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Monday, 7 December, 2009 |
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Featured on Stuff.co.nz – 1/12/2009
A gap in the strength of the housing market is opening between the three metropolitan centres and the rest of the country, a new survey shows.
The New Zealand Property Report from property listing website Realestate.co.nz said the pendulum had swung in the direction of a buyers’ market, with Auckland, Wellington and Christchurch the conspicuous exceptions.
For the country as a whole the level of inventory – the number of weeks of average sales that would be needed to clear the market – rose to 36 weeks in November, the latest monthly report, published today, said.
That was up 5 percent from October, although down 32 percent from a year earlier.
At the same time the number of listings nationally rose 2 percent from October, and 4 percent from November 2008, to 13,857.
The national average asking price last month was $419,586 – only marginally up from October and a 2 percent rise on the previous three months.
The steady growth in listings during the past three months had begun to outpace the rate of sales of property across the country, leading to the growth in inventory levels, the report said.
Compared to the 36-week national figure, the inventory level for Auckland was 27.6 weeks, up 5 percent from October but down 43 percent from a year earlier.
In Wellington, inventory was equal to 17.7 weeks of average sales, up 9 percent on the month, while also down 43 percent from November 2008.
For Canterbury the inventory was 26.3 weeks, up 1 percent from October and down 40 percent over the year.
A 4.1 percent rise in asking prices in Auckland, compared to the prior three months, was a direct result of the tightness of the market, with inventory levels remaining tight as the flow of new listings seemed to be being met by a steady demand, the report said.
The same inventory tightness in the other main centres of Wellington and Canterbury did not seem to be directly having an impact on asking prices, for now.
For the country as a whole the pendulum had swung in the direction of a buyers’ market as the inventory of property on the market was being bolstered by rises in new listings which as meeting a steady, yet uninspiring, sales level, the report said.
Of 19 regions covered in the survey, 11 showed inventory levels running significantly above long term averages.
“The only conspicuous regions reversing this trend are the three metropolitan regions of Auckland, Wellington and Canterbury, all of which are showing inventory levels well below long term averages and well below the national average.”
The three metropolitan regions were showing characteristics more akin to a sellers’ market, the report said.
That had prompted some speculation of an emerging property bubble, but the broader data clearly refuted that assertion.
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Tuesday, 17 November, 2009 |
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A pick-up in the property market is the result of having more buyers than listings, and it's too soon to say the market is facing a boom, real estate agents say.
"I would definitely come short of calling it a housing boom," said Real Estate Institute president Peter McDonald.
"I think it's just a correction back to where it was before the recession. It's a reflection of a shortage of listings and a little bit more demand than there is supply, which will correct itself coming towards Christmas.
"The number of days to sell has certainly shortened, but that's because there's a shortage of stock on the market ... It's supply and demand.
"At the moment there are more buyers than there are listings and that's why the market is strengthening."
More buyers were appearing because confidence was returning to the economy and because interest rates were still relatively low but predicted to rise, Mr McDonald said.
Figures expected to be released today would show sale prices for October to be the highest they had been in 10 years, he said
House sales had dropped from 10,000 a month in better times to about 4000 at the market's worst. They were at about 6000 last month, Mr McDonald said.
Barfoot & Thompson managing director Peter Thompson agreed there was no boom.
Sales traditionally rose at this time of year, and he put the increase down to the market recovering after a sudden fall in sales, which had increased demand and therefore prices.
"It's a combination of timing plus the economy slowing down and recovering and confidence coming back into the market.
"I wouldn't say it's going back into a boom ... but certainly the volume of sales being made is double that of last year."
Mr Thompson said more properties - including higher-valued ones - were now being sold, which was to be expected in the lead-up to summer.
"Traditionally more higher-priced properties sell because of swimming pools and tennis courts, so it's partly the market and also partly the recovery."
Mr Thompson said homes were selling in an average of 31 days, about the same as two years ago.
Last year, that figure was up to an average of 44 days.
NZ Herald Friday 13 November 2009 |
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Tuesday, 17 November, 2009 |
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Market hot now, but it won't last - economist
The housing market has a head of steam up, Westpac economists say, but they expect a downturn late next year.
Reserve Bank Governor Alan Bollard warned on Wednesday against a return to the kind of debt-fuelled, housing-led boom that preceded the recession, and said he would move to counter it if necessary.
He added that growth in mortgage lending was not now a problem.
But Westpac research economist Dominick Stephens said housing was displaying all the symptoms of a bull market.
The number of sales had risen sharply, the time it took to sell had shortened, and prices had risen 8 per cent since the start of the year and were only 4 per cent below their record high two years ago.
This reflected a shortage of new houses - caused by a strong population gain from net migration and a lack of building activity - as well as low mortgage rates.
But those factors were temporary, Mr Stephens said, and there was a risk of tax system changes which would be "seriously negative" for house prices.
About 14,000 new houses a year were being built, but 25,000 were needed to match population growth.
Mr Stephens said building would pick up in response, but it was constrained by the fact that finance for property development was extremely difficult and expensive to secure.
That could ease, but a return to the loose lending conditions of 2004 to 2007 was exceedingly unlikely.
Alternatively, the make-up of the construction industry could change.
"Large, well-capitalised corporations ... will be the most able to seize this profit opportunity. Small-scale builders, who are mostly cashflow positive, might go from building two houses a year to building three.
"But mid-sized developers who are highly leveraged may suffocate from lack of finance."
On the interest front, long-term rates had already gone up, but house prices had kept on rising as the market reacted more to low short-term rates.
That was worrying, Mr Stephens said, "because if low short-term rates are driving prices up, then the inevitable increase in those rates will eventually drive house prices down again".
Whether house prices are overvalued depends mainly on long-term mortgage and inflation rates.
Westpac economists' pick for those factors are mortgage rates of 8 to 8.5 per cent and inflation of 2.8 per cent.
If they are right, house prices are between 2 and 17 per cent above their long-term sustainable level.
But that depends on no changes to the tax system, which is under review.
Mr Stephens said a capital-gains tax or land tax would be "unambiguously and significantly negative for house prices, and probably positive for rates of home ownership".
NZ Herald Friday November 13 2009
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Wednesday, 30 September, 2009 |
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By Jazial Crossley – The National Business Review 14/8/09
Today's Real Estate Institute figures showing house prices increased by 2.2% in the three months to July have added weight to Infometrics claim that house prices will rise by 24% over the next three years. However, some property analysts say the forecasts are far fetched and overly-optimistic.
While many commentators have been delivering differing reports of how they expect the property market to pan out over the next few years, the majority agree next year won’t be hugely improved on the current situation.
The data that Infometrics based its report on is calculated by median prices of homes sold, and property market commentator Kieran Trass said that method is unreliable due to including the extreme ends of the market.
He predicts a nominal fall in house prices instead. The main problem facing the residential housing market in New Zealand is affordability, he said.
At a property market outlook presentation at the University of Auckland, interest.co.nz editor Bernard Hickey told the audience of largely 18-30 year old students to leave New Zealand, because property would never be affordable in their lifetime.
“If you are under thirty and don’t own a home, there is no hope for you in New Zealand. If you think you’re going to be able to get married, have kids and own your own place with a back yard, it’s not happening – especially not in Auckland,” Mr Hickey said.
He blamed the property purchasing patterns of the baby boomer generation for the inflation on residential prices.
House prices are already “horribly unaffordable”, he said, adding that by 2025 the baby boomers who bought up large in the property market between 2003-2008, thanks to generous bank lending, will be pushing up tax rates by putting pressure on the healthcare system.
Realestate.co.nz chief executive Alistair Helm held a conservative outlook. He said at the same presentation that he expects the next five years to be dull in the property market.
“Sales volumes are likely to grow steadily,” Mr Helm said. He added that supply would be restricted due to limited new builds but the flow of residential construction would return.
Mr Trass, who runs the website suburbwatch.co.nz said that we are now in the middle of the housing slump, with the current rise in new listings and lifted mood in the industry being nothing but a false start. He expects a sombre mood to be prevalent in the property market during 2010.
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Monday, 28 September, 2009 |
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Tauranga sales slump while coastal strip stays steady
By Graham Skellern – Bay of Plenty Times 16/9/09
The Tauranga housing market suddenly took on two faces last month – and local real estate agents are scratching their heads over a near 50 per cent slump in sales on one side of the city.
Sales were steady on the coastal strip of Mount Maunganui and Papamoa, with 75 residential properties changing hands last month, one more than in July and well up on the 47 recorded in August last year.
While the bulk of the sales was in the under $500,000 price bracket, interest was returning to the higher end of the market.
But according to the latest New Zealand Real Estate Institute (REINZ) figures, the number of sales on the other side of the harbour plummeted to 78 last month, from 149 in July and 93 in August last year.
It was the slowest month since the start of the year, after market activity began improving in February.
“We were flabbergasted” said Harcourts Advantage Realty owner, Max Martin. “A 50 per cent drop in the market in one month is hard to explain, it felt busier than that. Maybe it was a timing issue, and someone didn’t forward the figures in time” he said.
“We have good listings, open homes are busy, and there’s more inquiry and confidence around”.
Neville Falconer, a REINZ councillor based in Tauranga, said “its not very clear what is going on. Three months ago the Reserve Bank indicated prices would fall 10 per cent and now its saying prices will rise. The direction is all over the place and may be the market is uncertain and confused” he said.
Mr Falconer thought the market may have been “a little over-bought” over the winter months and the buyer pool was used up.
“We’ll have to wait and see. The listings are building for the spring and prices may be softer”.
Gil Beadle, Eves and Bayleys spokesman, put the August slump down to the weather and school holidays. “People wait until the weather gets better in the sprint and list their houses. We are now seeing a choice coming to the market and this is stimulating more action. Hopefully September will recover from the lacklustre August”.
Mr Beadle said there was more inquiry in the mid and upper end of the market “There are opportunities out there”.
The median selling price jumped more than $30,000 to $395,000 at the Mount and Papamoa, from $361,500 in July, while the median stayed at $340,000 for the rest of the city.
It was different again in the Western Bay district, including Te Puke, Omokoroa and Katikati. Sales volume increased by four to 51 in August, from 47 in the previous month, but the median selling price fell to $345,000, from $380,000.
Agents on the Mount/Papamoa coastal strip are reporting a shortage of listings. “There’s steady turnover but we are looking for more people to come on the market” said Doug Morris, of Papamoa Professionals.
“Buying an selling on the same market is the important thing, and we are now seeing some building on the remnants of land bought by the builders” he said.
John O’Donnell, of L J Hooker Mount Maunganui and Papamoa, said it was a good time to list “There are plenty of buyers out there”. He said some sections of the market were still over-priced.
Owners of two-bedroom units at the Mount were still looking for about $350,000 when the present valuation was about $300,000. And “there’s a truck load of apartments selling for more than $1 million. The biggest change is people are starting to build houses again, I’ve seen six new homes started in the last two weeks” said Mr O’Donnell.
His firm sold two residential properties in Sovereign Drive, Papamoa, for $740,000 and $860,000, and Harcourts sold a luxury apartment in The Pacific, Maunganui Road, for $700,000.
While the Tauranga market was “all over the place” nationally it was ‘steady as she goes’.
REINZ president Mike Elford said August showed little movement in median prices and number of sales compared with previous months.
But the speed of turnover compared with a year ago was pleasing, though it was still early days and “We need to be cautious in drawing conclusions from these trends” he said.
Around the country, the days to sell averaged 34 last month compared with 55 in August last year. In the Waikato/Bay of Plenty region, the days to sell dropped from 71 in August last year to 44 last month.
ASB economist Jane Turner said the Reserve Bank was on edge watching the recovery in house prices, warning that further gains would prolong the rebalancing process at the expense of future growth.
She agreed that the recent in lift in prices was likely to be temporary. “The recent pick-up in demand comes when listings have been very low, causing the housing market to become slightly heated at the minute. However, recent stabilisation in the housing market is likely to tempt potential sellers back into the market, restoring the balance between supply and demand” Ms Turner said. “We continue to expect house price inflation will remain subdued over the next few years, with appetite for housing tempered by rising interest rates, low affordability and rising unemployment”.
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Thursday, 17 September, 2009 |
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By Andrea Milner - Herald On Sunday 6/9/09
After a white-knuckle year on the housing rollercoaster watching values plummet, homeowners and prospective buyers want to know which way to jump.
Are values seriously on the up, giving owners hope and buyers reason to act fast? Or will they fall further, meaning everyone who can should hold tight?
Commentators are divided between those such as BNZ chief economist Tony Alexander who believe prices will not fall any more, and others like property cycle expert Kieran Trass who say we are in for a long slump and parts of the market will crash further.
The Herald on Sunday put Alexander and Trass head to head.
TONY ALEXANDER:
The case for hope
Quotable Value statistics show values nationally are now 8.5 per cent below their peak level, but Alexander says the market is rising again, and will continue to do so.
He says those who have been preaching doom in the housing market have been wrong, slating "silly forecasts from wayward pundits" that prices would fall more dramatically.
He told the Herald on Sunday he was not referring to Trass.
Alexander's optimism is based on four economic fundamentals: unusually low interest rates attracting buyers into the market; an under-supply of houses; a dearth of new home construction and a burgeoning population.
However he does not think we are facing another boom.
Lending criteria are tighter and the rate of lending to the housing market is still weak, only growing about 0.2 per cent a month.
Prices have only risen 2.2 per cent in the past three months after falling a long way, and he says there is still too much uncertainty to predict how much they will rise in the next three years.
And he says there is an oversupply in certain market segments: seaside property, regions dependent on dairying and tourism and Queenstown apartments.
KIERAN TRASS:
We're still falling
Even though prices have been climbing, the increase is a false start, says Trass. He maintains values will fall up to 25 per cent in some suburbs during a slump he says will last until at least 2011.
Trass is so certain the market is still going to crash, he suggests buyers offer 10 per cent less than a property's valuation.
Buyers need to pay a price that takes into account the market being volatile for quite some time, he says. If the vendor will not accept it, move on. "People often fall in love with a property," Trass says. "But there are thousands of properties you can fall in love with - it's just that you haven't met them yet."
It's silly for people to race into the market now because they are scared of missing out, he says. This is the same fear that set people up to lose money at the end of the last boom when they believed that if they did not buy then, they would never be able to afford to.
"Smart people wait for the recovery to be established to the point where there is no doubt there is a recovery," says Trass. "It's not going to take much longer and this market is going to stop in its tracks."
The purpose of a slump is to take prices back closer to their fundamental values, Trass says, but property remains unaffordable by historic standards.
While the boom lasted five years, we are only two years into this slump, and Trass says: "I can't find another market that's come out of a slump in half the time of the preceding boom. The property cycle has its own gravity."
Pros and cons
BNZ's chief economist Tony Alexander says these things will underpin the New Zealand housing market:
1 Floating interest rates have hit a 40-year low that will drag extra buyers into the market.
2 New Zealand entered the recession with an under-supply of housing.
3 The country has the lowest level of housing construction since the 1960s. We need 23,000 built each year for a growing population, but fewer than 14,000 are being built annually.
4 We have accelerating population growth. The net migration gain in the year to July is 14,500 and is headed for 25,000. The average for the past 10 years has been 11,000.
Property cycle expert Kieran Trass says the market is not over the worst because:
1 Next year interest rates are going to rise some economists are saying by 3 per cent. Buyers who could not absorb this should bide their time and save.
2 There is no uniform under-supply of housing. There's a shortage in the better locations of main urban areas and over-supply in others.
3 We haven't been building many houses because it is too costly. The market adjusts through more people living in each household.
4 Migration looks positive - but it cannot be looked at in isolation.
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Thursday, 16 July, 2009 |
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By Bernard Hickey - Herald on Sunday 12.7.09
There is a lot of angst around at the moment about how banks are "overcharging" for floating mortgage rates, but few people are looking at how much the banks are lending and connecting that to what is happening in the housing market.
The Reserve Bank argued this week that bank floating mortgage rates could be a little lower, but that fixed mortgage rates were low enough, given the cuts in the official cash rate (OCR). The bank's point about low fixed mortgage rates was largely ignored in the kerfuffle about profits, which is a pity.
This noise about margins means people are missing the real action in banking - the housing market and therefore the economy.
Egged on by the Reserve Bank's record cut in the OCR, banks are pumping up the housing bubble again with low fixed mortgage rates. New Zealand has learned nothing in the past two years of hand-wringing about over-valued housing and how unbalanced the economy has become.
Banks lent homeowners an extra $801 million in May, an extra $488 million in April and an extra $581 million in March. Most of that was for housing purchases and came in the form of one- to three-year mortgages.
The portion in one-, two- and three-year mortgages rose $9 billion to $52.846 billion in the three months to the end of May.
So house prices have pulled out of their death dive and activity is picking up again. This is the major reason for the improvement in consumer confidence and the initial emergence of some green shoots in car and retail sales. I have wound back my forecast for a 30 per cent fall in property prices to 15 per cent.
Essentially, some first-home buyers and rental property investors took on extra debt and jumped back into the property market in March, April, May and June. The median price they paid was around 5 per cent below the peak, according to Real Estate Institute figures.
They did this is because the average two-year mortgage rate fell from a peak of 9.61 per cent in April last year to 6.24 per cent in April this year. The other reason is that banks are happy to lend to property buyers and farmers, but are reducing their lending to businesses.
Their inherent conservatism is showing, preferring bricks and mortar to business ideas and cashflow.
Yet again, the New Zealand obsession with borrowing money to buy property has trumped any shift to invest in productive assets that will grow the nation's wealth and incomes over the long run.
This is directly reflected in the last set of foreign debt figures. New Zealand's overseas debt to GDP ratio rose from 125.9 per cent in March last year to 140.9 per cent by March this year. Banks borrowed an extra $31.7 billion overseas between the beginning of last year and the end of March this year.
This is depressing. This is the year when we were supposed to pull our heads in and save more. We were supposed to borrow less from overseas and bring our national spending somewhere closer to our national income.
Meanwhile the domestic, consuming, uncompetitive parts of our economy continue to forge ahead of our productive, competitive parts of the economy.
How were we allowed to do it all again? Essentially, foreign investors still like us because we have the strongest banks in the world. This has nothing to do with how good we are as an economy or our ability to repay our debts.
Our banks are owned by the Australian economy, which has been the best performing in the world. We are lucky because Australia has four strong banks.
When will it stop? Eventually our ability to repay our foreign debt will overwhelm us and finally be noticed by a ratings agency which won't be sweet-talked by a Prime Minister.
We have ignored an opportunity to slow down. Instead, we have pushed down the accelerator and eventually we will slam into the brick wall of a loss of foreign investor confidence.
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Wednesday, 27 May, 2009 |
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by Brian Fallow - NZ Herald 27/5/09
Confidence in the housing market has improved in ASB's quarterly survey, with six out of 10 respondents considering it a good time to buy.
But the bank's chief economist, Nick Tuffley, said that while the market was showing signs of bottoming out, that was a far cry from saying it was about to take off again.
Many of those surveyed expect house prices to continue to fall. But that view became less emphatic over the three months of the survey, Tuffley said.
Expectations about interest rates, like interest rates themselves, plummeted last year but in the three months to April that moderated and by April itself responses were evenly split between those expecting rates to rise and those expecting further falls.
"The sharp spike in long-term fixed mortgage rates in late March no doubt swayed respondents' views," he said.
"The surge in fixed rates may have prompted prospective buyers to get off the sideline and act. That rush may have contributed to the surprising strength of house sales in April."
But since then Reserve Bank data on mortgage approvals had subsided, suggesting some of that heat would cool.
Other indicators suggested that while it was still a buyer's market, the pendulum was starting to swing back, Tuffley said.
The median number of days it takes to sell a property has fallen in recent months and at 42 days is not far from the long-run average of 38.
Likewise, the number of listings in Auckland - and anecdotally elsewhere - had shown a decline from very high levels to slightly above-average levels.
Tuffley said the main positive factors the market had going for it were low interest rates and an emerging rise in net immigration.
The net gain in migrants last month was 2200, the highest since January 2004. The last three months annualised would translate into a gain of 22,000, about twice the long-run average but half the previous peak in 2003.
But although early signs of stabilisation in the housing market were appearing, they would not necessarily translate into a noticeable recovery.
"Although prices have fallen over the past 18 months, they remain high relative to both incomes and rents. In other words, houses are now merely expensive instead of being really expensive," he said.
Unemployment is expected to climb and the number of mortgagee sales with it. ASB forecasts the unemployment rate to rise from 5 per cent now towards 8 per cent by the end of next year.
Compared with the start of the last housing boom, around 2002, households are collectively carrying much more debt and have less room to increase it.
The banks are demanding more equity from borrowers.
Tuffley said buyers should bear in mind that house prices might continue to fall in the short term and over the next cycle were likely to deliver "a shadow" of the growth seen in the 2002 to 2007 boom.
"For investors any price gains would be best viewed as a bonus rather than a given. Cashflow, not paper gains, is ultimately what services mortgages."
As for owner occupiers, the Reserve Bank in its May financial stability report noted that the recent boom had pushed house prices to nearly six times incomes, when the long-run average is less than four, and mortgage payments as a share of income to 40 per cent, when the long-run average is 30 per cent.
The subsequent fall in the housing market, about 10 per cent since the start of last year, has reduced the multiple of house prices to incomes, but it is still above five and well above its long-run level.
"We do need to see some rebalancing occur," Tuffley said.
It might be that the house price side of that adjustment had largely run its course. But that might mean a longer period when house prices went sideways and incomes, gradually, improved.
"In real terms we are expect virtually nil growth [in house prices] over the next few years."
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Wednesday, 20 May, 2009 |
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By Olly Newland - Herald on Sunday 17.5.2009
Against the backdrop of a deepening global recession, no one can say how long it will be before "normality" returns. We are told this is shaping up to be the deepest recession since the Great Depression and we should expect flow-on effects to the world economy.
Property investors and home owners must ask whether the property market as we know it will survive, or must it undergo a fundamental shift?
The next 10 years will likely see a tougher financial and credit environment. The reworking of the laissez-faire capitalist system which brought us to this point cannot be avoided.
The unprecedented bailouts by world governments and the collapse of household-name corporates demand and drive eye-watering changes.
I predict a major shift in how we assess a potential property investment, particularly commercial property.
Over the coming decade I foresee a permanent change in the investment environment and in different classes of property investment as we respond to the tougher financial order. Some types of investment that were considered "hot" will become white elephants.
One of the most likely changes to the property investment scene will be the imposition of new taxes. The means to introduce some taxes at the stroke of a pen already exists, through government regulation.
One of these is Stamp Duty, common overseas (notably Australia) as a means to impose taxes on big-ticket items. Transfer taxes such as Stamp Duty (currently set at zero but not actually abolished) are effectively a capital gains or wealth tax.
Stamp Duty was charged on all real estate transactions for many years. I predict this form of tax will be high on the agenda for politicians as they try to fill the Treasury vaults.
Some examples of property investments that could feel the long term effects of the recession and its aftermath are:
Petrol stations
For decades, these have been one of the most stable blue-chip investments. Long-term leases, bulletproof tenants, guaranteed customers and good locations.
Their weakness was always that they are specialised and relatively high-tech developments. Gas stations are costly to run and the profits on petrol sales are marginal at best.
The new economic order will likely force the giant petrol companies to divest themselves of their remaining company-owned outlets in favour of the more profitable business of bulk supply.
The gas station chains will be sold off to private owners, operating much like a family-run corner dairy.
Investors should either ease themselves out of this type of investment or make allowances for the inevitable downgrading in the quality of the tenant.
Banks Another class of blue-chip investment which is due for a shake-up. The recession, coupled with improvements in technology, will increasingly make many traditional bank premises redundant.
Already, several banks have sought to reduce their longer leases to shorter ones, giving them the option to quit expensive rentals more easily. Most trading banks see internet banking as their future and the need for impressive premises is being slowly replaced with simple outlets.
My advice is to ease out or only buy bank premises that can be easily converted to alternative uses.
Gated communities
I see the rise of security coming from the stresses of the recession. The most popular homes of the future are likely to revolve around spacious apartment living, gated streets and lock-up communities.
A freestanding home, open on all sides, made of paper-thin materials, will fall into disfavour. The days of the isolated lifestyle home or far-flung beach house are also numbered - except, of course, for the wealthy, who can afford the luxury of high walls and even greater security to protect them.
Property syndicates
The collapse of interest rates has had a profound effect on those who rely on income from interest on invested capital. The new rash of property syndicates promoting shares in commercial property is a predictable response.
I don't doubt syndicates will become popular in the years to come, as they promise high returns with minimum risk. But investors should be careful.
Selling your share of the syndicate is difficult; the managers will earn hefty fees for running the syndicate; the promoters will likely make a capital profit on the selling price into the syndicate; vacancies will occur and expenses arise - which can greatly diminish the promised returns.
Despite their traps, a properly structured property syndicate can provide a good, steady passive income for those who want to avoid the hassles of property management.
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Wednesday, 20 May, 2009 |
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Herald on Sunday - 17.5.2009
The Reserve Bank spends an awful lot of time collecting data on the economy and trying to make sense of it. Most is hardly ever seen by the public.
This data is often buried in long reports that are pored over by economists and few others.
This data is used indirectly in the decisions made by Governor Alan Bollard on the Official Cash Rate, which everyone does care about.
But the economists at the Reserve Bank did a fantastic job this week in presenting four sets of data in charts that simply destroy any notion that housing is fairly valued.
The bank pointed this out in its usual dry language in its half-yearly Financial Stability Report.
"Despite recent declines, house prices still appear to be somewhat overvalued relative to fundamentals," it said.
Lower mortgage rates would reduce interest costs, but further house prices falls were needed to cut the multiple of house prices to income to normal levels, it said.
It then published four charts with almost no further comment, apart from this: "Higher house prices and mortgage payments relative to household disposable income are generally considered to reflect over-valued property prices. Similarly, a wider negative gap between rental yields and mortgage rates may imply over-valuation."
The implications in these four sets of data are explosive. The mini-rally in activity in the housing market and the stabilisation of prices in March and April suggest property investors and first home buyers believe house prices are reasonable again. These charts say they are wrong.
The first shows house prices are still more than five times the levels of disposable income, well above the long run average from 1990 to last year of around 3.8 times.
The second shows mortgage payments to disposable income are still around 40 per cent of disposable income, well above the long run average of 30 per cent.
Another graph shows that when it comes to the difference between mortgage interest rates and the imputed yield on owner-occupied houses, owner-occupiers have effectively been losing money since 2004.
Rental property investors have effectively been losing money since 2005.
Investors only tolerated that because they expected capital gains and were using the losses to reduce their personal tax bills.
Property investors and first-home buyers should look closely at these charts before they borrow any money.
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Thursday, 30 April, 2009 |
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New Zealand Herald – Thursday 9 April 2009
Accelerated drop in Auckland figures in year to March drives nation-wide decline.
House prices are continuing their downward slide in New Zealand with Auckland driving the slump.
Statistics from Quotable Value show a 9.3 per cent decline in national property values in the year to March – worse than the 8.9 per cent decline for the year to February.
That was in part due to an accelerated fall in the Auckland area, from 9.4 per cent in the year to February to 10.1 per cent in the year to March.
Valuations spokesman Blue Hancock said the Auckland region, particularly the central city and Manukau, was driving the national decline.
“Many other areas of the country are beginning to see property values flattening, particularly in provincial cities and across parts of the Wellington area” he said.
He added that while there were increased sales in the traditionally active months of February and March, there was also widespread uncertainty over what coming months would bring. Factors such as the effect of interest rates and declining job security on the property market remained unclear.
BNZ chief economist Tony Alexander said there was potential for the crisis to edge house prices even lower in the next few months.
He agreed there were positive signs with buyers wanting to take advantage of low fixed interest rates and owners expecting more realistic prices for their homes. But he said an increase in activity levels over the next few months would be a surprise.
“Activity is characterised by a lot of pent-up buyers meeting pent-up sellers – you get what could be a temporary boost in turnover in the real estate market as things clear”.
“With the unemployment level rising its going to keep things relatively suppressed”.
Provincial centres have also felt the slide with Gisborne hardest hit, recording a drop in property values of 14.8 per cent compared with the same time last year.
In the Wellington area the decline was 8.7 per cent in the 12 months to March, an improvement from a 9.3 per cent decline in the February year. Christchurch worsened to a 9.7 per cent annual decline from a 9.1 per cent fall, while Dunedin improved to an 8.8 per cent fall from 9.4 per cent.
The only area showing positive growth was Southland at 2.4 per cent – although this trend was also heading downwards from 3.7 per cent last month.
The average New Zealand sale price for March fell slightly to $378,399 and has now declined 2.7 per cent in the past 12 months. The average sale price for Auckland fell from $502,193 to $495,892.
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Monday, 9 March, 2009 |
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NZPA – Monday 2 March 2009
ANZ economists are making cautionary noises about the housing market, after some indications emerged on Friday that general sentiment could be improving.
The ASB housing confidence survey for the three months ending January found 53 percent of respondents think now is a good time to buy a house, up from 45 percent the previous quarter.
Today the ANZ economists said they were “amused” by the suggestion that now could be a good time to buy houses.
They acknowledged the reasoning looked secure when considered alongside low mortgage rates, poor investment alternatives such as falling term deposit rates, and potentially recovering migration.
But the ANZ economists also pointed to other factors such as rising unemployment, the extended nature of New Zealand house prices relative to income, global de-leveraging now under way, and attention now being paid to fundamentals.
“The reality is that if this is indeed the trough to house prices, it would be the shortest cycle on record”, the ANZ economists said.
“If NZ manages to ‘house’ or borrow its way out of this financial jam, then the current account deficit will be going up during the biggest credit crisis in our lifetime.
“To us, this doesn’t stack up and rating agencies would hardly view such a dynamic in a positive light, anyway” they said.
“So while we may well see some fits and starts, intertwined with bouts of euphoria when it comes to housing (as is normally the case with NZers) we’d encourage people to look at the big picture.”
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Monday, 9 March, 2009 |
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By Anne Gibson – NZ Herald 26/2/2009
If you’ve got a job and the money, ignore the crisis and start looking.
If you are secure in your job and have enough money saved, now is the time to buy a house, say real estate experts.
No one should try to pinpoint the bottom of the housing market and if the price is right, the timing is perfect, says BNZ chief economist Tony Alexander.
His call sits uncomfortably with talk of recession and the worsening international outlook, but it is based on sound judgement.
“As long as I figured on keeping my job I would be out there actively looking for a property at the moment” Mr Alexander said.
“I wouldn’t be hanging off simply trying to pick the low point in the house-price cycle”.
Economists had proved they could not pick the top of the cycle, so no one should expect them to pick the low point, he warned.
He believes real estate sales have probably almost reached their weakest level, and activity is likely to fluctuate and start moving up before the end of the year.
House prices will possibly fall another 5 per cent but will stabilise by the end of the year, then rise slightly next year, he says.
Buyers should be seeking a mortgage interest rate of 5.5 per cent fixed for five years.
“But as I wait for this rate, I’ll become increasingly prepared to accept something just below 6 per cent just in case the world suddenly looks like a brighter place” he said.
Mr Alexander is not alone in his views.
Property author and advocate Kieran Trass is running a seminar in Remuera on March 7 on taking advantage of the crash.
He says Auckland flats are the first category of property this decade to emerge as cashflow-positive – “paying you to own them” – because of interest rates and property prices.
BIS Shrapnel’s managing director, Robert Mellor, said this week the Auckland house market would reach its lowest level by May and called for banks to loosen up on lending.
Strategic Risk Analysis economist Rodney Dickens, of Whangarei, said the market was eroding the benefits of renting a house, and it now made sense to buy.
“Only six months ago the economists were hugely in favour of renting, but with house prices having had more than half of the fall we expect and five year fixed mortgage interest rates having fallen from 9.1 per cent to 6.5 per cent, it would be understandable if quite a few people were tempted to buy rather than rent and to lock in longer term mortgages to give them certainty about interest costs” Mr Dickens said.
Some people were responding to the economic conditions by buying existing houses, rather than building new ones.
“But this response will drive section prices down relative to existing house prices and restore the competitiveness of new housing”.
UBS NZ senior economist Robin Clements says would-be buyers should house-hunt now, but not necessarily buy.
The next round of the recession could bring wide-scale job layoffs, debt-servicing trouble and more forced house sales and it would not be until the middle of the year that people would be able to tell where the economy was going.
“My base case is that we will muddle through without that worst-case scenario but that is the risk and house prices will continue to fall for much of this year”.
An online survey of 2852 New Zealanders this month by the Business Council for Sustainable Development found nearly a fifth of them feared they might lose their jobs this year.
Those on low pay and those making more than $100,000 a year were among the most worried.
Bayleys’ communications manager Scott Cordes said savvy buyers can get great deals and he cited Saturday afternoon’s auctions of seven Whisper Cove properties at Snells Beach which sold for about half price.
More than 300 people watched as three-bedroom villas – one valued at $1.07 million – went for $500,000 to $550,000 and an apartment sold for $328,000.
A year ago, buyer Sandi George found a place there priced at $900,000. At the weekend, she got it for $515,000.
Mr Cordes said the many mortgagee auctions and receivership deals such as those at Whisper Cove offered great buying.
But people considering buying a family home should not forget long-term principles.
If you’re buying and selling simultaneously, you’re in the same market. Both houses will have dropped in price by a similar percentage”. He said.
Market recovery is being picked at between six months and three years, he said.
Barfoot and Thompson director Peter Thompson said people needed to act differently in a weak moment.
His advice is:
• Be cautious about borrowing – don’t get a loan for any more than 85 per cent of a properties worth
• Sell your own place before buying, cash buyers get better deals and can bid confidently at auctions
• Seek longer settlements – instead of a month go for tow, giving more time to seek a new home
• Consider selling by auction: Barfoot and Thompson says it sells auction homes in 35 to 40 days, against 60 days for fixed price.
• Fix a mortgage for the longest term possible, up to five years if you can
• Don’t over-commit – buy in an affordable suburb then move to your “wish suburb” a few years later.
Mr Thompson said Barfoot agents had noticed the market picking up. More people at open homes, more multi-offer contracts and 241 properties sold last week – the highest number since November 2007 – were evidence of a change, he said.
Sydney real estate expert Neil Jenman encourages people to negotiate directly with house-sellers to get the best deals in bear markets.
“Tell the agent, ‘I want to meet the sellers’. If the agent gives you the slightest bit of cheek such as saying something inane like “What for?” resist the urge to reply, ‘Because I want to meet the people who are getting more than half a million dollars of my money, you inconsiderate boof-head’ and go and knock on the sellers’ door.
“Say, ‘G’day, we are the people who are buying your home. Do you mind if we come in?” That’s all you have to say – and presto, you are sitting with the sellers, the big decision makers,” said Mr Jenman.
But in Auckland, Mr Cordes and Mr Thompson strongly advised against such meetings, saying agents were professional negotiators.
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Thursday, 15 January, 2009 |
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by Anne Gibson - NZ Herald 6/1/2009
So just how far will house prices fall this year?
That's the question facing many people considering selling, getting their foot on the ladder or simply keeping a watchful eye on New Zealand's biggest investment sector.
Housing's ever-fluctuating fortunes can make or break many of us because 70 per cent of the nations's net worth is tied up there - it is estimated to be worth $600 billion.
The housing boom over the past decade created an affordability crisis which left many people wondering when they would ever be able to afford to own that roof over their heads.
But Quotable Value's November statistics showed a 6.8 per cent decline in house values over the past year - calculated over the three months ending last November and compared with the same period in 2007.
The Real Estate Institute's figures showed a 4 per cent price drop in 2008, a major turnaround after double-digit growth earlier this decade.
Sales volumes suffered the most as buyers held back and sellers took fright. One snapshot showed a 60 per cent volume drop. In November 2003, when the market was ripping ahead, 10,774 residential properties were sold. Last November just 4279 places sold.
Economists prefer to watch volumes rather than prices because one eventually follows the other.
The number of "days-to-sell" is another forward-looking measure economists take seriously. Another comparison with November 2003 further highlights the shift in the market. At that time the Real Estate Institute recorded a median 24 days to sell. Five years later, that more than doubled to 44 days.
Some experts say those indicators are a precursor to a big price freefall.
Estimates of a 30 per cent price drop have angered people keener to take a brighter view of the market.
But even the conservative Reserve Bank's monetary policy statement out last month was hardly optimistic.
"Further downward adjustment from current overvalued prices is expected over the coming year or so with next to no recovery of substance over the remainder of the projection.
"From their peak in 2007, nominal house prices are projected to fall 16 per cent by the end of 2010 or 24 per cent in real terms, slightly more than was projected in the September statement.
"Such moderation would bring house prices to a level more in line with fundamentals. There is a risk of house prices falling by more than this," the bank said.
One economist went much further.
"Housing hell", wrote Rodney Dickens looking at 2009 and beyond.
"The average rental income will have to increase 71 per cent or the median house price will have to fall 42 per cent," he said, if historical average rental yields of 7.7 per cent on residential property were to apply.
"Or, more likely some combination of the two will unfold."
Dickens, a leading economist who once worked for Commonwealth Bank of Australia and ABN Amro, now runs his Strategic Risk Analysis from Whangarei where he studies sectors of the market like coastal and resort property and geographic areas.
Real Estate Institute president Mike Elford says low volumes make it hard to project 2009 but a 5 to 10 per cent drop this year is not unlikely.
"Economic confidence, interest rates and employment security will be major factors. Let's not forget lower fuel prices coupled with tax cuts on April 1 because these will be big influences also," said the Dunedin-based agent of Edinburgh Realty.
He regrets that affordability improvements provided by lower interest rates are being cancelled out by tighter bank lending criteria. He said this was particularly hard on first-home buyers.
But not everyone would enjoy lower interest rates this year. "People are watching for the effect of the interest rate cuts to come into the equation. There are many people who are still locked into fixed rates so it may be a while before these benefits can be felt," Elford said.
Dickens' view is backed up by David McEwen, managing director of Auckland's IRG Investment Advisors, which provides research equities analysis.
The credit crunch will exacerbate the housing situation this year, McEwen believes. For affordability to improve, either wages must rise or house prices fall. And he doesn't see bosses getting more generous.
Tony Alexander, BNZ chief economist, thinks fewer places will sell and the housing sector is in for more pain.
"Although sales remain very weak they may almost be at their cyclical low and some improvement is likely before the middle of 2009.
"Downside risks still exist for prices but only because of the downside risk to New Zealand's economic growth from offshore weakness.
"Purely domestic factors suggest a plateauing in prices soon. We are allowing for another 5 per cent fall in prices from current levels."
So, when to buy?
Robin Clements, senior economist at UBS NZ, sees signals that people should hold off buying until at least the end of this year.
He is picking a 15 per cent price drop between the peak at the end of 2007 through to the end of 2009, basing his views on QV's quarterly price index, which showed a 5 per cent drop in the first two quarters of 2008.
He firmly expects a further 2 per cent drop to be revealed from that in the last half of the year.
Brendan O'Donovan, Westpac chief economist, says the drop has been 8 per cent but by the end of this year prices will be down 13 per cent.
"We expect house prices to continue falling in 2009 but at a less vicious pace of -5 per cent.
"A second consecutive year of house-price decline is not something New Zealand has experienced since at least the 1950s. But the United States has led the world into this house price bust and their pace of house price decline accelerated from -5 per cent in the first year to -17 per cent in the second.
"To suggest New Zealand will behave differently is boldly optimistic."
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