Housing prices declined significantly in most parts of the country in May.
According to the Real Estate Institute of NZ's May sales data, the national median selling price declined from $875,000 in April to $840,000 in May (-$35,000)
Most regions recorded significant price declines in May compared to April, although half a dozen - Bay of Plenty, Taranaki, Manawatu/Whanganui, West Coast, Canterbury and Otago, recorded increased median prices in May compared to April.
However although the median price increased in Canterbury, the median price for Christchurch declined by $23,000 in May, dropping from $710,000 in April to $687,000 in May.
Similarly, although the median price increased in the Bay of Plenty, it recorded declines in Tauranga -$25,000, Whakatane -$65,000 and Rotorua -$53,000.
That means that of the major centres, only Dunedin posted a rise in its median selling price, which increased from $631,000 in April to $642,000 in May.
Prices were particularly weak in Auckland, where the median price is now lower than it was 12 months ago.
Properties in Auckland's central suburbs and on the North Shore appear to have suffered particularly large price declines, with the median price in Central Auckland, which includes some of the most expensive suburbs in the country, dropping from $1.3 million in April to $1.18 million in May (-$120,000) while the median price on the North Shore dropped from $1,450,000 in April to $1,305,000 in May (-$145,000).
The table below shows the median selling prices in all regions in May compared to April.
Sales volumes were also extremely subdued.
The REINZ recorded 5556 residential property sales in May, down 28% compared to May last year.
In Auckland, sales dropped to 1761 in May, down 38% on May last year and in the rest for the country excluding Auckland sales were down 23% compared to May last year.
REINZ Chief Executive Jen Baird said potential buyers were taking their time to make decisions and had more confidence to negotiate prices, while vendors were recognising the market had changed and were adjusting their price expectations to meet the market.
Buyers also had many proper properties to choose from than they did at this time last year.
At the end of May real estate agencies throughout the country had 26,435 residential properties for sale, up 78% compared to the same time last year.
"This upward trend in supply coincides with a quieter market, squeezed by tightened lending criteria, where properties are staying on the market for longer," Baird said.
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| REINZ Median Selling Prices | ||||
| May 2022 compared to April 2022 | ||||
| Region | April 2022 | May 2022 | $ change | % change |
| Northland | $745,000 | $721,000 | -$24,000 | -3.2% |
| Auckland | $1,171,000 | $1,125,000 | -$46,000 | -3.9% |
| Waikato | $858,000 | $800,000 | -$58,000 | -6.8% |
| Bay of Plenty | $900,000 | $905,000 | $5,000 | 0.6% |
| Gisborne | $685,000 | $665,000 | -$20,000 | -2.9% |
| Hawke's Bay | $770,000 | $730,000 | -$40,000 | -5.2% |
| Taranaki | $625,000 | $630,000 | $5,000 | 0.8% |
| Manawatu/Whanganui | $580,000 | $603,000 | $23,000 | 4.0% |
| Wellington | $930,000 | $895,200 | -$34,800 | -3.7% |
| Nelson | $800,000 | $750,000 | -$50,000 | -6.3% |
| Marlborough | $764,000 | $705,000 | -$59,000 | -7.7% |
| Tasman | $895,000 | $848,000 | -$47,000 | -5.3% |
| West Coast | $349,100 | $395,000 | $45,900 | 13.1% |
| Canterbury | $680,000 | $685,000 | $5,000 | 0.7% |
| Otago | $659,000 | $720,000 | $61,000 | 9.3% |
| Southland | $453,000 | $449,000 | -$4,000 | -0.9% |
| All NZ | $875,000 | $840,000 | -$35,000 | -4.0% |
| NZ excluding Auckland | $755,000 | $730,000 | -$25,000 | -3.3% |
Median price - REINZ
Select chart tabs
Volumes sold - REINZ
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220 Comments
We're going to make the Irish look like amatuers.
You are not wrong. I thought I'd plot monthly HPI change for NZ and compare it with other housing bubbles (Ireland, US, Spain in 2007 and Japan in 80's).
https://imgur.com/a/QrRprSn
Its actually pretty shocking to see how quickly prices are falling in NZ compared to other bubbles that crushed the economies of these countries.
Its a simple rolling 3 month average on monthly HPI, and all datasets are aligned to the first month HPI went negative.
Wow, that is nasty. Good work on the graph.
Wow! Great graph!
Oof.
Yes, I have to admit, before looking into the actual progression of those other markets my assumption was that we would see a massive month on month falls over a short period, making it very obvious. When in fact 1-2% falls over an extended period is the pattern in the real world. Which is much easier to spruik away as "soft landing" or "orderly retreat" in any given data set. Only when it's aggregated over a longer period does anyone look back and see the "clear" signs.
Yes having experienced the GFC in the US...it takes a while for the 'average' speculator to exit denial mode and realise that the game is up....when that happens, often 6-12 months after prices have started falling....more and more people try to exit the market...making the situation worse and the whole paradigm/psychology of the market/people changes. Its a bit like a avalanche that gathers momentum over time as it heads downwards. People start thinking more about 'how low' the market might go and not 'how high'....its when FOMO is replaced by desperation to get what ever money people can for their assets that are losing value.
'
I do wonder if that denial mode is a facade to cover the state of play while they themselves exit. Only once cashed out confess the jig is up and buy back at the bottom. I guess it pays to know how to read into statistical data at the moment as a fall of 2% seems minuscule, but in the real world it is significant. And we're seeing bigger movement than that in some regions.
I think more people are starting to think the the game might be up - I can't recall seeing so many homes listed with asking prices on trademe. A sign that people are willing to take what they can get for now just to have the house sold...
A complete paradigm shift from where we have been the last 10+ years.
Yes, and this avalanche has only just started. Having experienced Ireland 2006-2012 I think this one will run for several years. Prices will end up at least 40% down, but that’s not as bad as it sounds as it just erases 2 years of madness and gives hope to many who thought they’d never be able to own their own home.
In a falling market how does trading up usually work?
Are banks more concerned about ability to service or equity or both?
Sell, sit on cash. Take your time to buy.
If you're trading up then a uniform decline in prices will reduce the nominal value of the more expensive house (more than the decline in value of your current house) so it's a win. On the other hand the more levered up you are, the more your equity declines when the market declines. So it all depends on how big your current mortgage is.
The music is stopping. The Ponzi is unwinding.
Thank goodness ! ... houses soon to be available for regular Kiwis at affordable prices ; screw the frigging speculators ....
Unsure that's going to be the case unless you have decent cash reserves. Affordability may increase a little, but access to credit is going to be harder to come by. As always, the rich will continue to get richer, the poor will get poorer as is always the way.
Ockers are next...
If you want to show what's going to happen graphically, here's what I would do.
First of all, an analogy. You are on a road trip, that graph tells you how far you are on your journey. But it doesn't tell you how fast or slow you are going, whether you are braking or have your pedal to the metal, or when you will reach your destination.
So you look at the second differential of distance, which of course is speed. And then the third differential which is acceleration. Now you are getting some idea of where we are going.
If you take your graph, and plot the first and second derivatives, and I love you use a 3 month rolling average, you will see not just "distance", but velocity and acceleration.
Acceleration shows the force which determines where you will end.
Not pretty.
Typical Kiwi trying to out do us 😂
The experience of the drip decline sucks the life out of people and ruins families, hopes and dreams. 5-6 years into the decline the Banks and Government start to play a recovery game but it’s just fluff as prices never recover and the debt stays.
"The experience of the drip decline sucks the life out of people and ruins families, hopes and dreams"
Much the same as runaway price appreciation before the bust....
(hence why its completely insane to allow residential property prices to appreciate at far higher pace than general inflation in the economy over a sustained period....it always ends in economic crisis).
And it's why Ireland now has a Debt to Income limit of 3.5 for mortgages. That's a sure way to stop runaway house prices.
Shame both National and Labour governments denied the RBNZs request to have such a tool.
https://www.centralbank.ie/consumer-hub/explainers/what-are-the-mortgag…
it will happen it just was not possible while AKL was 10:1
Shame on the RBNZ for not proposing it sooner (I made a submission at the time supporting a DTI), opting instead for an LVR approach. My guess is that they got bullied by the banks.
Hopefully. A house provides shelter. Kiwis need to stop viewing houses as a way to make money. Bring them back down to prices where the average person can afford to buy a house.
I'm hoping the housing market epically crashes and burns people so much that they're scarred enough to avoid reigniting the ponzi again. Much like the equities crash in the 80's scarred Boomers and pushed them into assets like, well I don't know, Houses! Then maybe without the voting publics constant pressure for governments to keep the ponzi rolling along they might actually get policy across the line that's more in line with houses providing shelter rather than being a gravy train. Governments will act according to what they think the voting public wants, so kiwis lets stop this obsession with housing as an ATM.
Yes for years I've found it bizarre when I would talk to people and they would say "I'm not going to touch shares because of the speculative mania that happened in 87's followed by the crash, so instead I'm going to buy rental properties that are in a residential property market that is experiencing leveraged speculative mania"
I don't say it...but I think that this is completely insane behaviour. Avoiding one thing because it was a speculative mania, only to invest in something else that is also experiencing speculative mania with the potential losses being much higher.
…and put their money into productive investments that can add genuine value to the economy
Just an itsy bitsy gully right now...
At this point, crypto currencies are looking like a safer bet!
.. ah haaa haaa haaaa deeeee haaaa .... ROFLMAO ... ... yaaaa haaaaa hàaaaaaaaaaaaaaaaaaaaaaaaa ....
Pissed meself ... geeeeeez , that's hilarious ...
Yeah.... Nah. Unproductive asset, only supported by cheap credit. Only value is the promise of future application and uptake.
Id sink everything into 3% yield rentals before buying a single crypto.
well... I work on some of them.
Never been very into speculating on them, but some are not at all unproductive
Arweave gives you a mean to store files for 250 years
FileCoin gives incentives to support IPFS
There is one (don't remember the name) to support p2p wifi communications
BittorrentCoin backs bittorrent givers
Monero and privacy coins in general give... well.. privacy
... but yes, from a speculative standpoint many are just very dangerous stuff
Auckland HPI down by 1.6% MoM. Has fallen by 2% a month, on average, for 6 months now.
needs to happen for another 12 months really
Strong falls in the HPI, especially in Wellington. Down 10% in the last three months...
https://www.reinz.co.nz/Media/Default/Monthly%20Press%20Release%20Asset…
The report is still trumping the year-on-year gains which will soon have rolled over into losses.
RBNZ deliberately created the ponzi (remember Orr calling unaffordable prices a 1st class problem?) and now they’re popping their own messy bubble … what a time to be alive
Rising house prices a "good problem to have" and a "sign of our success" - Bill English
[John] "Key said Government's role was to protect the value of equity in home owners' homes."
"People 'expect' the value of their most valuable asset to keep rising" - Jacinda Ardern
We have really suffered from housing being erroneously treated as a welfare scheme rather than a market. RBNZ sprang to the rescue when storm clouds appeared, but the need was created by poor governance for the last few decades.
Lots of politicians aspirations of their own personal wealth.....own multiple properties.
And if that's the mindset of a politician in how best to feather their own nest, then how on earth can they switch hats when the turn up in the office each day and try to figure out how to make this country a better place for all of us?
More and more, if you're not experiencing and suffering directly from their policies, then you can certainly see it affecting the people around you.
It's tragic.
They talk the talk on productivity, but they speculate on land.
Makes me think of the corrupt Roman senate before the fall of the empire....it gets to the point where the average person just wants someone else to save them from the out of control political class.
There is a list somewhere online of which MPs own how many houses (here https://www.newshub.co.nz/home/politics/2020/08/the-number-of-propertie… very interesting reading)
Personally I think Winston (who owns a few, but i think invests across the board) is the only one that is on record saying they need to fall - and he says it regularly.
So for me at the moment whichever of the main parties leaders get in next time i will try to make sure they have to deal with Mr Peters - who is pretty forceful and should be able to stop stupid ponzi. decisions
definitely wouldnt trust either of 7-houses-talk-about-half-ass-crime-policies-luxon and dont-worry-we-will look-after-your-property-investment-whilst-making-prices-unaffordable-and-take-a-huge-risk-with-our-whole-econony-to-get-votes-now-jacinda
That Jacinda Ardern comment was a real knife in the back.
I will never forgive Labour for that.
Likewise....it made me think that Adern is no different to John Key....weak leaders...both campaigned on improving house affordability...only to completely reverse their position once in power....
Obviously the power goes to one's head once in office and they forget what it was that they campaigned on.....lack of integrity and ability to remain true to ones principles.
I'd argue they never held principles to begin with. Key was a forex trader, known for his ruthless streak in the industry. Jacinda, a career politician with a background in PR (I wonder if she read Edward Bernays?).
Yes - Jacinda may have learned a lot from her work experience in the office of the famous 'socialist 'Tony Blair - you may remember him as the guy who invaded a country on the basis of the most solid evidence of weapons of mass destruction and a war which had nothing to do with all their oil or his mates promises of good jobs after - and whose family is now worth nearly a billion dollars.
They deluded themselves on their own propaganda and the Lies they were fed by their Zionist advisors and Intelligence Services.
von M - I do not like or agree with the anti-semitism of your comment.
I think there are some old school dinosaurs in the treasury, that probably 'advised' them that a house price bubble is a good problem. The Treasury really needs a clean out.
Treasury was also a significant influencer in causing the Leaky Buildings Crisis.
But prices are falling no? If it gets to election time and they have dropped significantly doesn't the criticism of Labour for not doing anything become mute point?
I will surely not vote Nat, but Labour has very little to be proud of.
They both allowed this crazyness to happen.
To be fair, at least, they agreed on the intensification rules.
To be fair, also, the removal of interest deductibility was a good move.
But still.... in the meantime... how many lives/marriages/childrens have suffered for their prolonged inactions?
For what?
Labour is supposed (ideologically) to stand for the labour (people that work => lavoro => labour). That is supposed to be the main ideology.
Did you see that happening?
National is supposed to stand for companies that produce something (not for asset owners, even if sometimes that overlaps)
Did you ever seen that happening too?
They are not representative of anybody they claim to represent.
They represent fear, cowardice, slowness, allergy to changes. Whoever votes for any of them votes for these things.
Reinz a bit behind the times not separating Otago and Queenstown lakes district. Hard to know what’s happening in Dunedin when you include Queenstown.
All other players make the separation.
Queenstown Lakes is at least called out separately though, even if it is also aggregated into the Otago figures.
Interestingly Queenstown Lakes was the only area with a meaningful HPI increase last month, up 2.3% MoM.
Lots of Aucklanders selling in Auckland and moving there, perhaps. Seems to be on trend.
Yes, that must be part of it particularly with the increased acceptance for remote work. Two other factors:
- We have an ageing population and it's a popular place to retire for people into walking, cycling, skiing, etc.
- It's popular with the Australians, and there would have been some pent up demand after the Covid border closures.
And I think Queenstown is tied to the international property market in a way no other NZ property market is.
So is Waiheke but that may not save it
Not sure why you would considering the summer we have just had in Auckland.
They are broken out in the HPI graphs
https://www.reinz.co.nz/Media/Default/Monthly%20Press%20Release%20Asset…
Looks like Dunedin is falling like most places, Queenstown less so. No sign of the big monthly bump seen in the median data so I think we can safely assume that's a composition of sales issue.
Still amuses me how since prices have started falling, they've change the timescale on those charts. It use to show prices I think back to about 2000 so you could see just how much prices were appreciating, and now only show the last 5 years...perhaps so that its harder to determine just how much downside risk there is.
Might just be an odd coincidence....but perhaps not.
Interest.co.nz might need to buy some more stock photos of houses burning, houses falling off cliffs & stormy clouds - sh*t looks like it's getting real...
Bad News Stock Photo companies may be the only good investement out there right now.
Is it possible to get the REINZ data set in excel format somewhere? [Greg Signal]
Still as predicted so far. Main centres no longer have the price premium post COVID and you can move to the region's. This coupled with the fact that they were way over inflated to start with and prices are in a region that is simply unaffordable now has seen big falls. Tauranga still holding up for now but it depends on what happens with interest rates from now on. The price gap between Tauranga and Auckland will close up.
Are you TTP's alt? You have a very similar vocabulary and grammatical style.
They just payed attention in school. Or we got wacked.
Did you mean "paid" and "whacked"?
Perhaps you did not pay attention in school?
I weren't the school ducks. Thanks for pointing that out their for us.
Trevor Mallard was the school ducks ... still is a bit of one ... Quack !
What sound does a subatomic duck make?
Quark!
That joke is fowl.
Dux even
I suspect that Beanie is doing a funny.
Same guy, TTP post with several alter egos.
Might help healthcare wait times in Auckland, while making them worse in the regions.
From what I read in the chart, many regions have recorded bigger falls than Auckland, ie Hawkes Bay, Nelson, Waikato and more. And no region is immune when there is a ‘next best’ at a lower price. Auckland prices will always be under pinned to some extent by its location, beaches, universities, international airport, freight centres, industrial base, job opportunities, and its moderate climate. You might not like it, but it’s a fact. Auckland is still a pretty nice place to live, despite the efforts of the government and its council. Just choose your suburb wisely.
"despite the efforts of the government and its council" what in particular? I think the council have done some pretty good things, my only criticism is that they haven't done enough.
Tauranga house prices will crash just like rest of country nice place but million plus dollar houses don’t think so, as inflation and rates climb more will come onto the market over leveraged people will start selling at a loss if they can find a buyer.
Tauranga is a quite pleasant, but very bland and boring, regional backwater.
It's way overpriced and will correct significantly.
This is just the start with NZD tanking making inflation higher and rates climbing with no stopping soon, its going to be a huge capitulation of house price’s over next few years.
Are we there yet?
NZ does not do high speed trains... but me thinks this crash is looking pretty high speed..... We could possibly get to the bottom quicker then the Irish
Play stupid games win stupid prizes.
Hutt Valley Market Update13th June
A couple of interesting updates this week.
Firstly a huge jump in rental listings from 204 last week to 232 this week – a whopping 15% increase in listings
Secondly this one roof article on the Hutt Valley
I note that Shane Brocklebank is reporting a number of things I have noted in my updates in recent weeks including that for every 1% increase in rates asking prices are dropping by at least 100K - in fact QV has them dropping 130K since Nov and homes shows now a drop of $160K - in that time interest rates have risen 1.75%
Current Market Listings
587 houses on the market- down 13 on last week – lowest number of houses on the market since March but still 2.5 times the number this time last year when 230 houses were for sale
Based on the REINZ data which showed that 96 sold in Feb and 104 sold in March and 98 in April giving an average sale of 25 houses per week– 599 houses means there is 23.5 weeks stock on the market.
I am still expecting given the withdrawals and low number of listings for the number of listings to fall to around the mid 500’s by mid winter before picking up again in August.
House Price Reductions
311 houses have a listed price
60% of the houses listed with a price have reduced their price since listing
The average markdown is steady this week at 89K.
Of those that have listed prices (pool 311) -39 have reduced their prices by 100K
7 have reduced their prices by over 200K, 2have reduced their prices by 300K and 1 now has reduced their price by 400K with the biggest reduction been 410K (a total 25% reduction)
The data continues to show the majority of houses listed are under 900K. The Median house price for all 600 listings is now 829K. (this is a new low for this year)
The latest QV valuations (valuations by QV which are updated every month and give an approximation of a houses value) have dropped $130K since Jan for the Hutt.
In April the QV valuation had dropped 80K – approximately 20K a month since the start of the year but this escalated in April – dropping 50K in one month.
Meanwhile Homes based on last weeks update is inline with QV and indicating there has been an approximate $160K drop on house prices in the Hutt valley– since the peak which they are indicating was early Nov 21. According to homes prices are back to June 21 prices – so flat with this time last year.
Houses sold vs houses removed
My records show 194 houses listed with a Price have sold YTD (up 6 from last week).
I have records of a further 154 houses (up 3 from last week) that have been removed from the market unsold YTD.
23 of those houses removed from the market have been listed on the rental market (up 4 on last week)
Length of time on the Market
- 428 of the houses have been on the market for over 30 days - 73% (last week it was 439)
- 315 of the houses have been on the market for over 60 days - 54% (last week it was 322)
- 186 of the houses have been on the market for over 90 days – 32% (last week was 179)
- 118 of the houses have been on the market for over 120 days (last week was 110) - 20%
The number of houses on the market over 60 days is now over 50%. This has risen from 32% of houses in mid March (one in three) and just over 1 in 3 houses have now been on the market more than 3 months , almost 1 in 5 have been on the market over 4 months.
The time to sell continues to get longer and longer.
Rental Market
As already noted the rental market has 232 properties for rent (up 28 on last week – a whopping 15%), and up 103 on this time last year, – when just 129 houses were for rent. The number of rentals has almost doubled on last year
Average rental price reduction is back at $53 a week – one property has dropped their rent $210 since listing from $700 to $410. 40% have dropped their prices since listing.
At the moment the percentage of properties listed at $650 is 46% - last week it was 45%. Still well below the 53% of houses listed over $650 on the 23rd March.
Only really fair to compare houses for sale now to pre COVID numbers. Tauranga up about 10% so not really massive.
Is there actually a housing shortage in NZ or not?
Is this growth in rentals coming online with people bailing out of the country and putting their home up for rent?
I don't know the number of houses in NZ vs number of people looking so can't comment on whether or not there is an actual housing shortage.
However, regarding the growing number of rentals, anecdotally I believe it is being driven by an uptick in speculators tenanting homes that otherwise would have been empty. I used to work at a law firm with a property developer that I've kept in touch with, and I also have two family friends that were caught up in the buy-and-reno mega-speculation of the last five years. In the past, the property dev and both family friends would buy a home, do it up, and then sell it, without living in it or renting it out.
However, all three of them are now stuck in situations where they haven't been able to find buyers for their houses at prices above what they paid for them, despite having finished renos (all three have given up looking for buyers now). Rather than face selling the house for less than they paid for it, all three have decided/been forced to start renting out the houses to cover increasing mortgage rates (otherwise they are stuck paying a massive bill while they wait for the market to turn around). I'm pretty sure the three of them plan on renting the properties out for at least a year, on the basis that things will eventually 'blow over' and we will see another bull market in a year or less (personally don't agree with them but just stating what they think).
This is obviously just anecdotal. But wouldn't be surprised if this is happening on a larger scale, hence the massive jump in number of rentals (also: got me thinking ... as the number of rentals go up, rent prices go down, meaning developers may not be able to cover mortgages based purely on rent alone ... interesting thought)
The 'shortage of houses' is a tricky call - because it is dependent on price - like everthing higher prices/reduced demand. When prices go up kids stay at home longer, young couples bring in flatmates to help mortgage, etc. That is why the average occupation is auckland is about 2.9 people per house compared to 2.6 in the rest of the country. The earlier RBNZ saw a shortfall of around 72,000 homes, but a lot of immigration since then. But if we magiced up 72,000 homes relative prices would have to drop to 2004 levels before they were absorbed.
The numbers I read were pre COVID estimates of around 80,000 homes shortage. Since then though we have been building like crazy and had zero immigration. So I would suggest now there isn't a shortage now using the metrics previously used.
I have a friend doing the same. He was planning to sell, couldn't get the price he wanted, so is putting it up for rent. This is in South Auckland. I mentioned prices might go lower, but he still believes that prices only go up, and vehemently argues for this assumption. I seem to trigger people when I mention that prices could fall further, but why listen to warnings from a young woman, even though I work in financial risk.
Look back in 30 years and you will realise you weren’t as smart as you think you are now. Risk is a broad church. Much of it as boring and banal as bookkeeping.
We may have also had 30 years of making idiots think they are smart (by dropping interest/discount rates applied to cash flows to zero).
In 30 years I will be retiring, and the boomers will be dead, that is a long investment horizon. I think i'll look back at a lot of things as not being smart, including people who took on too much debt at the peak of an obvious property bubble. Agree risk can be boring and banal like book keeping, but it sure gets interesting during bear markets :P I think this will be a once in a century boom and bust cycle.
"That said, the Baby Boomers will be 75% gone (figuring the statistics of an average 72 years old for the whole group) at about the age of 80…. Averaged across the whole group, this implies that at about 2035, “most” boomers will have died."
:D
Haha, touché!
There are also empty houses all over the place. I'm sure you could probably think of a couple off the top of your head near you.
What I've been finding most interesting is that it's not the empty houses near me that are going up for sale, but the rentals.
I'm wonder a) who owns the empty houses, b) how long have they owned them, and c) at what point will they decide it's no longer worth holding them (as I suspect a number are internationally owned)?
You might find that it is the people who have real wealth who own the empty homes (i.e. can afford to leave them empty with no income generated).....and its those who have no real wealth, but have just been a parasite on other peoples income, who have been buying rentals (using excessive bank debt to do so).
hamish- i cant comment on the whol eof NZ but happy to comment on the Hutt Valley- looks like its a few things
- there are a large number of new builds in the hutt valley now complete and renting - this is adding to the stock of both houses for sale and rent
- A number of houses are not selling and are now being rented - im aware as per my report of 23 houses with this scenario YTD
- I'm aware of quite a few people moving out of Wellington including young ones who have gone overseas. I suspect but cant confirm like Auckland Wellington may have a case of negative population growth
- A number of migrants (on working and temporary visas are moving back home or to other countries or regions)
- There will be a number of young people who are now first home buyers who have left their rental properties
All of these factors are combining to drive up supply and reduce demand
This is a question that I really want answered. I don't think anyone actually knows.
No there is no housing shortage. People throw numbers around in the 10s of Thousands in terms of shortage, but really. There are not 30,000 people out there living in tents.
Plenty of space and Houses available. The issue is the market being artificially pumped by special interests and run away credit availability.
I'd like huge oversupply.
But yes, what you say is very true.
Thanks as usual for all the updates.
someone dropping the rent from $700 to $410 somehow nicely encapsulates some of the greed and hubris of our housing market
Really appreciate these updates, ikimpaul. We made a number of offers last year and missed out - now looking at the prices paid and doubt those places will sell at those prices again. Okay if the new owners had plenty of capital going in but I certainly feel for those who mortgaged themselves to the hilt at the peak of the madness.
universe looked after you Kate. Definitely you didnt 'miss out'. Might have been the luckiest thing for your finances
interesting observation I forgot to put in my update - in regards to 2 houses that came to market last week that sold a year ago
1. Sold for $1010000 in June 2021 and is now listed at $1050000 - ie no capital gain once you pay the RE fees. Took ages last year to sell roughly 3 months on the market.
2. One that sold last year way for $1.6M in March. It sold for way over its valuation of $1.3M at the time (2019 RV was $1M)
I'm watching with interest to see what both of these properties sell for and if a haircut will need to be taken
I know them both! Neither were ones we previously looked at in 2021 :-)..
The latter would be a really windy site I imagine (only took 6 days to sell last year!) and the former, yes it took a long time to sell last year when the market was hot.
I recall when one of our kids bought their first house - it was a hot market - and the agents kept showing them houses that in a slow market would take ages to sell - and telling them they needed to act quick or they'd miss out! The pressure on them to buy a dump at an inflated price was so high by the agents - that my husband and I drove down to Welly from Tauranga to spend the weekend 'shopping' with them. At their FHB price range they were competing with the buy-to-rent crowd. We convinced them to borrow $20K more to get into a price bracket that was just over what the buy-to-rent crowd were paying. Worked a charm and they got a lovely "issue-free" property. It was a stretch financially at the time but nothing like this happened thereafter.
I've never seen the market turn as quickly as this one. I really do feel for the FHBs that might find themselves in a hard place having bought the peak. The Helen Clark foundation had some ideas on the potential underwater issue where FHBs are concerned - and I think the idea might need looking into by this government.
Not missing out at all.
Keeping your options open.
Bargains aplenty in 6months time.
I also missed out last year, Kate - to some extent due to my partner's refusal to buy a house at auction and for a ridiculous price to boot. Thank goodness! How lucky are we!
Yes, particularly if a FHB you are very lucky!
NZ property prices appear to be highly correlated to the very speculative US share market.....just 3-6 months behind in terms of price falls.
Hold on tight! I've got my popcorn ready.
This style news is a self-fulfilling prophecy. If the media suddenly reported that prices were in fact raising people would start buying again and prices would stabilise.
Percentage wise housing is still doing remarkably well compared to say Crypto where in just the last few months I've lost over 60%.
But agree it's not a great time if housing was your short-term investment strategy, or if you were counting on capital gains.
If the media suddenly reported that prices were in fact raising people would start buying again and prices would stabilise.
With interest rates rising? Not on your nelly!
Without significant real income increases, increased serviceability costs dictates reduced prices - and significantly reduced if you're talking about 30 year terms.
People simply can't afford yesteryear's prices at today's interest rates - because they never could. The banks have shafted us all, as their RBNZ/government-supported greed met a supply of under-educated fools.
Not to mention wages being inflated away by CPI. Less money to service more expensive debt. Outlook for the next year, even less money, even more expensive debt...
If the media suddenly reported that prices were in fact raising people
You mean, if only the media ignored reality and lied to the public, then my property values would still be going up.
That's true but percentages tell you nothing really it's all about the amount invested. Really you don't care about a 60% drop if you had $100 in crypto but anyone with what a house is worth in crypto has been smashed.
Same goes with term deposits to a degree. Putting $5 million in a BNZ term deposit for 5 years at 3.9% will still get you over $100k after tax, which is more than enough to live on + save. Might not beat inflation of course, but if you're retired and you're not yet eating your cash pile then it's still a win.
Actually you don't care if your eating your cash pile as nobody lives forever. Turn 65 and then you get super to slow it down. You probably don't need as much saved as people think if your mortgage free by 65.
No one should be surprised at the revert to mean as years of completely artificially funded speculation. Its time for some more lyrics...
Down, down, Down to this funky town
Down to this funky town
Down to this funky town
We're going on down
I also think of The Stone Rose’s classic ‘Fool’s Gold’
My thoughts are, 'how many low LVR buyers are now in negative equity but don't realise it yet?'
A young couple I know separated before Xmas, and in the wash up she bought him out of his share of the house. The result now is he took away cash equity so is fine, she just managed to get a huge mortgage but 6 months later now has pretty much no equity left. She is still making the payments and has a house to live in so is sort of ok.
Compare that to a similar couple that separates today. There wouldn't be enough equity left for either of them to get into their own home.
Sorry to hear that. When people say don't worry about negative equity and just ride out the storm if house prices do fall, that is fine....but I think back to watching a few divorces etc during the GFC in the US (an experience of what really happens)....a few very similar to what you mention above. The one who thought they got a bad deal by losing the house...ended up finding out that there was a silver lining to the bad situation (got back into the market at a later date).....and the one who thought they had done well by keeping the house.....well they carried all of the loses and some were in negative equity in a bad jobs market. Not great. Stress levels for them were extreme.
Some also found they couldn't buy back into the overheated market...single income...lower equity position....
I really hope that whichever Government is in power in 12 months or so when the housing correction starts to level out take the golden opportunity that it offers.
Cap the market with a DTI of 5. Stop the Ponzi from re-launching. At the same time offer investors alternative targets that will promote the productive side of the economy. The UK launched a variety of tax deductible opportunities ISA's etc. for example.
Probably a National government the way that polls are trending...so 7 House Luxon to the rescue? (lol)
Heres hoping.
I really struggle to imagine either flavour of Natbour doing anything other than manning the pumps to reinflate the ponzi. Perhaps the fallout will be bad enough to make it clear how bad an idea blowing these bubbles is.
reinflating the ponzi isnt going to work for quite a while.
imagine trying to convince everyone that just lost all their money on houses (if they have any left), that this time its different and Kiwi Houses really are worth megabucks.
Nah, those who have money left were the smart ones. Normally takes 3-5 years for people to forget and start over
The base is when investors enter again based on yield not capital gain
I dont think Yields account for the RISKS of property investment, specifically rapidly changing costs of interest on the money borrowed to buy the property and the risk of capital losses.
Whilst interest rates have been stable and low... and capital gains have been pretty good, the yield is surely the key criteria for investment.
However surely now we have a new world of excessive debt, house prices reductions, serious new geopolitics, wars, climate change and unpredictable inflation....
The risks associated with the capital investment and costs of servicing debt,.... should be clearer and prevent many would be property investors from reentering the market?
Yield is all about risk management, ie low yield equals low risk and vis versa.
With Govt. policies initially ensuring and protecting capital gains, then the risk is low and so is the yield.
And as prices fall, and no capital growth, based on the new valuation, yield increases to reflect the risk. And this happens without the owner having to do anything but watch the value of their property decrease.
What you might have meant to say, is people don't understand this.
Not at all.
I hadnt thought of it that way myself and was kind of thinking my way through it. I find it incredible how many people invest in property on the basis of yield and ignore the significant risks involved.
I invest in businesses not property which i understand better and am very careful to manage any exposure to external risks... so i find the current situation fascinating.
huh... nomen omen
anyways yes, I am very entertained too
The Formulas V=I/R and R=I/V say it all, and show how value (V) and yield (R) are linked and are an inverse of each other.
But still, need the human evaluation of each other to work out if the value is commensurate with the risk.
For example a commercial site with BP as a tenant and a 20 yr lease, as opposed to what someone might pay you for it in 15 years' time without confirmation of them renewing the lease, and in light of what the EV industry will mean for the fossil fuel industry. Or that same example in Auckland vs Invercargill.
For example, two new identical rental properties next to each other, one rented as an Airbnb and the other for state housing.
We have seen that it is the availability of credit that drives prices up and down. So the DTI cap is a good idea. Could also consider:
-non recourse loans so that the banks are more careful.
-decreasing the maximum term of a mortgage by 1 year each year for the next 10 years so that the maximum term is 20 years.
-deposits must be in saved cash, or a much higher deposit applies if using equity/guarantee from another property.
-a once-in-your-lifetime loan up to a certain size (maybe reduced by the % of your life not lived in nz) from a state organization at an attractive fixed rate.
"-non recourse loans so that the banks are more careful."
I think this should be a priority. The whole point of the House being the security is to cover the debt. Selling the property and still owing the bank money is a one sided bet clearly in favour of the bank.
As long as it's explicitly written that tax payers won't be bailing out banks when a mountain of non recourse loans fall over.
Good suggestions, I like the ISA idea as it could be targeted at growth sectors in our community and the DTI would really cap the market nicely.
An alternative to investing in property is still a missing ingredient. But where will people put their investment dollars when every asset class is having a bath at the moment and a recession is months away?
Those renters on here who are enjoying the fall in the price of housing with ambitions to buy are due their breath of fresh air it has been a long time of very, very frustrating conditions.
Shame the government didn't learn from Ireland and put in a DTI of 3.5 after the GFC. Instead we have to learn the hard way.
https://www.centralbank.ie/consumer-hub/explainers/what-are-the-mortgag…
Too many of our government were all in on the speculation.
Why worry about downstream risks when there is short term political capital to be gained????
There should be no surprises as to what is happening, all theory and past experience say that if we do this, then we will get that.
You can work out in 5 minutes on the back of a napkin how much NZ house prices are overvalued and the potential for any fall.
But the real issue we should be discussing going forward is, what is the plan once we hit the bottom, whatever that is?
Is it just to keep the status quo system that caused this bust to happen, so whoever is in power can then ride the next boom and claim credit for it, and the cycle to be endlessly repeated?
Or is it to make the necessary re-set at the bottom, which is the ideal time to do it, so we have a far more stable affordable housing market going forward?
As they say, 'Let's not waste a good crisis.' There is a far better NZ that can be built on the ashes of this.
You can work out in 5 minutes on the back of a napkin how much NZ house prices are overvalued and the potential for any fall.
Do you mind sharing your napkin sums, Dale? By how much do you think houses are overpriced? I'm specifically interested in Auckland.
I need to check later but the current report is particularly irrelevant data. For any report to be relevant, it should be based on a fair control group. We're looking at statistics for all sales in New Zealand, which seems relevant on the surface but once you dig in to the data and realize the control group of new buyers is heavily skewed towards those with very high incomes, you can see the gaps in the data produced. The housing market is driven by new money entering the economy, and OO contribute the least to this (understandably).
New Zealand has a limited number of FHB in the $150k+ income bracket. Once the distribution of income levels back out to where it was pre-covid, similar to the distribution within OO stats, the data will become meaningful again. Until then, it seems like reports like this one will be common. With volumes down, there is general inactivity appearing in the market with only a select few actually able to cooperate.
I am certain if the new report provided a clear outlook that the housing market was on its way back up, there would be very little increase in activity as people are simply unable to buy.
While increases were driven by "FOMO" and competition combined with cheap money, the falls can be attributed to the real world economy and the bottom will be a natural consequence rather than a moment in time where buyers start deciding to buy.
The irony is that NZ data is either not available, or is selective in its presentation, which in many cases you need to use overseas data and extrapolate from there.
But you are right that any fall has a harder economic base that underwrites how hard it can fall, and for it to fall any further than this then there has to be complete economic collapse.
For instance, in a growth economy like Texas, they have historically maintained housing affordability at around 3 to 4x median income, ie developers can buy land and develop and make a margin and successful business on that. But to go below this, then you cannot buy the land any cheaper because it has at least more value as another asset type, eg farming, commercial, recreational, etc.
But when Detriot had a complete economic breakdown, you could buy houses at 1 to 2.5 median income, ie they were being sold at less than their replacement cost.
The difference between 2.5 and 3 x median income may not seem much, but they are worlds apart when it comes to viable economics.
NZ Govt. policy has made our basic underwrite position a lot higher so under our present system it is already uneconomic to build new at 8x median income, but we are still about 50% higher than our next 'more value as another asset type,' ie this is the potential the market could fall if Govt. policy restrictions were removed either voluntary by Govt. or just by world events on which we have no control over.
Like any fall, the higher you start from the more it hurts when you hit the bottom, whereas if you are standing stable on the ground to begin with, then there is no impact, except you just have to avoid the others around you that are falling.
Such a massive risk economically, makes you wonder why it was allowed to get so bad. Generally speaking there people who are confused by the downturn claiming that with the cost of building increasing, it makes no sense that prices are going down. But as you say, that is the major risk. The housing market is breaking through the floor in that it is currently uneconomic to build, especially given the cost of land, restrictions and supply issues (hello plasterboard monopoly). Major red flags in construction and development, the resulting recession will hurt.
A lot of seemingly out of our control events going on and I'm not sure our leaky homes will stand up to the storm.
Historically, prior to 1994, NZ housing was also 3x median income, as were most other jurisdictions in developed countries..
Other jurisdictions have maintained this affordable multiple because they never allowed legislation like land supply, consenting, etc. to become an issue, to begin with.
These jurisdictions have a very stable housing market so they have a natural resilience should less controllable economic events happen.
We haven't controlled the things we could and should have, and we certainly cannot control the things we have no control over.
Successive Govts. have chosen to gamble and give NZ an artificial wealth effect fueled by speculating on housing. They have bought our votes on the promise they would take away the restrictions that cause these problems but all reneged and just allowed it to continue because it was easier in the short term.
It's as stable as a house of cards.
I dont understand how you can have housing at a 3 x median income when the cost to build is more than that? Is there so much fat in the building sector that builders could reduce costs by 25%. Surely land has some value.
I'm interested to see what an actual realistic multiple would be in the medium term...
Apparently NZ houshold median income is 110,000 NZD. So what are you gona get for 330,000
Building consent - ?
Utilitities - ?
Land - even at 0
House - 3500 per SQM even at 120SQM = 420,000
Sale costs
You must be up around 600,000 all in? Makes 3 x median difficult. Makes DTI of 5 difficult.
In terms of current costs, yep very difficult. However if it wasn't possible, it wouldn't work elsewhere. I'm sure there is a way and it will mean that not all houses are uniquely designed and built. Likely more modular and prebuilt homes. I guess if you look at the cost of the build for some of the big players in the like for like homes business, what is the buyer paying for? Materials would be the biggest cost of the actual build process, labour would be as efficient as possible. Some of those show homes sell for similar amounts to building something unique so there's surely fat in it somewhere.
Land and consents costs may just fade a little...
I imagine the cost to build a nice new bespoke home won't be dropping away any time soon but that won't prop up existing house prices. May hike rentals at some point but who really know.
1. You need more competition in the materials sector. But this is difficult to achieve. Major players have a vested interest in the status quo and they have captured the regulatory bodies many years ago. The Commerce Commission doesn’t question big players, but it certainly gets a lot of “whistleblower” complaints about small challengers and comes down very hard on them.
2. A second thing you need is scale. We are a small market and we won’t achieve scale that exists in other markets so we’re never going to be building at sqm rate elsewhere. You could parallel import more foreign product, particularly from Australia and North America, but point 1 is your bottleneck.
3. You need Council to come to the party or at least be incentivised by Government for their effort. Some Councils are too slow, too unreliable and too expensive to deal with. Maybe the GST on houses should go back to Councils to be spent on housing-related infrastructure?
4. Lastly, you need productivity. The labour can be much more productive. But in NZ many industries, not just construction, are unproductive because of cheap labour that disincentivises capex in labour-saving plant. I believe this is probably the easiest to achieve and if intensification leads to smaller, simpler homes, then productivity gains could help drive prices down in this segment.
Yea nice, I think #1 is a big problem right now. Great summary, thanks!
You raise a valid point. I am building an OO house right now. Pre-construction costs (plans, consents, reports, etc) came to $150k. Sure, in a downturn, maybe the architects will sharpen their pencil. But infrastructure charges, development contributions, utilities connections and many others won’t decrease much or at all. Yes, we are going to see a major downturn in median prices, but there is a floor and some of the DTIs suggested are dreams.
Given that houses need to have more materials in them due to better energy efficiency, eg solar, more insulation, etc. I estimate that we should be aiming for 5x median income as an easy enough target. We are about 10x now.
But it is simple maths, and is directly related to the barriers Govt. policy puts in the way of a truly competitive market. I've worked in development in both NZ and Texas, and it's as easy as Govt. policy allows it to be. And remember it used to be this easy in NZ.
The simplest way to understand it is this way. If a farmer goes to buy a dairy farm, the price of that farm is determined by the return they get for the milk.
So the price of dairyland is approx. $50,000 per ha. Irrespective of how many dairy farmers want to buy that property, most will only pay around this price unless they have a way to increase production that no other dairy farmer has.
So if any farmland was also available to build houses on, then a developer has to only offer a few thousand more to buy it eg $60,000 per ha. So eg at 10 sections per ha that's $6,000 per raw land cost. The developer cannot buy it for less than $50,000 because it has a higher use at the price as a dairy farm.
But as soon as Govt. the limits what land can be developed, first it gets land banked, so is immediately off the market, sometimes irrespective of the money on offer, and this creates an even greater shortage of supply, even though the Govt. thinks there is enough for demand. Thus developers bid against each other and now we are getting that same dairy land commanding $2,000,000 per ha ie $200,000 per section price for raw land. That's $194,000 more straight away than you needed to pay before the land is even developed. Home purchasers have no option but to change their lifestyle to afford it, ie both parents working, downsizing etc.
It's a race to the bottom, which we are well into and NZ is leading the world, ie we will win the race to the bottom.
The other two mantras around this are:
1) All restrictions to inputs in a system add costs, but no extra amenity value.
2) Any savings on any of the other system inputs will get captured by the most restrictive components and within one build cycle the price will have increased with no increase in amenity value, ie nil sum gain but the price is dearer.
If you run this exercise right through all inputs into housing, with the Govt. policy restrictions removed, you will come out at a price that is around 4 to 5x median income, and everyone that is actually doing real work will be well paid. Only the monopolistic speculative rentiers who add no amenity value miss out.
The land is the most important input, and unless the policies on this are correct, then nothing else can be correct, because if the penny drops on why this is so, then the epiphany on everything else becomes clear.
If you can't see how this works in what I have explained above, then you need to read Adam Smith's Wealth of Nations, anything by Alan Evans, or even more recently Alain Bertaud.
Ahh so it’s really not about the size, it’s how you use it!
Great eye opener. I guess with the land devalued so much there’s less demand for land banking and other unproductive means. If the land is to be bought, it will be to be used. As it really serves no financial benefit otherwise.
Interesting that policy and regulation changes could do some good for the economy come next year… just need to hit another crisis to make the changes I guess… and to convince Luxon he could get Clark Gayford to move his 7 properties onto a cheap section out the back of palmy!
Dale- what impact on land prices do you think the recent law changes, allowing much more intensification in our larger cities, will have. It appears that these changes will vastly increase the supply of potential sections/ homes in these cities. On the face of it, it would appear that this should really drive down land prices, as essentially it creates way more development opportunities.
It will have no effect for a number of reasons.
The main one is you have to look at how the price of land is set in the whole system.
And the price of all land is set by the price of the land on the fringe, ie the input price of rural land that could be developed. This curve of a lower price at the fringe rising as you got closer to the CBD is the same for any city in the world regardless of the housing policy type. So the lower the price you can buy on the fringe, then relatively the lower the price of CBD land further in. Therefore any land use policy needs as a minimum to make it easier and cheaper to buy on the fringe, especially if you want to make it cheaper going into the CBD. Land economics clearly shows this in theory and in practice.
Then there are other issues with their density rules, like if everyone can do it, then a lot of the amenity values like sunlight and privacy will be lost, huge costly infrastructures upgrades will be needed, it's more ex[ensive on a $m2 to build higher density, and even though the properties will have a total dollar cost less than a larger house, it may not be at all what the market wants as an amenity, no more than a tent is more desirable just because it is cheaper than a shoe box apartment.
What you need are fewer restrictions to build up and out at the same time. Then when it becomes cheaper on the fringe, then it will become cheaper closer in, and then those people that would like to live closer in can more easily afford to. The present policy is driving people to the fringe and out into the regions to find affordability, ie their present policies to increase density are actually driving people further out because it increases the unaffordability of all housing types.
You're right gen Y, this going on about3x multiples is just rubbish
It's only rubbish if you want to keep with the Status Quo.
And other jurisdictions are doing very low median multiples right now.
Other jurisdictions have lots of cheap stuff. We will never be similar. We simply don’t have the scale or proximity to markets to achieve the efficiency seen elsewhere. In addition, we have cartel-like behaviour and regulators with no teeth. What you see elsewhere will not be achieved in NZ in the near future.
We used to be similar, ie 3x median multiple, with less scale and same proximity, so these are a false narrative for why things cost so much more today.
We have lots of cheap stuff, based on a next best economic use basis, but Govt. policies have allowed monopoly behaviour and forced up prices.
Just by removing those restrictions we could easily lower costs down enough to achieve 5x median multiple, or more likely what will happen is what is happening now and our economy will collapse, in part because of those behaviours and then it's just a matter of making the changes at the bottom of a bust.
It's a matter of will.
If the property market crashes the economy and we need external loans to bail out banks. Everyone will cry out for a DTI of 3.5 or whatever like ireland.
Building material and tradie costs will fall with the rest of the market. So building costs and house designs will become sensible again.
Building material and tradie costs will fall with the rest of the market. So building costs and house designs will become sensible again
Material and trade costs will barely fall, if at all. Material is not a competitive free market and if tradies don't have work they will leave offshore for work and the subsequent shortage of labour will stop price attrition. This has happened before and will happen again. In fact, it's already happening and work is plenty at present.
And even if it did and the $3500 + GST per sqm we are seeing now comes down by half to $1750 + GST per sqm, you're still looking at $350k to build a 200 sqm dwelling. This is not taking into account that building performance standards are likely to increase substantially in that time, which is desirable, but will push costs upwards.
As much as I'd like to see house prices at 3x income, it's not happening anytime soon. 7-8x in Auckland is still likely, even after a crash, and if household incomes increase by a minimum of 5% for 3 years that will bring it down to 6x. Another 3 years of the same would bring it down to 5x.
One way we could get 3x is to seriously intensify, reduce performance standards, and then build 80% of new builds as apartments (probably shoebox size or smaller, I heard < 35 sqm in Christchurch on offer now!?).
To some degree (this is a little tangent), maybe we get back to a sensible idea that old unmaintained homes simply aren't worth as much as a new build. Building a new house should have a premium over something old and cold as you are getting something, well, new. There is a major issue where some old POS down the road that's falling apart costs the same as the new build up the road simply because the old house has "potential", and that's RE sales BS.
New builds could very well hit 5x income, however those building new builds will likely be the higher earners and developers/investors who have the income and equity to do so. At the moment the high earners have been caught up buying old 1br rust boxes instead.
I don't think new build costs will fall as far as old housing stock, and I do think there will be a massive strain on the construction industry over the next few years. But if we can learn from the mistakes of the last few years, I don't see why the median house price couldn't be 5x income, and the median new build maybe slightly higher...
You assume
1. there is work overseas for tradies. (from what i see the change is global and no sign of slowing. So overseas tradies will also be looking for any work locally and similarly falls in rates will mean there are few markets with excess work to goto - the whole world may have built too much at too hugh a cost for the immediate future and likely have an oversupply for some times, especially as birth rates are falling quite markedly)
2. that materials will stay at inflated prices. (i suspect the fed and other reserve banks will keep following suit on the rises til inflation really falls - the building sector and its supply chain will likely experience a serious crash and reset of prices as demand drops - i suspect they have been running at very high margins whilst demand has been high, so plenty of room to drop to meet themarket)
3. that NZ prices will stay at inflated levels. (in Ireland they fell 70% and were not as inflated as they have become here. a 70% fall from a median of approx $1m is down to $300k. if we allow for inflation remaining high whilst they fall it is surely possible they will end up in the realm of 3-4 x median wage and could be pegged to avoid another rush.
That was then, this is now, and things have changed (not for the better, either).
I don't know where you live, but I certainly don't see cheap stuff compared to other places. We're an expensive country to live in. Period.
But some of what you're saying is true in respect of land prices.
We are in agreement but talking at cross purposes. I'm saying if we make the correct Govt. policy changes when we are at the bottom of this crash, it will be easier to reset the housing economy back to a level where say a 5x median income will be possible.
Land supply has not been the issue, unless you mean land supply in the sense of not allowing intensification on existing land. Access to credit in Auckland and Wellington has driven prices. The prices in Auckland and Wellington have been caused by planning restrictions that encouraged sprawl and restricted intensification in the areas where people wanted to live (e.g. in Auckland Central Isthmus, places like Devonport and Tamaki Drive).
You have it completely around the wrong way. The ideology you are speaking about, thinks they have increased ease of use on the fringe, but they haven't.
And you only have to look at the numbers to see this. If you are paying more than 5% above the rural land price on the fringe, that is a sign that you are buying in a restricted market.
That is why the thickos' in Govt. are completely bewildered when they campaign on making housing more affordable, and yet their policies cause houses to almost exponentially increase in value.
If allowing density as opposed to sprawl was a proxy for affordability then Hong kong would have the cheapest housing in the world, not the dearest.
If their policies were working the price of housing relative to our income would be falling.
If you want to make housing more affordable you need to have fewer restrictions both up and out. The cheapest housing relative to income are those places that allow development both up and out.
All these things you've said on this thread make so much sense - very simple idea, I definitely was on the side of intensification making housing more affordable but when you consider the increased infrastructure costs of intensification it doesn't make sense. Wellington is a great example as for years there have been massive restrictions on intensification and it simply does not have the road network or infrastructure to support increasing the population in the city. They are expecting ~30,000 (LGWM ads [LGWM facepalm moment...]) new people in the city over the next 10 years and even with intensification, the prices would still go up.
Initiatives like transmission gully may make Kapiti more appealing and increase prices there, but that simply draws people out of the city and decreases the inner city demand.
As a side note the Kapiti coast is particularly interesting when you have coastal towns like Raumati high price in high demand despite erosion, Paraparaumu in moderate demand due to lower price, Waikanae in high price high demand as a retirement destination, then Otaki and Levin minutes away and the price simply plummets. Drive 5 minutes out of Levin and you're at rural prices. It's a difficult ladder to climb. (this was mainly the case before Covid nonsense but you get the idea)
As I mentioned in an earlier comment it's all in Adam Smith's Wealth of Nations, Alan Evans, and Alain Bertaud readings, but a good summary on how it works at the coal face on an international basis is the yearly Demographia survey. http://www.demographia.com/dhi.pdf
A couple of months ago, I made a tongue-in-cheek comment that when my in laws thought it was a good time to buy a cashflow negative rental property ("to lock in capital gains" ... their words) that it was an indicator the top was in - as they are the only people I personally know who have ever lost money on a residential investment property in the past, overpaying massively around the time of the GFC and then somehow selling at a loss about a decade later.
It turns out that comment wasn't so tongue-in-cheek after all.
Useful canaries, sounds like.
I'm waiting for them to tell me the bottom is in on Bitcoin, and then I'll go 100x long and see you all at the Lamborghini shop.
I'm waiting for them to tell me the bottom is in on Bitcoin, and then I'll go 100x long and see you all at the Lamborghini shop
With BTC, you want to get your lowest fiat price you think it can go to using TA, intuition, whatever. Then realize it can go down another 50% from there. This is called 'risk management.' Don't allocate your capital all at once.
DCA in is the way to go .....just watching at the moment, as only in the last month I'm in the red..... But haven't sold (too late now anyway ! ) and already learnt my BIGGEST lesson ! ......take SOME (not all) profit !! ie November last year !
North Shore is not performing as well as Rodney. Whangarei is running hot.
And I tried to check section prices this morning. Nothing affordable, is there no distressed seller out there.
Back to the headlines.
A $145,000 hit, is much worse than a crypto loss, no.
All depend on when you bought it.
Go Palmy
its turning to POOP (Pissed Off Over Paid)
But but... what about "room for upward valuation". Was this just taking the piss?
Speaking of TTP, where the hell are ya.....
Higher interest rates should’ve come at least two years ago but the Govt and NZRB decided they’d rather flood the market with credit and now we’re experiencing the consequences of that.
Average house prices will fall for a wee while because the average sale price is falling. But your own house price is always the minimum you’ll sell it for. For most people I would suggest don’t sell and just ride out the interest rates. Property values will bounce back.
Interest rates will peak over the next 18-24 months and then as they fall again there’ll be more credit available for home buyers.
There isn’t going to magically be an end to the housing shortage. In two years time we’ll still need more houses. Supply and demand, folks. House prices will pick up again. The main thing slowing the market is credit becoming unaffordable for more people.
The only real issue is going to be in some areas of the country where house prices grew well beyond real value. Small rural towns etc. some places like Tauranga and parts of Auckland won’t even see much fall in price. There’s simply too much demand. And many people can still afford credit.
Might be wrong, but I heard similar denial stories in the US when their property bubble burst....'won't fall much'....'still money to be made'.....'safe as houses'....'lower rates will save the housing market'.
Then again, you might be completely right and this all just blows over in a few years.
But in terms of 'real value'.....historically there is no 'real value' to be seen anywhere in our market. Real value would be when prices are back to far lower price to income ratios (and that might need a 50% fall in prices across the country).
Perhaps it’s our overall lack of wealth production that’s the main issue in that regard.
No I think it’s just that our houses are far too expensive relative to our incomes.
And we haven’t encouraged productivity…we have encouraged lazy debt speculation
All that tells me is people value our properties much more than they value our labour. And they'd be right.
What happens if the people are irrational?
Well, we tax our labour heavily and our properties barely if at all.
Now tell me, how do we produce "wealth"? Most people believe that house prices increasing and capital gains is creating wealth.
Yes the confusion between creating a debt burden vs actually improving productivity.
dp
Just need to look at the property brokers influencing young kiwis, on the first home buyers facebook group, to see those comments at play.
You're not wrong. Every post is riddled with replies from Mortgage Brokers (Mortgage Link is quite prevalent) on Kiwi First Home Buyers Group. Always filled with warm fuzzies and kudos for taking their first steps. Also plenty of "my colleague is so great with FHB" from the very director of the company.
At least a good number of people commenting state their business at the beginning of the comment.
Let's pretend you are right.
The best strategy would be to sell now => go rent for 18 months => buy again.
You will save $$$ this way.
What you are suggesting people should do is the opposite of what your assumptions are supposed to lead
I’m suggesting people don’t panic. If people want to sell now then go ahead. Many won’t end up in any better position. Say you bought 18 months ago for $1m and your home was worth $1.3m six months ago. It might now be down to $1.2m. Sure if you can sell for that you’ve made $200k but you may find you’re not going to get a much better bargain in two years. There are a lot of variables based on location and when you purchased the property. Some people might be able to do as you suggested, most won’t have the energy or stomach to take such a risk.
No, Lucenera is right.
You said "For most people I would suggest don’t sell and just ride out the interest rates".
This is bad advice based on your own analysis of the situation.
ANZ now stress testing at 7.65%
A number of inaccuracies in these comments: Firstly, the value of your house is not what you would sell it for but rather what someone else will buy it for (try raising a mortgage on what you think it is worth. Concept that house prices will rise again is also a stretch. We are certainly heading for a 20% fall in this year in Auckland and Wellington anyway. Beyond that I see them as stable for two years until the real price has dropped around 30% and then a slow increase in line with inflation.
The smaller centres will probably stabilise as it is difficult to put new supply into the market under (say) $650,000. I am picking smaller percentage falls in Rotorua than North Shore
My rule-of-thumb is the underlying value of a home is 1,000 the weekly rental. Rental is not only about the investment return but a measure of how much people want to live in that location (eg offset for transport costs) and wage levels in the location.
Herald has this story, and is leading with a 'prices fell by 6% in 6 months'. Then talks about regions; for Auckland says HPI is down 0.4.
Completely fails to mention the most brutal stat; that Auckland median has fallen 12% in 6 months...
The Herald is so compromised bu the amount of RE advertising that I only used it for sports news and to light the fire.
I read this too - isn't this incorrect? The report showed Auckland's HPI down 1.6% Not sure where the 0.4 is from
The median is down 4%MoM, not the HPI. Typo in the og comment I think
No, it's the actual Herald article itself that quote 0.4, which I thought was strange. They say "Auckland accounts for more than a third of the market and the HPI there fell 0.4 per cent month on month".
https://www.stuff.co.nz/national/128973638/waikato-house-sales-drop-30-…
This from the Waikato Times.
From the graph looks like Auckland is about 12-13% down from peak?
The HPI measure - which was released but without a press statement - shows a 12% decline in Wellington and Auckland since the November peak.
Waikato? Oh dang.
Yeah 6.8% in a month....could be 2 months of drops at that rate and a low LVR FHB from last year is in negative equity....years of savings....gone in 2 months. Vapourised....with the possibility of not returning in a meaningful fashion in the near future (or at all if we do a Japan...).
Yeah that will be some people's reality, it will be a mental health issue. Here's hoping they bought new (there is a phenomenal amount of new builds here) so they at least have a nice house to live in.
Keen to hear thoughts on what will trigger the bottom of the market. You’d think once interest rates stop climbing right, so approximately Q1/Q2 2023 if inflation isn’t stubborn?
But what else could bring about the bottom earlier, or push it out?
A global recession large enough to bring infect NZ and increase unemployment? Or maybe building supply scarcity so bad that residential construction slows completely, causing prices to rise again? Thoughts?
This week I’m leaving NZ for my OE in Europe for approx 3 years (with an NZ company, don’t worry) and at this rate I might even be able to buy a home one day. Would really like to time a purchase well!
By the time interest rates peak, market sentiment will be in full swing. Interest rate changes may have a relieving effect on the rate of falls, but won't instantly turn the market around in my opinion. Long and slow...
A number of indicators might be when prices and interest rates combine where a greater majority of buyers can comfortably service the debt, a generalized DTI median to median comparison, we're moving out of recession and the economy is recovering. There's no real easy way to pick, some may have done well in November, but what portion of the population actually thought that we hit a peak at the time? Still people don't understand the market has turned and we're 7mo in.
I doubt that the upswing will be anything like what we've seen, even if the bottom is missed, it may take time for the prices to gain momentum at a rate greater than wage inflation in a recovering economy.
Short answer: hard to tell.
Long answer: hard to tell.
Agree with this. Because the market became speculative, the fall will be driven by sentiment (https://www.investopedia.com/terms/a/animal-spirits.asp). I don't think that stalling or even falling interest rates will be able to save it, once FONGO kicks in. Similar to how FOMO worked on the way up, sentiment can work against the market in reverse. The bottom will be found once fundamentals re-align and the smart money comes back in. But speculators will be shy to go back to real estate, and the market won't decouple from fundamentals again, for another 100 years.
My pick is it will take around 3 years from peak to trough (we are 6 months in). Save if you can, while you are away, you might have good timing :)
It is incredible the number of people who refuse to invest based on the 80s crash. Something us millennials didn't really see first hand. In 35 years time, many millennials will be telling their kids to never invest in property. I guess in retrospect all of the indicators have been flashing red since before covid. Some people will still be caught unaware.
Where are the pocorn !
What does one expect. We the people have to pay the price for poor judgement and inefficent mind working for us.
Still no aplogy from anyone be it government or rbnz that they majorly S%$# up as it does not effect them but average Kiwi.
Wait for another lolly of $25 per week that is thrown to support.....is this how they help.
Auckland - November Peak to Current performance - Median Price (HPI % Change in brackets)
- AUCKLAND $1.300M $1.125M -13% (-12%)
- Auckland City $1.540M $1.180M -23% (-13%) Suggests a shift in property mix sold
- Franklin $1.050M $0.980M -7% (-7%)
- Manukau $1.235M $1.070M -13% (-13%)
- North Shore $1.555M $1.305M -16% (-10%)
- Papakura $1.173M $0.864M -26% (-10%) Suggests a shift in property mix sold
- Rodney $1.350M $1.290M -4% (-3%)
- Waitakere $1.199M $1.050M -12% (-13%)
Doesn’t the HPI already adjust for types of property sold?
Yep. What I was saying is that when there is a large difference in the % change of median price vs. the % change of HPI, that suggests that there is a change in the mix of properties actually being sold. That difference between the two percentages is helping us to see that.
The two top lines are a good example. Auckland City suggests that the bigger drop in median price is likely being driven by cheap apartments being sold off for example. Whereas Franklin percentages being similar suggests that the decline is reasonably uniform across the market.
- Auckland City $1.540M $1.180M -23% (-13%) Suggests a shift in property mix sold
- Franklin $1.050M $0.980M -7% (-7%)
Oh no, not back to the prices we where at in August last year! How will Kiwis cope?
Some perspective is needed, most of the declines are yet to come. The market is still operational, you can still get a bid, that means the fear hasn't set in yet.
There will be buyers all the way down........
Surely not many...
........while the median price on the North Shore dropped from $1,450,000 in April to $1,305,000 in May (-$145,000)..... oh sh*t there goes the Range Rover upgrade !
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