The Auckland housing markets are clearly in a funk.
House prices in the City of Sales are little changed at the end of 2018 from what they were in September 2016.
Sales volumes are unusually low.
And the commentary around the state of the market is no longer upbeat.
But we have had flat periods before. So what do earlier flat periods tell us? What does history suggest?
Firstly, these market pauses last a long time. The last two lasted five years.
And that suggests that we are not even halfway through this one. In fact, history suggests there may be another three years of low sales volumes and no price gains.
Secondly, previous flat periods have tended to coincide with economic recessions. But the current flat period has come when economic growth and overall prosperity has been very positive.
It is unusual for the New Zealand housing market to be in the doldrums in good economic times. There seems little doubt affordability limits have been reached.
Thirdly, it is unusual for the Queen City to have run out of wind when the rest of the country isn't suffering the same effects (Canterbury excepted).
The run up in price between 2001 and 2007 was 90% while the run up in price between 2012 and 2016 was 80%. It takes incomes a long time to catch up, and income gains in the past five years haven't been strong.
And fourthly, we are in a phase of more active public policy changes, which are mostly aimed at the Auckland housing market. The foreign buyer limits are just the latest, which included the LVR restrictions, Auckland's Unitary Plan rezoning to free up greenfield and brownfield development, the Special Housing Areas of the National Government (which are now starting to bear fruit), and the KiwiBuild and enhanced Housing NZ programs of the new Labour Government. All these are changing the supply/demand balance.
This additional supply perhaps suggests that the current period where it is hard to sell a house, and even harder to expect capital gains from housing, may last even longer than five years this time, perhaps extending out well into 2023 to 2025.
89 Comments
"David Chaston says thanks to affordability limits being reached"
Correct and this affordability has been reached because foreign buyer has been removed out of the market otherwise for money laundering - their is no limit and as far as local average Kiwi were concerned, affordability limit has been reached long time ago.
Also the affect of new money laundering will know after few months.
Did anyone notice the significant price change in Queenstown?
Apparently asking prices have fallen 18.9%. Not sure if this is a function of higher priced properties being taken off the market, or sold and no new listings of higher priced properties.
https://www.newshub.co.nz/home/money/2018/12/prices-plummet-in-queensto…
"Housing bust spreads across global markets"
https://www.macrobusiness.com.au/2019/01/housing-bust-spreads-across-gl…
Indeed. Fortunately that door is closing/closed to be strengthened with new anti laundering rules. If I wanted to live in overcrowded place I can simply move overseas where that is the case. Fortunately a majority of NZ voted for this to stop and the current Govt implemented it. National in denial and still claiming it was impossible to achieve..
I understand what you're trying to say, but I think that's a very insensitive remark. How would you feel if someone tells you not to see your own country as a country, but only as a piece of land with houses on it? Every country has its own unique heritage and culture. For NZ, being traditional a farming & agricultural country, the heritage is in the wildlife, wild flora, natural landscape & slow pace of life that it wants to preserve. Unfortunately, most immigrants do not understand this and see NZ as just another big city with its people interested only in generating wealth.
I'd change
"... Unfortunately, most immigrants do not understand this and see NZ as just another big city with its people interested only in generating wealth... "
to
"Unfortunately, most immigrants and urban born NZers do not understand this and see NZ as just another big city with its people interested only in generating wealth. "
Xingping
I wanted freehold property in China but the CCP don’t allow it
Chinese nationals often abuse the over generosity of countries like NZ
The CCP calculated they can increase their influence over a countries politics by allowing its nationals to buy properties & businesses in host countries
Seems to be working well
Yes, as Sam Hunt once said "We're just a big country town" at the end of the day. One of the real issues we have is that we've stopped respecting our leaders. This seems to the case right across the western cultures. Some would say that's because they stopped respecting us/the people, and it would hard to argue against that, to be sure, however from my angle, we've stopped producing good leaders in our education systems and families which is today starting to hurt us. Struth, when you look at the current batch, both in power and in business, there's not much to look up too, is there? Or, is it the fact that the left have been undermining the hierarchical structures on which our culture was founded? Mmm. Like most things, it's usually a bit of both.
Absolutely, we've stopped respecting our leaders because they've treated us with disdain and contempt for decades. Unfortunately for our "leaders", the digital age has meant the carpet, under which their dirty deeds have traditionally been swept, is thinner and covers much less area. The public have never been smarter and politicians have failed to realise that we know what they say and do aren't anyways truthful and ethical. We have long memories.
Never fear
JPMorgan’s Jamie Dimon says
https://www.usatoday.com/story/money/2019/01/15/government-shutdown-jam…
Do you believe him ?
All thanks to past national government for turning entire NZ- Auckland in particular to casino for the rich and foreign buyers - Heaven to park unofficial money (Money Laundering).
Now it is hard for anyone to deny that the boom is over, so will have to accept atleast that the market is slow (To maintain ones creditability) but still being careful with words to suggest will be flat (Avoiding the word FALL) but in reality when it is hard to sell - the price has to and will fall as their will be many who will have to sell for one reason or the other and will not be able to wait for few years SO…can argue the percentage of fall but not …...
Many who have bought in the last stage of the housing boom for a quick buck and are not able to hold for long will have to come out and book the lose (Can try to minimize the lose) but at this stage are hoping that may be now, the market will pick up and it is this hope that is preventing them from selling so IF the market does not pick up in first quarter of 2019 will be very bad news for many.
Softness = Falling Market
All thanks to Len Brown (Lab) and Phil Goff (Lab) at Auckland Council for making the city a land-banking paradise, speculators could buy any junk property sit on their backside for years and make gains. Unfortunately there has turned out to not be an endless supply of speculative investors (as if any other outcome was possible) and gains have stalled. Which is why Auckland is screwed up in relation to the rest of the country.
Affordability limits passed the mark many years ago. JK promised to resolve the housing "crisis" after the 02-07 boom that pushed people out of the market, particularly at 9% interest. Back then from memory it was 5-6 x income, now 9-10 x (off the top of my head). https://data.oecd.org/price/housing-prices.htm
NZ 2nd most unaffordable country vs incomes, Canada No 1 & Australia No 3. Both basket cases for similar reasons. What a mess, the implications have hardly started, flat house prices should be the least of our concerns.
I know "everyone does it" but it is just a nonsense to compare incomes to house prices. Virtually no-one buys a house with [saved] cash, certainly FHB's hardly ever do. The proper stress test is the proportion take-home-pay to make a mortgage payment (and more specifically the mortgage payment for a first home). That is the real measure of affordability.
The house-price-to-[gross]-income measure (median multiple) is just junk clickbait.
What is nonsense is your refusal to understand the underlying issue that income to house prices highlights.
The ability to make a mortgage payment on the day you buy your home has no bearing on your ability to continue being able to make that payment over the life of the mortgage, and you become more vulnerable to the amount of any residue debt the greater your ratio to borrowing versus income is, ie income to house price.
And you know there is a direct correlation between house price medium income ratios and restriction zoning policies. IE more restrictive zoning higher house prices to incomes ratios.
High prices to income ratios are indicative of dysfunction council policies and they have been the red flag that has highlighted what we are starting to go through now with the topping out of housing affordability.
After all who wouldn't want a house a 3 to 4 x income rather than 6 to 9 x income? Other jurisdictions do.
The real benifactor to David’s measure of “the proportion of take home pay to service a mortgage” is of course the banks. We are now paying back much greater sums over long periods, yes at lower interest rates however the interest paid over time is more than it was with lower price to income measures. So more of our production goes to the banks due to not addressing systemic failures in our banking and political systems. Not great in my opinion.
Interest rates can’t rise in any significant way due to the price to income ratio. If affordability is maxed out now at current rates a rate hike would lead to a downturn which potentially is worse for the banks than anyone - hence the bailouts of banks around the world. Our banking system isn’t made to handle downturns and contractions, they are inherently reliant on growth with only a small buffer for downturns.
I can’t see how rates can rise in any serious way without a recession. My guess is rates will drop at the first sign of real trouble and we will then keep increasing the total value of mortgages with our enhanced “affordability” until we max that out too. Rinse and repeat until that no longer works and we have a real disaster.
Should interest rates need to be raised, the government/Kiwibank could offer to take on 1 existing owner occupied mortgage per individual/couple that are deemed to enter undue hardship at, I dunno, let's say 5% p.a over 10 years. A bit like the State Advances Loans in the 50's. Issue bonds against them if they must.
Have it restricted to mortgages taken out in the last 2, 3, whatever years that they deem suitable. That way if the whole thing goes tits up, people might lose their investment properties but can potentially keep the family home.
Hmm, interesting. I’m not 100% sure it would work as if we got to that stage where that was necessary, higher interest rates would mean more money disappearing from the economy through debt repayments and there would be lower to negative debt growth due to decreased affordability and subsequently less new mortgages.
As another commentator points out often (either c.s or bw?), either we need increased private debt or increased public debt to keep our system going. This is why I dislike the monetary system we use so much as we are forced into ever increasing debt loads just to keep from going into recession which ironically makes a recession more likely.
What you say is true with regards to the USA, EU, China and Japan - big economic powerhouses. However the small unattached country of Iceland did not have the backstop of a multi-trillion plus economy to fall back on and so something else happened. When talking about New Zealand it pays to remember that we are a small unattached country.
Your right, Iceland did what no one else did. They let the banks fail, they actually jailed some bankers and bailed out there citizens instead. They went through some pain but two years later they returned to growth and are growing much faster than the other Nordic countries/most countries around the world.
I really hope NZ follows suit when we are forced to. I don’t know if we will however seeing how OBR legislation has been passed etc.
Gosh, I agree 100% again, and I stated before that it was wrong for governments to bail out large companies and banks with working people's money. Yes there would have been many lay-offs and a deep recession, but the world would be in a much better place now. Also it sends such a wrong message, now banks and all companies that are "too big to fail" know that Joe Bloggs will bail them out via the governments
Your overly simplified view that currently serviceability is the only measure of "affordability" is bizarrely naïve and shortsighted.
You are ignoring the requirement to save for a deposit. As prices rise in relation to income, saving for a deposit gets harder and pushes more first home buyers into high LVR mortgages (increasing systemic risk).
With low rates, below historical averages, and high levels of debt it creates further systemic risk of rates rising in the future.
Both of these make House price to income relevant (but not the only factor) to the overall picture of affordability.
DC,
And I thought you talked sense.of course the multiple of price to income matters. If the multiple was much lower,say 5 times net income then the mortgage would remove a much smaller percentage of that income.
In a properly functioning market then even 5 times net income would be on the high side. Prices in Auckland are insane and I know that as my son and his wife paid $2m for perfectly ok bungalow in Meadowbank,which in no way reflects its real value.
I understand what you're saying about a "prolonged housing market funk" but I think this time it's not going to be like that, the bubble is just too big and has gone on too long. It's similar in Australia (same loose lending banks and low interest rates for 10 years), and Sydney has just dropped 10% with the decline accelerating into 2019, dropping over 1% a month now. I'd like to think it's just going to be flat for a long period in a "soft landing" but I really don't think so this time...
David might be right - flatness for years.
However, there's a few 'ifs, buts, maybes'
- what if there is a global financial crisis?
- does that send prices crashing, or....
- would the OCR be cut and cut, limiting the damage?
Overall I think prices probably WILL be flat for a few years, although I'm still sticking by my prediction of a 3-5% fall in Auckland this year - followed by flatness.
it's a curious habit isn't it. Inferiority complex?
It's certainly a lovely country, but there's lots of other lovely countries too. As a country we've got lots of strengths but also lots of weaknesses. It's a matter of taste or priority what weight you put on those different things.
If house prices do continue to drop in Auckland it will have a huge effect on the economy going forward.
If this happens the Coalition government will not be campaigning for a capital gains tax as people will see that this COL can not run a country.
If the economy tanks then yes they are gone but they are gone anyway.
Kiiwibore gone!
Pike River entry gone!
Immigration reduction gone
Business under pressure. Gone
Winston. Under 5 per cent . Gone
The housing (and debt) bubble has taken a lot longer to inflate than the past year. It was always going to burst. Yes, the current govt will get the blame because most voters really don't know what the real story is: years and years of loose lending and very low interest rates, and a housing bubble that was denied for years and actually encouraged. It was never going to go on forever. Bubbles NEVER end with a soft landing.
Least this COL managed to do what National failed to and Ban Foreign Citizens from buying NZ Property. National did nothing to reduce Demand and simply spun stuff about Supply.
"Income to House prices" is a good general measure and should be used along side the "Take Home pay to Mortgage payments". Calling one clickbait is a little strange considering the other one ignores the need for a deposit and the debt taken on board.
No harm in quoting both measures, and you will probably find Auckland is high in both considering the interest rates in NZ.
A 25% fall in transaction volumes Dec 2018 compared to December 2017 would suggest the idea of a 'flat market' is unlikely. January and February will be very interesting indeed. is it time to bring out all the cheerleaders to keep the debt stacking going?
Where are Ecobird and Double GZ these days? We haven't had a 'foreign commentator' ban on interest have we?
Affordability limits are irrelevant, David Chaston is a hopeless optimist. Auckland property has risen to exploit capital gains and now those capital gains have vanished. Without capital gains Auckland property is about 40-50% over priced. Maintaining flatness at this level will be very difficult in even good economic conditions.
The housing market having a little breather for now. Renting is dead money, money in the bank earning very little after tax and Stock Markets are very volatile. With low rates will be around for a long time and cheaper money access, than quality properties will always seek good demand. Immigration running around net 60k p.a then they need somewhere to live. The market is a buying opportunity now the heat is out of it.
Please admit that the replacing of owner occupiers with rentiers is much of the problem that results in desperate buyers being prepared to pay too much (interest rates or not) and who will take far too many years out of their life to become mortgage free.
Also admit that there are too many landlords many of them having substantial capital and with a lack of communication skills to be involved in the workforce directly and that means they have no other way of earning an income other than as property investors.
Are you suggesting that The Man 2 epitomizes Landlords? I wonder how much of the "substantial" capital you're referring to is equity recycled with a bit of interest only juice?
I've heard that real property investors don't put any of their own money in. They leverage equity in an existing property to scrape together a deposit; borrow the rest on interest only; outbid First Home Buyers on entry level DIY properties then rent them back to the First Home Buyers as is. But it's okay because they're providing a Public Service so I've been told.
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.