darn....i was hoping for the "boomlet" to run a bit longer so as to flush out more listings so the real escape agents could talk the poor punters down with soothing words like "we'll have to let the market decide the price" etc and the steady decline in real estate prices would continue until reality was met.

o.k...time to sit back now and watch the real escape artists come online and rationalise that this was a correction ( burp) that we had to have.

rock on , elves!
( and stay lucky!)

I have had a search but could not find on the internet data on number of property listings in USA during there price falls. I would love to see a comparison with NZ.

As i see it, NZ has dramatically dropped the number of houses for sale as soon as prices started weakening. This of course means temporary lack of supply as people hold there houses in hope of better prices in the near future. Demand-supply imbalance leads to upward pressure on prices during the 2008-2009 period which partially counters the downward pressure from the world wide credit crisis.

What I want to see is whether a return to normal levels of listings would take away this artificial limit on supply and lead to further prices falls in the near future. Is this what has happened in USA for example?

Looks to me that kitties coming down!!!!!!!!>)Wait for the 3mth data lag to come!

Also I would love to see mortgagee listings expressed as a percentage of all listings.

I imagine in times like these this percentage would sky rocket, highlighting the fact that people are only selling if they really have to. Again this can't last. Its a bit like people holding there breaths as they are held under water hoping to be let up. Eventually they'll need to take a breath and we'll finally see this price bubble die.

Flemming - i've been search trademe for mortgagee sales and numbers were going up..but have flattened at the moment.

Have I missed something as there is no report here or in the Heralds report about number of listings 08 to 09 June to july as this is the measure of "Supply" change..

Did they report on this or are media burring this under the carpet?

no one on the 23% prediction blog took up my wager to to bet the ASX would go up 23% first - the ASX or the NZ median price. (Come on Chris_J, Murray etc)

Since Tuesday (the wager date) I am up about 5%, seems property is static so 5% ahead in 3 days - 18% to go. I have 3 years to get there according to Infometrices. And guess what, I dont have to pay huge transaction costs, get a lawyer, pay rates, maintenance, insurance AND the yields are about 2% better than the median house. Come on guys!! the share market has had its crash, property has not. I'm not saying its plain sailing form here on in, but its not difficult to see what represents better value.

Philly - good points. Which is why I like index funds, minimum fees and good exposure across all asset classes (except cash and residential property - happy to avoid property, cash I have some stored away in an Aus First Home Saver at low tax rates)

Jimmy, unless you have cash to burn as most young people dont who start out then I can't see how shares are a better return, lets say joe avearge has $10k saved and he puts it into shares, when he gets his 23% return he has made $2,300 so all in all pretty good for not too much effort, now if the same joe average puts his $10k into a house for arguments sake that's worth $100,000 and gets 23% on that he has now made $23,000 or 10 times what the growth would have been on his shares, sure he has had some hoops to jump through to get there but his return is greater and his decision to buy a home puts a roof over his head (something shares dont do), he could have bought shares but then he would have had to rent and pay someone elses mortgage.
It seems to me that too many people get hung up on how much their property goes up or down in value I believe the measure is in how much of your own money do you have to put in versus what you get out, deals can be done in property where you dont have to put a cent in so your return is then infinite-if this can be done in the sharemarket then please tell me how as Id love to give it a go.
prehaps you should rethink your wager as in set a limit of how much money you invest and then focus on the cash that money has generated over the three years and not just on the percentage of the return, 100% of nothing is still nothing

Nick: Looks like the sort of argument that those who "invested" in Blue Chip may have been sold! Remember that leveraging doesnt' just magnify profits, it magnifies losses the same way. So your $23k of gain could just as easily be $23k of loss.

Brian Gaynor is pretty good on the sorts of traps that await the unwary when they dabble in property without understanding the effects of leverage, liability etc:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1057...

Nick, on the topic of leveraging property; you're forgetting that all the 'other peoples money' that you make your capital gains on costs your around 6-8% per annum. So the 23% increase over 3 years, gives you 7% per annum, leaving you with effectively ZERO GAIN, as interest payments over the 3 years takes out your 23k profit and then some.

And as for having a place to live, a single person can rent a single room relatively cheaply, and if they put all the money they were going to have to pay on mortgage payments (mainly interest) into shares then history shows over the long run you are likely to be better off

Philly, yes to copper, NO to property. Trouble with the predictions of a W shaped event is the FED will open the vaults to keep this U shaped event chugging along. You might well see the W take place in some sectors and the U in others, while seeing the China India Brazil Asia (CIBA) crowd surge forward and the western debtors stuck in the mud. I think Russia is out of it now.

Liam, ok assuming this property is an investment property(after all thats what your shares are) and the rent recieved is enough to cover the outgoings e.t.c. then you now have your return back again? or am I missing something?
please note-I'm not having a crack at any one or their opinions I enjoy reading here on this site there are clearly alot of people who I can learn a thing or two from.
I enjoy dealing with property but thats because I don't know much about shares so ill keep reading up from people who do.

cheers

Nick
You could have lost all your money if you invested your 10K in to a 100K property 2 years ago. Leverage is a double edge sword.

jimmy

no one on the 23% prediction blog took up my wager to to bet the ASX would go up 23% first - the ASX or the NZ median price. (Come on Chris_J, Murray etc)

I've decided I'd like to find someone prepared to sell me a house at any price they choose, with a guaranteed buyback at 10% higher than that price at 3 years. I'm not greedy. I don't need 26%.

Fairfax: I never ever would have touched any of them thar finance company toxic waste ripoffs. They never came within a million light years of being on my investment radar. & that includes the Money Managers & Blue Chips of this world. I don't think anyone who read Chris Lee or Brian Gaynor would have.

In my list above, you could put them in with 7) Junk grade bonds. Especially since 2 of the 3 remaining big finance companies have just been officially put there (about time the rating agencies got wise).

chris lee, huh?

he's got plenty of skeletons in his cupboard.... like all the investors he advised into provincial finance and others who "fell over" back a few years?
at least , he doesn't deny it but i wouldn't drive my investments on his advice.

wouldn't take too much notice of his self promotion either.

Philly, that was very tongue in cheek...

Chris lee promotes finance companies more than any other financial advisor in NZ, he has just put a better spin on it, ask any mum and dad in strategic, st laurence, provincial, dominion.

But you are right , there seems to be nowhere near the return offered for the obvious risks in those investments.

Thanks Liam, Im in the deep south so its alittle easier to get cashflow here I guess, I haven't looked in other areas as then I'd have higher costs e.c.t. a few deals I have done are with interest free vendor loans for 30% of p/price 5 year term and the right to extend the term if x level of growth isnt reached within the term so hopefully I have a big enough buffer incase of further price drops aslo have a small business with a few staff so Im doing my part to be productive, and help provide the govt with tax $$ for their living allowances.
Good points there Fairfax, cheers

Until the unemployment numbers decrease, there won't be any considerable increase in property prices. New Zealand property market is being turned into a ponzi scheme by the banks. They know that if they tighten the lending criteria too much, there would be a lot of bad debts in their books.

It is becoming obvious to all, the NZ govt cannot be looked to for the sort of action needed to prevent the borrowing bubble to continue. It seems as though English and Key are passing the buck to the ratings agencies and the overseas lenders. There is little chance of the country avoiding a ratings downgrade and a serious hike in the cost of credit. This will result in all those families that have been sucked into the banking mortgage property rort over the last few years, in being slammed with rates in the high teens. Forget the 2 to 3% rise predicted by the RBA being copied over here.
Expect the increased cost to run close to 10% above current rates. Enough to rip the guts out of the property sector and tens of thousands of families. All thanks to a gutless govt failing to do the right thing months ago.

Rusell,

"A buyer paying $500,000 and taking 3 years fixed at 7.5% with a 20% deposit would be paying interest of $721 per week plus rates and insurance yet the same $500,000 property would only rent for $500 per week."

And dont forget the 100,000 would also be providing some return depending on where you invest it. And dont forget up front purchase costs, building inspections and many many wasted weekends. There is also maintenance (allow 1% of purchase price - more if the roof needs redoing). Another thing to consider if you are a long term homeowner is that on average you will upgrade in 8 years - so add 20,000 for sale costs and divide by 8. So the equation per week is:

Rent = 500
returns on deposit = 80
Net cost = 420

House
interest = 721
maintenance = 100
rates = 30
insurance = 20
transaction costs over 8 year period (25,000) = 60
Net cost = 931 per week.

So there you have it - it is more than twice as expensive to own a 500,000 house (which does not get you much these days anyway, the ratio gets worse the more expensive the house). I'm waiting for the property bulls to say we should not be fussy and use our 100,000+ incomes to buy a house in a low socio economic area. Is that why we work hard? So we can afford what a low skilled worker could afford only 10 years ago???

Just think what you could do with the extra 510?? It really does illustrate what a rort housing is, and when you see the bulk of the disparity is taken up by interest payments you can see how much the leech banks are laughing from their overseas boardrooms at us peasants bidding each other up to get into an asset that can only have a serious detrimental impact on quality of life (not to mention the nations financial position).

I'm sure it's been mentioned on the site somewhere, but what's chance of us harmonising our property laws with Oz, now that they are contemplating reforms? Possible, CGT on all (?) property-with mortgage interest tax decuctible for all ( equalises all owners, not just LAQC ones) and Stamp Duty on all transactions.
Make sense to get all our trans Tasman regulations in line, not just Open Skies....and the Ozzies think their changes will drop their property prices.

Murray, I doubt many on the rich list would hold any where near as much of there wealth in property as most kiwi's do.

Balance is the key, and being realistic.

I'm waiting to see where rates go and what changes to tax system happen before I get more rentals. Capital gains above inflation aren't going to be significant in the near future, i do my sums on zero capital gain relative inflation and just work on cashflow by careful selection of properties. Much much harder these days to find property with decent yeilds. Property is definately behind most other investment assets classes at the moment.

"5% capital gain to cancel that out. Given that house prices are already up 5% so far this year and the long term average is between 7 - 10%, it seems a fair assumption"

Facts are wrong here mate, assume this and you'l be up sh*t creek

Murray,

long term the gains are NOT 7-10% - this has only been the case over the last 30 years and you need to remember

1) this has included some periods of very high inflation and
2) these gains are why we now have a bubble and why we got the GFC in the first place. They have come on the back of a massive increase in debt. That can not happen forever and as you can see overseas, reductions in debt are resulting in massive drops in asset prices. I still see no good reason why NZ will not go through the same rebalance despite the tired argument in favour of the bubble. Even under a best case scenario, I cant see prices rising more than the rate of inflation in the long term. So you would still lose out here relative to renting.

The recent resurgence is nothing more than a combination of absurdly low short term rates coupled with an entirely false belief that property is now safe again. It is simply not sustainable.

and if you think 8.5% current accoutn deficit is bad - what will it look like when interest rates are high again?????????

Actually I'd go further and say that a CGT may be counter productive to a green philosophy...
why?
Because as it would make housing investment less appealing, there would be less imperative to build higher density within cities. This would then, at least theoretically, push development pressures out to the urban margins

I've been looking and am unable to find properties with yeilds above 8% (what i am using for interest payments, could be more than this, unlikely to stay below this though).

Some student flats may come close but they are not 52 weeks of the year, more like 35, so can cut the yeild calculated there down by 30% or so.

There is no point buying rentals when you have negative cash flow with capital gains at or around inflation at best (i.e zero in real terms). Adding to this the maintenence costs when you rent a place to strangers, and it simple does not stack up.

Prices have grown faster than rents and incomes. Rents are already pushed as high as they can go, they simple can not grow faster than incomes or else people will have zero disposable income and our economy will collapse.

The reason prices are staying a float at the moment is because of low variable, 1 year rates, which can buy people renting there house out some time. Also the large portion of people who brought there houses at 20-80% less than they are now worth thanks to the boom, so there yeilds based on historical cost will still stack up nicely.

Again its a case of things are fine so long as large capital gains continue at 10%+ levels thanks to new people buying into the market, just as a ponzi scheme is fine so long as new investors outweight the old.

Once the large capital gains stop (as we are seeing) then none of the figures stack up. And it doesn't matter than most home owners do not know how to calculate these figures, because you can be sure the guys at the bank can.

The drastic drop in OCR has only brought the market some time, its a temporary band aid to slow the blood loss for a while, and give people a chance to talk the market back up so the ponzi scheme can continue on its merry little way.

The income-house price ratio can be inflated only when prices are going up at 10%+ per annum, when this stops the ratio will always drop back to historical levels before another true boom cycle can start

Are we ready for another week of Beehive BS? They haven't trotted out the 'strategy' crap for at least two weeks, so that could be due for a re run. Must be about time for Brash to show off his lineup of selected 'experts'! Yes yet more bloody experts. My money's on Minty the monkey as the only national caucus member likely to shift the lard and come up with some action. Oh and the funny farm starts up again at 2pm Tuesday.

Matt,

When I was talking about bankable certainty, the main point I am making is that NZ either faces bankruptcy OR a massive deleverage of its debt position (only possible via house price falls). I can not see any other way. as i pointed out every year houses stay high another 10% is added to our debt position. Remember also that consumers are the biggest driver of the NZ (and any) economy. its one thing to have an economy where only those who bought in the last 5 years had to ake on massive debt. At least the boomers and some of Gen X can spend up. What will our consumption be like if house prices stay high and MOST households had to take on massive debt?? I'm not sying we will see a crash this year or next - merely that it will happen OR we become another Iceland, in which case we will see a crash anyway. No way out.

"Surely its supply and demand, and demand from all their immigration will push up prices?
"
Discgracefully our govt is using immigrants to keep prices high. But the major demand factor built into existing prices is speculative demand fuelled by easy credit.
Remove this, and the housing market follows. You would need a million immigrants to fill the demand gap. Ditto for Aus - they are actually worse than us, yes immigration is high but why are rents not throught the roof?? why are yields low?? Mining only makes up 4% of Aus GDP and employs 1% of teh workforce. So its not a get out clause the for Aus economy. They have a high CA deficit as well.

Lets see how the Aus and NZ markets hold up once interest rates return to normal levels.

And did anyone read that Colonial Bank in the US has just gone bankrupt? Apparently they were the biggest Real Estate Development lender over there........yuck. And it was all underwritten by the US Govt too, better crank that money printing machine up!

Veedub - I wish we could see more evidence of common sense in the housing market!
Unfortunately it seems like a common sense free zone!
tell me where the common sense lies in dunger houses selling in the middle of state housing areas for 500K plus???
Madness, absolute madness
but the beauty of it is, Veedub, we can choose not to participate in the madness
thats freedom for you :)

Murray - I don't think inflation would make building a new house cheaper at all. Unless salaries start ramping up in a big way, it will just reach a point where people, in particular FHBs (Gen X/Gen Y) just will not buy houses. Sooner or later, some of those BBs will need/want to offload their properties - but to whom? Who could afford to buy them? I won't buy them now because $420 a week is better than $820 a week and I'm pretty confident that one way or the other house prices WILL come down. They can't just keep increasing indefinitely because so few people will be able to afford them. If for whatever reason they don't, I'd rather live out the last 20 years of my life in retirement renting, than paying exhorbitant amounts on mortgage/interest etc for the 30 years between now and then, stressing out each time interest rates go up or the roof needs doing etc. My plan B is my inheritance, and my plan C is perpetual travel with no fixed abode (recently did this and it was actually cheaper than living in NZ!).

To be honest, like Matt in Auckland, I've given up trying to predict what house prices will do. To hell with it - let the craziness continue unabated for all I care. If people want to pay $500,000 for a dump then good luck to them. For me, and for now, $420 p/w beat $820 p/w hands down. So I'm liking both my Plan B and Plan C.

I completely concur with your third paragraph Murray - and yes, that sounds WAY better than owning a beach house. That's exactly the sort of thing I'd be more than happy to do in retirement (would be happy to do it now come to think of it!). Hubby and I existed very happily in a 2 bedroom apartment in the South of Goa (India) for about $300 p/w (including food, beer and a motorbike) - didn't want to leave. I'd go back tomorrow and do it all again for as long as each 6 month visa would allow. There is life outside NZ!

Murray,

"do you have some stats that show the median house price isn't up 5% so far this year and the long term average isn't around 7%?" Make up your mind. 7% or 10%, the difference is huge.

james - "7% or 10%" - depends what time frame your looking at. The last 40 years in NZ has been around 10%, and records before that are sketchy. I've seen examples from the UK on individual London properties from the late 1800s to early 2000s that worked out to around 7%.

if its around 10% Murray since 1965 - based on your figure of 10980 teh average price would be 727529. And gues what, it will hit 1.2 million some time in 2012 - LOL. There is a good article on the jenman site. If proeprty in Sydney doubled every 7 years (10% per year) the average house in Sydney would be worth 180 million, and 27 million if only 7% per year. You are right, the growth has been excellent since 1965 - but not as much as you think and clearly the growth rates are unsustainable, simple math would indicate it absurd for prices to reach 2 million by 2012. You can only stretch so far.

sorry - here is the graph.

http://www.eastonbh.ac.nz/wp-content/uploads/2007/04/house_to_cpi_79-06.gif

james - "It show zero net growth for 20 years accounting for inflation between 79 and 2000" - I don't see much point in "accounting for inflation", the whole point of owning property is that it is an "inflation-proof" asset. If we have zero inflation for a century then the price of everything will theoretically be the same in 100 years, but given that inflation has been around since Adam was a boy I'd say it's here to stay.

I don't see a link to your graph but if there was zero growth in "real" (inflation adjusted) prices from 1979 to 2000 it just shows how cheap houses were in 2000. I thought they were cheap at the time, but more enticing was the 10% yields everywhere I looked, so I was getting stuck in like a pig in mud while all the doomsters told me I was crazy and that inflation was dead..........

Murray,

accounting for inflation is extremely important because it guages how well an asset performs relative to other costs and especially compared to incomes. the graph shows quite vividly that property has raced away from incomes - every time it has done that over the last 30 years it has readjusted back down. We can expect the same to occur again. As for properties being cheeap in 2000? Looking at the graph they seemed to be no more cheap than normal. 10% yield actually used to be the benchmark up until the last bubble.

"10% yield actually used to be the benchmark up until the last bubble" - you must be talking commercial. Residential long term has averaged around 6%. There have been other periods over the last 45 years where residential yields have been below this.

This is a must read paper on "Arithmetic, Population and Energy"

http://www.globalpublicmedia.com/node/461

It exposes completely the lack of basic mathematical understanding in our general projections for growth in all areas: energy use, population, prices etc.

It is quite possible that house prices could double in the next decade:

Between 1998-2006 they rose 143%.

The money supply rose 100%

But "Inflation" (as measured by the CPI) rose only 20.7%.

How people will pay for these houses is the unknown quantity........when wage rates have been rising in line with CPI.....

ah yes......more bank created debt.

leverage is a wonderful thing.....but in the end the maths always catches up with you.

The major flaw in most peoples thinking about house prices is the idea that they have a right to compound, and so grow exponentially.

Fundamentally, compounding occurs when the added value of something increases the potential for even more value in the future. A business growing is like this, as it grows (capital increases) it's ability to profit grows, compounding it's size/profits.

With houses the price increases are on paper only. The only fundamentals that are growing are rent (reward for ability to provide shelter), and as this only grows with inflation, so must the price of houses.

Murry have a look at this before you base your lifes savings on the last 40 years of NZ prices:

http://www.youtube.com/watch?v=kCM7zNuQkm8

Murray,

"It's possible for it to reach $700k in the next decade or two.
"

But according to your 10% growth rate since the 60s, the average price should already be 700,000 +. And the next decade or 2??? Make up your mind. double in 1 decade is 7% growth. Double in 2 decades is 4% growth.

I see that the leaky home disaster just keeps getting worse, I think I have posted here several times that we have just touched the tip of the iceberg:

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10591520

the very poor quality of a large % of NZ homes just reinforces to me how much of a rip off housing is. If the quality of the housing was high then I could ALMOST accept the prices

Interested...
I'm not too sure about that. I know what you mean, some of the older state houses and villas etc were of solid construction, however they were often orientated in the wrong direction, and often are poorly insulated
Sure you can fix the insulation and open up the house to get more northern aspect, but that all costs money!!!!!

That's not all Matt, whatever you spend to do up the heap of borer ridden rimu costs you 12.5% to the thieving govt so they can pay for the mps perks and Parliaments annual bash through Europe. Then when it's all done, along comes the thieving council to up your rates because your dump is now worth more.

Hi, I found your blog on Yahoo. I thought your readers might be interested in a free debt analysis with a tool that I use myself. Thanks..