Tony Alexander/REINZ survey paints a grim picture of the housing market

Property / news

Forget about FOMO, FOOP now rules the roost as housing market cools rapidly

9th Jun 22, 9:05am by Greg Ninness

Tony Alexander

The latest survey of real estate agents by economist Tony Alexander and the Real Estate Institute of NZ paints a grim picture of the housing market as it heads into winter.

Almost every indicator from the survey points to a rapidly cooling market, including:

Fewer potential buyers attending auctions.
Fewer people attending open homes and their numbers are continuing to decline.
A net 70% agents reported that prices are falling in their location. In October last year a net 60% of agents reported that prices were rising, so the market has turned quickly.
There are fewer first home buyers and investors in the market.
A hoped for return of overseas buyers as expatriate kiwis return to these shores has not eventuated. Agents report that buyer enquiries from overseas are declining.
The number of potential vendors requesting a property appraisal has declined.
A notable feature of the market at the moment is the almost complete lack of FOMO (fear of missing out). Last year this was a major driver of the market but last month just 4% of agents reported seeing FOMO, while 73% reported seeing FOOP (fear of over-paying).

However, there were a couple of bright spots, although they related to things that hadn't happened rather than any positive impacts.

So far there are no signs of investors quitting the market en masse following changes to the tax rules for investment properties, as some commentators had predicted. Those dire predictions now appear to have been based on little more than scaremongering by landlord lobby groups.

In fact the number of agents reporting that investors are selling has fallen to its lowest levels since July 2020.

There is also no sign yet of a jump in distressed or mortgagee sales, even though many property owners will be getting thumped in the back pocket by rising interest rates.

The comment stream on this story is now closed.

You can have articles like this delivered directly to your inbox via our free Property Newsletter. We send it out 3-5 times a week with all of our property-related news, including auction results, interest rate movements and market commentary and analysis. To start receiving them, register here (it's free) and when approved you can select any of our free email newsletters.

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.

188 Comments

by Averageman | 9th Jun 22, 9:41am 1654724498

Even Lord Tony of the Ponzi is calling a turning in the market-downwards. Finally. He underlines that once the great unwashed speculator BBQ brag crowd runs for the exit, there is no holding them back. Prices down, valuations down, banks want more real equity. Its a long way back to Reality and where yield stacks up.

What could go wrong...

by Gummy Bear Hero | 9th Jun 22, 11:52am 1654732324

... and , not before time ! .... house prices would need to correct 50 % to bring them back onto the long term trendline ... 20 % won't cut it ... houses are for friends & families , not for speculators ...

The more prices come down , the better : happy days ahead !

by JohnTrz | 9th Jun 22, 12:40pm 1654735238

Don Brash called for a 60% fall in 2016. Now there would need to be an 80% fall to make houses 'affordable'.

https://www.stuff.co.nz/national/politics/81926709/don-brash-auckland-h…

by WellingtonInvestor | 12th Jun 22, 4:41pm 1655008889

That was back when interest rates were higher. It seems experts base affordability on the mortgage people can afford to service. Reducing interest rates makes houses more 'affordable' up until they rise again. As banks don't allow people to lock in low interest rates for the life of the mortgage like they do in the US, people getting a mega mortgage are taking on quite a big risk IMO

by HouseMouse | 9th Jun 22, 11:57am 1654732649

Imagine if you were a speculator and, following TA’s awful opinion in January of price rises of 5% in 2022, jumped in…

by Gummy Bear Hero | 9th Jun 22, 12:49pm 1654735759

... the CGT ... sorry , my bad , the " brightline test " ... would pinch a whack of that 5 % anyway ... so why bother ... Buttcoin goes up & down that much on a daily basis ...

by Nifty1 | 9th Jun 22, 1:57pm 1654739831

Didn't you say you were warming to TA not long ago HM?

by HouseMouse | 9th Jun 22, 2:46pm 1654742775

Oh, only a little, haha.

Some of his analysis is quite good, at least when he’s able to wean himself away from his pro-housing bias…

by Dgm | 9th Jun 22, 9:37am 1654724261

TA is such a DGM...

The market is hot, ask TTP

by IT GUY | 9th Jun 22, 10:34am 1654727657

WhoCouldHaveNooded

by CourtJester | 9th Jun 22, 12:09pm 1654733360

TTP was right in one thing: there is room for upward valuation.

More and more room in fact, as prices are falling.

by Gummy Bear Hero | 9th Jun 22, 12:19pm 1654733996

... and , on the radio I still hear the " Propeller Property " advert , where the lady proclaims that " property doubles every 10 years in New Zealand " ...

I'm wondering what the Advertising Standards think of this .... or , whether burnt investors can litigate against PP for false advertising ...

by Whatwillhappen | 9th Jun 22, 1:02pm 1654736541

Complain stating "in 100 years time it will take 100 years to save a deposit for your 179 million dollar house" if the claims were true.

by Zen20 | 9th Jun 22, 1:17pm 1654737422

She is a prime example of why you should get a professional to do your advertising.

and she has the voice of Te TeePee's mythical Doom Goblin

by vman | 9th Jun 22, 1:28pm 1654738134

Ashley was on ZB saturday afternoon,asnwering a direct question,he said in his opinion,this downturn wouldn't last as long as people thought and that in his opinion,there was still one more cycle of prices doubling coming...

by vman | 9th Jun 22, 1:43pm 1654738990

https://www.newstalkzb.co.nz/on-demand/week-on-demand/

Sat 04 June,between 4pm & 5pm,specifically around 4.36, Ash says its all good,ride it out...

by Albert2020 | 9th Jun 22, 2:56pm 1654743387

Haha, the callers reaction summed it up beautifully when he said prices falls will end in a few months…. “Really??!!!”

by Jamin | 9th Jun 22, 6:30pm 1654756225

A doubling will come. It’s just a matter of time. This is the nature of inflation and our system.

( provided we don’t ever hit actual deflation)

whether this is a price increase in real terms is a different story.

Btw when all these doubling of prices take inflation into account they are not close to what people think.

Any price fall is usually way larger than it appears. Just look at the moment. Inflation running at pretty much 7%. If house prices fall 1% then in real terms they fall by 8%

I wish all media were forced to quote all house prices movements in inflation adjusted terms. The story would no longer be nearly as scary.

by Independent_Observer | 9th Jun 22, 6:46pm 1654757216

Be careful talking about real/inflated-adjusted asset prices around here Jamin...

Especially real property prices.

The unsophisticated like to tell you that you are talking BS if you do so.

But as I've been mentioning on here for a while is that if prices fall 20-30% over the next year or so, and we've had two years of 7% inflation...you are looking at a very significant loss in real terms.

Here's a chart of the UK/gold ratio to show the size of the property bubble in the UK when viewed againsts real/hard currency (gold).

https://i.pinimg.com/originals/63/9a/af/639aaffc4e57f7e54ad644a18338b31…

Something similar could be playing out right now in NZ, Aus, Can, China (and other countries to some extent).

by frugalhamster | 10th Jun 22, 12:15am 1654776919

I can live in a house, but what can I do with a few hundred ounces of gold? Melt it down and cast a statue of my cat?

by Independent_Observer | 10th Jun 22, 9:41am 1654810901

I think you’ve completely missed the point.

by Nzdan | 10th Jun 22, 7:42am 1654803721

Ireland's property prices have doubled over the last 10 years. So it's true to a degree.

They're still 10% off the high in 2007 before prices dropped 70%, but that's not important.

by Kjeldorian | 9th Jun 22, 1:43pm 1654739001

On average the NZX50 doubles every 10 years. Do you think it goes up in a straight line?

Do you think the same for housing?

Is an average 7.5% return egregious?

by Property Leader | 9th Jun 22, 9:46am 1654724817

As a property investor / landlord I am interested in rent returns not capital movements. Real estate agents are not experts nor interested in that aspect of the industry. I see huge increases in rental returns due to misguided government moves. I anticipate another boost once borders open for workers. New investors are discouraged so our market will not suffer from over supply.

by Albert2020 | 9th Jun 22, 9:52am 1654725140

So you would still invest in property if capital gains were destined for zero for the next 30 years?

by kiwikidsnz | 9th Jun 22, 9:59am 1654725574

I don't have any rental property investments nowadays however that was exactly my approach when I did for many years.

No negative gearing, having tenants pay the mortgage & outgoings until I eventually owned unencumbered capital assets with inflation adjusted future income streams.

There is a difference between an investor and a speculator.

by nktokyo | 9th Jun 22, 10:04am 1654725870

It might come as a surprise to many that a lot of property investors don't really want prices to increase because it makes buying more expensive and returns more dubious.

Anyway, with interest deductibility removed there will be 20% fewer rentals in 5 years time, so if you have a young person due to leave home I advise you to save up a house deposit for them.

by hum | 9th Jun 22, 12:57pm 1654736276

Where did you get this 20% figure? will 20% of the housing stock evaporate somehow?

by Dave Moderato | 9th Jun 22, 11:40am 1654731645

Values are based, in part, by the costs of a completed construction. These values spill over into the existing stock. Needless to say the cost of building new is only going up.

by mfd | 9th Jun 22, 11:55am 1654732544

Far from needless to say - I'd consider it a brave call to think the cost of building will maintain current levels, let alone increase further. Supply constraints will ease eventually, the labour market will release eventually. The current tales of orders being placed with no fixed price and builders making crazy hourly rates will dissipate and building costs will likely fall.

Take a look at the share prices of Steel and tube and Fletcher - the market does not think the boom times for suppliers (i.e. high margins) will continue for long. S&T are trading on a P/E of under 8...

by Kjeldorian | 9th Jun 22, 12:08pm 1654733310

They will come down some, though the examples you give are of the outliers, the profiteers making the most of this situation.

In general building materials wont come down all that much, 10-20% at a stretch.

by RickStrauss | 10th Jun 22, 10:47am 1654814840

I did hear from one supplier the other day saying he's put all his prices up by 10% because "it's expected" at the moment. He didn't have cost increases, just an opportunity to raise prices. (He is not a supplier to me, naturally. I wouldn't expect a supplier to tell a buyer that.)

by Pa1nter | 9th Jun 22, 12:24pm 1654734262

Far from needless to say - I'd consider it a brave call to think the cost of building will maintain current levels, let alone increase further

Things that influence the costs to produce a unit of housing:

- finance costs

- labour costs

- health and safety

- environment regulations

- council regulations

- material costs

- design and engineering costs

There would have to be some very significant long term changes to deflate build costs.

by mfd | 9th Jun 22, 12:43pm 1654735435

Which have contributed to the most recent rises? Labour and material presumably, with a late entrance from finance costs. All of these could fall back in time as the market slows and pressure is released. Lumber prices for example are now close to pre-covid levels after some crazy spikes:

https://tradingeconomics.com/commodity/lumber

Have there been significant changes in the other items in the last year or two? I'm not an expert here so happy to be educated. Perhaps design and engineering but that's just someone else's labour and material cost.

by Kjeldorian | 9th Jun 22, 3:26pm 1654745173

Structural timber went up 30% last year. So far up another 7% this year.

Structural timber won't go back down to pre-covid levels.

by rastus1 | 9th Jun 22, 3:46pm 1654746403

There is no certainty ....

Lumber prices fell to a new 2022 low on Thursday after existing home sales showed a slowdown in April.
Lumber futures fell as much as 6% to below $700 per thousand board feet, according to data from Finviz.

Lumber Prices Fall to New 2022 Low As April Existing Home Sales Drop (businessinsider.com)

by Kjeldorian | 9th Jun 22, 4:07pm 1654747639

No, there is.

If structural timber pricing drops too much then trees don't get cut down.

by mfd | 9th Jun 22, 4:20pm 1654748455

Has chopping down, processing and transporting trees gone up 37% recent in the last two years or is it just a temporary supply shock?

I know the 'transitory' word is unpopular these days, but I do think a lot of the Covid-related price rises will work themselves out over time, perhaps with the assistance of a recession.

Global shipping has been messed up too, but prices have fallen from the peak and will no doubt return to close to pre-Covid levels in time. I think it is a mistake to think that Covid-related trends will continue or even that current price levels will persist.

https://tradingeconomics.com/commodity/baltic

by Kjeldorian | 9th Jun 22, 7:38pm 1654760326

Has chopping down trees gone up - yes, petrol, wages, tools

Transporting to mills - yes, petrol, wages, maintenance

Processing - yes, power, maintenance, wages

Transporting to merchants - yes, petrol, wages, maintenance

Selling at merchants - yes, wages, power

Has one of those things gone up by 37%? no, have these factors built up to 37%, yes.

Like I said in a previous comment, structural timber in NZ may go down in the next couple of years, but it wont be to pre covid levels.

I may not be able to link to international websites but I have been in and around the industry for 17 years.

by mfd | 9th Jun 22, 8:01pm 1654761695

If none of the components have gone up by 37% then the whole hasn't gone up by 37% - the % increases should be averaged (weighted by proportion), not added.

I didn't mean to say finished goods would come down to pre-covid levels - we've had inflation since then and some will no doubt stick. But I do argue that the recent rises will mostly not continue and some will be partly reversed which you seem to agree with. We can't extrapolate from the last two year's data.

To wave some rough numbers around, perhaps Covid has resulted in the cost to build a house rising by 20% and from here it will fall by 10%. Those claiming this will provide a floor against price falls may be surprised - there is plenty of fat in the cost of land to be cut as well.

by Idoubtit | 9th Jun 22, 3:08pm 1654744136

Agreed! Building costs are going to go up further if anything - not down!!!

by Sluggy | 10th Jun 22, 8:09am 1654805366

Not really a big deal, land prices will take a bath to more than make up for it.

by Averageman | 9th Jun 22, 10:03am 1654725838

This is a key point. Investors that can spell yield have done math and acted accordingly don't act on capital gain alone. Then there is the "BBQ Chardonnay" crowd that just followed on the good stories and then bragged about the easy money from capital gains, new cars and holidays. They have chosen to not care or learn about yield. This is the group that has inflated the bubble to its current state, and stand to get punished as all the market dynamics move against them.

by Final Account | 9th Jun 22, 10:06am 1654726018

I'm not a property investor but didn't it used to be all about yeild? The older generations I've talked to always had a 10+ year time horizon on their property investments. Not 6 months do nothing and sell it for $150k more to the next greater fool.

by Averageman | 9th Jun 22, 11:19am 1654730365

Yes it was, and banks only lent when the math added up. Yield alone stopped being the main driver over ten years ago. Since then its interest only, debt stack to the moon focused on income tax offset. Capital gains has been a big reason as 'everyone" was doing it. Banks have underpinned this frothy frenzy of debt and enjoyed billions in returns.

This is why DTi is essential. The rest of us need saving from the banks and speculators endless greed.

by Independent_Observer | 9th Jun 22, 11:53am 1654732384

Using equity in previous properties to buy even more properties gives ponzi characteristics to our housing market. Fine if prices are going up, but if prices ever decline, then that leveraged equity can very quickly collapse in upon itself as at the end of the day it is only a paper gain...numbers on a screen...(not earned income from the real/productive economy).

Investors should have had to pay a cash deposit for every home they purchase/d as was the case for the FHB they were competing with.

Anything else is just insane and feeds the speculative frenzy we have been witness to the last 10 years.

by Waikatohome | 9th Jun 22, 11:52am 1654732333

Propeller property radio Ads are still encouraging people to use the equity in their home to put down a deposit on an investment property, with suggested 100% return over 10 years. How many people have done this? Once the equity goes people will no longer be able to do this and demand will drop even further. Which will further erode price and equity. Could be a downward spiral.

by Independent_Observer | 9th Jun 22, 12:23pm 1654734184

Yes exactly.....but that has always had to be the case....what blew my mind was people buying a rental then 5 years later having the 30% equity to buy another home after doing nothing! Meanwhile the FHB slaves away paying rent and paying tax on earned income and saved deposits.....while the investor buys another house.

Such stupid policy settings/regulation by the RBNZ.

Its almost like they wanted to create the worlds largest property bubble in history with rising inequality and financial instability. If not, they've been completely asleep at the wheel and ignorant of what has been developing around them.

by In Vino Veritas | 9th Jun 22, 12:47pm 1654735662

Maybe so Observer, but don't you think that the Auckland Council has a lot to answer for as well? And on people buying houses as equity goes up, why wouldn't they? Those that are prepared to take risk, get rewarded, those that are not, like many who post here, do not (and sit around complaining that others have made gains). So they were not doing nothing, they were risking their capital.

by Solid_Granite | 9th Jun 22, 1:37pm 1654738653

"You're just jealous" is a weak argument. When the NZ human rights commission started calling it a problem last year, I'd say sitting around and complaining about the state of the housing market is very justified and hardly whinging.

by In Vino Veritas | 9th Jun 22, 9:16pm 1654766212

Oh please Granite. The envy is real on this site. Plenty are bitching and moaning about the price of houses and if they were benefiting from it, there'd be crickets from them. So not a strong argument? Yeah, right.

by GV 27 | 9th Jun 22, 1:43pm 1654739008

How much 'risk' was there, really? For something that drove up the cost of something as basic as shelter? Given the whole economy has been absolutely stuffed for years to come in order to give them huge gains, much of which will be tax-free, I'm not sure 'they were taking risk' is much of a trump card given how much the playing field had been tilted in their favour, and to a nation-changing extent at that.

by In Vino Veritas | 9th Jun 22, 9:20pm 1654766418

You seriously have to be kidding GV. Here we have a post from Tony Alexander, one of NZ's preeminent economists, and he is being bagged, and most of the comments are wishing and predicting the market collapses, 50% in a lot of cases and you then say "how much risk was there, really?". Doh.

And if you think the economy has been stuffed for years by property prices, sorry, but you don't know much about how an economy works.

by Sluggy | 10th Jun 22, 8:17am 1654805876

NZers obsession with property at the expense of any meaningful endeavours, supported by successive governments and RBNZ and banks, will prove our downfall.

The wealth effect has happened not because of Jim the mower guy earning 300k a year, but Jim feeling very rich due to his house he bought in the 90s for 150k, now "worth" 1.6m. Jim has a new ranger, a jetski and is getting a new pool and landscaping, all tacked onto the mortgage... Jim is not alone. He has propped up the local economy with 10s of thousands of borrowed dollars - he has a t shirt - moneys cheap - which he wears to BBQs.

by RickStrauss | 10th Jun 22, 11:32am 1654817521

Yeah...we have taxpayers paying price and yield welfare subsidies, we tax productive work while exempting for many years speculation on land, and we have a Reserve Bank who leaped into action at the first sign of a downturn to protect property investment, yet apparently it's "investment"?

All we have is older folk living beyond their means by foisting ever larger debts upon following generations. Then expecting them to fund their pensions too. It's just basics brand entitlement mentality, bludging off younger Kiwi generations.

by Independent_Observer | 9th Jun 22, 2:23pm 1654741411

You can add the council to the list of complicit entities....but ultimately its the individual who choses whether investing their capital in a 'housing crisis' is an ethical use of capital.

Sure if you are building new builds to add to supply of housing then yes that is a beneficial use of capital to help solve the issue.

But if you have been at auctions/outbidding FHB's from entering the market and pushing up the prices of existing home, from my point of view, that is a highly unethical use of capital - both from financial and social stability perspecitves.

So you can say 'why wouldn't they?'. And the answer to that, is because they can put other people (FHB's) before their own personal financial profit.

by Kjeldorian | 9th Jun 22, 2:29pm 1654741789

Recently a lot of the times that investors are bidding against FHB's its so they can knock down the house and put up townhouses.

by Independent_Observer | 9th Jun 22, 3:04pm 1654743843

Hopefully these aren't some of the developers we've been seeing having solvency issues recently.

by Kjeldorian | 9th Jun 22, 3:27pm 1654745227

Some of them will be for sure.

by In Vino Veritas | 9th Jun 22, 9:22pm 1654766556

Here's a thought Observer, house prices are driven by supply and demand. It doesn't matter who is buying them. And, at least in Auckland, it's not the house price that's the real issue, it's the land price. And why is that Observer? Hint: it has NOTHING to do with investors.

by rastus1 | 10th Jun 22, 8:17am 1654805864

Where have you been o' In Vino over the last 18 months?? Not supply and demand ... money printing, credit creation, mad monetary theory is the cause.

by In Vino Veritas | 9th Jun 22, 9:26pm 1654766794

And while I'm here, your ethics and morals mean nothing to me, and it seems to me that you are trying to take some form of unearned moral high ground. Which, as an observation, is the standard modus operandi of the the left of the political spectrum.

by Independent_Observer | 9th Jun 22, 10:40pm 1654771204

Why?

Are voters from one part of the political spectrum morally superior to another - is that your point? Do you think you are superior to voters from the left?

(Ive voted across the spectrum so neither left/right).

by Eschaton | 9th Jun 22, 1:38pm 1654738707

Well said.

by RickStrauss | 10th Jun 22, 10:49am 1654814972

DTI plus LVT on unimproved value of land and significantly reduced company income taxes would be such a boon to New Zealand and to hard work in general. Imagine what people would try in life if so much of their adult life now wasn't forcibly focused on securing stable housing, and imagine how society would benefit if more housing money recirculated through the economy rather than out to Australia.

by JimboJones | 9th Jun 22, 1:45pm 1654739154

If it was all about yield then no one would have bought an investment property in the last decade or so. There are probably safe shares that give a better dividend for no effort whatsoever.

by Final Account | 10th Jun 22, 8:50am 1654807826

'Used to be"

by Dale Smith | 9th Jun 22, 12:14pm 1654733659

Yes, yield is a funny old thing, being calculated on present value, not what was the value when you bought it.

If you can hold your rent at its present level, then as house prices fall, your yield increases.

by JimboJones | 9th Jun 22, 1:47pm 1654739235

But if you have debt, your servicing costs are increasing. Really its the debt servicing costs that set house prices (in a constrained supply market that is).

by Dale Smith | 9th Jun 22, 4:32pm 1654749148

Yes, but the silly old rental yield is worked out on Gross, I mean with capital gains being the way it was, who cares about servicing costs. That is until the gains are not there anymore.

by JimboJones | 9th Jun 22, 4:36pm 1654749415

Yep, but a 3% yield might be considered acceptable when interest rates and inflation are low, but not so much when the bank will pay the same on a term deposit.

by Dale Smith | 9th Jun 22, 4:52pm 1654750373

My point is it is easy to increase yield, just by accepting your property is worth less, or increasing your rental income. R=I/V. It's a simple formula. I would suggest it's probably easier to accept the value is going down, rather than try to increase your rent.

And your rental investment should be giving you a better yield than the bank rate, so just keep reducing the value of your property until it shows a yield high enough above what you would be earning in a bank.

You can do this voluntarily, or the market can do it for you.

In jurisdictions, where the prices are stable and the price of the property does not increase by more than the rate of inflation, the house prices are closer to 3x median income, and since the property owner is not getting any net capital growth, he gets a lot higher yield. BUT the net result is the property owner gets to buy an investment property for less than 1/2 of what it would cost in NZ, and the rental tenant gets to rent at about 2/3rds the cost of their NZ rent.

Everyone wins.

by Nzdan | 9th Jun 22, 2:24pm 1654741493

Pay $1m cash for house, rent for $30k. Yield = 3%. Price drops $200k, yield is now 3.75%. Pretend you didn't just effectively lose $200k.

by Dale Smith | 9th Jun 22, 4:55pm 1654750513

That's why I said it was a funny old thing. All you heard was people complaining how bad the yield was when prices were going up, yet if they had bought a few years back and based their yield on their then purchase price, then their yield was great AND they were getting a great capital appreciation.

The point is, all those complaining before about poor yields, should be happier now because based on the same definition, as the price falls, their yield is increasing.

And if it is any consolation, if you sell and take the loss, then the new owner does get a better yield without losing anything.

Them's the rules.

by nymad | 10th Jun 22, 8:16am 1654805792

This thread has descended into nonsense.

Yield is the basis for assessing opportunity cost.

Both of your points are arbitrary; The only reason investors should be happy is if the net current yield on their property is outperforming the next best current alternative.

Similarly, the $200k loss doesn't matter - it is sunk at this point - the investor is concerned with maximising the return on the available capital.

by General Comment | 10th Jun 22, 8:39am 1654807164

This is how I look at it - if we sold our rental property, what would earn us a better return than net rent? That is rent, minus tax (the rental is mortgage free, and rates/insurance/maintenance are tax deductible).

We paid $360K back in 2004 for the house - it was our first home, and we held it when we moved out of town for work reasons.

I could be an optimist and say the net return is 8.6% ($890pw rent, less 33% tax), however it would be more realistic to say its current value is $1.2M (RV is $1.4M and various sites still price at that level but let's be honest...) so the return is actually only 2.6%. Once term deposit rates hit 4% I'd be better off just leaving the money in the bank.

Whether or not I'd still get $1.2M for it if TD rates are at 4% is an entirely different matter.

by Dale Smith | 10th Jun 22, 9:40am 1654810826

It's only nonsense if you see houses as just another investment to be speculated on. And whether as part of that we have Govt. policies that allow a speculative component to be embedded into NZ house prices. Approx. 50% of the price of NZ house prices are speculative non-value-added costs solely due to monopolistic rentier behaviour that the Govt. policies not only allow, but encourage.

People overlook that there is a direct correlation between capital growth and yield and they are generally an inverse of each other. If you get high capital growth then you tend to get low yield and vis versa.

If you get either high capital growth with high yield or low capital growth with low yield, then there is something wrong with your investment environment, even though the former environment is every investor's wet dream, and when they do exist, it is only for very short moments in time.

In stable affordable housing markets, median income prices are 3 to 4x median income multiple, and rental investors make the big majority of their return based on yield alone. Development investors can still make a bigger margin by buying the land, building, and making a development margin, all with the pricing still around that 3 to 4x median multiple. if you want better odds than this, with a bigger risk, then you go invest in a start-up or go to Vegas.

by Small Kev | 9th Jun 22, 10:04am 1654725882

Have been anticipating this moment since 2018, the downward trend provides a less competitive market which make things much more pleasant when looking to buy/upgrade. However with the coming election next year and border opening I have a feeling that the downward trend won’t last and the market will flatten sooner.

by Fitzgerald | 9th Jun 22, 10:15am 1654726551

I have some anecdotal experiences to share re: your comment that "our market will not suffer from oversupply."

I am on the pointy end of this at the moment. Seeking a comfortable, modern, rental to house my family.

Supply seems very tight, and I have been looking for months. I probably don't fit within the profile of the "ideal" tenant, and don't tick all the boxes that landlords are looking for, so it seems tough right now to secure a really nice near-new place. If I had brown skin, I imagine that it would be all but impossible.

But very interesting market changes are happening in my target suburb - it is a new satellite suburb with all new builds and houses that are 6 years old or newer. It is not a particularly large suburb, but over the last 2 weeks I have been told about 4 nice (newish) houses that have been on the market for sale, have failed to sell, and now the owners are going to rent them out. All 4 are being listed through the same rental agency. So I'd imagine that there must be others in the same boat that will be listed with other rental agencies.

All the houses are near-new, marketed for the above $1 million price bracket, before being pulled from the market and rented for around $650 - 700/week. It's hard to see how those numbers can possibly work. 3 of them were built by the owners, so I guess they have lower mortgages and a bit more leeway to work with.

But I'm fully expecting that there will be a glut of my target type of rental on the market soon. Also resigned to the seemingly high risk that whatever house we end up in will be subject to a forced/mortgagee sale somewhere down the line.

by gnx | 9th Jun 22, 10:31am 1654727477

Fitz

”If I had brown skin, I imagine that it would be all but impossible”

I was thinking about this the other day. How come you can rent a car, book a hotel room but can’t rent a house without screening.

good on you for acknowledging it…

by K.W. | 10th Jun 22, 12:47am 1654778849

Because when you rent a car or hotel room its only for a few days, and they take your credit card to cover any damages you might inflict on the property. If the rental market operated the same way and required a million dollar bond, that can be charged to cover so much as a scratch on the skirting boards, then people probably wouldnt be so picky about tenants either.

by General Comment | 10th Jun 22, 8:44am 1654807464

Also, if you write off a rental car or trash a hotel room those companies have dozens or hundreds more cars/rooms still earning them income - the impact in their income is relatively small.

If you trash someone's one and only rental property it can be down for weeks/months, impacting 100% of their rental income for the duration. This is a big part of why Mum and Dad property investors are so picky now. Someone with 50+ properties can afford to be less discerning as being one property down is only a 2% (or less) drop in income.

by Fitzgerald | 10th Jun 22, 9:07am 1654808859

But many of the things that landlords are "picky" and "discerning" about really just boil down to blind prejudices and cultural mores.

They have nothing to do with the actual worth of a tenant as an individual, and are poor predictors of whether or not the tenant will look after the house and pay the rent.

- colour of skin

- marital status

- job status (this is the one that trips me up. I have a s**load of capital, but no job. And landlords consider me "too young" to be respectably retired)

- pet ownership

- type of car you drive

- tattoos, dress sense, ability to write a nice email

- etc etc.

The fact is that with all the "mom and pop" landlords out there, we have (for the most part) a fairly unintelligent, deeply conservative, often highly prejudiced minority controlling much of our housing supply. Many dumb arses who think they are investing geniuses and think they have a right to decide who is "worthy" of a home, and who has to sleep in cars.

We would probably be better off with a few large corporate landlords who work to uniform guidelines and standards, as they have in countries like Canada.

by General Comment | 10th Jun 22, 9:49am 1654811347

We're pretty much in agreement there. Those prejudices shape who those landlords consider to be most likely to be able to pay their rent and not trash their property.

For what it's worth, over the years I've rented to students, groups of individuals, couples, families, solo parents with children, and so on. Not once have I considered their cultural background to be any kind of factor. It would be remiss of me to judge someone on physical appearance alone since I'm such an ugly, tattooed, shaven-headed old barstool myself. I don't know what my wife sees in me.

I also agree the rental market in NZ would be best served by large corporate landlords.

by Fitzgerald | 10th Jun 22, 9:57am 1654811850

You're one of the good guys. Wish there were more of you 👍

by General Comment | 10th Jun 22, 10:53am 1654815231

Appreciated, thanks.

by Chaosinflesh | 9th Jun 22, 11:26am 1654730784

We're experiencing similar. We can afford any of the rentals currently offered with ease, but we have kids and pets.

Just had a lovely reply from Ms Williams this morning:

"[83% of landlord submissions wanted to refuse on pets without reason, 72% of tenant submissions wanted pets allowed] - so they went with allowing landlords to continue to not allow pets.

"Landlords are allowed to determine that there are not too many occupants for their property to ensure they are not over-crowded or break body corporate rules" - in response to my comment re: landlords restricting 3 & 4 bedroom properties to DINKs.

Can't wait to see the back of this lot. Not that we'll be here - 18 month till we fly out, nuclear threat aside.

Meanwhile, biting nails that our current or future landlord isn't a future mortgagee...

by In Vino Veritas | 9th Jun 22, 12:55pm 1654736111

Here's a thought Chaos, they went with Landlords because it is THEIR house. I get to choose whether I let pets in my houses, because they are mine. And not everyone thinks a dog or cat or rabbit is a person.

by Nzdan | 9th Jun 22, 1:39pm 1654738756

Well it's actually the landlord's business, it's the tenant's house/home for the time that they make regular payments.

by JimboJones | 9th Jun 22, 2:12pm 1654740754

And as the supermarkets are about to find out, if you run a business providing a life necessity and you just do to whatever suits yourself, you will end up being regulated.

by Chaosinflesh | 9th Jun 22, 2:22pm 1654741327

We are blessed with our current landlord allowing us pets (but why do I have to say 'blessed'?). But moving to this current neighbourhood has been a little eye-opening:

Our old neighbourhood was mostly rentals, and there were pretty much no dogs.

Our new neighbourhood is mostly owner-occupied, and on average, their is more than 1 dog per property.

Maybe we've moved to a neighbourhood with no landlords? Otherwise, I'm tempted to say it looks suspiciously like "one rule for me, another one for you".

There were two issues in my previous post that I guess I'll have to highlight again:

The decision to keep the status quo (landlords having say over pets) was not majority rules: 72% of tenants represents considerably more people than 83% of landlords, even if the landlords were over-represented in submissions.
The issue I raised was with landlords under-filling housing, but she deflected by pointing at preventing over-crowding and other made-up rules.

This tells me two things about the goverment - both of which are bleedingly obvious from elsewhere, mind - 1. they are no good at maths, and 2. they have either no gumption or intention (take your pick) to make changes that will actually improve the quality of people's lives.

So, Vino, at the moment, yes, you are allowed to say "My house, my rules" regarding pets, kids etc.. But laws can change, and one day that may just not be the case (e.g. Victoria made refusing reasonable pets illegal March 2020, Queensland in October 2021).

by K.W. | 10th Jun 22, 12:56am 1654779383

The problem is that landlords are the ones who have to pay for pet damage not the tenant. So why would they want to take the risk of damage while getting none of the benefit of owning the pet? I have pets. Yes they damage stuff. But they bring me great joy and I dont mind having to get the carpets professionally cleaned or replaced on a regular basis, or resowing the lawn, or replacing sheer curtains. But as a landlord why would I voluntarily incur these costs when I cant claim it from the tenant from either the bond or through increased rent? Pet bonds need to be legal, along with allowing above market rent for pet owners.

by Albert2020 | 10th Jun 22, 5:42am 1654796569

If you think pets cause damage you obviously don’t have kids

by Whatwillhappen | 10th Jun 22, 1:27pm 1654824477

My dog has caused more damage in the 6 months we've had her than the kids have in the past 10. The cats have only damaged furniture, not chattels.

by lucenera | 10th Jun 22, 10:59am 1654815568

bollocks...

Many landlords (most of them) don't deal with pets even if you offer 20% more of the rent, or offer an insurance, or more bond.

Been there, done that. They don't even want to meet the dog, or talk with you.

In many cases I was under the impression that they wanted to just highlight that THEY decide, not you.

Is in their right?, sure it is, completely legit (for now, in NZ)

That makes them bad people in my eyes (and many other), anyways.

by Independent_Observer | 9th Jun 22, 2:27pm 1654741643

In theory its the banks house until you've cleared the mortgage. Perhaps we should check with the banks whether they mind/don't mind animals being allowed to stay in the homes that have existing mortgages against them?

Perhaps the banks could then also apply those rules to owner occupied homes, given that from there perspective there is little difference between a rental and an owner occupied home....its just a house with a mortgage over it, which they have first rights to if the cash flows against the mortgage can't be satisfied.

by IT GUY | 9th Jun 22, 10:35am 1654727725

If you could buy Queenstown burbs at the right price, totally agree.......

by Kiwisaint | 9th Jun 22, 11:33am 1654731226

The border is open, are you factoring in all the people leaving? (the significant net migration loss evident recently).

I expect this net migration loss to continue - NZ is not the desirable place it was 10-20 years ago. Far too expensive now for lower paid jobs, increased crime, high understated inflation (i.e. non-tradables), average weather...far better opportunities in Australia.

by Matt_B | 9th Jun 22, 12:49pm 1654735788

Seeing large numbers just on customs border crossings. But need to wait for StatsNz monthly updates for status of travellers

16.5k loss in April - StatsNz data out next Monday to determine status

6.7k loss in May

6.9k loss in June - Last 7 days!

by KBKIWI | 9th Jun 22, 12:58pm 1654736282

People keep saying this, but the borders have never been closed to people leaving New Zealand. The “borders reopening” is purely for people entering New Zealand. Anyone unhappy with living in NZ could have moved to Australia at any point over the last two years if they wanted.

by mfd | 9th Jun 22, 1:22pm 1654737765

If they have family in NZ, it is reassuring to know you will likely be able to visit them freely. Also don't forget for most of the last couple of years, NZ has been in a better situation than most of the world with very limited in-country restrictions and Covid threat.

The situation has changed and emigration now has fewer drawbacks.

On the other side the balance sheet - plenty of people did return to NZ during the last couple of years. Thousands returned and spent their time in quarantine to do so.

by Small Kev | 9th Jun 22, 1:38pm 1654738730

Thing is Australia will always see us differently, you will never be one of them and an outsider. That’s the reason why many have sadly returned to NZ after years of working there.

by Crazy Horse | 9th Jun 22, 2:37pm 1654742249

SK ......been there twice to live and work in my 20's .....had tons of mates but not one Aussie.

Actually I really enjoyed it with or without the Aussie mates ! ......way better social life esp. Sydney - love to have stayed on, but back then you had the "Aussies first" when it came to job applications......

by agnostium | 9th Jun 22, 6:53pm 1654757598

Yes they were, a whole bunch of people didn't want to leave in case they couldn't get back in if it didn't work out.

by Gummy Bear Hero | 9th Jun 22, 1:15pm 1654737309

... there is also the " pain in the arse " effect of needing RATs tests & the like before entering NZ ...

The " Welcome " mat is not out ...

... expect tourists to choose Australia over us ... they're open for business .... living with Covid19 , not hiding from it ...

by Small Kev | 9th Jun 22, 1:24pm 1654737874

The fact is NZ is such a tiny country even if half million of us left for Australia, the population will/can be quickly replaced by migrants from around the world. It will be up to the government to open the door and how desperate we are.

by JimboJones | 9th Jun 22, 1:38pm 1654738700

"I see huge increases in rental returns due to misguided government moves" - surely those same "misguided" moves also create huge increases in landlord costs (like having to actually pay tax for a change). Add that to the fact the huge capital outlay will be going backwards, buying rental property seems like an odd idea to me right now. Although for those who have money to park somewhere, maybe it is the least bad option.

by Crazy Horse | 9th Jun 22, 2:27pm 1654741648

Please elaborate on "I see huge increases in rental returns due to misguided government moves." ......where is this money going to come from ???

by Nzdan | 9th Jun 22, 3:08pm 1654744110

A misbelief that renters will just continually hand over greater sums. Maybe the tenants could take on additional flatmates to keep paying the rent increases, just hope your tenants aren't the "flatmates" that consolidate themselves into another property.

by Zachary Smith | 9th Jun 22, 10:01am 1654725690

People still need to be careful. There was a comment here before -that now seems to be deleted- sorry it was on another thread. I clicked on one of the links they had to an article discussing price drops. In that article they had links to examples of price drops yet when I analyzed the houses people were claiming a price of 859k was a drop when they had bought it less than two years earlier for 645k and the 2021 RV was 760k. Another house claimed "a massive price drop" yet was advertised for 85k over 2021 RV and 15k over OneRoof's own estimate. Another claimed "a huge price drop" yet was price by negotiation??? No price shown, what the..

by Final Account | 9th Jun 22, 10:04am 1654725847

Wild theory - average NZ house price back to $500k by mid 2024

by Small Kev | 9th Jun 22, 10:13am 1654726423

If that’s the case people with deep pockets will snap up 2 or 3 houses each and other still can’t afford to buy.

by mfd | 9th Jun 22, 11:19am 1654730379

You see this a lot on share trading forums. At the start of the fall, everyone is talking about how many they would buy if the price fell as far as X dollars. When it gets there, everyone has disappeared, sentiment has changed, and it's just a few hardy/crazy souls daring to believe prices could recover. It's no longer a great deal, it's a pariah asset that no one wants to touch.

by JimboJones | 9th Jun 22, 1:39pm 1654738766

Great comment.

by Small Kev | 9th Jun 22, 1:50pm 1654739435

Shares you have nothing, with houses you still left with pile of wood and land.

by JimboJones | 9th Jun 22, 2:02pm 1654740145

"Shares you have nothing" - not all shares of course. There are plenty of companies out there that are much safer than a single house (especially in these shaky isles).

by gnx | 9th Jun 22, 2:25pm 1654741522

And a mortgage

by Independent_Observer | 9th Jun 22, 3:00pm 1654743641

Are you saying companies own no physical assets?

Sure for some this might be true...but for many they own significant quantities of physical assets....including land and wood like you say for residential housing...so obviously miss your point....

Or if your point is that there would be nothing left for shareholders after the creditors take their slice in a liquidation...then perhaps you have been looking at the balance sheets of the wrong companies to buy shares of.

by mfd | 9th Jun 22, 3:29pm 1654745343

This isn't true. A share is part ownership of a company - you literally own a portion of all the assets the company owns and a claim on all future cashflows.

In what way is a wooden house in shaky NZ more resilient than McDonalds, or Apple? Negative equity, damaging tenants, earthquakes, fire, floods, gang pad setting up next door - plenty of ways to lose money or the whole investment.

by Small Kev | 9th Jun 22, 10:21pm 1654770084

“you literally own a portion of all the assets the company owns ..”

Of course, when the share price drops to zero and the company collapses you as a shareholder get to claim the toilet seat on the third floor of the company building or a piece of that nice carpet of your choice.

by mfd | 9th Jun 22, 10:41pm 1654771302

I've been investing in shares for a decade and none of my companies have gone to zero. Even if one did, no biggie, my largest position is ~10% of my portfolio and most are only a few %, I can live with losing that.

That's the beauty of diversifying, it becomes harder and harder for one nasty event to trouble you. If you're only investing in property in one country you are extremely vulnerable. Especially if you are leveraged - all of my shares have to go to zero to wipe me out, some investors out there only need property prices to all 30-40% to wipe out their equity. But of course that's all normal practice in NZ so we should ignore that risk and concentrate on those nasty confusing shares.

Hell, if you're so desperate to own property just buy something like KPG.NZX for a ~7%+ yield trading at a 30% discount to the net value of their property and land.

by Zachary Smith | 10th Jun 22, 8:08am 1654805316

KPG's ~7% yield does seem rather good although I see the shares, like most others, appears to have fallen over the year by ~15%. Why have high yield shares lost so much in a low interest environment? I invested a little in DIV and it has soured my experience of shares considerably.

by mfd | 10th Jun 22, 8:44am 1654807484

My reading which may be completely wrong is they have been dragged down by increasing interest rates (the alternatives like bonds are getting more tempting and KPGs relatively low debts will be costing more over tube), and expectations of property prices falling (although I don't think this has shown up in commercial and industrial just yet.)

Could easily keep falling another 20% or more from here, and if things get bad the dividend could even fall. Nonetheless, I'm slowly buying into a modest position. Beats residential investment by every measure as far as I can see, especially liquidity and convenience.

by Zachary Smith | 10th Jun 22, 8:55am 1654808146

Thanks mfd. I diversified back in 2018, perhaps a little prematurely, although I am starting to not regret it so much now. It would be great to get into something other than owning and managing your own property to get some stress free returns. Reducing stress in my life as I age is more important than returns for me now. I'll stay on the sidelines for a bit longer.

by mfd | 10th Jun 22, 9:10am 1654809047

Diversity definitely makes for a safer and more relaxed life, although if you're doing it right you will always own something that's underperforming which some people struggle with.

Have you considered averaging into the market? If you've got x dollars to invest you could do 10% every month or two and slowly ease in over the next year or two. May help reduce regrets if the market keeps heading south.

by chebbo | 9th Jun 22, 6:42pm 1654756935

Great comment. Bull markets are driven by human sentiment, not fundamentals. Entire asset classes can go from being princes to toads overnight, without anything actually changing (besides the price).

by Independent_Observer | 9th Jun 22, 11:36am 1654731365

And that's the problem eh Small kev....why do people need to own 2 or 3 houses? Especially in the period of inequality we find ourselves in.

But then again I guess I was raised a bit different where if you can see others struggling, you don't add to their suffering by exploiting the situation for your own financial gain.

Each to their own at the end of the day but its annoying as hell when the tax payer has to spend insane amounts of money for accommodation supplements so that some people can buy 2 or 3 properties and turn them into rentals because they feel like its their right to do so.

7 House Luxon isn't the solution to this problem either....I think he will just be more of the problem and not the solution. But if inequality and financial/social instability are what you want the most in life/democracy/society, he might be the main to 'solve the problems we currently face'. But then again, its not like Labour have been any better than National...so perhaps we just need to completely drain the Wellington swamp.

by In Vino Veritas | 9th Jun 22, 1:05pm 1654736739

Aside from disingenuously tying money being spent by Government to people owning 2 or 3 properties and having any semblance of an argument destroyed, what period of "inequality" are you referring to Observer?

Further more, it is anyone's right to purchase a house or houses as they see fit. And the Government doesn't have to spend insane amounts of money for accommodation supplements, or put people up in Motels. This Government has chosen to do that and of course, when there is money|assistance handed out with no strings attached, the bludgers come-a-runnin'.

Your comment smacks of envy more than anything else.

by Waikatohome | 9th Jun 22, 1:56pm 1654739786

As inequality increases so does crime. What is the point of accumulating wealth if the place you live is no longer safe or enjoyable? We will end up with gated communities. Allowing people to gain advantage through leverage has been so damaging to the quality of life in NZ. I am keen to see a return to normality. It is not jealousy. I don’t want a bigger house, faster car or a new boat. What I do want is a fairer society and safer environment for my kids.

by rastus1 | 9th Jun 22, 2:00pm 1654740028

Govt chose to do it ...yeah, because they are appeasing the boomer generation who hold the voting power. B##ger the next generation eh.

You comments smack of a self centred ppty stacker.

by Independent_Observer | 9th Jun 22, 2:38pm 1654742320

Do you think other people are envious of you?

I'm not envious at all of people who have enriched themselves at the expense of the well-being of other members of society.....simultaneously creating the conditions of financial and social instability.

The 'envy' card is just the same as the 'DGM' card....its played by those who deep down are afraid that others can now see through the rort that they have been abusing for personal gain (property investment), over the benefit of society as a whole.....in an attempt to belittle and silence those who can see through it all and want to restore financial and social stability for the greater good (utilitarian perspective).

You must have a big ego to think other people are envious of you....."gee look at me, I've done so well, all those people who don't like what I've done at their expense, must be envious" (lol.....)

If I had become rich via property investment and now see the mess that society is in, with people struggling to put food on the table and pay rents....well I'd feel rather ashamed of myself to be honest. Thinking that other people might be envious of me would be the last thought on my mind.

by Miguel | 9th Jun 22, 3:09pm 1654744167

I wonder if you genuinely can’t see the inequality and slow moving train wreak we as a society are creating?

Take the time to read this article start to finish:

https://northandsouth.co.nz/2021/08/16/nz-housing-crisis-the-great-divi…

Or perhaps if you don’t have time watch this instead. It’s about the UK, but still largely relevant.

https://m.youtube.com/watch?v=ZuXzvjBYW8A

You may not agree with all the arguments, but may give you some insight into what people are talking about when they speak of growing inequality.

by Independent_Observer | 9th Jun 22, 3:23pm 1654745027

Yep I've found that its those who are 'sitting pretty' who don't like to see the inequality that is going on around us. Perhaps not acknowledging it makes one feel better about the riches they've made while people struggle to pay rent and put even a basic meal on the table for the kids.

Inequality is as bad as its been the last 100+ years. We're back in 1920's style inequality where the wealth is so concentrated at the top its a recipe for financial and social anarchy.

https://media.newyorker.com/photos/590951552179605b11ad2f98/master/w_25…

https://thesocietypages.org/socimages/files/2008/10/picture-12.png

by Smudge02 | 9th Jun 22, 2:28pm 1654741691

if you can see others struggling, you don't add to their suffering by exploiting the situation for your own financial gain.

Yes a solid, once common place philosophy that helped keep societies somewhat balanced. Unlike the modern version of every man/woman for themselves, just have a look around and see how that is working out!

by Small Kev | 9th Jun 22, 2:37pm 1654742239

“Why do people need to own 2 or 3 houses?Especially in the period of inequality we find ourselves in….

…Each to their own at the end of the day”

Why do some people earn huge salaries when the cleaner work just as hard and longer hours? Life is not fair, but there are ways to get what you want and there will be rules even the rules can seem unfair and annoying. The person cleaning the toilet doesn’t necessarily have lower IQ than the company CEO.

by Independent_Observer | 9th Jun 22, 2:47pm 1654742833

Must be about time we change the rules then eh Small Kev...

Level the playing field eh so guys like you can't bully the small guy? Because ultimately who care's about others when its 'each to their own at the end of the day"

I don't buy that....we have a social contract and the property investor class have been abusing that for selfish personal financial gain at the expense of the greater good.

And its time we started reversing that selfishness so that the collective good is the aim, no the enrichment of those who already have enough.

by Small Kev | 9th Jun 22, 4:02pm 1654747366

Yes, change the rules or change the game if you can, time spent on this digital website definitely not going to achieve much.

Why assume bullying?

Are all company ceos bullying all their lower paid office workers? Should all ceos take a pay cut? Bigger restaurant chains bullying small eateries? Taller basketball players automatically a bully to the shorter player?

Forbidding people buying houses won’t fix the problem, this “bullying “ you talking exists everywhere.

Equal for everyone sounds great but even the communist party couldn’t make it happen.

by dbbr | 9th Jun 22, 10:19am 1654726761

Looking at the quality of the average house, I'd say that would be about fair. That is the biggest, saddest, joke.

by IT GUY | 9th Jun 22, 10:37am 1654727828

too far to fast........ rates would be near zero again

by kiwikidsnz | 9th Jun 22, 10:40am 1654728025

NZ$500k would then be close to the average USA USD375k & UK UKP 300k house price

by mfd | 9th Jun 22, 11:00am 1654729229

This is about what we paid for a 3-4 bed house on 800m2 10 minutes bike ride from Central Christchurch three years ago. Doesn't seem like a wild theory to me.

by rastus1 | 9th Jun 22, 10:09am 1654726179

However, there were a couple of bright spots, although they related to things that hadn't happened rather than any positive impacts.

So far there are no signs of investors quitting the market en masse following changes to the tax rules.

Bright spot! Not.......just wait until the penny drops....that being the need to fund the actual loss, but also pay tax on the paper profit!

by bender | 9th Jun 22, 10:10am 1654726237

I didn't realize that Tony is one of the long-necked people. Not that there's anything wrong with that. Lots are.

by Poppyc | 9th Jun 22, 10:21am 1654726862

When we bought our house a couple of years ago the agent was a 2 person team. Still get their agency emails and open every so often. At the start of this year their team had expanded to 5. When I opened their latest email yesterday they were back to being the original 2 person team (and a quick check doesn't show where the 3 others have gone, presumably out of the industry). I guess it was fine to expand when you were selling >1 house a week, but their recent sales suggest they are back to maybe one sale a month - at least the marketing team is being kept busy photoshopping agents/reps in and out.

by Tee | 9th Jun 22, 10:34am 1654727659

"So far there are no signs of investors quitting the market en masse following changes to the tax rules for investment properties, as some commentators had predicted. Those dire predictions now appear to have been based on little more than scaremongering by landlord lobby groups."

I recall that a lobbyist was saying that rentals would increase, implying the poor suffer. After a year, we know its not true.

"The latest survey of real estate agents by economist Tony Alexander and the Real Estate Institute of NZ paints a grim picture of the housing market as it heads into winter."

Instead of "grim" use "healthy".

by kiwikidsnz | 9th Jun 22, 11:00am 1654729202

NZ median rents increased 7% in the year to March

by JimboJones | 9th Jun 22, 1:41pm 1654738898

So just over inflation then. In fact probably the least real increase in a long time.

by IT GUY | 9th Jun 22, 10:48am 1654728492

I was reading a paywalled article on the AFR, some commentator was predicting a 10-15% fall across Sydney/Melbourne over the next 12 months, but interestingly predicted most of that of the coming couple of months....

Most Markets take the Stairs up and the Elevator down.

Tony knows full well that Capitulation in NZ housing market would be very ugly, it would occur under duress and the market would probably be 25% off before it occured, Mass Mortgagee sales at the point would truely drive the market lower. What saves us over the US market is the fact NZ Banks hold loans on balance sheet..... I do hear there are some difficult conversations between banks and lenders happening.

If the banks start forcing sales as people holding on Interest only loans we will not see FOMO or FOOP we may see POOP

by Rumpole | 9th Jun 22, 11:08am 1654729682

Tony's assesment of the market today is pretty fair but actually reflects a lag of 1-3 months as sales take time to register and this lag probably fortels that the market will go soft, even softer than the usual winter decline so spring 2022 will confirm the real trajectory.

by WestieAJ | 9th Jun 22, 10:50am 1654728625

Forget FOOP. What about POOP. You didn't just drink the Kool Aid in 2021. You snorted the powder straight from the packet. Now you have discovered it has a laxative effect on your finances.

by Averageman | 9th Jun 22, 11:07am 1654729675

Poopcorn...

by kazadi | 9th Jun 22, 11:41am 1654731695

Does any one else here think that the timing of this and other reports are relevant. Just enough time for Adrian Orr to reconsider increasing the OCR next week by 50bps, thus hammering another nail into the property coffin.

Is the real estate industry ( including Mr Alexander) still trying to spruik the price up?

by HouseMouse | 9th Jun 22, 12:01pm 1654732870

Wouldn’t put any nefarious strategy past the spruikers…

by linklater01 | 9th Jun 22, 12:03pm 1654733025

A few weeks ago, I posted that following my cancer diagnosis last year, i had made the decision, reluctantly, to put my small Mount Maunganui rental on the market after 22 years, but it appeared to be exactly the wrong time to do so.

Well, not many were appearing at the open homes and nobody went to the auction last Thursday, but by Sunday I had had 2 conditional offers and then an unconditional offer at a decent price, so there is still some life left in the market. It went to a cashed-up investor.

by IT GUY | 9th Jun 22, 12:32pm 1654734746

Sorry to hear about your illness, Glad that you got an outcome that suited you. The Mount is still a nice place to live, there will always be buyers.

by linklater01 | 9th Jun 22, 1:55pm 1654739739

IT Guy,

Thanks. I also live in the Mount. I came here from Scotland almost 19 years ago and have never regretted it.

by In Vino Veritas | 9th Jun 22, 1:12pm 1654737143

Linklater, I hope the prognosis is OK, and you go well. There will be plenty of investors out there that will be looking for bargains. I know of at least 20 that have cash and are waiting a wee while to see what happens. They won't wait too long though. I'd contemplate it myself, but my plans are offshore at the moment.

by linklater01 | 9th Jun 22, 2:05pm 1654740354

In Vino Veritas,

The prognosis was terrible; stage 4 renal cancer with mets in lungs and liver-no op. possible. I thought that was it, but my one chance lay with an unfunded and quite expensive drug combination. I went for it and the results to date have been amazing. The main tumour is shrinking, while almost all the spots in my lungs have gone. I am one of the very lucky ones, both in the effects of the drugs and my ability to pay. Sadly, many Kiwis are denied access to live-saving and prolonging drugs because Pharmac remains underfunded.

In Vino Veritas, in Aqua Sanitas.

by John2 | 9th Jun 22, 7:15pm 1654758928

Where as in offshore?

OZ has too many taxes. Us might be a good prospect unless peaked already. The rate hikes certainly will do it.

by Von Metternich | 9th Jun 22, 1:36pm 1654738586

Property owning spiritual boomers are dreaming on this one.

Inflation is going to be driven by the food crisis (fertilizer shortages going to drive down crop yields) compounded by our food importing dependency and high oil prices. It will cause significant demand destruction, coupled with higher interest rates as a requirement to deal with fewer exports (see above) and higher import costs. Either the Interest rates keep jacking up or the exchange rate is sub 40c to the USD. The interest rates need to keep going up to keep money in the country.

Why should you be privileged with your artificially high capital gains, using the active support of the government, at the expense of everyone else? The government should pull your life support and let you flatline.

The RBNZ obviously made a conscious choice to not take the blame for the housing bubble blowing up, by allowing the bubble to continue on, because all invested parties (the banks, the establishment media, the speculating public, the property industry, construction industry and the elected government) wanted it to continue. The Federal Reserve made the same choice in 1929. I suspect that is why there was significant leadership turnover within the RBNZ and the RBNZ waited until the market had started to stagnate before it raised rates.

The RBNZ made attempts to control the market using qualitative pressure on the banks, primarily due to concern about the possible collapse of the banks if a substantial portion of their mortgages turn bad. That is what the CCCFA is all about.

The fundamental mistake that RBNZ has made is allowing leveraged speculative borrowing to purchase property using existing equity in property as capital. I am very certain there are lots of speculators who are leveraged to the hilt, with mortgage layered on top of mortgage to benefit from the capital gains on numerous properties. These positions are going to be very painful to unwind and will bankrupt thousands of punters.

The fact is, Landlordism is systematically privileged in New Zealand and the property owning class effectively taxes the productivity of all workers with artificially high rent, due to the need to pay artificially high mortgages and to pursue yield. It is a drain on the productive economy, in which everyone wanted to get rich quick without doing the work.

The consequence of this will be a decade or more long economic depression. Think Japan in the 90s.

by Averageman | 9th Jun 22, 1:48pm 1654739302

Well said. The only real winner is exporting its profit to Australia on a regular basis. The speculators still holding excessive debt are about to wake up to the fact that they are the risk proxy for this profit.

by Independent_Observer | 9th Jun 22, 2:55pm 1654743352

Great post - not so sure about the economic depression bit at the end, but otherwise more or less agree.

by OldSkoolEconomics | 9th Jun 22, 8:19pm 1654762748

Thanks you. Nailed it with this comment.

Trouble is that our choice next time is between National (7houseLuxon wants to try and bleed as much out of his housing as he can). And more of this lot.

Its really quite incredible that noone has any sort of long term economic strategy for nz.

Economy students worldwide will study the NZ economy in recent years - in the same way they study the tulip bubble. And wonder.

by Fitzgerald | 9th Jun 22, 11:26pm 1654773970

They will look at Orr and wonder what his agenda really was.

He certainly hasn't been working for the stability of our financial system.

by Feijoa | 9th Jun 22, 1:43pm 1654739015

This warms the cockles of my cold yield-driven rent-seeking heart.

by Nifty1 | 9th Jun 22, 2:03pm 1654740193

It's amusing how excited the same commentators get everyday at the same or similar news...

by JimboJones | 9th Jun 22, 2:11pm 1654740704

Classic. Although the predictions do keep changing, from "flat" to -3% to -5% to -10%, etc. Doesn't seem that long ago that Tony was predicting more price gains. Commentators like being more and more right by the day...

by OldSkoolEconomics | 9th Jun 22, 3:09pm 1654744171

Anyone with decent morals and a basic understanding of economics/risk never listened to the commentators and nzh etc. And WE Certainly didnt buy lots of property (the lack of regard for those that need houses and risk of the asset bubble is what worries me most about 7_house_Luxon and will cost him and us dearly).

Simple rules. Work hard, have a good work life balance, acquire useful skills, look out for others.

by AdamJay1990 | 9th Jun 22, 3:25pm 1654745134

Here's a fun one:

136 Pah Road, Royal Oak bought for 1.431 in December

https://homes.co.nz/address/auckland/royal-oak/136-pah-road/Y1JLG

The flippers changed the address to 1a Vargus Place

https://www.realestate.co.nz/42153439/residential/sale/1a-vagus-place-r…

Replaced kitchen and bathrooms, landscaping etc.

Now listed at an asking price of 1.425.. woops.

by JimboJones | 9th Jun 22, 4:00pm 1654747216

$1.45 mil for a nice done up 3 beddie in Royal Oak seems like a bargain compared to last year. I've heard of people paying more for a shitbox in South Auckland.

by Nifty1 | 9th Jun 22, 9:02pm 1654765356

That's it, when do we get to the 'bargain' stage and people jump back into the market...

by JimboJones | 9th Jun 22, 4:27pm 1654748833

Funny that they didn't put up a decent fence considering the front yard is the only yard. The street name change was genius. Feel sorry for them really, the do-up people aren't the problem.

by Joaquin | 9th Jun 22, 3:31pm 1654745505

Once the market starts getting some pace going down, it will go faster (check any other overheated house market from the past) The reason why is not going any faster is because the mainstream media is trying their best to water-down the situation. One News always have people from the Real Estate Institute or banks giving us an update of the situation, basically foxes talking about the situation of the farm, and people believe them.

by Nifty1 | 9th Jun 22, 7:49pm 1654760961

The market's not going down faster because people don't have to sell...for now

by OldSkoolEconomics | 9th Jun 22, 7:09pm 1654758591

Surely the pressure will come from Real Estate agents. They have to sell houses and thus will have to continually convince buyers and sellers to meet at a price .. which will be uncreasingly lower.

People will have to trade houses to move cites for work, for divorces, to accomodate new family members and trade down to retire.. etc... if they start losing jobs then the may be forced by the bank.

So houses always need to sell.

by John2 | 9th Jun 22, 7:03pm 1654758187

The only person making some serious coin in this market is Tony.

From one roof, to Newstalk Zb ,to NZherald, he is on every media platform that there is.

by Roy1 | 9th Jun 22, 7:14pm 1654758893

He is just doing his job of being RE lobbyist - anything but independent.

by Nifty1 | 9th Jun 22, 7:55pm 1654761358

Got that right, sure some of his haters here are probably his most regular readers...

by chebbo | 9th Jun 22, 7:27pm 1654759648

It's because he's prepared to say what the people paying him want to hear. That's the only way to stay relevant as an "independent" commentator. Tony Alexander is the Michael Baker of real estate.

by John2 | 9th Jun 22, 7:12pm 1654758757

No massive 50% falls here sorry.

The employment rate looks healthy

There is never been a good time for a pay rise then now.

Job prospects are good which means fewer distressed sales unless divorce , deceased etc.

If you can hold on - guessing most can unless you borrowed more than you can chew and combined with above issues you will hold. There is nothing like Kiwis hanging on to property.

by Independent_Observer | 9th Jun 22, 7:24pm 1654759464

The employment rate is very unhealthy....every time its been this high its resulted in financial chaos (because of what central banks end up doing in response to it...)

There's a reasonable probability in the near future of recession, job losses, debt defaults for poor performing companies...and possible share housing market crashes.

See here:

https://th.bing.com/th/id/R.6db4d7b4443b05693b929205a5723350?rik=HrwFkS…

by Miguel | 9th Jun 22, 8:34pm 1654763656

Go have a look at the employment rate in any country as their property bubble started bursting. Almost always looks great. But unemployment lags the collapse in housing bubbles - usually by around 1 to 1.5 years.

Claiming "employment is high, so prices cant fall significantly" is just demonstrably false.

by Nzdan | 10th Jun 22, 9:07am 1654808863

Being employed doesn't change the fact that borrowing power is down 30% in the space of 12 months i.e. we have gone from 2.5% 2 year fixed rates to 5.35%.

by John2 | 9th Jun 22, 7:25pm 1654759517

When do you think it will reach bottom?

by HouseMouse | 9th Jun 22, 9:39pm 1654767585

Probably around this time in 2023, then it will be 'rescued' by cuts to the OCR.

by Piggy | 9th Jun 22, 8:33pm 1654763597

This could all change. Did you see Target’s results? Too much inventory = possibly the peak of inflation according to Jim Cramer. That in due course could max out the OCR hikes and level off interest rates. The government has also just announced the roll back of the CCCFA impacts. Plenty of first home buyers sitting on the side line - they will blink first.

by Small Kev | 9th Jun 22, 10:13pm 1654769631

All sound like part of the game to me.

by Pdiddy | 12th Jun 22, 4:13am 1654964012

I agree that FOOP is stronger that what we had ie FOMO, which was driven by low interest rates and agree that the market will soften/drop with lack of people coming in to the country and many likely to leave to places like Australia but will it drop all of the market generally ?

I know if I had a property where I was highly leveraged and didn’t like the thought of my cashflow being reduced via higher interest rates I would look for work where 1/ there was good paying work and 2/ where prices were comparatively low and try to realise any equity I had in the more expensive area by selling. If other people think like this then some provinces should hold there value more so than some of the larger areas.

Build costs are not coming back in a hurry anytime soon so as long as they increase won’t that help also push demand to the cheaper type areas?

I know some places in Taranaki still have listings around and even under the 400k mark but it may be a 30 minute commute to the bigger area ie New Plymouth which if you are used to commuting in Auckland it’s probably a pleasant drive by comparison.

I can’t see the value of these properties going down, landlords are not selling up as the rents are high enough to cashflow these properties and despite what the public perception is a lot of landlords don’t like to kick a family out knowing there is a huge lack of rental properties for tenants to move into

It is too costly to build for rent even with the ability to claim the interest as sections are likely 200k plus even in the cheaper areas so the stand alone property at 400k approx I think will mostly hold value

if interest rates hurt cashflow and they will then I know I would sooner have a bit more going on my dinner plate than in the banks coffers every week.