate-c…
One thing I disagree with David is his prediction that a correction will last about 5 years .. i have been in this market for the last 15 years and witnessed 3 cycles ... not one lasted that long ( well at least in Auckland -North) the worse was the 2008 crash which corrected in about 2 years ... just my observation
Hey not so fast Zachary, apparently foreign buying in the British Columbia province has been tapering for quite some time, but the City of Vancouver is experiencing a bigger drop.
Changes to China’s capital controls in January has led to the throttling of Mainland Chinese money. Markets across the world are noticing it, and Vancouver is no different. However, Vancouver’s numbers are falling faster than the average for the province and so are we.
Article: Vancouver Real Estate Saw Only 36 Homes Go To Foreign Buyers
https://betterdwelling.com/city/vancouver/vancouver-real-estate-saw-36-…
Also there has been signs of foreign buyers moving in to less tapped out areas within Canada. No point in putting you nest eggs in one basket to make those all important capital gains for the Speculative Investors which is ultimately what a Foreign Investors is.
Sadly for you Zac that boundary doesn't seem to stretch as far as Auckland since we're very tapped out market for capital gains for probably the next decade. Either property prices have to give ground or wages have to massively rise. Which do you think will logically happen in a global economy?
Article: Bài Bài Vancouver, BC Has A New Foreign Buying Capital
https://betterdwelling.com/bai-bai-vancouver-bc-has-a-new-foreign-buyin…
It seems not too much of a problem CJ099:
Will China's tightened capital controls pop the housing bubble?
Zachary I think you're completely missing my point which is that most foreign investors are looking for new neighbouring property investment areas. Since there's no point in investing in an over inflated market since you risk economic collapse for your host city.
What makes more sense is to invest in more distributed area that will ultimately give much better capital returns. Also that article you posted is still going on old data from January this year not current stats.
J.C. after reading David Chaston's piece I just thought I would take a quick spin on Google, typed, "House prices Vancouver", clicked on news and then saw that all the articles were about prices continuing to rise. I did the same for Sydney with similar results. All articles from just the last few days. Also not 'positive sentiment' just news articles about current stats.
Mainstream media reports about house prices fit within their editorial policies. News about house prices are largely consumed through a select number of media organizations. That's why Domain has been the dominant revenue driver of Fairfax.
... yes they are my friend ... this is just a mild mid-term correction in a long term upwards trajectory ...
Keep buying Zach ... you can't lose with property ... buy buy buy , mon ami ..
... ignore the Zach attacks ... they're just jealous , Big-Daddy / Ollie Newland deniers ...
DGZ, I'd gently suggest having a look at this article (http://www.personal.psu.edu/bfr3/blogs/asp/2013/04/reducing-poverty-and…), to help you understand what is known in psychology as the 'fundamental attribution error', a very well-researched and very pervasive human bias.
Unfortunately, fundamental attribution error causes most to see homelessness as a result of overestimating the flaw in a person's character while ignoring or underestimating the environmental factors that played a role in that person depending upon the kindness of others in order to survive (Schneider, Gruman, & Coutts, 2012). Fundamental attribution error has caused Americans to view homelessness as a choice and as a result finding solutions for poverty often take a backseat to other policy areas.
Food for thought.
Auckland market too tough for the kids - but Hawke's Bay is all good.
https://www.stuff.co.nz/life-style/homed/living/94598814/auckland-marke…-
My heart breaks when I see homeless people on the streets, regardless if they choose to have the lifestyle or not. We should all be grateful we have a place called home, even if it is a garage coz it is better than lying on the streets or some corridors or under the bridge.
As money is borrowed into existence, it is amazing that one can earn a lifetime of slavery for most people and some people, namely the Rental Owners expect someone else to be their slave.
The property ladder is propped up by debt...big debt. But as the World is round, people expect the money to go round and round and end up back in their pocket.
Unfortunately when leveraged up to the hilt, which the Banks encourage by the way, when the Merry-Go-Round stops, with excessive debt, that no one wants to pay for, one can only assume that someone else will pay the Piper.
I think it was Gordon Brown who said he had saved the World from ruin, when all he had done, was expanded it. Plus benefited from it personally.
When all is said and done, modern slavery is no different from the old, but a lifetime of servitude, is what all Politicians and Bankers want....Yours.
So keep up the good work, be brave, fling yourself in at the deep end...keep afloat, pray that the air does not leave the pump...Houses can only go up, can they not. ...if we keep the printing presses in-tact.
Some people will believe anything. Some people will talk up and up.
Me, I prefer the simple life...and I was always taught, never believe a word someone keeps saying, especially when trying to sell you a pig in a poke...as one prick, can deflate all ones assets...and they are usually the ones on top...with the most to lose...and we are forever in their...Debt....are we not.
It is what keeps the World afloat...but one prick after another, may not seem much, but they all add up, over time.
Who cares about homeless people...NZ worships...the opposite...always has...especially in Awkland.
Do have a nice day....by the way, plenty of cheap properties here in France...if you have had enough of slavery, here you can rebuild your life, for 10centimes on the dollar....but you might have to learn a different language...and creed.
Greed is good, but hard work, builds you a house for peanuts, compared to little old...new ZEALAND. So stop slaving, sell up and leave all the others high and dry...when the cookie crumbles.
France need the people who do not PUT ALL THEIR MONEY...into houses...which is a strange...Capital idea, touted by idiots, for idiots...who do not know...where decent bread is buttered.
So why are all those refugees desperate to leave France?
I saw plenty of homeless people on the streets of Paris last year. Little kids too. Trinket sellers and pickpockets everywhere. Seriously would it really be a good idea for a young Kiwi with little money to head to France? I think not. Estonia would be better I reckon.
I shall deign to reply...
When a country is invaded by hordes, there will always be problems. Some lose their lives in the process.
When people cannot drive, cannot swim, cannot get health care, cannot function without then they too lose lives.
A plane crash can kill hundreds, but also an illegal immigrant scheme , perpetrated by Smugglers...
Nigerian women are 90% trafficked into the sex trade when they leave their homeland...the B-asturd...people smugglers make their lives a misery
I think France is just another poor country, invaded by hordes, some on their way to Britain...where, they often get better treated than the incumbent population. Then all to frequently turn on their Hosts, when it is not the Promised Land....
It is all a numbers game, win some lose some....Some people will kill people, some will traffic them. Some people will rent out "anything' to make a quid, a dollar,a Euro...whatever.
You can blame politicians for a lot of the issues....but sometimes, an "Acid Attack" in UK is just daylight robbery, caused by poverty and uneducated 16 year olds...on mopeds. I am guessing...no facts as yet.
Grenfell Towers is another stupid over sight....by stupid people.. in UK....which one do I think is worse...when people lose their lives...at home or abroad...
I cannot predict what will happen next, but unfortunately bigger countries have bigger problems...and open borders do not a safe haven make.
But then swimming at Piha is another fault in the system...no amount of lifeguards will fix stupidity of others, nor will policing of millions of people, hell bent on meeting Allah...or their so-called Leaders...demands. (Why do they not send themselves...on suicide missions...I will never understand)
I will not Judge others, but you can put it all down to a numbers game...and why these people have to escape their Home-Lands...Too many people, not enough food, too many idiots, running the World for their benefit...not others.
I could rant a lot more, but as I am not a Religious person, I will just say, a simple life, in a simple safe place, is better than any big city with disillusioned people...and New Zealand has a lot going for it...but you cannot buy a section in NZ...for 13K Euros.....like in this village...and I ain't Hell Bent on stopping others enjoying the change of scene.
And some people are disillusioned with NZ.. particularly Awkland , full of 'Investors" of every ill-k.
It is not about economy of scale, it is what it is...NZ is over priced, over invested in Houses, cos there is no other safe investment.....like Houses...it is all anyone talks about.
Except us mere mortals...enjoying a winter break...cos though I like NZ, it is not the B-all-and-end-all.
It is just a place I call Home....not a bleedin investment...
Nor is France...but it is more cost effective....if you play the numbers game and no where to hide from terrorists.
Bush, Blair, ...whoever...it takes, is safe as houses.....as is Johnny Depp.
They all made a killing....over their life times....I did not.....nor did I think NZ was as safe as Houses.
Nor did I send others to their death in film or otherwise.
But I recognise it is all an Act....and an illusion and NZ is/was any port in a storm..for the rich pickings, some espouse.
An open Laundry Basket......with issues....and a safe haven for none...we got Mad Drivers..
Be careful crossing the roads...it can kill ya...more so than a little village in France. ...or a terrorist plot in Paris, Brussels, London, you name it..
Trump wants to build a Wall...but 30,000 plus killed yearly, by own people....insane...or what.
Rainbow Warrior...let he who is without sin...cast the first stone...But thanks for the simplicity...
Silence is Golden.?
Peoples perspectives are always so valuable, even if their Houses...are not.
No rights, no wrongs, just a sick little world, made sicker, almost daily.
God, in heaven, but not in the right Zone...by the sound of it. ..Nor am I.
Green Peace...they would get my vote....over France, or almost anywhere...Did not deserve a Terrorist Plot, but got one anyway.
Governments are the terrorists...no different here, there, anywhere.
I could explain...but some will never, never understand....ironically.
I am not making excuses...for anyone...A perfect World, it ain't.
It's funny, people were giving me a hard time the other day about suggesting how nice it is to have the option of selling up and buying a place in Portugal. Something a lot of Kiwis could actually do. I rather fancy Kent after spending a bit of time there recently.
I just go to La Fourchette in St Heliers when I feel like having French Onion Soup or crêpes caramel salé or crème brûlée. Also in Remuera this past week we had French themed week where the village came to life for the Bastille Day festivities. There were French musicians, an authentic French clown, the world famous race of the escargots, croissant art, cancan dancers, a French treasure hunt, sumptuous French delicacies and so much more. There's no need to move to France!
Regarding the big picture. I think what we're seeing is the aftermath of a disorderly increase in house prices, which itself was caused by low interest rates, capital flight from China, and neoliberal government that deliberately failed to respond to changing circumstances. You can define hyperinflation as 10% or greater inflation over a sustained time period, but in the nice areas of Auckland that were targeted by Chinese buyers the annual inflation was far greater than even 20% for several years running. The house that I was living in went from having a cv of 900K to 2.5 mil over 7 years. That's hyperinflation! What it's done is created a small number of winners who can happily retire at 40 from the income streams of their doctor lawyer and engineer tenants, and a large number losers who see the opportunity for financial success vanished from their lives, particularly as they get older. Of course there's also the small problem that it's also dangerously destabilized our banking system.
It irritates me that the neolibs are now trying to apportion blame to previous governments. I sincerely believe that if either Helen Clark or the late Robert Muldoon had have been in power over the last eight years they would never have let the country get into this awful state. The battle lines have been drawn, but not between the left and right, those days are gone.
If Muldoon was still around he would have acted PDQ
Yes, Muldoon was an interventionist. Without being revisionist and rewriting history, Muldoon was quick off the mark in introducing carless days and Price Controls on essential goods and materials, particularly house building materials. Products and services were defined as either Category A where manufacturers had to apply to the Price Tribunal in Wellington to increase prices, while Category B products and services could only increase prices to the extent their costs had increased and so preserve their margins. They could not increase their margins.
Time has forgotten these things
If Muldoon was still around he would have acted PDQ and we wouldn't have the current situation
What that history lesson tells you is the leaders have to lead, and lead in the interests of all
Wonder what the inflation rate would be if housing (purchase) was included in 'the basket"?
Real inflation rate must be at least 12%. Wages annual increment = 1.5%.
No wonder the workers are left behind, apart from homeowners who have at least 1 stake in the high inflation moving target.
The current downturn has nothing to do with the election. Even if you thought the current bubble was all caused by immigration, neither of the main parties have any material difference between them in terms of overall immigration numbers. Or do people think if there is a labor led government we will instantly plunge into recession? Of all the reasons, people waiting for the election result has to be the dumbest. It's a credit bubble, we have reached the peak, prices are such that a large part of the population who actually take on mortgage debt referenced to the size of their salary to buy houses to live in (remember them?) can no longer afford to buy a house. So the bubble will collapse on itself when people no longer believe that house prices will rise in the short to medium, which is pretty much where we are. And when that happens, confidence disappears and so do the buyers.
Totally agree that cheap credit, printed money has been a real factor. Not much little old kiwis can do about international credit practices.
Kiwis can however vote about returning the market to primarily a domestic one only, and stop it being the international speculative plaything that it has become.
And the large amount of overseas buyers have mostly been stopped in there tracks from getting money to buy in nz and other countries which no one seems to be able to come up with a honest number of just how big the impact that permently will have on Auckland house sale, no one seems to like talking about just how larger this was on house sales, immigration or overseas investor, pick one or both it was and is larger and house sales have ended remarkably quick, I wouldn't be surprised if overseas investors didn't push Aucklands house prices alone up 30%
They did come up with an answer. Foreign buyers were +/- 3%. The trouble is, people just didn't want to believe the answer, as to do so would force people to accept that there had been no structural change in the market to support the crazy prices and it was actually just residents borrowing larger and larger amounts which was pushing up prices. Foreign buyers are a convenient crutch for the "this time is different" crowd. People would rather rely on worthless anecdotes such as "everyone at the auction looked Chinese" or "there are lots more Chinese in my street than there used to be" or "the Chinese next door at buying houses for their family in china, I just know they are". That makes for a good pub conversation, but is valid evidence of nothing. Yes there were foreign (ie non resident) buyers, and the best evidence we have is that they were not the predominant case of price rises. The market slowdown ted in with PRC capital restrictions, but it also tied in with the tightening of bank credit. It was the latter which in my view had the overwhelming effect.
In these circumstances, small business ownership is likely to make a strong comeback for investors who don't want to suffer the tyranny of low yields.
Which will be a problem for a city that has fallen behind in its construction activity for the last 10 years. Businesses aren't fans of high rental costs.
I cant believe there are "educated" people who really believe the OS buyer figure represented only 3%! Its just astonishing.
Also I am sorry but AKL is a dump. A poor mans Sydney or Melbourne. Every time we come home to see family we are vindicated by our decision to leave many years ago and especially this time of year. Id live in many other places in NZ but you can keep AKL. Good luck to those holding a tanking asset with increased interest payments year on year.
The more reliable 3% figure was actually for the last two quarters, IIRC - i.e. after China's capital controls had been put in place too. But it doesn't factor in silent partners or such like either...and we're also seeing now a decline in foreign trusts in NZ as the government has been forced to increase transparency requirements after getting called out internationally.
All of which aside, 3% could well have a significant distortionary influence anyway.
Bobster makes a good point above, too. IF foreign money isn't a major factor, there's actually more to worry about. Remember Iceland, for example.
The foreign trusts issue does not relate to residential house purchases, I would say that is more about cross border tax structuring and avoidance. 3% whatever way you look at it is borderline material and certainly not significant. If non residents buy houses via a NZ resident then unless the non-resident fully funds in cash (highly unlikely) the resident would need to get funding in NZ for the purchase. That may or may not be doable.
So to me this "offshore buyers have caused these price increases" is just BS, on the evidence we have they may have been a limited contributing factor, but the primary driver is resident borrowing.
Tui12, 3% is the figure given by the govt analysis of the tax registrations (?) required of non resident buyers. If you don't accept that figure, I suppose you assume either widespread non conpliance by purchasers or a govt conspiracy. There may be some noncompliance, but that may not change the figure much. I don't think there is any govt conspiracy to provide false figures. So keep coming up with your anecdotes, they'll be very useful down at the pub. That's about all they're good for.
I also hear the US govt faked the moon landing?! Maybe you should look into that.
@Bobster
You should really qualify what you say there re this govt. As an average joe who just listens to the news, who all have their bias, it's hard to get a good picture. I would argue it is more a confused picture for the average joe. I would have considered myself the average joe until recently when an issue popped up and got me involved in following the issue very well.
After following this issue very well and very closely, I can honestly say this govt finds the facts it wants for its argument and it ignores the rest and/or it confuses/tarnishes the alternative facts. I am not sure I would call it conspiracy, but more subterfuge.
Sure, I can agree the numbers can be spun. But if they are based on objective measures such as registrations, they aren't going to be made up. So I think my point is valid. The best evidence we have is, foreign buyers are approx 3%. Maybe it's 6% (ie its 100% wrong) but even if it was to me that is still borderline material and not significant. 94% of buyers would be locals.
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