The median price of homes sold throughout the country declined by 1.1% in June compared to May, according to the Real Estate Institute of NZ.
The national median selling price was $529,000 in June, down from $535,000 in May.
In Auckland the median price dropped from $857,000 in May to $850,500 in June, well down from the peak of $905,000 set in March.
However, prices in Auckland may be sliding more than those figures suggest, with the REINZ's House Price Index showing Auckland prices have now fallen below where they were 12 months ago.
Of the 16 districts around the country the REINZ publishes median prices for, they dropped in eight compared to May (Northland, Auckland, Waikato, Gisborne, Hawkes Bay, Taranaki, Marlborough and Southland), rose in seven (Bay of Plenty, Manawatu-Whanganui, Wellington, Tasman, West Coast, Canterbury and Otago) and were unchanged in Nelson.
The median price was also down in Queenstown-Lakes, traditionally one of the hottest real estate markets in the country, where June's median price dropped to $860,000 from $881,500 in May, putting it below the June 2016 median of $875,000.
In the Wellington Region the median price rose from $525,000 in May to $530,000 in June, but in Wellington City it dropped from $665,000 in May to $650,000 in June.
In Canterbury the median price rose by $500, from $435,000 in May to $435,500 in June, while in Christchurch it rose from $446,000 in May to $450,000 in June. (The interactive graph below shows the price trends in all regions)
Homes are also taking longer to sell, with the median number of days required to sell a home up by five days in June across the whole country compared to a year ago, and up seven days in Auckland.
And sales volumes are declining.
In Auckland the number of homes sold in June was down by a third compared to June last year and nationally sales are down by a quarter.
In Auckland 1769 homes were sold in June compared to 2212 in May and 2649 in June last year.
That was the lowest number of homes sold in Auckland in the month of June since 2010.
"The number of properties sold across the country is the lowest we've seen in the month of June for three years, particularly in the $500,000 and under property price bracket," REINZ Chief Executive Bindi Norwell said.
Westpac's Acting Chief Economist Michael Gordon says the market slowdown that started in Auckland is spreading beyond the region.
"The latest REINZ house sales report points to a substantially softer housing market in June," Gordon said in a Westpac First Impressions newsletter on the figures.
"While the slowdown was originally concentrated in Auckland, it is now spreading to a greater number of regions.
"Sales fell sharply in seasonally adjusted terms, that is much more than just the usual winter lull.
"The REINZ House Price Index fell by 1% in Auckland and is now slightly lower than it was a year ago.
"Notably, house prices in the rest of the country, which had been rising at a solid pace up to now, were flat in June.
"They're still up 9% on a year ago, but the slowdown in sales across the country suggests that some further cooling in the pace of house price growth is on the way.
"We have long been warning of a cooling in the housing market this year.
"Up until now the puzzle has been that the market outside of Auckland has remained so strong, given that what we see as the main restraining factors - loan-to-value restrictions and rising interest rates - apply more or less equally nationwide," he said.
Here is the REINZ's full report for June:
Median price - REINZ
Select chart tabs
335 Comments
I know a lot of people here will be celebrating the big crash of 1.1% in Auckland. Some might even say it is crashing through the floor board and all the investors / specuvestors are screwed up and have nowhere to run. What they have not realised is that many of the investors (myself included) are in it for the long haul and we have no plan to sell up in the short term. The Auckland house prices will be going upwards from Oct 2017 once we have got the election done and dusted to give us peace of mind and confidence going forward.
... nothing to see here , folks ... more fake news being peddled by .... ummmm .... the Russians ! ... yes, that's it ... a KGB inspired plot to putin a spoke into our property market's stellar rise ...
It's all good in Godzone ... keep buying ... you can't lose with property , mate !
anyone who borrows at 6% to invest in a property yielding less than 4% is in it for the capital gains. The prices won't go up after the election. Prices are over-cooked relative to the economy, and while they may only slip a little (I am guessing 20%) they won't go up again for a five or six years.
How can a post like this get 19 up votes lol. If you borrow at 6% and the yield is 4%, you are betting on two things, inflation averaging 2% over the long term and yields rising faster than inflation by a non-zero number. Only a moron thinks you can get higher than inflation capital gains long term without gains in leases that also exceed inflation. Do the math.
Hi, just clarifying. Buying something with no yield is usually motivated by anticipated future gains to income. The resulting rising income is actually what drives the capital gain and while usually in those sorts of companies the rising income is used to secure even more lending for further expansion it could also be used to pay dividends. Regardless the primary driver of most investments over long periods of time is the expectation of changes to the income stream and that's true with high yield, low yield and no yield stocks.
Well, not always true. There have been plenty of times in history in all asset classes where capital gain is driven solely by the expectation of future capital gain.
There can be little rational expectation that, in the absence of capital gain, an Auckland property would deliver an increasing yield, when the exact opposite has been true during all of the recent property value surge. Properties that were yielding 6%-8% now barely may make 3% (gross).... less than a 1yr TD rate. Why? Capital gains.
Its axiomatic that long term capital gains can not come by means other than rising income streams. Ask any property investor what he thinks will happen to his lease income over long periods of time and he will say 'it will rise'. That rising income is a rising yield based on the purchase price.
As to the housing market in Auckland, the collapse in yields was driven by changes in the long term outlook on interest rate expectation. Auckland investors have decided that the long term interest rate trend is down. This is not to be confused with the outlook for the next 5 years. On the note of yield very few investors would buy at 3%, that is more likely speculation on short or medium term factors relating to incomes, demand, supply, migration, tax and so forth. In general investors will not look for yields much below interest minus inflation. This is evidenced in the stats for NZ, as Auckland yields dropped to about 2.5-4%, sales fell and the regions around Auckland began to see falling yields and rising demand. Its very unusual to find an investor who isnt focused on purchasing decent income.
@laminar, that's precisely my point...."
"On the note of yield very few investors would buy at 3%, that is more likely speculation on short or medium term factors relating to incomes, demand, supply, migration, tax and so forth"
Essentially anyone purchasing as an Investment in Auckland today is speculating because gross yields are largely under 3% (median house > 750k while median rent < 600) ... especially at the top end, where you may "only" get $800 on a $1.5m property. I appreciate though that some may be capital parking and/or using asset value to leverage... but in a falling market that could be dangerous.
Why? Well, let's say the speed limits stay in place, to buy the next one, you'll need your weighted LVR to remain within the limits, so may be able to borrow less on the next. Also, if prices become more affordable, buyers may re-enter market (or leave Auckland) and then quality tenants become harder to find. The yield is dependent on full occupancy really.
Perth Housing went stratospheric over the space of 5-10 years as a result of the Mining boom.
Look at their population growth compared to Auckland as well. It has virtually doubled in 20 years.
In the last 18 months, population growth has halted, as a direct result of declines in job growth (or more accurately mass redundancies), housing was therefore always going to drop relatively quickly once the masses started to leave.
From what I see in Auckland, none of that is happening. Population is growing, job growth is still good, Auckland has the fundamentals to continue growing.
You might actually want to stop looking for Iron ore (or gold/oil) If you did strike it lucky, we could see average Auckland house prices hit the billions in ten years time ;-)
Just clarifying that income doesnt directly drive house prices but rather affordability. Thats important because Auckland incomes probably are rising, however that does not mean house prices will rise. Equally stagnant incomes do not necessitate that house prices will fall.
OU, you used to be so bullish, but now you've joined the majority of us over on the dark beary side. Just a few holdouts now: DGZ, Zachary, toothypoint... have I missed anyone? Last stand at The Alamo, with clear evidence of a housing downturn about to overrun the fort like Santa Anna's troops.
If youre in it for the long haul then no problems for you double-GZ, but if you think the election is going to change anything you are dreaming! There are so many other factors tightening the market.
If you are as confident as you say, Im sure you will be purchasing some bargains right now to make a killing after the election......
I think we are looking at a low slow fall back towards fundamentals, unless we get big wage rises or a flood of overseas money,
credit will be harder to obtain, use of capital gain and leverage model will not work in the short term as has been the pattern with double digit growth.
you are correct in housing investors with a 20+ year timeline will still be ok if they are cash flow positive.
but in that same timeline it will become an unattractive investing option as laws are changed to discourage investment and favour tenants over landlords.
you only have to look at the last ten years to see the changes already made, bright line, LVR, insulation, limit of liability etc etc
I think the Reserve Bank loan to value restriction on investors this time last year has taken a $1 billion out of the market compared to last year. So house prices have stalled. But otherwise nothing significant has happened. Supply restrictions -related to land, infrastructure, building supplies duopoly, labour are still present. Demand with the exception of chinese investment is otherwise is still strong -immigration/population growth is high. Auckland is growing by a Tauranga every 3 years.
It would not surprise me if next year the property market takes off again. I would be very surprised given the fundamental imbalances if house prices drifted back to long term averages.
But it's the same rubbish that's been in circulation in our media and at social gatherings. And people have believed it...
What is very funny is people claiming that the bank economists shouldn't be saying that the media are responsible for a change in market sentiment and vice versa (by publishing bearish articles). So equally, the shoe only fits on the way down, but not on the way up? I'm confused.....
It's difficult to tell what will happen after elections, but I think the current minor drop is definitely a step in the right direction.
The ideal scenario for Auckland would be a soft landing, and small'ish 1-2% drops yearly for the forseeable future.
The quicker we can reduce how attractive it is to own a house as an investment, the more investment will go into productive and innovative industries.
Clearly you have not tried (I have and do) to run a productive business, if you had you would see that is productive assets that are overpriced, not property. Property is a do nothing investment, with very low risk, guaranteed returns, all insurable, clearly defined, A++ grade equity and in fact if you don't own property you will find it very very hard to borrow any money at all for anything, let alone a productive venture.
That's the thing though, why is it that we have let it get to a state where property is such an attractive investment?
Lets say if there were a decent size land value tax, along with significant income tax cuts. Would property be as attractive at it's current prices? Probably not.
When investors can get such guaranteed returns from a particular asset class, I don't blame the market for flooding into that sector. However, I don't know if it's the country's best interests to become too dependent on wealth creation from real estate.
Imagine if we had a booming innovation sector with real estate prices stagnant. I'm sure the average person would be in a much better position long term, especially future generations.
@j3y Building houses is productive, Auckland needs more houses, investing in houses would result in more house building, more house building drives productive business. Am i missing something? Will lower prices drive more house building sir? Will that drive productivity in the sector its most needed, house building?
@MisterB Investors build new houses, renovate existing homes and broadly add to or improve the quality of supply. Prices were jacked up by a decline in the general outlook on interest costs over the long term. Investors are just part of the demand side of the equation and the general rise in prices means more subdivisions/units/apartments will become profitable and that drives density and supply. The majority of investing is likely in existing houses but that is more a function of the majority of properties been 'existing'. It doesnt so much matter what investors buy provided it leads to a general increase in demand and prices, that increase drives the profitability of bringing on more supply.
I think the quality of rental stock and statistics on number of new dwellings beg to differ.
I agree that what you're describing is the rational argument supporting what I would refer to as genuine investors. I am not convinced the majority of "investors" (by definition a non owner occupied property) are functioning in that way. It has long been touted as a mum-and-dad way of retiring, and many who have more recently jumped on that particular band wagon may be in for a shock.
I will ask you when you have debt free rental properties providing you with guaranteed income for a prosperous retirement. I will ask you all about the crash of 2017, and you will regale me with tales of the dark old days when mortgage rates were 4.49% and how you needed a 40% deposit etc.etc.
I'm so relieved I got out. I got a little unit for mid high 6's in 2015 and sold it last April for mid 7's. The thing had problems but someone purchased it (just like I did) without doing any due diligence. I'll never buy without doing proper due diligence again. Way too much stress.
Sorry... Did I read that... A commentator on a public forum declares they deliberately broke the law by not telling a purchaser about known problems... It's pointed out that is illegal and then the response is don't worry about people can't afford the legal process anyway..
That right there sums up why I have very little respect/trust in property and finance industries. Break the law ... The poor smucks can't afford to take you down anyway. The punishment is never enough to prevent the crime.
Sigh. I don't know whether to be angry or despondent.
"If you tolerate this then your children will be next" Manic Street Preachers. The song meant nothing to me other than a nice tune, until I had kids.
You're overreaching if you think my vague comment infers wrongdoing. Obviously the word "problems" encompass a severity spectrum with a threshold, below which, disclosure isn't necessary - In my case i did query the agent who said it was was all fine. Some problems are purely subjective, others might be disclosed already within the public domain via council building records, or lack thereof. I think in a rising market people willingly overlook minor "problems" which, in a falling market, they might become hypersensitive to. That's why I'm glad I got out. I'm just watching from the sidelines now with popcorn in hand.
so on the one hand you assert that these problems are significant enough to have caused you serious stress, enough so that you have changed your perspective on the necessity of doing due dilegence, and you are glad to be out of the property with a buyer that didn't do their due dilengence ... And on the other these issues were not worth disclosing?
Interested to know whether something being "in the public domain" or "lack thereof", (don't beat about the bush they are minor things according to you after all, does that mean unconsented works) absolves the seller of the responsibility of disclosure. If one of the "problems" is unconsented works I would have thought said is less than minor in the fees to get them retrospectively consented (if they are up to scratch) and requires disclosure or should have been disclosed and explicitly noted as being factored into the sellers asking price.
https://www.saunders.co.nz/property-disclosures/
"It is important however to remember that despite caveat emptor, the people involved in selling a property (i.e. the vendor and in particular, the real estate agent) have significant obligations to disclose information to the purchaser."
It always scares me that people don't know they are legally obliged to disclose known property issues, especially if they have involvement in the industry.
A former colleague was sued by people he sold to after he repaired a cracked wall and they had to to subsequent work. He claimed it was not hidden but repaired and did not know it was an ongoing problem. They claimed it was hidden and not disclosed. Not sure if he won or not but the legal and expert evidence no doubt mounted up...
Correct DGZ, but this is really a tough piece of wisdom to be learned by the shouting crowd around here ...
This is not the first time the author tries hard to select the worse in a published data and makes sure he stirs the pot hard enough to get everyone excited and going ... I read another presentation of the same data this morning from here:
http://www.sharechat.co.nz/article/5991498e/nz-house-prices-rise-5-8-in…
"New Zealand's median house price rose an annual 5.8 percent in June with strong growth outside of Auckland, according to the Real Estate Institute. The national median house price increased to $529,000 in June from $500,000 the same month a year earlier, the institute said in a statement. In Auckland house prices lifted 2.5 percent on the year to $850,000 while outside of Auckland prices climbed 11 percent to $431,000."
Almost everyone knows that median price is not a good measure however, any school leaver looking at the curve above will see that the "median" has increased in Auckland 2.5% in June YoY .... so it is all about talking the market down and selectively bringing up all the negatives in a report to make it sound bitter ... shedding aside balance reporting principles ...
We did not read this extract from the report in this Article:
"Norwell said the June data indicates the lending curbs are having a "significant impact in terms of buyers ability to purchase properties." However, "talk of a decline in prices may be premature with the seasonally adjusted median price trends still rising across many regions in New Zealand. The Auckland market is the most mature in terms of the property cycle, however, at worst, prices in the Auckland region are steady at present."
Winter and the upcoming general election - scheduled for September - are also impacting the number of properties being sold, she said. "
Only honest and balanced journalism is worth the respect of readers ..!!
Alas, this article shows that interest.co.nz should be your last stop to get info from !! - if any
Errr, youd be a mug to sell at a 5.5% loss or 22% loss. Obviously youd be better off holding the asset for better days. The term panic selling is used to describe investors who think you should sell when prices fall. Transaction costs and possible bad calls on market direction all spell disaster for the panic seller. Seasoned investors would in fact hold what they have and seek to buy more.
Often as not that turns out to be the worst decision when things turn to custard. Hindsight is very helpful in these situations, but failing that, the next best thing is experience. I was around for the '87 crash and the number of people who refused to believe what was happening, stuck to their guns, waited another year or two to sell, at or less than what they could have got for the property at the outset but with the added bonus of having another year or more's interest on their mortgage. Saw it over and over, back then.
Toronto House Prices Crash 192k since April.
https://www.youtube.com/watch?v=hGL0ysImPCo
Auckland Albany House Prices Dive 13.5%
https://www.stuff.co.nz/business/property/94154549/house-prices-dive-in…
The Crash Is Coming.
Double-GZ
Toronto House Prices Crash 192k since April.
https://www.youtube.com/watch?v=hGL0ysImPCo
Auckland Albany House Prices Dive 13.5%
https://www.stuff.co.nz/business/property/94154549/house-prices-dive-in…
The Crash Is Coming.
Good news for people like me who refused to join the Ponzi scheme. Who does still believe it's better to buy now than to rent?
Because if prices are falling to meet salaries it has a looong way to go down considering NZ is the country in the developed world with higher prices compared to salaries.
Or is NZ still special and house prices don't fall?
Good stable well paid jobs. Plenty of opportunities anywhere. I strongly advise any young person to study software engineering if they want to have a successful and demanded profession. I certainly don't know any unemployed software developer and most of them have good salaries..
...or they can "invest" in property because house prices never go down. Oh wait!
I agree with you. New Zealand is in desperate shortgage of IT people which is why we are importing so many! The salary is excellent and since you can work from any part of the country and outsource your IT skills and name your price, you will have a high paying job for the forseable future. On the other hand, NZ is too top heavy with investors and they are a dime a dozen and their future income mostly depends on whether or not the banks can still see profits to be made in continuing to lend in the property game or if they have decided to pull back their funding and re-assess the property market risk, which is of course exactly what all of the Big 4 Banks have done recently. Anyone can play the property investor game, but not everyone has the intelligence to be an IT employee on a higher than average salary. Personally, I am backing the IT guy. lol
@1986: Yes the RE's and Investors forget that you actually need people with jobs (High paying jobs for Auckland), to live in those boxes to be able to afford to pay the rent/mortgage.
Sadly and I have tried to explain to them in recent years. If the cost of living remains too high along with the NZD, and both have been pushed up by house prices. That causes a lot of IT companies to go under since it just becomes too expensive to operate in NZ as most of these companies are established by overseas firms.
I know if at least two IT companies in Auckland who are quite likely to go under in the next six months if the NZD continues to remain too strong along with the high cost of living.
So it's actually beneficial to let the property market to re-correct itself other we'll be dragged in to a recession.
Who's got time for a degree in CS these days anyway? When this years batch of graduates started back in 2013/14 the trends shaping the web now weren't mainstream. Blockchain, Single page applications, NodeJS, APIs, now there isn't a single major web co who isn't using these technologies. Unless you want to do your PhD, you get better value out of most 12 week bootcamps these days than a CS degree. And we desperately need people with diverse backgrounds and interests in the field. Your view is very narrow OnwardsUpwards.
Exactly!!!!!!!! Our biggest spend this year in IT has been in BRM, thinking people with degrees in the industry (like myself) and old school thinking and recreating the wheel are the future, you just have no idea how wrong you are OnwardsUpwards.....those are the people we are actually reducing:)
Keep developing with blinkers on and we have a chat in 5 years time and tell me whether you agree or not.
Lel, I'm self taught, use python, am 30 years old and make $177k with my bonus - I honestly don't think it's possible to give less fucks than I do as to whether or not someone thinks i'm a legitimate programmer.
No kids, tons of capital saved up or invested, only pay $340 a week in rent, life is good and all because I 'steal' other peoples libraries for my trash self-taught python scripts. I don't even have a computer science degree and I dropped out of studying math at 16!
Feels good man.
I think I've said on this site before - as a younger Kiwi living in Auckland, I'd rather be unemployed for a year as the result of a massive housing crash (say 50%) than to buy and struggle by for the next 30 years.
REASON: If the housing market tanks by 50% and that triggers a recession that means I lose my job, I'll be grateful because I just saved myself $500,000 in mortgage over the next 30 years - even if that means I'm out of employment for a year or two. I'll go and study and upskill....There's no way I can earn $500K in that period of time.
This is teasing, but the (upcoming) crash isn't all doom and gloom that people think, but it is only to those who are living beyond their means...
You are an idiot if you don't think you can earn $150k+ in Auckland, a dumb wage slave moaner, suck it up buttercup. Better people than you are earning far more, and living a life of luxury, buying multiple properties because instead of focusing on what they cant do, they focus on what they can do, and do it well. Auckland is the land of opportunity - get on with it.
Skudiv - what you don't realise, is that people similar to you are the problem that this country needs to address. "Buying multiple properties to get ahead". Its that practise that must stop.
What happens if a person simply wants one house to raise their family and kids and a job that pays the bills and still allows enough time to spend quality time with the family. In my experience, people on $150K+ salaries are often overworked and very stressed (most would never admit it but its true) - their quality of life is actually quite poor. And as for buying multiple properties to 'get ahead' - well thats just out right greed - you know you're taking from others when you do that - it's a morally flawed practise.
And to call someone a dumb wage slave moaner - thats quite bold...
First of all I don't think the practice of property investment is morally flawed. Property investment, when done right, will provide the much needed accommodation (and homes) to those who are less fortunate in life, who are unable to get ahead with buying their own. While I don't agree with skudiv completely he does have his point. A lot of working Aucklanders, mostly in middle management or above, are on 150k or more, but I agree with IO that they are often overworked and stressed with quality of life sometimes sacrificed especially when dealing with P1 escalations. Those stress, if not treated promptly, can escalate to more serious illnesses, both morally and mentally. The key is to keep a balance in whatever you do and be happy in life.
It's the "wage slaves" that are the back-bone of NZ, and the global economy. They are the largest contributors of taxes. Money that pays for your infrastructure, education services, healthcare services etc. It's people like you, the 1% leaches, sucking on the "slave's life blood" that will eventually cause populism to rise in this country. The divide between the have's and have not's is increasing to breaking point:
http://www.radionz.co.nz/news/national/333704/poverty-not-inequality-th…
https://www.newsroom.co.nz/2017/07/09/37784/democracy-is-in-decline-so-…
http://www.stuff.co.nz/national/politics/93679813/grant-duncan-widening…
It's really funny that you think a rich person running a business and making investments is a leach, I'd call the people living off welfare leaches. Most of the taxes are paid by the wealthy, and given to the poor as a reward for their poverty. What irony that they literally want to bite the hand that feeds them. The rich get very little back from their taxes, in fact they are subsidising everyone elses infrastructure, education and healthcare, not the other way round. I feel that your ignorance is the reason you are poor.
Having been unemployed (or is it retired if by choice) numerous times. I can say that when you have no weekly house expense (i.e. $300 mortgage or $300 rent) it is a lot, lot easier to survive day to day while you look for work.
It also enables you to consider lower paid (but perhaps more enjoyable) roles.
Millenials are mobile these days and don't like to be tied down to the boring 9-5 jobs that Babyboomers and Gen X are accustomed to. It isn't about long term security anymore. It is about moving where the action is, having fun and enjoying life. A house is an obstacle to them. I understand that this way of thinking is hard for the older generations to understand but i fear that many have been lured into a false set of beliefs that their youngrr generations will follow the same path that they took. As a result, many of the older investors are going to get burned pretty bad.
I disagree. As a Gen-X-Gen-Y transitional myself, with a Gen-Y wife, and her plethora of Gen-Y friends, they all appear to want to put roots down and settle down eventually.
Sure, an 18 year-old Gen-Yer doesn't want a house, they want to be where the action is, living out of the back of a stationwagon in Guatemala while they instagram their way across a continent. That same Gen-Yer will almost certainly want to settle down and put roots down when they're 32.
The difference is that 15 years ago, you could take your savings, knuckle down for a year or two and get yourself into a home. These days to get your first home in a place like Auckland, you need to be diligent with savings from the age of 16 to realise that dream by the time you're 34.
People should learn to sell their own house, its not that hard, I have sold general items on Trade-Me for $50 that have been harder work. This is most definitely the case while the market is hot, you simply negotiate a price verbally that suits both parties then give it all to someone competent like "The home transfer center" and for about $900 they deal with all the solicitors and its a done deal.
Long-time reader, first time commentator.
My view; property investment has always been and will always be a long term game. We have been unfortunate in particular in Auckland (the regions however are hot on Auckland’s heels) to have been conditioned these last 4 years that property will deliver quick gains as high as 15% p.a or more in a very short time. If you have been a speculator and silly enough to fork out $1M on a 3 bedroom bungalow in Mangere which is falling apart and leveraged to 95% of that, then I am sorry but you do deserve to get bitten. The rules of the game have always been unchanged; buy well, in a solid location and with a desirable point of difference (a view, good school zones etc. etc.) and you will land softer in a depressive market- which by the way doesn’t last forever. But expect to have it for 5 years at least.
For all you naysayers and sideline pessimists, I wouldn’t be willing a market crash on as you rub your hands together in anticipation of seeing investors lose out, ready with your ‘Told you so’ signs high in the air. The majority of you, if not already home owners (and therefore investors by default) would have parents who are home owners and therefore their retirement fund and your inheritance is also at stake.
Again, a long game means there will be peaks and troughs- you ride it out over 5+ years you will make money. The days of buying, selling soon after and pocketing a profit are (and should) be over. As an investor, I am happy growth will return to a more normal 5-7% p.a; why? Because a bubble makes me more nervous than a 1% decline in median values in the short term.
A decline = bubble popping means there is no bubble anymore. Yes, absolutely contradictory. And a decline, whether it is 1%, 2%, 10% is all on paper, foo foo dust, the only reality is the money you owe the bank (and your cash contribution), as this is 'real' therefore once you have a house that is worth less than the money you owe the bank... well this is when the real problem starts. As I say above though- you bought in smart you will be OK. You leveraged up, you wont be OK.
To paraphrase an ancient proverb - 'even the most precipitous fall begins with a single inch'.
To claim that house prices are foo foo dust is a bit rich - equity is where the backing for the next mortgage comes from and capital gains are an integral part of the majority of property investors strategy. If the 'paper money' in the houses isn't as large as the money borrowed from the bank, then there is a problem. Buying Auckland houses in the last couple of years could only be interpreted as relying on capital gains as the rental yield has been so poor.
Perhaps you've been investing for long enough and cautiously enough, or are sufficiently diversified to take a hit on the chin and stay standing, I suspect there are plenty who are more precariously placed.
You make some great points mfd. To quote another ancient proverb 'something is only worth what someone will pay for it' and hence, my foo foo dust comment. Our equity is based on ther assumptions of a valuer based on data to hand; my house may be valued at $800,000 but in reality, someone may only pay $750,000 and therefore it's real value is $750,000 and the $800,000 value is the foo foo dust. But you're right most investors have made a lot of money on foo foo dust...
Propertyminx does your properties have a positive yield from rent or are your investments targeting capital gains? It is my understanding that stable property markets like Houston, German cities, Tokyo (since the 80s bubble) -long term property investors target rental yield.
40% deposits push most investment properties into positive cashflow, and if cashflow is positive, you don't need to sell, and if you don't need to sell you will enjoy the positive cashflow and I know that you know that cashflow is king. Just for a tiny bit of contex, what is the yield in Tokyo? Stable and high yield¿! I should think not. High yeild causes volatility, which is why central banks are now reversing decades of thinking and working very hard to prevent deflation keeping yields low, rather than the dramas of the past where they tried to keep yields high.
A decline = bubble popping means there is no bubble anymore. Yes, absolutely contradictory.
Only by your definition of what an asset bubble is. The Japanese property bubble deflated for decades, so anyone who thought it was over because of a small fall in magnitude was wrong.
One of the characteristics of bubbles is that the majority of people are unlikely to know that it exists. Normal distribution suggests that you;re likely to be in the majority.
parents using their house as equity to help out their kids is risky and just a bad idea in general. I would say a lot of parents are influenced by what other parents are doing and as parents do, they want their kids to be happy and successful. The problem is that this is faux success (unless you are one of the clever ones that have bought and sold already). The reality will soon hit home when people realise that they are stuck somewhere that don't want to be all because of the FOMO. This is going to end in tears and the FHB's that have been patient, or hadn't saved enough of a deposit, will be better placed and I would imagine happier as well.
"The majority of you, if not already home owners (and therefore investors by default) would have parents who are home owners and therefore their retirement fund and your inheritance is also at stake."
If house prices are affordable an inheritance from one's parents' house is less necessary. High house prices make society more focused / dependent on inherited wealth.
Re: "High house prices make society more focused / dependent on inherited wealth." Eventually over a few generations this would result in a highly stratified class based society in NZ. With an upper class of property wealth inheritors versus the rest being locked out of wealth creation. Genuine productive investment would be out the window......
But eventually there will be more 'have nots' than 'haves' in his two tier system. And both can vote in this democracy. And if they continue to get shafted by the 'haves', they'll vote them out of power or have regulations changed to make the playing field more even.....
How many residential property "investors" here have been in the market prior to 2000?
I would suggest that property "investment" in it's current form is relatively new. Previous generations (baby boomers and earlier) bought houses first and foremost as a home to live in and raise a family. The so called property ladder started with a modest affordable first home with a 10 to 15 year mortgage and a modest capital gain was a bonus. The next rung was an upgrade into the "dream home", something a little more substantial for a growing family where parents would most likely live until their retirement.
Only since the late 90's has the marketing of homes as an investment taken off. Appealing to peoples greed and fears, the slick marketing of legal tax avoidance, tax free capital gains, the tenant paying off the mortgage, more wealth than saving in a retirement fund has resulted in the obsession with property. The first home is now an investment first and a home second and every man and his dog has or is trying to jump on the bandwagon.
The housing shortage/crisis isn't about houses. It's about the demand and supply of "wealth" fueled by greed and fear.
I don't wish for a correction/market crash to see investors lose out. I wish for a correction/market crash as it may be the only way humanity learns to act differently. "Only two things are infinite, the universe and human stupidity, and I'm not sure about the former" - Einstein
I agree with your comment but maybe you should be thinking 10 years rather than 5. It might be 5 but it could also be 10. If you can deal with no real capital growth in the next 10 years then I don't have a problem with your investment strategy. However, I bet many will be seriously burnt by a 10 year stagnation.
propertyminx - does your view change if values fall 20% in the next 12 months? Do you hold, or sell?
And if you were to hold, what about those other investors out there. How many do you think are leveraged to the eyeballs, and may not have the option of watching from the sidelines?
1.2% in one month, is 14.4%pa annualized.
This is pure speculation.
Only time will tell.
What I do find fascinating is that expectations vary considerably between investors. And there are scarily a lot who think prices don't fall, ever.
and that "you can't lose on property".
Actually, those investors could be right! But..... time is an important factor. It took from 1896 to 1946 for Australian property prices to recover from the 'disaster' of '96 ( and there were some pretty deep troughs in between!). Who has that time available to them? "But it's different this time" might come back to haunt a number of ( us).....
You can get all the stats you need from the RBNZ website. They update our banks lending statistics quarterley. There are some very interesting charts which separate out the investor home loans and interest only loans in Auckland from the rest of New Zealand and it clearly shows the impact of the new LVR rules and changes in our banks lending criteria which is having a bigger impact on pricing than most people realise.
Yeah sure whatever,
For the 40% of those buying last year who were specvesting on the North Shore of Auckland....median price down -11% on this time last year.
With more pain to come me thinks....market peaked in Feb so this has actually happened in less than 6 months!
For many the scenario is - Neg cashflow topping up a huge loan -> with interest rates trending up -> with nervy banks tightening credit -> with 50% more stock than this time last year -> and the non-existent Chinese money now actually non-existent. -> oh and I just lost $100k on paper in the last 12 months.....
Only the most irrational bulls can think this isn't a correction at the moment - the issue will be how far wont it?
When any market starts correcting from a massively overbought position, it should be a big worry for those sitting long.
I would suggest there is a very good chance that at some stage this correction becomes decidedly messy. The fundamental pillars that have supported the housing market for so long in NZ as slowly disappearing. Historically low interest rates - no longer. Unchecked mass immigration - potentially not after the election. Fraudulent Chinese money - the taps been turned off.
There is only one way Auckland house prices are going for the foreseeable future. The best you can hope for is an orderly decline which we have seen so far. But when all those "long term" investors realise there are now no capital gains to go with their zero rental return, what do you think is going to happen?!
It all depends on your individual T&Cs
But in general:
- a variable can be called in at anytime, regardless.
- a fixed one can only be called in if you repeatedly fail to make payments, or if your term is up they can choose not to renew.
Although I can't imagine a bank wanting to forgo ongoing payment (with interest) for immediate "Mortgagee" sale money now - particularly as it could be a negative equity deal.
If they did start pulling up stumps while still being paid, then even the most outlandish crash predictions would appear insignificant compared to the apocalypse that we would be facing.
NZ bank mortgage lending is repayable on demand, it does not require an event of default.
Quite right Bob, but most people don't know that. It rarely happens, of course, but the 'small print' not only sees banks able to demand payment in full but able to apply any credit balances at any time that are held elsewhere in the banking group ( think off-set accounts, for instance)
This is correct. My mortgage is written with a condition that allows sale by the bank without any limitation to that action. I discussed that item with my lawyer, we joked about it, and I made the observation that the only way to avoid the condition was not to sign the contract with the bank.
While I do not think the banks would sell houses with underwater mortgages it did happen in the US. Some claim that the halt in the price collapse only happened when they stopped selling the underwater houses where the mortgage payments were current and the customer was in good standing with the bank. Expect stupidity if it is enforced by regulation.
"While I do not think the banks would sell houses with underwater mortgages it did happen in the US."
But in the US, mortgage holders could walk away, regardless of the amount of negative equity debt-free. This means that the bank has an interest in selling before the equity-debt gets too large as it wears that.
In NZ, the equity-debt remains with the mortgage holder, so the bank isn't as starkly exposed to the negative equity position.
USA Mortgage holders can't walk away from a mortgage as easily as you may think!
the argument goes, non-recourse lending in the US was a major factor in the run-up in housing prices, whereas (New Zealand) has recourse mortgages, and thus does not have irresponsible amounts of mortgage debt.
There is one small problem with this view: it is total nonsense.
http://theconversation.com/debunking-the-myths-peddled-by-australias-pr…
Some could walk away debt free. That is entirely dependent on the State Laws. There are people on the hook for the difference in price after the bank sold their house in the US. There were also many people that had their house sold even though they were still making payments on time.
There was a paper published some time after the GFC that pointed out the banks had to sell certain financial assets and buy ones with higher credit grades every time the ratings agencies downgraded the toxic assets. It cause chaos. It was a requirement of Basel II and that's why there were changes to the Basel III capital requirements when things go bad (they added a capital buffer along with other changes).
It matters not an iota to me as its my SHELTER...period.
I'm not selling it and I haven't speculated or leveraged up on it either....so it also doesn't matter an iota if its value drops.
However loads and loads have done just that and I for one do not wish to bail them out.
PS/ We may have called the current "top"...but has this hit "bottom" yet - who knows?
Until then we wont know the ratio of gain/loss on current cycle will we?
Well we actually do, coz we have a start point at purchase or mortgage sign up and the gauge moves up and down dynamically with Time ... so at any given point in time we know what an individual property has done in prof/loss of ( paper value) this way all is being taken care of ... I hope you agree.
Some of us only envisage the downturn and forget about the upside in the gain they made - thank you
Yeah, not really sure what you're trying to justify/prove?
Your argument is that the -11% is diddly squat compared to the gain over what I paid - as of today that figure is X. A small snapshot in time....(which could be very different in 6 months time based on current trend..)
My argument is that it is irrelevant as it's "value" to me is "one house of 4 bdrms and a garage on X street in X suburb"
If I sell it today I cant then buy back 2 identical houses on the same street can I?
I didn't buy it to speculate on, or use as an ATM for a euro car or a tropical holiday- its shelter for me and my family.
So..........who cares?
Weird concept eh?
Well said mate, and that's what a house is, a home - it isn't an investment, if it goes up or down, round and round, it really doesn't matter it's your home, where you make memories, have children, who in turn make memories of their first home, don't have children, it doesn't matter, have pets, don't have pets, paint it rainbow coloured, paint it beige. It's yours - which is what is being denied to so many others by greedy specuvestors.
Your guage has too many moving parts. Someone who purchased in Auckland a couple of decades ago for less than 200K and is just enjoying life without any debt won't loose a cent because they never factored in a paperwin to start with. In other words, they didn't use their house as an ATM machine.
There is no profit or loss on paper. If you sell your house in the same market you buy one in then you'll get the same standard of house you just sold.
You make out that you can buy a house for $200k, sell it for $1m and buy a better house in the same place. But you won't, that's why you were able to sell it for $1m.
Lets not just blame it on the icy weather. Prices have been declining over the summer.
The outlook for housing especially in Auckland is not positive for the short to medium term at least. The negatives are not only currently the winter, but the elections, and longer term influences including the likelihood of increased mortgage rates, home owners being over committed to borrowing levels, Australian banks having to tighten up on interest only provisions, unaffordability to FHB, and the realisation that house prices especially in Auckland are over-priced and increases unsustainable. The only positive is continued high rates of immigration; but that may not be sustainable as reports comment that declining house prices could negatively affect the economy as homeowners curtail spending and hence attract further migration levels.
This may seem all doom and gloom, but the reality is that we are moving in to a new economic phase where the property party is over for the present at least.
On a positive; the America's Cup will have a positive impact on the Auckland economy and consequently its property market but the full impact of this will not be for another four years.
the number of properties for sale in the Auckland region has increased by 3,097 (57%) providing more choice to buyers.
In Auckland, the number of days to sell increased by 7 days year-on-year (from 31 to 38 days).
Sales volumes across the country have continued to decline – in Auckland they are down 33.2%
for the year to June
Auckland House Price Index - 2,867 – down -0.6% on June 2016
$850,500 – down 0.8% on May: $857,000
LVRs are having a signi cant impact in terms of buyers ability to purchase properties (particularly for rst time buyers)
BUT: $850,500 - up from $830,000 2.5% year-on-year... and also..., providing more choice to buyers
She'll be alright
Do you ever stop, were you sitting waiting to get your normal rubbish on line first, I don't need to sell, YOU WONT GET THE CHOICE MATE, a lot of people won't , and if national could have done something don't you think they would have buy now, THEY ARE TRYING TO GET IN ARENT THEY, sales will get worse also because a lot of people CANT SELL, and guess what it just is fair to talk down high prices like it's fair to talk up low
Auckland has a Unitary Plan that is going to keep Auckland land very costly relative to housing value for the next 20 years. Auckland under this planning type has not built much for 5 years and is likely to build even less for the next 20.
Therefore I think that Auckland is not a good long term buy and that other places will have greater growth. In fact I worry that Auckland has an Adelaide type or Dunedin type long term future. A quarter century slow motion slide seems probable.
If people can not afford housing now and as as a result prices are decreasing we are going to be completely stuffed if the cost of building new housing does not decrease. The average person can not afford to build a new home. If builders and suppliers do not reduced their margins new builds will halt. I have been watching Trademe listings specifically in the Rodney region and there seems to be a large amount of building companies now advertising. I hope that builders etc are forced to reduce their fees as they have been completely taking advantage of the general population by increasing their margins from 10% to 15% markups and preliminary and general from 8% to 10%.
I think the thanks for high build costs lay more with the monopoly of building supply companies *cough cough* Fletchers, who lock out competition, which means their products can continue to be sold at the absolute rip off that they are. NZ has among the highest building costs in the world because you can only buy GIB to line your house (for example). Open the doors for more competition in NZ will open the doors to more affordable build costs.
I totally agree with you but on top of that you have builders, building companies and all the associated trades taking advantage of the supply/demand situation. So I really hope the slowing down of the housing market makes them become more competitive. Though you can bet your bottom dollar on a large amount of squealing and pressure being bought to bear on politicians to loosen up LVR restrictions and credit so they can keep claiming these unreasonable prices thus continuing the cycle of extracting more money from the poor struggling to own their own home.
There is a saying in the real estate game that if the price of land for real estate is wrong then everything else goes wrong.
This is what has happened in NZ.
Section prices are no longer affordable to the average person/family. This creates a boom/bust construction cycle. Builders and suppliers do not invest for the long term. Competition is reduced -building material supply duopoly is not challenged by competitors.The construction situation gets worse. This sets of price booms in existing house prices. Construction picks up -but it is not what the bulk of the middle of the market wants. It is McMansions etc for the top end of the market.
Politicians and regulators do not want to fix the property market -it is too scary -so the cycle goes around and around.....
New houses are crappier than the old crappy houses, at least the old houses we built were built from real wood and only need remedial work to bring them up to date for insulation purposes. Oh, and then you can get government funding for this, no government funding for insulating a new house
I think that's a myth from the leaky housing error.
Modern houses tend to have:
- Double cavity so very unlikely to leak
- Double glazed and fully insulated
- Open plan layout
- All new fixtures / fittings / flooring / etc
- Lots of sockets / lighting
- Large floor plan
Trying to give an older house the same features is very expensive.
Don't blame the builders who are just trying to earn a living. Blame the price of building materials that inflates prices that builders charge just to stay in business. Blame the high taxes on our businesses, blame the insurance companies for high premiums because builders have their tools stolen by low-lifes who then sell them on the black market. As far as your land costs go, you can blame your idiot council for just clipping the ticket and then passing on the costs of their over-inflated incomes onto you, who at the end of the day just wants a roof over your head.
Interesting; whenever property (especially Auckland property) features on this site there is a extraordinary number of comments. My bet is that this will go beyond 100.
What was that about Rockefeller who said something along the lines "When my shoeshine boy can tell me all about the stock market it is time to sell." Possibly appropriate here.
Pertinent observation, Printer8.
Property is a popular obsession in NZ. It's the most preferred investment and people can't get enough of it.
And that's not about to change.....
The current softening in the market will create opportunities for the astute - of whom there are many waiting in the wings.
Agree. Or when your housepainter tells you he has just brought his third rental and how great he is for doing so. Shows how wrong things are in favor of housing investment.
Labour should just push rule changes (dti, ring fence losses, empty house tax, anti flipper tax) to force the correction. PIs dont vote Labour so no loss.
Who will house the poor scream the PIs? Simple new state house development will but we wont extort them by making them have 15 to a house. Import materials to bypass fletchers, and ramp up its apprentice policy to get more youth trained.
Win, win win, and win.
Investors in the market for the long-haul have nothing to worry about.
Ups and downs in the Auckland housing market are always to be anticipated. After the boom of 2014-2016, what else would any well-informed investor reasonably expect but a drop-off in activity.
But mark my words, the Auckland housing market is more resilient than many here are prepared to acknowledge.
A major reason for that is the underlying DEMOGRAPHICS - a word that sends shivers up the spines of the doom & gloom merchants.........
If the well informed investor knows there will be a 'drop off' where prices decline or stagnate, wouldn't it be sensible for them to sell up and put their money elsewhere (and then potentially buy again later). Unless their rental yield is good (unlikely), why hold? Why be 'in it for the long term' if you know you will lose money in the short term?
whats the average AKL house price nowadays? Let's use the $800 and something thousand figure. Because well informed investors know that an increase in $800k however small, or however long in the future is worth more absolute $$ to them than a larger return on let's say $20k of shares. Because most investors are earning the % gain on that massive amount when it's not their money in the first place. Free money is a great thing. So long term it would be a better absolute return in dollars than something else. But my advice is to difersify your portfolio nevertheless
propertyminx,
I am really struggling to find the point you are trying to make,from the figures you have used. Ok,so a 10% gain on an $800k property is worth more than a 50% gain on a $20k share portfolio.What on earth does that prove? Where did the $20k figure come from?
Yes,leverage is great when prices are rising as it magnifies the gain,but should proiperty prices EVER fall(heaven forbid),then it also magnifies the loss. The final 2 sentences completely contradict each other.Logic does not appear to be your strong point.
But tothepoint is saying he knew the market was going to go backwards yet he is staying in there for the long term. My point is if you somehow know the market is going to go backwards (or stay stagnant), then shouldn't you sell regardless of whether you are in it for the long term?
Jimbo Jones,
Property is not shares. It takes time (4 - 6 months from advertisement to settlement) and costs money ($50k + to present, stage, RE fees, lawyers fees etc) to sell a house.
Also it's time in the market, not timing the market that yields long term profit in property.
A personal example, I bought a commercial property around 1995 for $800k. An unsollicited offer for $1 Mill came 3 months later, I ended up selling for $1.1 Mill, a profit of $300k. That's a huge amount of money in 3 months especially back then, I knew I couldn't do better. Today the land alone is worth $4 Million and there is a mall on the site...
Auckland is investing massively in spreading infrastructure from Pukekohe to Wellsford today, this could pay off in the long term. Around 2035-2050.
It is the medium term that looks scary. We have a highly mobile unattached workforce that will be looking to buy houses in the next 10-20 years and a development plan seemingly designed to prevent houses being built for 20 years. What happens to the Auckland economy if most of the young people leave?
The demographics aren't the reason Auckland house prices have gone up. If it had been then rentals would have gone up also. What we have seen is a speculative bubble driven by continual reports of immigration, which resulted in a current prices exceed fundamentals.
If you applied this logic to second-hand cars - prices would go up until supply increased to match demand - and in the long term the price can't exceed the cost of bringing in another second hand car. It is the same with property - the price cant exceed the value of cost of building a new house and a cost of the land.
The continual focus on demographics missing the point that in economics there is always alternatives . At the current prices lots of people will leave Auckland, lots of manufacturing jobs that go back to the region and lots of elderly who sell up at current prices to retire somewhere cheaper,
If your Auckland house in on the market now and you can't get the price you wanted then take it off the market. If you need to sell slash your asking price by 10%. (15% if on North Shore). If you are thinking of selling a home whatever you do please do not put it up for auction - just put a realistic price - i.e. 10% less than the lowest price any real estate agent has appraised at.
I would be interested in knowing how many of the houses not selling or dropping are those houses bought by speculators that need work done on them to make them healthy to live in, have no sun streaming into them during the day, have neighbours peering in the windows from a few feet away, no on street or off street parking etc . This seems to be all generalisation without a better idea of which categories are being affected.
Trying to build, it's a numbers game in Auckland, ok building new in Auckland is a boom thing, people want to buy, fhb etc , what is auckland 55% owned to 45% renters, large amounts of investors and people in it only for capital gains, people with 5 and 6 investment properties, then there's the overseas investor parking there money in there ghost houses and half of Auckland comments on here that there Streets are full of them but the government will say different, yeah right, yes it's a numbers game and all these number will change over the next years
Even if only 20% of the 'investors' are speculators, and even if only half of them decide to sell this year, that would be 5% of Auckland's housing stock on the market (in addition to the non speculator houses on the market). I doubt prices can be sustained under those circumstances, regardless of immigration demand.
So the facts are in and the Housing market has turned down. This could be a good time to move your money out of the banking system as an OBR event is not far away. Australia, Canada, New Zealand, Hong Kong housing markets are all in decline. If a global recession kicks in then all bets are off.
I look forward to the time when the average Joe can buy a house for 3-4 times earning even if that means recession and a debt collapse. The recovery never happened due to ponzi finance and corrupt bankers pumping the system. Mean reversion always happens even if you think this time is different....
The problem with this, is that with the current war on cash if you were to roll up with $1 million cash to buy a house you are likely to be arrested, the Americans banned the ownership of gold at one stage and if you have Bitcoin you are considered a criminal. I think I will have a problem getting a large amount of money out of my bank in cash, I will probably be carted off and interrogated.
Hi Yvil, the name Moneyphobe was a bit tounge n cheek. However fear is a natural and health thing to have imho. Money is the root of all Yvil after all...https://en.wikipedia.org/wiki/Root_of_all_evil
C'mon moneyphobe. Your money will be safe in futures contracts on swaps, and borrowing money to leverage options contracts with unlimited losses. It's as good as cash in the bank until someone can't pay for a multi-billion dollar loss.
Paper gold is also a good alternative to physical gold. Or at least better than the $305m in physical nickel that ANZ thought they owned.
When the Australian market also turns down the credit of the Aussie banks (ie our banks) will deteriorate, but I don't expect that credit deterioration will happen for a year or more at least, so I think you are jumping the gun. But yes, when (not if) there is a serious deterioration in the Aussie property market then the banks will be under serious stress, mortgage credit will dry up and the nz property market will be in freefall. And NZ taxpayers will be picking up the pieces of one or more banks in nz. That may include the nz subsidiary of an Aussie bank.
It depends on what the composition of the account is, how much is in cash and held in a bank with an OBR event occurring. If the event is limited they may only apply it to term deposits, if it's worse it may apply to all accounts. If the bank is going down in flames all the cash accounts could be wiped out.
I don't have a kiwisaver account with a bank, but there's a risk that the funds within it (which sometimes have 2% of value in cash) may take a loss on their account.
moneyphobe,
If the median house price in Auckland is $800k and the ratio is roughly 10 times the median income,then the property would have to fall to between $240/$320 to bring it back to 3/4 times income. If you accept that,then you are looking at a collapse of immense proportions and one that would have a tsunami like effect on the whole economy. Is that what you really want? Surely,it would be preferable for a long period(a decade or more) of price stability,to bring the market back to a semblance of normality?
I have no bank connections and am not here to defend them,but just calling them 'corrupt' does nothing to advance your case. Do you meant corrupt withing the meaning of criminal law and if so,with what evidence? Again,using the phrase ponzi finance is lazy,or are you claiming that the banks are being run in precisely the same way as Madoff operated? If so,where is your evidence?
3-4x income is the nz long term average, Auckland is 5-6x think (?), so that's probably a better comparison. Even then, that implies a 50% drop from 10x current. At 5-6x income, that will likely mean a significant amount of mortgages are underwater and a significant number of insolvencies, and a significant amount of non-performing mortgage debt on banks books.
As I said previously you cannot have a true recovery until the bad debt is liquidated. Its called mis-allocation of capital https://mises.org/library/austrian-business-cycle-theory-and-global-fin…
I would have preferred if the capital had not been mis-allocated in the first place. The corruption implied was making debt cheap/free via central bank intervention and then peddled to the pubic via retail banks. The banks solvency is dependent on keeping the house prices going up and getting new mortgages to payout the old debt just like a Ponzi is dependent on new money coming in to keep it alive. As soon as the flow of debt stops/reduces then the Ponzi/Banking system collapses. You will witness this first hand soon when the OBR is implemented.
"This mainstream economist’s understanding of Austrian business cycle theory is roughly as follows. An economic expansion is sustainable if it is the result of an increase in investment that is funded by an increase in saving. In contrast, an economic boom that is merely the result of credit expansion is not sustainable.2 When credit creation by monetary authorities exceeds a society’s structural saving rate, financial intermediaries end up lending money at interest rates that are below the rate where supply and demand clear in the market for loanable funds. As a result, the information embedded in market prices (including interest rates) is distorted, affecting entrepreneurial decisions and causing a misallocation of capital across the economy"
Real estate is Auckland's economy, a 35 percent fall in sales y/y , what business sustains those falls without fallout. Third lowest sales (unadjusted ) in the past two decades, 32 million lower in commissions y/y . Anyone , and that is anyone renewing their 1/2 year mortgage in the coming months with Auckland property as collateral will see that the banks radar screen has been lit up.Do not expect any chance of changing lenders.
o4normal, can you please clarify what you think have been the the structural changes to the housing market that mean house to income ratios cannot revert to their historical average? I struggle to see any structural changes which would mean that rental yields have reached a permanently reduced level. From memory (OECD figures?) current prices reflect a 100% excess over historic rental yields and a 60% excess over the income ratio. Which imply a drop in real prices of 30-50% to get the historic levels. Those levels are of course an average, so there has been levels lower than that.
So this is how I see the comments from Number One in the Beehive this afternoon...
"Uhm, cough.... National is bringing down house prices... cough... now we've started the biggest building boom in New Zealand's history, FHB and the poor will soon be able to afford a median priced home of 800k... cough!" And everyone will look at each other smile and vote National in the elections... then whinge and moan about uncontrollably high immigration. Finally Jacinta will be PM in 2020....
Don't blame People on here, for the market going down, there's just as many people here bulls and bears and elsewhere, you would have to have a pretty big head if you thought you could, the housing market is large with many parts to it, the market simply went way to high for what ever reasons you like and because of changes, pick one , is now retreating, the big question is by how much, my guess if I'm aloud one is 20 to 30% because of earning and the rest of nz will follow Auckland with the rug now pulled out
Nail on the head 04. This is a bubble unfoldoing in classic style. The sign were there on the way up, signs of the burst are in front of one's nose right now - if you cant see it it's due to a refusal to accept you are in doggy dooo. Not just Aucks, the regions will follow.
This burst is a bit bit like climate change - inevitable, happening and debate won't change a thing.
What impact? There's no change in commercial property as it's not linked to the insanity and irrational behaviour of the residential market.
The reason for this is that one property owner went bankrupt and left creditors holding the bag for around $10m. After that the banks realised that commercial property doesn't just keep going up and instead needs a business case to justify financing. The roi that is used for commercial property are significantly higher than any residential property. Cashflows are much more positive.
Further to that the way the banking regulations treat the capital requirements for commercial lending are higher than residential so the banks aren't just itching to lend the money.
Commercially there's a lot of work in the pipeline, and a lot of potential projects that are being priced right now. Although I gather commercial new build in Auckland has slowed, the rest of the country seems to be operating at the same pace as usual.
Dictator - this is where I start to get confused.....aren't darklords running a business by letting out a property? Just like commercial property? Why do they get special treatment - when they are putting the economy at risk by pushing prices through the roof which is causing private debt levels to get too high, which is going to act as a handbrake on economic growth for years to come? Why isn't darklordism more regulated - and treated as the same as commercial property?
The government currently lets them pretend that one sort of income they're targeting isn't in fact income but just good luck. Then they don't have to pay tax on that income, and they keep voting for the party that quietly acknowledges they'll let this free ride continue.
IO that's a very important question. Historically the Basel regulations (for some reason) decided that residential housing would receive a lower risk weighting than lending to a business. This was taken advantage of by residential landlords. Was the purpose to make homes more affordable? Was it to leverage wealth gains by landlords? I don't know what led to the thinking that houses are somehow risk free.
Given that RBNZ is not bound by Basel III and is free to amend the regulations, they could change the risk weighting for housing. Banks would need to recapitalise or slow their rate of lending. Both would likely be less risky that what is going on right now.
So should residential landlords be treated the same way by banks? Yes, I think they should. Why doesn't RBNZ amend the regulations? I have no idea.
Lets not fool ourselves into a false sense of security thinking that we are going to have affordable houses for all.
Immigration is showing no signs of slowing , and all these people have to live somewhere , so its not likely to bring house prices back to where they should be until we stop adding more people to the equation
love it when the so called "economists" keep saying that demand outstrips supply and prices will keep going up. Truth is average kiwis cant pay a million dollars for a house so they can only rent or live in cars.
The only "demand" is investors and rich immigrants.
5 years ago in 2012 an increase of 1.1% of the medium house price of $500k gave you an extra $5.5k. However, today a decrease of the same 1.1% on $850k is $9.35k which must hurt.
Obviously need to factor in inflation here to be sure, so you get real value.
But don’t think a 1.1% change is the same at the beginning or the end of a Bull run!
Well spotted, DGZ. Actually, Auckland City is 17.9% year-on-year for June 2017.
Problem is that most people who come here are only interested in gloom and doom. So this sort of outcome is in danger of being completely overlooked.
Given that the $1,002,500 median price for June 2017 in Auckland City includes a majority of apartments, it's an indication of the value of stand-alone houses.
In my view, stand-alone houses close to Auckland CBD are a top investment. Most unlikely that they'll fall significantly in price, if at all.
I have refrained from saying this, however I loved watching "Lost in Space", Zachary Smith had to be to most disliked character, and his mantra of "never fear, Smith is here" was probably the most personified representation of evil at the time. Maybe you should consider changing your name. You know marketing and all of that
Zachary,
Correct me if I'm wrong,but does the RE not refer to Real Estate? Thus,the head of the Real Estate Institute is reassuring us that the market is not going to fall and and as an Absolutely Independent Observer of the scene, why should we not believe her? I am not at all surprised that you do.
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