Miserable end to summer for the housing market, especially in Auckland where March sales volumes were down 18% compared to March last year

Bahaha.
They do have quite the lineup of experts at The Herald, don't they...
Hosking, Hawkesby, Alexander, and Church.

I'll bet this was intentionally timed, knowing what the REINZ figures were likely to show. It really is amusing to see how his messages seem to be targeted at the financially illiterate, with overly simplistic concepts, little to no actual data or analysis, just folksy analogies about mythical creatures.

It's fairly embarrassing to watch.

So what are your thoughts now Double GZ? Last year you were talking up the market big time.

Yes but is anyone game enough to have a swim in Loch Ness lake?

I'm guessing they'll take that video offline after a while, for that guy to save face. He's dreaming.

Another way of looking at it, could be like Nassim's Taleb's Thanksgiving turkey who extrapolated history ...

https://www.businessinsider.com/nassim-talebs-black-swan-thanksgiving-t…

A couple of others extrapolated price history and that caught out a couple of Nobel Laureates at LTCM in 1998 ...

Be aware of Black Swan events and risks ...

So if houses are the most unaffordable they have ever been, banks are tightening their lending criteria, foreign buyers cannot buy in NZ, sales rates are dropping.

What happens if interest rates rise. May not happen this year or next, but it will happen. Its like cracks in a dam, once one starts, then other little tiny cracks start appearing.

But hey NZ different.

FYI - Warren Buffett on the cause of the US housing and credit bubble.

On May 26, 2010, Warren Buffett was interviewed by the Financial Crisis Inquiry Commission (FCIC). In transcripts released in 2016, we see that the FCIC asked Buffett several questions regarding what he thought caused the housing and credit bubble, which eventually popped and pulled the economy into the worst recession since the Great Depression.

Brad Bondi, then Deputy General Counsel of the FCIC, asked Buffett, “What do you think it was, if you were to point to one of the single driving causes behind this bubble?”

Buffett began his brilliant response by quoting his mentor Benjamin Graham, who also literally wrote the book on security analysis. Here’s Buffett: “…Ben Graham, made an observation, 50 or so years ago to me that it really stuck in my mind and now I’ve seen evidence of it. He said, ‘You can get in a whole lot more trouble in investing with a sound premise than with a false premise.'”

When you have a sound premise, you may also have a “This can’t go wrong” mentality. And when you add money to that equation, things quickly get out of hand.

“It’s a totally sound premise that houses will become worth more over time because the dollar becomes worth less,” Buffett said. “It isn’t because, you know, construction costs go up. So it isn’t because houses are so wonderful.

“It’s because the dollar becomes worth less, and that a house that was bought 40 years ago is worth more today than it was then. And since 66 or 67 percent of the people want to own their own home and because you can borrow money on it and you’re dreaming of buying a home, if you really believe that houses are going to go up in value, you buy one as soon as you can. And that’s a very sound premise.”

That’s how it starts.

“Soon the price action — or at some point the price action takes over, and you want to buy three houses and five houses and you want to buy it with nothing down and you want to agree to payments that you can’t make and all of that sort of thing, because it doesn’t make any difference: It’s going to be worth more next year,” Buffett said.

And it’s not just the homebuyers.

“[The] lender feels the same way,” he said. “It really doesn’t make a difference if it’s a liar’s loan or you know what I mean? [Unintelligible] something because even if they have to take it over, it’s going to be worth more next year. And once that gathers momentum and it gets reinforced by price action and the original premise is forgotten, which it was in 1929.”

The financial crisis triggered by the housing bubble was orders of magnitude worse than past stock market crashes. Buffett articulated: “…the price action becomes so important to people that it takes over the — it takes over their minds, and because housing was the largest single asset, around $22 trillion or something like that, not above household wealth of $50 trillion or $60 trillion or something like that in the United States. Such a huge asset. So understandable to the public — they might not understand stocks, they might not understand tulip bulbs. But they understood houses and they wanted to buy one anyway and the financing, and you could leverage up to the sky. It created a bubble like we’ve never seen.”

Bubbles continue to be obvious only in hindsight, largely because something based on a “sound premise” surely couldn’t be a bubble. Unfortunately in the markets, a premise is sound until it isn’t.

Source: https://finance.yahoo.com/news/warren-buffett-explains-why-market-bubbl…

Ashley Church's underlying premise is that house prices in Auckland will not fall by much, and majority of people in New Zealand have this underlying belief. This was the underlying belief that led to the US housing and credit bubble. Here are Warren Buffett's words ...

From the May 2010 FCIC interview with Warren Buffett

MR. BONDI: As I mentioned at the outset, we’re investigating the causes of the financial crisis. And I would like to get your opinion as to whether credit ratings and their apparent failure to predict accurately credit quality of structured finance products, like residential mortgage-backed securities and collateralized debt obligations, did that failure, or apparent failure, cause or contribute to the financial crisis?

MR. BUFFETT: It didn’t cause it, but there were a vast number of things that contributed to it. The basic cause, you know, embedded in psychology –- partly in psychology and partly in reality in a growing and finally pervasive belief that house prices couldn’t go down and everyone succumbed –- virtually everybody succumbed to that. But that’s –- the only way you get a bubble is when basically a very high percentage of the population buys into some originally sound premise and –- it’s quite interesting how that develops –- originally sound premise that becomes distorted as time passes and people forget the original sound premise and start focusing solely on the price action.

So every -– the media, investors, the mortgage bankers, the American public, me, my neighbor, rating agencies, Congress –- you name it -– people overwhelmingly came to believe that house prices could not fall significantly. And since it was biggest asset class in the country and it was the easiest class to borrow against, it created probably the biggest bubble in our history.

Hi Pragmatist,

You write above: *makes a hot chocolate and puts feet up*

If you aspire to putting your feet up and drinking hot chocolate, how on earth are you going to get a house of your own?

House ownership is a reward for effort - hard work and disciplined saving.......

Or do you want to end up like the DGM??

TTP

House prices continue to firm through most of NZ.

In Auckland, where the previous market upswing ended in October 2016 (i.e. 2.5 years ago), there has been a textbook soft-landing....... And that's despite the overseas buyers ban, the highly-publicised threat of a capital gains tax - and tighter regulations for rental properties.

Many here will be reflecting on the tenacity of the NZ housing market - regretting that they didn't purchase 5 years ago.

TTP

Yes and all those sheep conned by the property industry and mainstream media, the B.S. mantra of TV shows and training courses (Ritchmastery, Property Apprentice and the like) with agents willing and waiting up the back room, lured by untold wealth.
Commissioned based Independent mortgage brokers lying on ability to pay, based on some intrinsic value. Banks have woken up late to the problem and trying to deleverage out.

Yes the boom lifted the value of some really crappy properties to ridiculous levels.

In reality alot of those properties are hardly worth more than the land value.

There is a heap of these dumps for sale at the moment and this is where I expect to see a crash, potentially some of them are upwards of $200K over valued.

From what I hear the other factor is the responsible lending rules. After the fall out from the Royal Commission in Australia there has been more responsibility placed on banks if and when things go wrong. Therefore, banks are much more cautious in lending.

Hi RickStrauss,

On the contrary - with rents for reasonable 3 bedroom houses in Auckland being about $600per week = $30,000per annum (and sometimes more) anyone would have been far better off purchasing a house.......

And that's just the financial benefit. There are many other benefits of a non-financial (intangible) kind in owning the roof over your head!

TTP

RS, indeed, and there will be a lot more of the decline to go yet. Renting is the way to go at the moment for potential FHBs. Notice how rents are dropping in Sydney too, as housing values decline.

Until you account for the ones that don't have a choice and have to sell (death, divorce, etc).. They have to settle for what the buyers are willing and able to pay. Then your medians and indexes start falling.

There becomes a problem when people go to re-fix at a good interest rate and the bank tells them that they are no longer eligible for the reduced rates because they dont have any equity in their property. Without a good Loan to value ratio the good rates disappear. It will be the catalyst that forces many to sell. Many have bought homes banking on 4-5% loans. And other banks wont touch them with no equity in their property. Things would start getting very stressfull very fast.

I agree NF
There are still the DGMers predicting - without any substantive reason - that here will be a collapse/bubble burst (i.e. a sudden and significant fall in prices).
Migration figures (albeit with some degree uncertainty) out today with many migrants destined for Auckland, indicate that there will be pressures on housing supply and consequently providing some support for prices. Both KiwiBuild which is more and more been seen as a failure in relieving housing pressures, and continuing low (some fall?) in mortgage rates will also continue to provide support.
I am expecting a seasonal downturn in Auckland activity and prices, but not the unsubstantiated collapse claimed by many. The interest.co graphs above indicate that over the longer term, the current correction is similar to that following previous periods of rapid housing inflation. All in all I am expecting up to a 10% correction which is consistent with previous such events.
For FHB buying "below market value" (investor terminology as a result of have bought/need to sell, death, moving city) is likely to be of more significance and importance than any short term market correction.
I suspect that those claiming a significant collapse/bubble burst just have a love of blood sports but unfortunately in this case they are likely to be disappointed.

Hi Fritz,

You say the Auckland market is "........very, very weak."

In fact, the evidence over the last decade (or longer) shows that the Auckland housing market is "very, very resilient".

The most obvious losers at present are real estate agents (due to relatively low sales volumes). Agents, however, represent only a small proportion of the population. Fortunately, I have never been one.

TTP

Property spruikers are lucky interest rates are going down and not up. 12 months ago it looked like we might see them climb 1% now they look like they could fall 0.5-1%. With falling interest rates the ridiculous mortgages are a lot more stable. So yeah, we are down 5% which for someone with $200k equity on a $1M home is still a 25% loss of equity. Will it fall further. I think 10% is plausible but if interest rates drop I think 20% is unlikely. What we’ll probably see is a 10% nominal fall and a 20% real drop over 5 years. That seems fair but who knows.

Ah TTP is an agent? I didn't know what, makes sense now. Livelihood depends on it.

So with a 10% fall from peak, someone who bought an AKL median priced house in March 2017 with a 20% deposit, will likely have lost half of it.

How many of these foreign owned "ghost" or otherwise properties are laundered funds. They might not be in a rush to sell, but merely see the peak of the market as the time to sell.

Even if they lose 5 - 10% of what they originally put in it's still a 100% gain, meanwhile dragging the rest of the property values down with them.

How many property investors who own multiple properties in Auckland are in a negative cashflow position similar to Eddie? (how many are in a similar negative cashflow position and no access to additional capital)?

https://www.youtube.com/watch?v=eb9U7PwXBew&t=7s

You been hacked by The Man?

Hi Chairman Moa,

Wellington and Palmerston North markets are also hot, hot, hot........ both for sales and rental.

I'm told by friends in Wellington that it's almost impossible to purchase a good family home in the city suburbs - and that rents are through the roof.

In Palmerston North, where developers are now very active, there's a dire shortage of building sites in the preferred suburbs (such as Hokowhitu).

TTP

Good data layout there .. showing the trend.
Appreciate the objectivity.

Yeah people tend to forget the 5 year bright line test, effectively a cgt (but with a time limit).
It’s got to be a deterrent for quite a few investors. Because many buy and then want to flick. Even for those who might ‘intend’ to buy for the longer term, for some there is always the thought that they might have to sell within 5 years.
It wouldn’t be an issue if it looked like we were going to have an ‘eternal boom’. But anyone who has even a snippet of intelligence can see that at best future gains are likely to be muted. So then you effectively lose a chunk of any of your small gain, plus of course agent fees. So limited gain, likely poor yield and potentially lots of tenant hassles. Why would you do it?

Hi Long John Martin,

It's hard enough to get into property in NZ - as I've found out personally.

So you're absolutely correct - once in, stay put - and the longer you stay put the better.

These days, of course, nearly everyone knows that....... and they behave accordingly.

TTP

Hi richard1965,

You don't need an agent to sell a house.

You're better off doing it yourself - if you're the time and a bit of commonsense.

These days the on-line sites (TradeMe etc) make it much easier to sell privately.......

Seize the opportunity - you'll save money (from not paying agent's commission and all the add-ons) and gain a sense of satisfaction!

TTP

Should have gone to Specsavers!

Auckland HPi down 2.96% in a year,
Auckland Median down 2.7% in the same time.

Its amazing how the property spruickers understand leverage and %s when when its interest rates drops and price increases.. but when things are going the other way they just don't seem to compute all of a sudden.

Market still looks the same to me, just like the people on here. DGM's using the apparent "Bad News" to justify why they are still not buying a house. There is never a bad time to buy a house if you have a long term outlook and make that commitment.