The average value of homes throughout the country increased by 7.1% in the 12 months to the end of April, according to Quotable Value (QV).
According to the QV House Price Index, the average value of New Zealand homes was $735,979 at the end of April, up 7.1% year-on-year, and up 3.0% over the past three months.
Around the major centres the average home's value in Auckland was $1,079,815 at the end of April, up 4.5% on a year earlier, the Wellington region had an average value of $785,445 +11.2%, and in Christchurch the average value was $516,677, +3.7%.
The area with the highest average values in the country is Auckland's coastal North Shore, where the average value was $1,427,966, up 4.7% on a year ago.
The least expensive area was Waitomo in the central North Island where the average value was $247,357, up 8.3% for the year - see the table below for the full regional and district values.
A lagging indicator
However QV general manager David Nagel warned that the figures were unlikely to reflect the changes that have occurred in the market since the COVID-19 lockdown began, and that they may not provide a good guide to property values in the future.
That because's QV's House Price Index is a lagging indicator, based on three month rolling averages.
That means the sales information used to update the April average value data related to prices that were agreed in the period from February to April.
"The data shows the property market was continuing perform strongly throughout early-mid March, with all 16 of the major cities we monitor once again showing positive quarterly value, indicating strength right across the country," Nagel said.
"But with sales volumes for April being down 80-90% on normal April activity, the data is skewed towards the earlier stages of the three month period, where sales volumes were high," he said.
A lack of reliable data meant people were having to take a guess on where prices and values might be headed.
"For the last few weeks we've all been guessing what the likely impacts of COVID-19 would be on the property market," Nagel said.
"But the truth is we've all been guessing as we've got no data to help us.
"This is new territory for all of us.
"From the limited sales activity that occurred in April, most appears to involve properties listed prior to lockdown.
"Many would have had the benefit of open homes and viewings under pre-lockdown conditions.
"We've seen very few new listings as people take a wait-and-see approach as we try and find the new normal.
"What happens to house prices beyond this point will be determined by market forces and the change in supply and demand.
"New Zealand's response to the pandemic has so far been positive relative to international standards and this augurs well for a reduced impact on house prices.
"Economic strength and employment levels have strong links with the housing market, so much will depend on the depth of any subsequent recession and the speed of economic recovery.
"Transaction volumes are likely to remain just a fraction of pre-lockdown levels.
"We can expect a market filled with uncertainty at least through the end of 2020 as the economy finds it feet again," Nagel said.
You can read QV's full report for April here.
The comment stream on this story is now closed.
| QV House Price Index | ||||
| April 2020 | ||||
| Territorial authority | Average current value $ | 12 month change % | 3 month change % | |
| Auckland Region | 1,079,815 | 4.5% | 2.9% | |
| Main Urban Areas | 842,862 | 6.4% | 2.9% | |
| Wellington Region | 785,445 | 11.2% | 3.9% | |
| Far North | 487,383 | 9.1% | 0.2% | |
| Whangarei | 574,760 | 5.9% | 3.0% | |
| Kaipara | 581,545 | 8.5% | 4.5% | |
| Auckland - Rodney | 983,642 | 4.3% | 2.3% | |
| Rodney - Hibiscus Coast | 959,901 | 4.7% | 1.8% | |
| Rodney - North | 1,006,866 | 3.9% | 2.5% | |
| Auckland - North Shore | 1,249,968 | 5.0% | 4.5% | |
| North Shore - Coastal | 1,427,966 | 4.7% | 4.6% | |
| North Shore - North Harbour | 1,209,533 | 5.7% | 4.5% | |
| North Shore - Onewa | 1,010,779 | 5.5% | 4.4% | |
| Auckland - Waitakere | 846,149 | 3.6% | 2.2% | |
| Auckland - City | 1,279,564 | 5.2% | 2.7% | |
| Auckland City - Central | 1,122,648 | 4.8% | 2.8% | |
| Auckland City - Islands | 1,154,132 | 2.4% | -1.5% | |
| Auckland City - South | 1,140,498 | 6.0% | 2.6% | |
| Auckland_City - East | 1,610,556 | 5.0% | 3.2% | |
| Auckland - Manukau | 929,377 | 3.9% | 2.5% | |
| Manukau - Central | 718,883 | 3.3% | 2.6% | |
| Manukau - East | 1,187,648 | 4.7% | 2.1% | |
| Manukau - North West | 812,450 | 3.7% | 2.9% | |
| Auckland - Papakura | 724,726 | 4.2% | 1.4% | |
| Auckland - Franklin | 694,195 | 3.4% | 3.2% | |
| Thames Coromandel | 819,625 | 7.6% | 4.3% | |
| Hauraki | 469,362 | 13.1% | 7.7% | |
| Waikato | 523,562 | 7.2% | 0.0% | |
| Matamata Piako | 505,811 | 5.0% | 2.3% | |
| Hamilton | 629,869 | 7.6% | 2.2% | |
| Hamilton - Central & North West | 588,682 | 8.9% | 4.6% | |
| Hamilton - North East | 774,723 | 6.4% | 1.5% | |
| Hamilton - South East | 581,567 | 7.1% | 0.3% | |
| Hamilton - South West | 564,741 | 8.6% | 2.6% | |
| Waipa | 647,741 | 12.5% | 5.7% | |
| Otorohanga | ||||
| South Waikato | 306,858 | 19.5% | 12.5% | |
| Waitomo | 247,357 | 8.3% | 1.1% | |
| Taupo | 563,417 | 7.4% | 2.3% | |
| Western BOP | 709,217 | 8.3% | 3.1% | |
| Tauranga | 774,526 | 4.6% | 0.6% | |
| Rotorua | 503,410 | 5.1% | 0.6% | |
| Whakatane | 515,539 | 7.5% | 2.2% | |
| Kawerau | 291,068 | 16.0% | -2.0% | |
| Opotiki | 375,170 | 17.0% | 8.6% | |
| Gisborne | 434,701 | 23.6% | 6.8% | |
| Wairoa | ||||
| Hastings | 588,462 | 15.2% | 4.9% | |
| Napier | 609,638 | 9.7% | 4.6% | |
| Central Hawkes Bay | 402,404 | 3.3% | 0.7% | |
| New Plymouth | 510,328 | 9.9% | 2.6% | |
| Stratford | 330,575 | 19.0% | 4.7% | |
| South Taranaki | 285,669 | 19.0% | 7.8% | |
| Ruapehu | 249,931 | 16.2% | 0.4% | |
| Whanganui | 367,740 | 32.8% | 8.5% | |
| Rangitikei | 285,676 | 24.2% | 3.1% | |
| Manawatu | 463,696 | 21.9% | 3.3% | |
| Palmerston North | 507,209 | 15.6% | 3.6% | |
| Tararua | 273,137 | 18.3% | 4.8% | |
| Horowhenua | 441,308 | 20.0% | 7.0% | |
| Kapiti Coast | 664,737 | 11.6% | 3.7% | |
| Porirua | 690,672 | 15.6% | 4.7% | |
| Upper Hutt | 629,935 | 14.8% | 2.9% | |
| Lower Hutt | 682,783 | 17.7% | 4.9% | |
| Wellington City | 895,033 | 7.6% | 3.5% | |
| Wellington - Central & South | 881,142 | 6.4% | 1.8% | |
| Wellington - East | 963,769 | 8.6% | 4.8% | |
| Wellington - North | 821,671 | 7.8% | 4.3% | |
| Wellington - West | 1,023,143 | 9.2% | 3.8% | |
| Masterton | 426,634 | 12.0% | 4.0% | |
| Carterton | 478,653 | 10.2% | 6.5% | |
| South Wairarapa | 586,819 | 14.7% | 8.0% | |
| Tasman | 636,057 | 6.3% | 2.5% | |
| Nelson | 659,527 | 6.1% | 1.4% | |
| Marlborough | 516,179 | 7.5% | 2.0% | |
| Kaikoura | ||||
| Buller | 214,118 | 13.7% | 3.0% | |
| Grey | 230,539 | 5.8% | 1.6% | |
| Westland | 268,385 | 4.8% | 0.0% | |
| Hurunui | 409,572 | 4.9% | 0.8% | |
| Waimakariri | 462,600 | 3.2% | 1.1% | |
| Christchurch | 516,677 | 3.7% | 1.2% | |
| Christchurch - Banks Peninsula | 555,509 | 9.5% | 2.3% | |
| Christchurch - Central & North | 602,962 | 2.6% | 1.0% | |
| Christchurch - East | 392,071 | 4.1% | 1.0% | |
| Christchurch - Hills | 708,053 | 2.7% | 0.6% | |
| Christchurch - Southwest | 491,749 | 4.3% | 1.8% | |
| Selwyn | 564,573 | 2.0% | 1.0% | |
| Ashburton | 373,000 | 5.2% | 2.0% | |
| Timaru | 386,717 | 3.9% | 0.7% | |
| MacKenzie | 601,548 | 16.7% | 7.9% | |
| Waimate | 290,279 | 18.2% | 0.5% | |
| Waitaki | 361,503 | 12.6% | 5.8% | |
| Central Otago | 593,531 | 15.0% | 4.2% | |
| Queenstown Lakes | 1,216,711 | 1.9% | 1.1% | |
| Dunedin | 552,297 | 20.7% | 4.8% | |
| Dunedin - Central & North | 566,464 | 19.5% | 3.9% | |
| Dunedin - Peninsular & Coastal | 498,506 | 21.0% | 2.1% | |
| Dunedin - South | 536,875 | 20.9% | 6.4% | |
| Dunedin - Taieri | 573,075 | 21.4% | 5.6% | |
| Clutha | 269,093 | 16.3% | -0.3% | |
| Southland | 355,173 | 13.0% | 2.5% | |
| Gore | 279,637 | 20.3% | 6.7% | |
| Invercargill | 354,981 | 20.6% | 8.6% | |
| Total NZ | 735,979 | 7.1% | 3.0% | |
189 Comments
Were not guessing we are predicting whats going to happen based on events that we are actually witnessing right now. No need to wait for the data thats rear view mirror confirmation. This is going to be bad the only question is how bad.
What are you basing that assessment off though? You can’t just quote symptoms and say cause = effect. There are so many human factors to consider that alarmists like you have no idea of.
Purely due to the LVR easing measures I know of three investors who are going to purchase again in the short term. Even if prices drop 15% they will be back up and higher in two years.
So you base that on three investors who are going too purchase, not much of a basis. Specially when there are so many changing factors.
Inversely, I know of at least 5 first time home buyers who won't be going near a purchase with a barge pole.
I would be surprised if there *weren't* investors queuing to buy. Property Investment is a cult in NZ. It's devotees believe in the NZ property market value with a passion. For some, that belief will remain strong for a while yet.
No doubt. But it's irrelevant to those of us who lost jobs, or at least had incomes slashed and job stability has flown out the window.
Yes all of us who actually work for a living know all too well how our income has been compromised, where REA's don't have a frigging clue about our economy or the wider world. If you want some insight in to how property markets are being effected you only need to look across the ditch.
Here's some news from Australia where they've had less virus restrictions to hamper sales. News: Coronavirus has turned the property market upside down in the blink of an eye. "There has already been a steep rise in unemployment and fall in wages with the jobs market expected to continue to deteriorate. Less money in people's pockets means they have less money to bid up property prices and less money to bid up rents.
The short-term rental accommodation market (think websites like AirBnB) has all but disappeared overnight due to restrictions on both international and national travel. Many owners of those properties are now attempting to find longer-term tenants, but the increased supply will lead to lower rents. Australia's high population growth is set to come to a screeching halt."
https://www.abc.net.au/news/2020-05-04/coronavirus-has-turned-the-real-…
I'm sure someone will be quick to point out that "New Zealand isn't Australia/Ireland/Japan/USA". Ireland, Japan and the USA had their own unique underlying issues/triggers that manifested into property market crashes which can be accepted. I think it would be disingenuous for anyone to suggest NZ's property market will remain intact if Australia's market gets thumped due to Covid, given it's the identical "Black Swan" event.
NZ is in a far stronger position to deal with the fall-out from Covid-19 than most other countries. In fact, NZ's stakes on the global stage have risen considerably as a direct consequence of the wretched virus. (And our stakes were already high.)
Witness the accolades for Jacinda and our leading public health officials (and epidemiologists) on the front pages of the world's most prominent newspapers. People yearn to live in NZ - and more so now than ever before.
I note that much of the discussion here centres on the gloomy-doomy predictions of the DGM - who have nothing better to do with their time......
It's like the DGM compete with each other to make the most negative comments - so we end up with the usual word-salads of emotive tripe.
Mark my words: the surprise will not come in the fall in housing market activity. It will be in the strength of the recovery.......
Even more predictable is that the DGM will once again be left behind - and continue with their monotonous whinging and moaning.
TTP
Bemoans 'DGMs' [previously typo'd DMGs] for having nothing better to do than make predictions, then makes own prediction.
Hi northman46,
What is "DMG"???????
Could this be yet another botch-up of the DGM?
Can they not even get their own name correct?
TTP
It's a typo. Good come back though...
TTP!!! Tim!!! You're back!?
Hi Ginger (my favourite ninja),
Haven't been away, my friend.....
I'd never abandon you!
Yours,
Tim (TTP)
Tim Morduant?
IO ... if TTP is Tim Morduant as per a Stuff article I found on Google, he should know better and as we already know, he is just "pushing his own barrow" and has a ton of skin in the game ....which is all well and good BUT to belittle and take patronising tones with anyone who disagrees with him ...that's another story, as this is people's financial lives we are talking about.
ps I edited out the link to the article, just in case it's actually not TTP and my apologies in advance to the actual Tim Mourdant, who seems to be doing some good things in the community :)
Who knows...decided to google 'Tim property NZ'. Could be anyone. Not too concerned who people are here - its interesting to see people view their opinions openly.
IO ....just edited out the link in my original post ...my thoughts are better to keep everything "anonymous" and I am all for "free speech", while I don't want to take away any of the good things that the real Tim Mourdant has done or is doing.
Yes probably best for everyone if its all anonymous.
We'd all hold back our true thoughts if some how our boss (or wife) might find out what we really think!
Very true IO !
TTP bringing the much needed "sophisticated discussion" to the comment section...
Did you really need to add so much negativity, personal attacks and belittling comments to your reply? Why are you so bitter that you can't accept that different people have different opinions? Half of your reply is just unnecessary jabs at "the DGM". Why can't you simply state your opinion about the subject matter, without attacking anyone?
He lives in Palmerston North.
It's because the bulls are running out of ammunition (in the form of probability based evidence) so now have to resort to name calling. Its gone from being dignified to being desperate. Hate think what they'll do if we do see a large, long lasting crash.
Just to clarify, it's only doom and gloom to those who will suffer from falling prices. NZ's housing market has been characterised as "severely unaffordable", so a massive drop in house prices is a good thing, the opposite of doom. DGM would actually be house prices going up and up forever, until each subsequent generation is living in poverty.
Excellent point. To us, falling house prices are positive and gives us hope. One last throw of the dice before we bugger off elsewhere.
Severely unaffordable and a human rights crisis...not that serious.
https://www.stuff.co.nz/life-style/homed/residential/119643746/un-housi…
From that article, "...a speculative housing market that has been supported by successive governments who have promoted homeownership as an investment..." Thank you! It's what bothered me for so long, I'm glad it's finally being talked about, even just by one expert.
Was dismissed by many who have vested interests...nothing to see here. Wouldn't expect much more though huh?
The way I look at the property market and all the debt associated to it, as well and government and central banks, is that its a giant, self licking icecream cone that is currently licking itself to death. Noone has had the balls to tell it to stop licking itself (say that last 20 years when it was required) because they all like eating icecream, and now its too late to stop. They're all fat and lazy and they're licking themselves to death.
If you're looking at buying I'd just wait - its probably going to lick itself to pieces and a new system will be incorporated that doesn't involve tongues and self congratulatory policy making and enrichment.
Could you please explain how we will finance this strong recovery when interest rates are already at zero and people are losing jobs and wages are being slashed?
Combination of borrowing and deleveraging... still $320 billion in term deposits, half owned by households.
Pessimism and optimism should have little to do with it. Simply observe what's going on and act accordingly. When the market was very elevated over the past few years, things were bound to turn and didn't seem like a good time for any sort of bargain, such are markets. This is just the catalyst that was bound to come along sooner rather than later, unprecedented in nature though it is. There may be some real bargains ahead in time, and quite a bit of pain unfortunately. It is what it is and we should act accordingly.
Wonder how long the confirmation and recency bias can last?
TTP people don’t yearn to live at the end of the world at all They choose NZ as a stepping stone to Australia which has tighter immigration policies.
I know 3 who are making offers, 2 of which above asking prices
Balls of steel, or dont watch the news?
TT, Facts that are readily available include the death of AirBnb, foreign students gone, foreign investors net sellers confirmed last week, commodity price falls, domestic job losses....
Any one of those is significant. Combined it's a tsunami. When mathematicians talk about reverting to a long term average this in the future will be dragged out.
If the LTA is based on a price to income average of 3-5 then you do the maths.
Lots of falling knives to catch. Massive job losses, huge apartment glut, no immigration. Hmmm...
The two factors are supply/demand and availability of Bank finance. If the likes of Deutsche Bank fail the domino effect will create a crisis of debt contagion and unwillingness of Banks globally to lend for fear of unknown future defaults.Bank shares have been hit possibly due to dividend restrictions and the first Banking crisis may be in corporate debt and motor vehicle defaults so they may be reliable leading indicators. Warren Buffet has liquidated his entire Aviation portfolio-an indication that their future is uncertain, if Warren liquidates other hard assets not subject to discretionary spending like Rail & Mining this likely signals a depression so I hope for a recession of historical length & depth.
We call that one the "bull trap."
House prices to be steady all over North Island - one roof
https://www.oneroof.co.nz/news/five-predictions-for-nzs-post-covid-19-h…
I particularly liked this bit...
“government relief measures mean that predictions of a New Zealand-wide property crash - where prices drop 20 percent or more - are off the cards“
That is a relief - that we could only get a 19.99% drop thanks to Govt. intervention.
So oil prices can drop by 60% but property is different, what next, Green Cheese found on the moon?
Blue cheese.. Blue moon..
Yep Blue Cheese is yum.
Read in betwwen the line where it sats that crash of 20% or more is off the card.... BUT it also means that fall 20% or less id on the card.
Be Aware of False propgand and lobbying by rich and powerfull RE Industry.
.
I assume authors on get paid for the clickbait ideas they present. In this case I would assume One Roof paid as it is essentially advertising and should come with that warning as they do in magazines.
Totally. Oneroof is an advocate for the Property Industry attempting to masquerade as independent research analysts and market commentators
The Herald is in thrall to the real estate business. One Roof is about the only thing it has left that turns a dollar. I worked there some years ago and well remember the bollocking given to an unfortunate mid level editor who dared to run a story about falling house prices. Editorial integrity flew the Herald coop many years ago. Mind you, Barry Soper’s column today nails it.
OneRoof, the NewstalkZB of real estate. All said.
Here are some thought points on the downside risks to the Auckland Property market:
· The Global economic shock, contraction and overall situation is far worse than the GFC and all of the data coming out both locally and globally confirms this. This will most likely result in a far longer downturn and recovery for our economy and any downturn we may face in the property markets. The recovery will also be slower due to ongoing post lockdown Virus restrictions which will impact businesses, sentiment and people movements. This will all halt progress. There is also a risk of further Virus reoccurring outbreaks in many countries that will also hinder recoveries in many economies. The Global economy was already in a weakened state and had been slowing down significantly before the Virus hit. The impacts of the Covid 19 shock has exacerbated an already fragile situation that was on a trajectory towards a recession anyway.
· A change of sentiment, increased fear and uncertainty of the future actions of the Virus, economic fears and job uncertainty will result in many people reluctant to buy in this environment.
· For many across NZ it took two incomes to be able to afford a lot of properties due to our low-income environment in comparison to prices. Due to the current environment many people will be rethinking how much debt they are willing to take on. The Auckland price to income ratio was up to nine times income in many cases.
· Kiwi’s went into this downturn with historic levels of household debt to income, household debt to GDP and negative household savings rates. Household and Business debt is set to expand in this environment and savings will initially also take a further hit as many need to use these for life support.
· Unemployment is set to go far higher than GFC levels in New Zealand, resulting in less buyers in the market. In some case’s either one or both income earners have or will lose their jobs in this environment. The mortgage holidays will help for some, but many will still be forced to sell at the end of these due to a number of factors.
· Many business owners are now earning less and many employees are now having to take wage cuts. This will also reflect on the amount of buyers in the market and reduce the amount of buyers that can obtain lending or afford properties at inflated pre Covid prices.
· Many Landlords / Investors are having to give rent discounts in this environment which will throw out their Yield formulas and hit them in the pocket. Many Landlords / Investors are negatively geared which may also result in forced selling under these circumstances as they can’t afford a shift in top ups. Some of these Landlords / Investors may have lost their jobs as well adding extra pressure. Many Investors won’t be able obtain mortgage holidays as well. Rents have also been extremely over inflated in many areas across NZ relative to incomes.
· Due to job losses and income cuts, there are some Kiwi’s now moving out of their rentals and back in with Mum and Dad, friends or relatives during this period which will ease pressure on the rental supply.
· Migration coming to a halt results in less buyers in the market. Some Kiwis are returning to New Zealand but after the initial surge pre lockdown, many will trickle in over the coming years as restrictions on travel lifts and they have to go through the process to move their lives from their current destinations back to NZ. This takes time for many. Some will have to sell their properties in a down market overseas before they can come back and buy into the NZ market. Many will not be able to get lending here though as they have no job history in NZ. Many will also use some of their savings to just tread water upon return until they can find a job in this environment of high unemployment. Many will not return unless they can find a job in New Zealand before they make the move home. Some will rent but some will try to find any spare bedroom they can at Mum and Dads or other relatives or friends houses.
· NZ just saw a large exit of migrant workers and international students and more migrant workers will leave as work dries up in NZ.
· Migration has come to a halt and will not return to its pre Covid levels for many years due to border restrictions, ongoing Virus headaches and the Government prioritizing many Kiwi’s into jobs before new migrants.
· Some Air BnB properties country wide will come on to the market as long term rentals due to the lack of Tourism which will ad to the rental stock, some of these properties will also come on to the market for sale helping to offset some of the supply issues.
· The past few years have seen a residential building boom in NZ, especially in Auckland. There is a lot of stock yet to come on to the market which will also offset supply issues.
· Auckland has over 40,000 vacant properties and data shows that there are now more foreign investors selling their investments in NZ over buying them. It will be interesting to see what happens with some of these vacant properties during this economic climate. For now, many Foreign buyers are locked out of a large part of the market so there will be less overseas capital coming in for the foreseeable future to help lift property prices as they did post GFC.
· As many business, commercial property and residential property defaults start to pile up and Global economic conditions worsen, this will also tighten up bank lending and the availability of credit.
· Banks will most likely be very cautious lending in this environment as almost every sector is being hit by this shock and they will only lend to people with 100% guaranteed employment.
· Many Kiwis have lost a large chunk of their Kiwisavers in the stock market crash which will result in less property purchasing deposits available.
· Many Kiwi’s that had property deposits saved up have had to dive into their savings to pay for bills or business costs due to the impact of the lockdowns and ongoing impacts from the economic environment on their personal lives and businesses.
· The RBNZ’s cash rate was much higher in the GFC. This allowed them to cut by 575 basis points over a number of years which helped to fuel house price growth. Due to troubling Global economic conditions last year, the RBNZ cut the OCR by 75 basis points and when Covid 19 hit they cut again by 75 basis points. This now leaves them with 25 basis points to play with. There is talk rates may go into the negative, but this is yet to happen and what sort of an impact that may have on Property prices is yet to be seen. Negative rates in some countries have been bullish for Property prices.
Up until now Auckland and other areas throughout NZ have had some shortages in property supply although there is a good chance these issues will be significantly reduced in the short to medium term given the factors above. This shortage in supply, especially in Auckland along with some of the actions by the current Government and RBNZ are likely to cushion some of the falls and it will all depend what else they roll out over the coming months along with local and Global economic conditions to see how this all plays out. How far prices will drop is anyone’s guess but I do see the potential of falls in the Auckland median price of 15 to 20% or more from its March 2020 $950,000 peak depending on what unfolds. Things can go either way though as the environment changes but that is my current opinion to date given what we have in front of us.
The lifting of LVR’s, record levels of QE Globally, low interest rates, a return to migration, a pull back on residential building resulting in further supply shortages, the New Zealand clean green safe haven appeal and many other factors will result in a return to property price growth down the track after the upcoming downward trend.
Long term I am bullish on Auckland / New Zealand house prices and believe Property in this country is one of the best investments going forward. But I do see downside to come and possibly a strong correction in the coming months and years ahead.
Great effort, and very well balanced analysis. Thanks
Most realitic property synopsis read to date. Cheers. One Roof is clearly a real estate industry paid and biased article but is misrepresented as news and should be removed.
Agreed - Oneroof is a propaganda piece directed by the real estate industry with vested interests.
It has been amusing to watch their tone change over the last 6 weeks. From "property prices may actually increase after lockdown" to "5% increase or drop it is hard to say" to now "It won't be worse than a 20% drop".
If they say 20 expect 40 or more.
As I commented above Oil fell 60% now only 50% but property is different?
Yes, commodities are different.
Absolutely and it's that Real Estate Industry propaganda trying to prop up over bloated prices that's ultimately going to shoot them in foot. It's actually putting off NZ citizens from wanting to relocate, purchase a home and setup businesses. Take Northland for example which is mostly dependent on tourism and they recently had their 2019 RV issued which carried the over bloated price data. And yet some REA's are trying to sell property for almost double the 2019 RV!
Here's an example: 7 Beresford Street, Russell. Which RayWhite are trying to sell for a staggering $1,250,000. If you look at the council records, the same property sold in December 2011 for just $315k and even it's over bloated August 2019 RV is $761k, so how can they ask for $1,250,000??
Is there a big pot of gold buried in the bottom of the garden?
https://homes.co.nz/address/russell/russell/7-beresford-street/k0LLp#co…
Yes you can't look at examples like that and say we don't have issues with a property bubble here in NZ.
Doubled in value in 5 years between 2011 and 2016. Insanity.
"RE industry will shoot itself in the foot..." Yes, why is that? You would think that in a downturn, agents would have a motivation to make sales at any price, in order to preserve some kind of income for themselves. Doesn't seem to happen though.
"One Roof is clearly a real estate industry paid and biased article but is misrepresented as news and should be removed."
Everyone should consider OneRoof as a property marketing, property sales website, property promotional website, masquerading as an independent news site on property. OneRoof is an advertorial website. No independent viewpoint whatsoever on real estate. CAVEAT EMPTOR.
BEWARE OF THE WOLF IN SHEEP'S CLOTHING ...
Good read.Thanks, mate. The RE lobby will of course talk up the market.Well, do we expect them to say otherwise?
V good stuff thanks.
First 6m of 2017 sales were 35% lower than in 2016, because China stamped on hosepipe.
So, now we have a situation where NIL foreign buyers for at least 4m and we have 15% drop in GDP coming.
That is why I expect 25% lower sales than we had in early 2017.
Excellent, balanced piece.
My only additional point is I don't think overall on average Auckland will fall 15-20%. The main reasons are the ones you mention in the second to last paragraph, but I would also add in that the worst hit in terms of unemployment in Auckland will be people in retail, hospo and the service sector. There will also be damage in white collar jobs, but I think it will be far more moderate, especially if the government gets things right in supporting much more house building and infrastructure.
So I'd say between 8 -15% drop in Auckland overall on average, with variations within the market (Eg. CBD will drop 20% plus)
Based on previous slumps, I think you’re on the money. Also prices do tend to sit near their lows for a while at times like this this. But prices will rise again, I would say 3-5 years.
How do you know that we're not the new Japan and prices never recover?
That could be a scenario that plays out as well. But I don't think so. People will always pay for paradise.
Haha ok - the question becomes...pay with what?
Venezuela has nice beaches.
Thanks for those many thoughts
What a post wow. This is why I read the comments section. Thank you Sir
"The lifting of LVR’s, record levels of QE Globally, low interest rates, a return to migration, a pull back on residential building resulting in further supply shortages, the New Zealand clean green safe haven appeal and many other factors will result in a return to property price growth down the track after the upcoming downward trend."
So in other words base case is RBNZ/govt to reflate an even bigger debt bubble/immigration Ponzi after this is all over?
True data and analysis by Greg Ninness as also reported by QV.
Below is how the data can be twisted to potray and create a smoke in a manner to suit each vested biased propganda
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12329806
'Buyers are still curious and the number of searches on OneRoof.co.nz have increased significantly over the past two weeks, and government relief measures mean that predictions of a New Zealand-wide property crash - where prices drop 20 percent or more - are off the cards.'
CAN ALSO SAY THAT PRICE FALL OF 20% IS ON THE CARD BUT ONLY MENTION CRASH BEYOND 20% OR MORE - ARE OFF THE CARD.
CONCLUSION OF THEIR ANALYSIS IS TO COVER/TRY NOT TO HIGHLIGHT THE 20% FALL WHICH TOO IS MASSIVE AND LIKE A CRASH EVEN IF TECHNICALLY NOT TERMED AS CRASH
Of course there are more searches! There is just more internet traffic than usual because many people are at home surfing the net and property is a nationwide obsession. Some will be looking for price drops and changes though, not necessarily looking to buy!
Yes, a jump in traffic is no more proof of a surge of buyers than a surge of sellers.
From the Oneroof article '5 predictions for NZs post covid property market'
"Buyers are still curious and the number of property searches on OneRoof.co.nz have increased significantly over the past two weeks"
Initially I read ... "the number of property searches online have increased significantly ..." and i thought oh that's good, buyers with unsatisfied demand. Then I read it again more accurately ".... on OneRoof.co.nz..." and laughed out loud knowing that oneroof is not The Market but only a tiny player in it. They may well be right that buyers coming out of L4 are taking a much more active interest. But lets wait and see.
I have gone from a passive interest to reading and looking at a lot more property (including oneroof). I'm a FHB.
I would definitely not take increased traffic as a sign "things are fine"/
Haven't bought property for years but giving a +ve correlation of demand to searches seems wrong. When I have bought a car it is usually an urgent need so I search for a few days and buy but selling a car is not usually urgent - I've been searching for old Rav4's for the last 3 months and may sell in August - it is just a good way of getting an appreciation of a market before selling. I suspect many home owners are keeping an active eye on the market because they expect their job to collapse later this year and are planning to down size or move to a cheaper rural property.
We used to own a rav4 ourselves and replaced it last year for a Kia hybrid. Lower fuel prices works against economy, I still love the kia
Iv'e got a lot more time on my hands and so have been researching properties more. I have previously felt locked out of the markets by price, but if there is a 20% reduction, it will be easier to come in. Hence why I have started shopping again. I am planning to low-ball offers and see if any stick, in about 6 months time.
I looked online to see what prices were like in Queenstown. Lot of $7m new builds available, and $3m sections. By the time you get down to the $2-$3m mark some of the places are looking pretty shabby.
The LVR and interest rate changes might help FHBs, but these are the people who are currently very wary of getting caught in a negative equity position, should the market fall. Properties with positive attributes, those with good sun , view, schools, clean title or whatever, ones that are easy to get good tenants, will not drop. Reason is, owners have already paid plenty, have the equity to survive, are in it for the long haul, and will not sell.
Those that are dogs of properties for any reason, might be ownership structure, could be contrary to any of the above. They will suffer a drop , and skew statistics, and accordingly expect some alarmist numbers coming out in a few months time. All that is going to do is deter the FHBs even more, and put a smile on the face of every investor who is sitting tight, having predicted all of this 12 years ago.
It might be better to dig through the sales of some of these dogs, when they pop up and see what their real history is, before we jump to any premature conclusions .
Your analysis above doesn't take into account loss of employment. Many people cant pay a mortgage or rent if they have no income. I know lots of people who have lost their jobs, their businesses have no income, or they have had their income significantly reduced. Equity doesn't pay the mortgage. Banks will only accept payment holidays for a limited amount of time, before there is pressure to sell. Homes with good attributes aren't in a market of their own, there is a price people are willing to pay for those things compared to other homes, prices are always relative.
Exactly, all these different types of properties are interconnected. If one type goes down, very likely the other type does too. Also, it's not a binary thing (dog/non-dog) but more of a sliding scale. All properties have positive and negative aspects. Plus one person's dog is another person's palace.
If that happens watch how our perceived under supply of housing turns into an over supply. A new equilibrium will be required which is a price point due south of where we current are.
Oneroof...a great resource for comedy in these uncertain times.
Oneroof is no good in the big scheme of things, one needs multiple roof and lots of tenants to make it pay long term. Housing that is.
If the tenants disappear and the tourists stop coming and the Airbnb lay off anymore staff, around the world, then what does that tell you.
Plus all our assets are in Houses to save for our retirement. Motel, Hotel, whatever. Accommodating others is piss easy, during the boom times, but during the virus season, maybe not quite so expansionary.
No-one is guessing where prices are headed.. they are guessing how far, and how fast, and long until they recover.
My wife and I are both in stable/secure jobs (Government) in the Bay of Plenty region. With the removal of LVR our deposit can get us into the low 600k new build homes.
It seems clear that the older/existing homes will decrease in value over the next year.
What is not so clear is - will new builds become cheaper? I have seen a few who's contract has been pulled out of and they have reduced slightly (10-20k).
Anyone have any suggestions on this? We'd prefer a new build but it is difficult to say if they will decrease?
RBNZ removed the LVR limits on banks. That doesn't mean banks will remove their own LVR limits on buyers.
It has definitely benefited us. We have a 12% deposit and were pre-approved incredibly quickly (we were just enquiring to see what we were able to get). We both have permanent contracts and high job security, however.
One thing to note - we did need both our employers to sign a doc that states that our employment and salary will not be affected in any way by Covid-19.
I imagine many working in hospitality (and other areas) would not be able to get this document signed
Will the bank hold your employer liable if things change and in time, your wage falls because we have general deflation?
As a boss, why would I be willing to sign such a document to satisfy banks.
A signature was required that states you verify this information is true. But nothing that stated any punishment for my employer.
I am in education and my wife is in healthcare. We both feel very secure.
But yes - I imagine a lot of FHB won't be able to obtain this document from their employer.
I am not sure if this criterion is required if you have 20% deposit? As mentioned above we currently have 12%.
Good stuff Logan. Note my point above wasn't pointed at you specifically. More at the expectation of the bank. Asking a SME boss to gaurantee wages/employment for mortgage purposes might be quite unfair in the coming months, years.
Interesting to see that is the direction banks are going. Might be a pointless exercise in my opinion as how could the bank hold the business owner liable?
Your jobs may feel secure. However, I wouldn’t rule out an across the board govt employee wage cut. Seems a reasonable thing to do this to all tax and rate payer funded sectors (though I’d exempt nurses who have been ripped off for years).
I agree it probably should be considered, but Labour won't do it.
And National won't win the election unless Labour does something calamitous.
Hi rastus,
Why is it reasonable? Would you also exempt those teachers who were on strike last year over wages etc?
If they are looking at supporting mortgage payers, it might be more successful to increase taxes on mid to top % and lower it on the bottom so people can survive on reduced hours without leaving work. Just a thought :)
Just a commitment to prop up lending on income. Would be very surprised if the employer carry liability, unless they own part of the house.
Did you apply before the removal of LVRs and get declined? Otherwise your statement that it benefitted you is just conjecture, you may have qualified for a mortgage with the LVRs still in place.
Speed of application pre-approval was about 3 days late last year btw.
We had looked near the start of last year and could only get 415k and it was a struggle with our bank.
Without LVR we were able to shop around the banks and get up to 620k. Our deposit has increased by 10-15k since then, however. We also both had minor pay increases.
I still feel it has benefited us. Previously, it was extremely difficult to even be approved for 415k. We got approved for 600k+ without much effort...
Given that new builds are typically high capital intensity sites, they are the safest to weather the storm.
The effects of the demand shock will primarily manifest in the land value as construction costs are unlikely to decrease in the short to medium term.
So no decrease you think? We're trying to decide if we should focus on existing homes or new builds.
I didn't say no decrease.
I said, the demand shock will primarily manifest in the land value. Where the land value is a relatively lower proportion of total value of the property, the overall depreciation in the property value may be smaller.
A drop in the price for new-builds might take time to come through the system. A developer building a spec build now paid for the land a year ago at last year's prices. And construction costs aren't going anywhere so that house isn't going to drop too much unless the developer is willing to accept a smaller margin / sell at a loss. If the price of land in new subdivisions drops, then the new-builds built on those parcels of land should be cheaper....but it could be 12 - 24 months until it is built (although it could sell well before then). I think any significant drop in the price of new-builds might take a bit of time to be seen.
In a recession and this will likely be a depression, building work dries up. This will push down the cost of labour, so there might actually be some reduced build costs for the next few years.
I bought my first home during the 90s recession and new builds were being offered with incredible incentives. The builder paid my deposit, legal fees and I got free carpets and all sorts (UK). They had a whole bunch of new houses just sitting there and they needed the capital released.
Yep I experienced the same in the UK during the GFC. I deliberately waited for until builders and retailers became more realistic about their prices and fees before doing any renovation work. I'm starting to see the same thing happening here already with home retail stores which are now bombarding my email in box with "Huge Discounts" on flooring etc...
Don't confuse the nature of construction in the UK with that of NZ.
Labour costs are already pretty low in New Zealand for those who do 75% of the construction work. You would be surprised how little the premium above minimum wage is.
Hmmmm. Because all the quotes i've had over the last few years have the 75% on at least x3 minimum wage at least $60phr for the labourer (Wellington) and the Master Builders on a LOT more than that. Not saying that's wrong. But that's nowhere near minimum wage. What are builders paid in Auckland?
Yea, you are now making the mistake of comparing one-off residential work to commercially procured work.
I agree, there is a lot of fat to come from Master Builders/those with their neck on the line. However, not from the labour rates for boots on the ground.
Ah? I see what you mean. In that case, thanks for enlightening me. All the builders i've had quotes from, do build homes, but only a few per year. They do a mix of renovations, extensions, new homes etc. I was initially hoping to build a new home so got a good idea for the labour costs, but it was all small Master Builders not commercial.
Yea, there's a huge divide there. And you definitely are paying for workmanship with that work, so the value is there.
But, that's not how 90% of our houses are built, unfortunately. Otherwise I would 100% agree that construction costs were in for a large hit.
'Building work dries up'
The government could have a say in that. If they got their A's into G, they could ensure there is minimal drying up of building work, at least in the residential sector.
Are they clever and competent enough to get this right? Not sure about that....
After Kiwibuild my expectations on that are real low. But maybe?
The big thing is, Kiwibuild was/is predicated on a pretty traditional private development model. Remember, even for the KB units, the developers need to make a profit, usually at least 20%, sometimes less if they can make it up on the non-KB units.
There's a big change if the profit necessity is removed.
So, for example, the government could buy up a whole lot of consented - but not constructed - sites, use the private sector to build, and then sell to FHBs - but less the 20% profit margin.
So 3 bedroom townhouses otherwise selling for 640K now sell for circa 530-550K. Significantly increasing the market of FHBs who can actually afford KB. Especially if the deposit is 5%
Make sense?
So many benefits would be accrued from this:
- Keeping the construction sector buoyant
- Increasing home ownership
- Increasing disposable income to spend in the economy among those who buy the units
- Helping to maintain GST revenue
- Multiplier benefits
But who knows? I've mentioned this several times to government bureaucrats and I tend to just get blank stares...
Like it. The only negative is the DGMs - debt gathering middlmen. How do they make anything out of that?
They will be about as clever and as competent as they were with Kiwibuild. It's a scorpion and frog analogy.
Yes, the fall will be first in land value, as it is way overinflated as to its true cost. Labour costs could fall, but supplies, freight costs are going up some.
Most housing, either new or old is really just about buying a new Shit&%^$ or an old Shit&@^$.
You should look to buy an energy-efficient house like a Passive House, which means you most likely need to build new. This will protect your future value, give you a warm, healthy home, and significantly reduce your running costs.
Never hand over any money until CoC as there will be a lot of building companies with cash flow problems going forward.
Question when is the best time to buy a new swimsuit at a discounted price? Is it during summer when everyone goes to the beach, winter when no one goes to the beach or at the end of summer when winter is on the horizon and the retailers have excess stock they HAVE to clear beforehand.
I would also agree with you about buying a brand new home but do try and write your own deal with a struggling small developer
We wouldn't get into a new build right now that would take 12-18 months as the fear of developers going under is very real.
We are hoping to snatch a discounted new build that is almost complete and has had the previous buyer pull out (have found two in this situation so far and the developers were willing to wiggle 10k off one and 25k off another). So there is already some negotiation room available.
It's just hard to say when we should try to strike (your analogy was a good reflection of our current situation).
I was told builders aim for 20% profit on new builds. If times look tough then your prices can be beaten down by 100k and if they go belly up and the bank sells it then anything goes (bought a new apartment in Auckland for half price in 2007). So you could wait and maybe save big but in your shoes I wouldn't since often property price collapses bottom out a year or two after the trigger event and by then your bank could change its mind or the bank could even go bust. I would wait two or three months to see what is really going to happen but nothing stops you making crazy low offers - it is embarassing offering 100k less than asked for a new house but that is how I bought my new apartment for $179k when its asking price was $340k. When you do buy and prices go down don't worry - similar apartments went down another $10k but it has recovered to about $400k and been a cash cow for the last decade. Like most great investments it was sheer good luck - I bought it for two daughters to live in as students but they never moved in.
I would never buy new build unless it was a bespoke build that I myself had commissioned.
Think about a new car, you lose 10-20% as soon as you walk off the showroom floor.
It's not exactly the same but there is still that effect to be realised with a new build.
With an old house the initial cost to build has been paid for progressively over a number of sales, and depreciation has been realised. You should negotiate to buy with this fact in mind.
FHBs should be happy to live in semi bombs to get into the market initially, this is the way of life. Then you can use sweat equity to turn it into the place you want / sit tight and buy something better in due course.
I am on my third home, I am only 36, but I have benefitted greatly from the moves in the market, first to admit that, not any integral "intelligence" or "smarts" that I might bring to the table. 90% luck and 5% just showing up, maybe 5% working my ass off paying down the mortgage hard and tidying the place up myself before moving on up to a nicer place.
My first home was a brick & tile cross lease unit in blockhouse bay, which at that time (2008) was on the outskirts of town. I freaking loved it. Got to live by myself and move on from flatting. Now in a 3 bed restored bungalow I have moved onto 14Ha with all the mod cons (that I have put a huge amount of sweat equity into with some help from tradies so I could keep the day job). Why a second hand relocatable? I couldn't afford a new build. Mortgage is 120k and I wouldn't want it any higher. This has all been done as a single woman with one income, admittedly a reasonable one. You need to get more for your money and not buy new, not the best long term investment imo
On the other hand, if you have confidence in the design and the quality of the build, all things being equal you should have minimal maintenance requirements in the first 10-15 years. Compared to an old dunger.
It's also likely that the house will be much warmer and drier, your electricity bills lower and your health better.
That was why I wanted to build initially (but would have been in traditional villa style). However, in Wellington there were just no sections. And even then, it would have been more expensive than buying a dunger (a true dunger) and ripping it back to bones and adding in all the modern features. My baby was trashed but we took her back to studs, earthquake strengthened and insulated her, completely put her back together and now she is safe and toasty. And it was still waaaaaaaaaaaaay cheaper than if I had built the same house, in the same location from scratch. A lot of old properties in NZ are only superficially renovated though, and a lot of the beautiful old villas have modern paintwork and kitchens but no wall insulation or strengthening, and yet people pay a huge premium for them.
I've done the same with a villa which is how I am able to afford to live in the bungalow. Stripped it back to studs and weatherboards and gave her the respect she was due for her 1908 birthdate. I'm gutted I couldn't quite afford to actually live in her but it was a labour of love and one I am proud of putting into the housing stock of NZ.
I don't know many people who work in the industry who have much confidence in current build qualities compared to an older home. This is as a result of the crappy pine that is left in the Nz market for us to build from, and the speed that chippies who are less experienced are expected to push these buildings out in order to make the developer a profit. Don't get me wrong, there are amazing chippies out there, they are generally not working on the home that the average FHB is in the market for.
Logan, A lot of unfinished spec houses will drop, just bide your time.
Trying our best. We want to be in a home by the end of the year (sick of renting). So hoping to score a deal on a new build by then. We will be looking at existing homes also.
I'm in a similar boat to you Logan, only we want an older house and we are Auckland based. I can imagine there is a lot of debt sitting behind new builds, so there might be more pressure to sell them. There's no harm in testing prices by making very low offers. I plan to do that, and just sit and wait as vendors come to terms with it. That has worked for my parents in the past, they have waited months or even years to get the property they want.
Yeah I agree, you can get some lovely 1960 to 1980's builds that are quite spacious, especially pole houses that have good bones up in Auckland. Don't buy 90's to year up to 2010 since you're more likely to encounter shoddy leaky builds (Time of the gold rush), or at least get a full builders report. Mind you I would never buy any properties in NZ without a builders report.
Thanks CJ :)
New territory indeed. No foreign students, no overseas buyers, no tourists BnB, extra product coming to market everywhere, no room in the ocr to pad the ponzi of bank profit any further, and people loosing their jobs/income left and right. Adds up to a very significant reduction in demand, and an excess of supply.
Will be interesting to see which bank moves first to reduce it ponzi position. There is always a first mover advantage.
Kiwis have been tricked into a massive value scam all in the name of billions of bank profits. Distressed sales, make that "a lot of" are coming in 6-18 months. Assuming you have the cash and income to qualify to borrow, how much would you pay, half CV....less?
No one is mentioning the election yet. Picking bank ponzi profits, and foreign buyer policies will be key points. In which case Ximon is stuffed.
Agree we will see distressed sales, but they will be the "problem" properties that banks should have never loaned on to start with, and these will skew the numbers, but there are also plenty of cashed up investors, waiting for the one next door to pop up, another piece for their monopoly game.
The potential for this to become a self-fulfilling prophecy is high though. People that were planning (or potentially needing) to sell within the next 18 months may try and sell sooner rather than later fearing a drop. This could create further flow on's as supply/demand gets flipped.
Impossible to say - but it seems probable.
That's bubble psychology - the intensity of the mania on the way up could be matched equally by the amount of panic and fear on the way down.
"properties that banks should have never loaned on to start with"
There are borrowers that the banks should have never loaned to.
Refer Big_Data's anecdotal story of their mortgage broker asking them to inflate their income on their mortgage loan application via the inclusion of rental income from a non existent boarder. So the real debt service ratio is higher than on the loan application. Who knows how widespread this behaviour was? (If anyone has any insight, then please share their perspectives on this)
Then you get an unexpected shock - coronvirus. The borrower experiences a fall in household income (unemployed or fall in hours worked for wage earners), and highly leveraged borrowers face cashflow stress.
When I went for a mortgage the start of last year our broker encouraged us to get a family member to say they would move in and pay rent (with the implication that this didn't need to be true but would help the application).
At last we have a reporter telling the truth."But the truth is we've all been guessing as we've got no data to help us." One of my residential tenants in Nelson gave notice two weeks ago and moved out yesterday. I have had 10 inquiries off trademe for the modestly priced and central flat (only up $20 on previous rent). Only two people bothered to fill in the pre application form and I will be showing them today. All pretty normal stuff. Lots of people looking and wanting something but you only see their dust when you ask them who they really are. One comment from existing tenants surprised me. Why move out of free Government paid for accommodation. Society is going to have a job weaning all the suckers off the free milk.
By suckers do you mean landlords and by free milk do you mean receiving government welfare/supplements via rent?
Yes its going to be a hard road getting those landlord parasites from receiving their free milk.
Accidentally reported. Why can't you retract the report? Damn those big thumbs.
Don't stress. It's not a big deal. We can easily see there is no action to take. :)
The likes of QV and Corelogic and others will lose credibility over the coming months if they try to present the data in a way that doesn’t show what’s really going on. It will be what it will be, and the market has been very elevated for a long time.
In much the same way government and RBNZ will lose credibility by insisting that there will never be any consequences to endless bailouts and QE, even with the NZ media working overtime to push the free-lunch fantasy at every opportunity.
If we have a global financial crisis due to impaired credit and drop in housing equity, we will have a housing price crash. If not, we will simply have a dearth of confidence and demand for minimum of 4-6 months depending on level of unemployment we get from July onwards. So, minimum sensible price adjustment for estate Agents on CV is - 10% for start and a lot more priced property instead of by negotiation. I would expect sellers and buyers to be in short supply for next 3m minimum. As I have forecast this week, expect sales to be 25% below last trough, which was early 2017. As QV say, cannot price based on last 3 months, which is now irrelevant.
The way I look at it, the upside pressures for the market are minimal. Interest rates can't go much lower. Wages are falling. Immigration is gone. Tourism is gone (for now). AirBnB properties that were basically in a different supply/demand market will now come into the general rental/residential market, adding to supply during a drop in demand. Banks are likely to be more risk averse in their lending.
Unless we start importing 60,000 people a year again, the only way I can see significant rises in property prices will be via large increases in wages. But for that to happen we'd need to be in a recovery and which point how could you argue that we need interest rates to be at 'emergency levels' aka zero? You can't. If the wages are good and the economy is strong - OCR needs to be pushed back up to 3-5% meaning any benefit in increased wages is offset by higher interest rates. Meaning housing affordability doesn't get any better, even in a recovery.
I think we need to consider that houses in NZ are, anywhere between 30-60% over priced when non-emergency levels of OCR are re-introduced - which at some point in the next 5, 10, 20 years will happen i.e. over the term of a FHB mortgage if they purchase now.
If OCR went to -0.5%, I think we could see things swinging up again by mid next year.
But seem to be big questions whether it will.
If OCR goes to -0.5% its probably because we have 15% or more unemployment and earnings across the entire economy have fallen (i.e. things get worse from here...not better). Not sure how that benefits house price rise and our ability to service mortgage debt.
Not necessarily so.
The likes of the excellent Michael Reddell would argue that going to -0.5% (or he would say lower) would only be the kind of drop we would normally undertake in these sorts of economic times. We are only apparently limited from doing so by the technology of some of the banks, and / or ideology.
I'm missing your point.
My point is, in times like these the ocr would have been cut 1-2 % already and we don't need it to be as bad as 15% to do it.
So the point is we don't need to have 15% unemployment to cut to 0.5%. If there weren't tech and mental barriers we would have been there s month ago.
I'm still missing your point.
What is the benefit of relaxing monetary policy further if you can't generate earnings with it to service the debt?
All you are doing is generating another amount of non-performing liability in the system and we already have too much of that.
So how would further drops in OCR help anything? Is it going to give people wage increases? Is it going to mean banks loosen their lending standards? Is it going to prevent people losing jobs? Is it going to bring tourists back? Is it going to increase immigration? Is it going to pay rent on the empty AirBnbs?
Um, you said the only reason ocr would go to -0.5% is if there is total carnage. My point is that if there wasn't tech barrier to going negative, then it could have gone negative already.
I wasn't commenting on the merits or otherwise of that just that it would not need 15% unemployment for it to be done.
Make sense now?
Lets go to -0.5% now. Doesn't matter. Monetary policy doesn't really count any more.
IO, how did you come up with the NZ house prices being about 50% overpriced? so a house in Christchurch should be priced $230k? The cost of servicing essential infrastructure to a new sections (of about 600sqm each section) in greenfield near major urban locations is about $115k at a minimum. This is just the costs that a developer must pay to various local and national authorities and organisations to make the land ready to built. ratepayer funded bulk infrastructure including arterial roads, storm, fresh and wastewater trunk and treatment provision, and community facilities such as pools, parks and other open space IS NOT included. Taxpayer-funded costs not fully recovered from developers include highways, arterial roads, train stations, schools, police stations or healthcare facilities among others ARE NOT included either. So it is fair to say that a $600sqm section probably costs at least $150k-$175k if you take into account financing costs and other various legal costs you incur to make it ready for sale. That is assuming that the land itself is free. Then if you build a 150sqm house on that at $1000 per sqm (this is unrealistically low) that is another $150k. Again add a very unrealistacly low cost of $20k for financing and other various costs and you have a minimum $320k-$350k for a new built in a middle of no where really. Maybe it does not worth $470k that developer wants for it now, but i cannot see how it can be anything under $400k.
Building regulation and urban planning, while necessary, have added component to pure cost of constructing a house that simple comparison to price levels if previous decades (e.g. prior to 2004) is very misleading.
So, while it is very reasonable to assume prices will fall significant, do not expect that means people can buy houses for 60% less than now. Just look at RBNZ data, the bulk of NZ house sales are by people trading houses (up sizing, down sizing etc). Quite a few of these are the ones who build a house and sell their own one to go to the new place. If they cannot afford to sell (as they are unable to get the money from selling their house to get a better one) they will stay put.
Ever been to Dublin?
Sure. Some houses will sell for a such a low price. But that will be short term unless the cost formula for new houses change too. Even in Dublin,while price never went back to the prior GFC pick, they never stayed as low either. So stating a crash of 70% when you look at the price over 10 years is exaggeration. And and some stage during the Irish crash, the fundamentals were off too and therefore must have been short term imbalance.
I actually made the above comment before looking at data. Just see here: https://tradingeconomics.com/ireland/existing-home-sales
Hardly any house sales at 70% crash. So the prices is hugely skewed by those unfortunate or greedy bankrupted who were forced to sell. This actually clearly shows my point as opposed to your expecations. Long term, it is very unrealistic to expect house prices will be less than the absolute minimum it will cost to built a new one.
How do you know what the minimum to build a new one is in an environment of deflation?
Have you seen the charts for real Australian property (which NZ has very similar trends to)? And its only got worse from there in terms of another boom on top of that after 2012.
If you don't agree we're at risk of a significant correction, that's fine. Prices could be flat, the could fall 10%, or they could fall 50%. Who knows right?
Not sure why you want to dismiss an outcome - have you just purchased a house or have a rental portfolio or something?
Deflation in what? asset prices will deflate, but how on earth do you see that other costs will 'deflate' as you put it in NZD with the current QE? DO you see minimum wage deflate? do you see government costs deflate? do you see food and building material prices deflate? imports will be more expensive not less. Depression kills production, there will be less of everything, this coupled with crazy money printing that is decreasing the nominal value of money as we speak increases the nominal value of everything.
Ok we have inflation then after a period of deflation - are we going to raise interest rates and tighten lending to maintain our CPI target band, including higher interest rates!
Sounds like you have skin in the game and are paranoid with loss aversion which is fine - its human nature.
How much debt do you have?
We are having a discussion, me being scared or not has very little to do about the facts. You are expecting house prices to crash to 60% of their current value. That means that in CHC, with median house price of $450k you expect to be able to buy a "median" house for $180k in 9 to 24 months time (or 36 months time). I question your assumption on the ground that that is significantly under a replacement COST of the house even if the undeveloped land is free. It costs 100K (and this is the money you pay to Council, not greedy bankers, not greedy landowners, etc) to service the section.
You then say, everything will deflate, I ask you how the "deflation" will look like? the only example of deflation you have is Japan. And Japan is not the best example as due to their exteremly high population density and urban land scarcity, it Tokyo land price is up to 90% of the price of the house. So it gives you a massive room for deflation. In NZ on the other hand, land even in Auckland will not account for more than 1/3 of the total cost. And land is what is inflated. So even if land prices are deflated (which they will), there is a limit to how much house prices can reduce. Even a Japan style crash will not support your 60% reduction. As current expenses will not drop anything like the crash in shares and land prices.
I gave you a range and you've decided to focus on one part of it - the most extreme part - why I don't know. Have you ever done stats and looked a p-values? There's a curve right of possible outcomes and the very smallest possibility would be a 60% fall in my opinion (this isn't a fact! Just an opinion!) Please look at the range of values I gave - not just the 1% probability outcome. And these are all COULDs, not CERTAINTY. Please note the difference.
Have you read Robert Shiller's book on Irrational Exuberance? There is a whole section on property bubbles. Please read that if you haven't already then we could continue this discussion - but if you read the book and understand the content then it wouldn't be required.
I'm sure you know this, but being afriad, or overly confident, clouds peoples judgement. Not sure why but you come across as having loss aversion. It will trigger your amygdala and your might be doing your thinking with suboptimal parts of your brain - back towards the limbic system instead of your prefrontal cortex.
Facts are merely one persons interpretation of a data set compared to another. So what you consider the truth, or a fact, will differ with many others. So not sure why I would want to play a game of 'facts' with you as that would just be you, wanting me, to see things through your paradigm and I can't be bothered as I've spent a lot of time considering multiple perspectives to these issues already. I'm sure you have as well so all the best.
OK. I gave my reasons. You do not have to say that I am delusional because I consider other variables to be important. For reasons explained, I think a range of 10% to 30% is a reasonable range for price decrease over mid term. not the 30-60% you suggest. As you have not based your 30-60% drop on anything other than your own expectations, it is easy to counter your argument of my brain being fogged by fear of loss, with a little bit of wishful thinking that you can get a house for $200k.
You're conflating two separate issues, which most people do.
One is the cost to build, and I mean the real cost, not the non-value added costs as we have in NZ due to inflated land costs, and consenting costs, plus some building supply costs.
I've done the numbers and if we had the same regulatory rules as they have in some overseas jurisdictions, then it is easily possible to build a new house in NZ at the median multiple of 3x income. The reason we can't, at the moment, is because of the status quo regulatory system we have. Change that, and everything about the cost to build changes.
The other second separate but parallel issue is that any house price is linked to a median multiple be it 3x, or 9x like it is, is an income multiple, and if you have no income then all bets are off.
Thus if those with no income as forced by circumstance in a market flooded with similar motivated vendors, then the price will drop until it finds a buyer. This price might be below its replacement cost. If this replacement cost is at the status quo inputs, then as soon as this level is reached as the new normal, then builders stop building as well, ie they are not going to build at a loss.
But if the status price non-value added costs (waste) are removed when existing house prices are at the bottom, then builders can reenter the market and build for a lower price than at present.
This would anchor house prices at a lower and more stable level, doing away with speculative capital gains and prevent the chance of a future boom and bust cycle from happening again, in housing at least. This would mean future homeowners would be carrying less debt, which may be needed anyway with less income, and/or they have more money for discretionary purchases, or as what will probably happen, to pay higher taxes to pay back this present Govt. intervention.
Never you said you were delusional - you just made that up.
Great to see you're happy with what you believe. That's important in life eh?
All the best.
"but how on earth do you see that other costs will 'deflate' "
How does the cost of building new houses fall?
I recall reading about the property bubble in Ireland. There was a large amount of speculation in land, which drove up property construction costs. There has been land speculation in NZ.
Excerpt from the book.
"In 2007, Irish farmland prices were the highest in Europe at Euro66,000 per hectare. ... It was ten times the value of similar land in Scotland and six times more than the same fields would be worth in England.
There was no relationship at all between the astronomical price of farm land and the amount of money that could be made from actual farming. What was driving the increase was a mixture of speculators buying up land for potential development and farmers enriched from sales for public infrastructure projects looking to replace the fields they had sold."
Here's an example of land speculation in Auckland where the owners sold for less than half of what they bought it for.
" Chinese investors are selling an Auckland site for less than half what they bought it for, according to a real estate agent hunting for buyers who says the sale has been marked as urgent."
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
A reminder ...
Five Steps of a Bubble
Minsky identified five stages in a typical credit cycle – displacement, boom, euphoria, profit taking and panic. Although there are various interpretations of the cycle, the general pattern of bubble activity remains fairly consistent.
1) Displacement: A displacement occurs when investors get enamored by a new paradigm, such as an innovative new technology or interest rates that are historically low. A classic example of displacement is the decline in the federal funds rate from 6.5% in May, 2000, to 1% in June, 2003. Over this three-year period, the interest rate on 30-year fixed-rate mortgages fell by 2.5 percentage points to a historic lows of 5.21%, sowing the seeds for the housing bubble.
2) Boom: Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be an once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of participants into the fold.
3) Euphoria: During this phase,caution is thrown to the wind, as asset prices skyrocket. The "greater fool" theory plays out everywhere.
Valuations reach extreme levels during this phase. For example, at the peak of the Japanese real estate bubble in 1989, land in Tokyo sold for as much as $139,000 per square foot, or more than 350-times the value of Manhattan property. After the bubble burst, real estate lost approximately 80% of its inflated value, while stock prices declined by 70%. Similarly, at the height of the internet bubble in March, 2000, the combined value of all technology stocks on the Nasdaq was higher than the GDP of most nations.
During the euphoric phase, new valuation measures and metrics are touted to justify the relentless rise in asset prices.
4) Profit Taking: By this time, the smart money – heeding the warning signs – is generally selling out positions and taking profits. But estimating the exact time when a bubble is due to collapse can be a difficult exercise and extremely hazardous to one's financial health, because, as John Maynard Keynes put it, "the markets can stay irrational longer than you can stay solvent."
Note that it only takes a relatively minor event to prick a bubble, but once it is pricked, the bubble cannot "inflate" again. In August, 2007, for example, French bank BNP Paribas halted withdrawals from three investment funds with substantial exposure to U.S. subprime mortgages because it could not value their holdings. While this development initially rattled financial markets, it was brushed aside over the next couple months, as global equity markets reached new highs. In retrospect, this relatively minor event was indeed a warning sign of the turbulent times to come.
5) Panic: In the panic stage, asset prices reverse course and descend as rapidly as they had ascended. Investors and speculators, faced with margin calls and plunging values of their holdings, now want to liquidate them at any price. As supply overwhelms demand, asset prices slide sharply.
One of the most vivid examples of global panic in financial markets occurred in October 2008, weeks after Lehman Brothers declared bankruptcy and Fannie Mae, Freddie Mac and AIG almost collapsed. The S&P 500 plunged almost 17% that month, its ninth-worst monthly performance. In that single month, global equity markets lost a staggering $9.3 trillion of 22% of their combined market capitalization.
https://www.investopedia.com/articles/stocks/10/5-steps-of-a-bubble.asp
Hi CN, see my reply to 'Believer' above. It's not deflating costs, it's removing non-value added costs(waste) especially in the price of raw land which in NZ is 10 to 20x its next best use-value, due to our monopoly regulatory system.
Your economic example of Ireland is a valid example, but the fall of Ireland is more akin to what happened with Detriot house prices falling to 2.5 x median multiple due to auto manufacturing collapse. Yet in comparison, Houston/Texas which is booming economically has always had a steady median multiple around 3 to 3.5 median multiple. Two very low multiples, yet two completely different regulatory reasons.
I'm saying since we are falling anyway as Ireland and Detriot did, when we get as close to that figure as we can, then we make the regulatory changes to lock-in that benefit.
Of course, not everyone sees affordable housing, and no speculative non-value added capital gains as a benefit.
Ask The Man 2, he sure knows how to buy a house in CHCH way way below the true market value.
:) I have been in ChC for over 2 years now. In this time I have seen so many commercial properties with "last chance to lease" signs that are still empty. So many! yet he even disputed this :)
Yes that particular comment which he often espouses always makes me laugh. You can only imagine the crap that comes out his mouth when he is selling houses.
Long term NZ average price to income was 3-5 before the recent decade.
I think this might about to be a case of reverting to the means that any half assed mathematician swears by, minus 50% is easy to see.
What is P2I now in Akl, over 10?
Maybe for apartments that land is a major component of the price. But not that much for freehold houses. This is assuming that the information is accurate that a freehold in Auckland the land amounts to 1/3 of the total value of the house. I am not saying that house prices will not reduce by 50%, just that at that level there will be very few sellers and no constructors. Therefore that level, if reached, will be temporary and will reverse. Those prices will not be for a functioning market.
Unless labour, government taxes, building material, finance costs, compliant costs etc are all about to be "deflated" too.
I also think, house prices have not been in the 5 time median income over the past 2 decades at least.
Bvr, heres an article on P21 history
https://www.interest.co.nz/property/house-price-income-multiples
Rise from 5 occurred around 2006 in AKL, a lot more recent for the rest of NZ but it seems 5 is a lot higher than we had prior to 2000. 50% occurs when the baby is thrown out with the water, hoping it doesn't come to that but all thru history reverting to the mean is commonplace.
Now even newshub is forced to mention that house price will fall as writting is on the wall - is inevitable so no point in denial BUT again trying to boost RE industry by advocating that good for FHB to buy right now :
https://www.newshub.co.nz/home/money/2020/05/coronavirus-covid-19-could…
Should mention that it will be good for FHB but not right now but in future when prices have fallen before stabilizing at low price for if FHB jump to buy now may end up with their deposit/ equity being wiped out. Also it may be good time to wait to see how all this chaos will effect their jobs or business before buying.
Trying to promote RE to FHB though mentioning fact that price fall is good for FHB but at the sametime should caution FHB to wait as the fall it will be but has to start and one should not try to catch a falling knife.
"Now even newshub is forced to mention that house price will fall as writting is on the wall - is inevitable so no point in denial BUT again trying to boost RE industry by advocating that good for FHB to buy right now :"
Mainstream media finding the positive spin / angle. Promoting positivity, avoiding negativity. There is always a positive spin to a statistic.
There is always a fine balance for mainstream media.
1) If there was unduly focus on the negative impact on homeowners, then that would potentially influence the confidence and psyche on residential property owners and remind them of their financial loss. It might lead to even more psychological pain than currently being experienced, and suicides.
2) on the flipside, the constant reporting of rising house prices, fueled rising property prices further.
CoreLogic have my home (Auckland City East) at 110.8% of 2017 CV as at 3/5/20. I imagine that’s jumping the shark in the current environment. It will be interesting to see what happens to prices in my neighbourhood. I think lockdown will throw a few curve balls e.g. gardens are more desirable.
To a large extent, valuations are bollocks.
Determining property values right now is a bit like detecting landmines by poking around with a walking stick..
just be watching the oneroof panel online and guys we are fine , its a blip and recovery will be quick
then i turned to watch some trump, both brought a smile to my face and a chuckle here and there
Even billionaires are offloading their assets in Australia.
Here's one of Brisbane's most expensive properties, it's is on the market, purchased for 18.5 mils in 2017.. He's willing to negotiate at about 14-15 mark.. Bit of a haircut for the owner!
https://www.realestate.com.au/property-house-qld-kangaroo+point-1313176…
There will be property traders who bought in the January to March period, desperately trying to renovate and sell their property. Some might have a very slim profit based on the selling prices that they were expecting when they purchased the property.
The market environment is very different to conditions when they purchased. Many will be unable to hold on, and might have to take a loss.
Owner occupier buyers should be extra vigilant of these properties - many improvements may be merely cosmetic.
Here is one such property trader selling their property in Hastings
Purchased January 2020 for $495,000
Listed for sale yesterday: by deadline sale (19 May 2020) - so trying to sell within 2 weeks.
https://www.trademe.co.nz/a/property/residential/sale/listing/261378803…
https://www.qv.co.nz/property/603-charles-street-saint-leonards-hasting…
https://homes.co.nz/address/hastings/saint-leonards/603-charles-street/…
Someones getting a substantial haircut
Or this property trader selling their property in Auckland
Purchased January for $430,000
Being sold by deadline sale (6 May - originally 14th May)
https://homes.co.nz/address/auckland/massey/12-broadfield-street/ZaYRV
"What happens to house prices beyond this point will be determined by market forces and the change in supply and demand"
Classic. The Head of QV you say? A Government-owned entity.
Watch the baches first.
Down in the Coronamandel where the family dunga is, suddenly there are a few more for sale, nearly all at a fixed price, good luck with that.
A popular area for Waikato farmers.
You don't need to guess, its well visible where the property market is heading ↓
Anyone who looks at those numbers and sees anything other than ruin in NZ's future is lying to themselves.
Perhaps after 6 weeks or so of having restricted interaction and working from home and spending more time with kids some may decide that a 1/4 acre section in a small town with a modest purchase price could be more appealing than say a higher priced apartment or townhouse in the bigger cities.
The fear of the unknown with the economy could also increase sellers in the bigger areas to realise their equity before prices fall and then purchase in the regions where affordability could also offer 1 parent the ability to stay home. The covid situation may have given us a bit of a reset less money but more time might keep the provincial house demand up but reduce the price of the main areas
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.