"(T)he reason for this (fall in sales) is not that people are not buying properties, but rather that the properties are not coming on the market," REINZ President Mike Elford said.

Given there are still plenty of houses for sale, the implication of this statement is that all the good and/or well priced houses have sold and all that's left is beer on a champagne budget or the hooves and lips of housing.

For the would-be buyers didn't buy byt the end of 2008 and begining of 2009, you HAVE TO pay 20K to 80K more in Auckland if you are buying now depending on where you are buying. But don't be upset, the price MIGHT be back again who knows.

Matt S - you sound depressed ;) this news was expected and there is more to come, things are quite active at the moment, houses are selling, even sections are selling where last year they were dead. The QV figures that all the doomsters like are quite historical, and are going to show some good improvement in the next few months.

a final puff of hot air on a late autumn afternoon...

shuttle - yep, I'll be around. When Bernard first made his 30% prediction by Nov 2009 (then changed it to 2010, then over several years, then 15%!) I argued it would be the same as last time, a 5% drop in median then sideways for a few years while inflation did the damage, but with some individual properties (mortgagee etc) dropping 30% plus. I got rubbished at the time, but so far that's exactly what's happened.....

My prediction from here for what its worth, noting that even economists all around the world have been very wrong these past 2-3 years:

- July / August price figures to be flat, slightly falling. Since when did house pries rise in a time of winter and significantly rising unemployment?

- a little surge in listings come spring, as sentiment in housing pciks up a little

- the surge in supply will not be matched by demand, which falls short of the "pent up demand" the property bulls speak of. As a result small falls in Spring

- over summer prices flat as unemployment has well and truly kicked in, but the balancing effect of summer

- Autumn / winter 2010, small drops in prices, as unemployment nearly peaks, mortgagee sales rise, demand sluggish, usual winter sluggishness

- Spring / summer 2010 - a reasonable pick up in prices as the economy starts to have sustained improvements, and the tightness of supply in Auckland starts to come through

Overall, a 2-3 % drop between now and the end of 2010
(note this only applies to Auckland, I think some of the regional centres will be worse off)

Good on ya Murray, glad to hear some positive comments, how many people will be left on the sidelines saying "I should have bought up in 2009" Im definately no economist but then is the average joe who buys a house one either? surely as soon as things appear to start moving and the media becomes more optomistic momentum will build as people jump on the bandwagon for fear of missing out. There seems to be alot of people batting for the first home buyers who cant afford a palace right away, have people forgotten that hard work is required to get ahead unless you get an overdraft from westpac-property prices will go up at some time in the future so for those trying to get started instead of renting why not try and buy a house (with some friends if need be), give up alot of nights and weekends put some elbow grease in and who knows you might start to get ahead.

how do you assess the current market? the number of houses on the market? reluctance to put on the market during a buyers market? does that mean that the bulk of the houses on the market are forced sales? does that then reflect the true price? tired of all the negativity, need a little hope for the future

I think one would find the biggest influence on the market is the dramatic change in the nature of buyers and types of houses being listed and sold.
In the pre Dec 2007 boom, the majority of buyers and houses where 'investment' houses...
Now it is back to home buyers, 1st and/or upgrading/down grading homes that are above the Ave investment house....
And the investment houses are not moving, are either continuously being re listed ( see many of these that have been listed for many months and several still listed from Jan/Mar 2008, discounted and not moving)
The total change in buyer type, type/ price ranges of home is like trying to sell a washing board in a market where washing machines are now the norm.

jimmy - regardless of which stats are better (QV or REINZ), it was the REINZ median that Bernard called a 30% drop on and this is currently down just 3.5% from it's Nov 07 peak and up 4.5% from January this year. Personally I prefer the REINZ figures as they are the most up to date and also raw data, not adjusted by moving averages etc.

"you confirm my opinion of NZers understanding of economics" - what are your qualifications? My better half has a degree in Finance & Economics, and I have read many books on the subject (including the very good 'Macroeconomics in NZ'), so my understanding is much better than the average man on the street ;)

Matt, your predictions could be about right, though at the moment there is more risk to the upside due to low building levels, low listing levels, low interest rates & higher immigration. Even the banks are starting to acknowledge this, with Westpac the first to return to 90% lending.

Murray,

"a degree" - how impressive. But seriously, your economics reflects that of the average NZer ie dont look at long term fundamentals and sustainability, look to recent past and assume it will continue. You harp on about massive demand, so why have rents not skyrocketed???? Low interest rates?? you think that will last forever?? higher immigration - of students and returning unemployed NZers?? What about those poms on workng visas being sent home?

But most importantly you neglect the most important factor of ANY investment - its not how good the outlook for the asset is, its how much you are PAYING NOW that matters. Price is key, and NZ has priced in the next 10 years of growth on residential property.

jimmy - you have to acknowledge that all that is irrelevant **in the near term** if the bubble further inflates itself.

You'll be right one day, no doubt. The day of reckoning for NZ's debt vs house price vs income equation can't be put off forever. However, it might feel like forever.

Re job losses,

I can report that my workplace has laid off 2 staff (20 in total) and everyone else has taken pay reductions of 8%. I dont think my workplace will be adding much impetus to the housing market over the next little while - I am certainly glad I did not take my parents advice and buy a house last year. Rent is easily manageable on my income, the equivalent mortgage payments are not. From first hand experience the job losses are coming folks, but not just job losses, pay CUTS as well. It starts with gradual drops in revenue (from about 18 months ago), the company tries to do everything it can to cut costs and retain employees, and then when things get a bit more strained the company looks to pay and job cuts.

In this environment, when the rest of the world (bar Aus and NZ) are deleveraging we are continuing to increase our debt levels which were already higher than most other OECD countries in the first place. This is simply shocking, and a searing indictment on govt, banks and NZers. We are ADDICTS to debt, and it seems we know no other way, we have foregone cold turkey and have chosen to take another hit - the problem being we are getting sicker and sicker and the hit is getting more and more expensive for less and less effect. GET YOUR DOLLARS OUT OF NZ ASAP - I know I have.

Mitch O,

Easy - the yields are so pathetic that on long term interest rates it takes at least twice as much to buy a house as it does to rent (BEFORE paying principal). The ONLY financial reason for doing this is that you expect big capital gains that far outstrip incomes. But large capital gains are not possible because we are already stretched - the BEST case scenario is small gains which will still result in a loss. Property investment is a NO WIN situation (on long term average rates int rates). Once people cotton on to this then the result is inevitable. I dont ascribe to the "permanently high plateau" argument even if stretched incomes can afford it because it rests on the assumption that people will forever be prepared to lose money on property.

Jimmy, residential property is only mildly out of line with household income. Sure it looks scary if you point to the average income, but it's not 1950, that analysis is obsolete.

Human nature dictates all markets, surely there has been enough negative hysteria in play to shake the market into a crash?

There hasn't been a crash because the underlying fundamentals for a crash simply aren't present.

The reality is, the 'asset tax haven' of absent effective asset taxation and LAQCs, enable funding of purchases, then reduce the need for returns that ally to fuel the appetite for debt, that also increase the cost of capital, even for those who are not rorting the 'asset tax haven'. If you are on the teat you will not like the necessary change, but the problem is the gain of some will ultimately kill the future for everyone "“ what's your rental worth when your tenants don't have jobs?

Let's face it these distortions will hurt everyone in the end, that is why they need to be fixed, and quicker than Bill E is proposing to move:

http://www.interest.co.nz/ratesblog/index.php/2009/07/09/bill-english-ta...

My 2c. There's no housing affordable (to buy) for lower income families - basically they are unlikely to be able to afford significantly more than rent.

Without a proper stream of lower income first home buyers (currently being bought by the higher income FHB), over time the restricted supply of FHB will mean that the existing FHB cannot become "move-up" buyers (can't sell for a "profit"). Its this impact, over a long enough time period, that will bring house prices into line with incomes again. Investors will eventually tire of filling the demand gap without noticeable price gains to offset the woeful rental yields.

I'll have another bash at it. The answer to the problem is for the RBNZ to set max loan limits at 3 times the average annual incomes with no second mortgages allowed. The insane bank friendly property bubble would implode and families would find they could afford the average home. Tell me why not?

Kieran,

I don't disagree with much of what you are saying, except the expectation that incomes will rise, by even the small amounts you're suggesting. If anything, incomes are going to be reduced, and even if that cut were to be relatively small (say in the region of 5-10%), then you'd have already a substantially different outlook. Well, then you can assume things might get a lot worse, as a majority of people do not have any buffer financially to deal with such a likely trend, and it's unlikely to reverse quickly. It has started in a small way already and will accelerate as soon as companies run out of options other than pushing for reduced material costs and other overheads during the next 6-12 months.

All things considered, it doesn't take much to make your suggested scenario substantially more negative, hence my slightly cynical comment which wasn't meant to be personal.

veedub,

agreed that moving would be futile, dont give in to the spin as you would not be the one benefitting. In my opinion rent reflects real supply and demand, prices reflect real supply and demand, plus or minus speculation depending on what stage of the cycle we are in. There is still tonnes of speculation built in to NZ houses.

Yes go Bill E - you're the man.

jimmy, gibber & others - 40 years ago NZ house prices were around $11,000 and household income was around $2,500 per annum - a ratio of 4.4
Now house prices are $340,000 and household income is around $75,000 per annum - a ratio of 4.5
Rents were around $500 per annum (20% of income) and are currently around $15,000 per annum (20% of income).

All doesn't seem that far out of whack to me?.........

....and please don't point me to any linear graphs showing big upwards curves, that only demonstrates a complete lack of understanding of values over time ;)

This is a straight quote from a newsletter email I received today from a Bayleys RE agent...

"House prices have come down from the highs of 2006 "“ 2008. From my experience, being at the coal face, I believe that we have seen an average price reduction of 10 "“ 20%."

blah blah blah...

oh well...

Murray
If you don't buy investment properties with the expectation of capital gain then why would you buy a median house for $340,000 on a 6-7% mortgage with a median rent of $300 week (4% return) surely you expect to get at least a 7% yeild which means a house value of $200,000 rather than $340,000 if you can find an investment property like this earning 7-9% yeild then go for it,

If you are going to use mean figures rather than medians then QV stats have house prices at $380,000 (they were $405,000 at peak) thats 5 times income, prices would have to fall another 10% to get to 4.5 (remember houshold income meant 1 income back then means 2 now) the historic average is actually 4 times housheold income. The boom in the seventies meant prices went up to 4.5 like you say but they fell back down to the average of 4 shortly after. For prices to return to historic average now they need to fall a further $80,000 (QV). But its a bit pointless making comparisons since inflation was 10-20% back then.
No matter what fundamental you use income/rent ratios, PE, rental yeilds etc.. they all show current prices are still 20% overvalued. But because mortgage rates have been slashed 30% prices have been able to stay at that level. But interest rates will go up again eventually putting downward pressure on prices.

Wally,
interesting.

As interesting as looking at Debt To GDP ratios from 40 years ago. Accompanied by a glance at Loan to Value Ratios for debt at that time.

You're right on the money Steps - there has been a massive paradigm shift in the last 25 years with regards to personal finances. So much so, it's hard to see how it could be even partially rewound.

Kieran - I generally agree with your comments, though I still think as I always have any correction will most likely be by sideways price movements while inflation, rents, incomes etc all slowly catch up. If inflation gets high, then prices may look like they are going up even if in real terms they are not.

For an investment, I would never buy a median property with median rent. I've missed out on a few recently getting between 9% - 11% gross yields, good solid places in city centres - there's no point buying in the sticks somewhere where you can get a 30% yield IF you can find a tenant!
If you buy the worst house in the best street that needs maybe $10k worth of paint & tidy up, it's quite easy to achieve better than average yields.

For your own house to live in, it's really a question of location, features, and what size mortgage you can afford to service.

I'm still not convinced about prices being over-valued, as I pointed out before ratios are similar now to what they were 40 years ago - does that mean when houses were $11,000 back then they were 20% over-valued?
You are correct back then household income meant 1 income, now 2, though this doesn't change what a household can afford - just means more people have to work for it (crazy woman, why did they want to join the workforce? ;) ) remember also houses are typically a lot bigger now so theoretically the income/price ratio should have increased accordingly and it hasn't, so the bigger houses would seem like better value now than 40 years ago.

Murray,

Would love to see the source of your stats so we can dissect them.

eg
- are you measuring HOUSEHOLD income, or 1 income from 40 years ago. I know my Mum worked part of that time.
- was this a blip ie a time of a bubble that also deflated (as someone else suggested above). Give us the year of your stats and we can have a closer look.
- when looking at household incomes you also need to SUBTRACT additional costs incurred by the Mum no longer being at home - the obvious one is child care, as outlined earlier we spend 440 per week on child care, this does not show up in "household income" but it certatinly affects our ability to pay for a house. There are others such as more non home cooked meals being required, not to mention stress. And how many households have 2 incomes not out of choice but because that is the only way to afford an overpriced house???
- as outlined before, it is not affordability that is relevant in the long term. Its CHOICE. A household can rent for a lot cheaper than buying. Would you pay 30,000 for a new car that you can rent for 20 per week. If houses stay high more and more people will choose this option ESPECIALLY in an environment where big capital gains to offset the loss are no longer remotely possible.

Gibber, not nearly as beautiful though!

housebuyer, it's what happens in a small market and much the same as in the dot com bubble when the mad money came in at the death to be destroyed.

dave,

i'm sure murray has a better graph than the one from the rbnz - i have been waiting for his source all day. murray?

Interesting graph- but the graph doesn't take into account how much less things cost than they used to. Food, clothing and cars/car maintenance all take proportionally less from the budget than they used to. Factory food farming, reliable cars and cheap stuff from China (and Working for Families) have made it possible to spend more on mortgages. I believe that people are spending more on housing because they can.

This will of course change when the cost of oil climbs sharply again and makes the cost of everything increase. Cheap oil underpins our whole society. Once the cheap oil is gone then everything changes. People here will get their property price crash but not for a few years IMHO. And at that stage the cost of housing will probably not be the major discussion point it is at the moment as we will have many other more pressing concerns as a society.

"Housebuyer", if people have more to spend on houses because things cost less, then the ratio of household disposable income to prices would be the same or lower. Instead it has suddenly rocketed up from 4 to 6.5 since 2002. http://i26.tinypic.com/155s85u.gif, source http://bit.ly/5KMgK (PDF).

"Daniel Feller of Financial Pictures says banks have done "a great marketing job, pushing people into these products and grabbing more security by way of parents' property and guarantees".
"Kathy Jarrett says often they were convinced by their children's mortgage broker, real estate agent or banker, ignoring advice from their own advisers"
Just a couple of the comments in the press. You can guess what the report is on.
Will Mr Key do anything to stop the credit splurge? NO
Will Key English and Bollard consider placing mortgage restrictions on lenders? NO
Would such a tool help bring down the bubble? YES
Does the govt want to see and end to the bubble and the to the disfunctional speculative investment going on in the residential property sector? NO
Will more and more families end up in crisis because of the behaviour of banks, mortgage brokers and estate agents. YES
Is there anything the public can do to wake the PM? NO
Are we therefore doomed to suffer from unaffordable housing and the destruction of families due to financial illiteracy, with no end in sight? YES

Wally,

"Are we therefore doomed to suffer from unaffordable housing and the destruction of families due to financial illiteracy, with no end in sight? YES"

Should we act asap to remove all investments offshore as NZ's increasing debt turns it from a dire situation to being the new Iceland??? YES.

Dave and Murray,

Agreed that 1.3 in 1965 sounds a little high - maybe around 1.2 but just guessing. What Murray needs to be mindful of as outilned before is the effect of additional costs brought on by the additional income ESPECIALLY chicldcare costs. My wife works full time, and these take a third of her salary (a very good salary) but this does not get reflected in affordabilitiy even though it clearly is a factor. Perhaps this might take the 1.5 today closer to 1.4, 1.35 - again I am just guessing. ALL my friends use childcare, and it is out of necessity due to a partner working.

Murray Says:
"The data I have is from Valuation NZ (before they became QV) and not off the internet. I'm not sure where the RBNZ have got their data from for the graph that Dave has posted above. It certainly doesn't match with the data I have or the prices Steptoe was quoting above."

My 'data, thu not accurate, rather indicative..is from researching the market at the time when we brought our 1st house, and sale of my parents home....and what I was earning at that time...all which where very close the the Ave stats at that time.

The 3 bedroom brick remains close the the ave while the 'group' house is now below ave and would now be classed as a 'rental' type investment in the top end of that part of the market.

And regarding wives staying at home in the 50s /60s thats rubbish...most had part time jobs in local dairys/ shops (there where lots then pre supermarket days) and there where a lot more small business, trades people/shop keepers ..husband/wife running them, and the tax system was very different....one claimed for dependants, be it children, wife, parents etc...which created distorted official stats.
Also it was not till early 70s a wifes income could be used when applying for a mortgage.
From the late 60s to early 70s there where dramatic changes, socially, equal pay, introduction of DPB instead of just the widows benefit, labour shortages, mass immigration of skilled and unskilled labour, trend form in house unions to industry unions....all making direct comparison of stats from then to now appear rather twisted from reality.

Well guys, I nearly brought myself to do it today (put an offer on a property). We found a place that ticks all our boxes and is perfect in every way. It's at the very uppermost limit of what our savings would give us 20% deposit for (and no, there's no way I would consider borrowing more with a lesser deposit). So we came home from the Open Home and did the sums, allowing for a 10% interest rate (that's where we're heading in all likelihood) and between the mortgage repayments, rates, insurance and a bit extra for maintenance etc (it's a newish place so not likely to be needing an awful lot of maintenance) - and voila, my ENTIRE salary has disappeared!!! All it would take is for one of us to lose our jobs and we'd be history. I feel distinctly uncomfortable about that. But the emotion that ocurred when we saw the house - it nearly took over the logic. And after doing the sums, I went back over some of the posts that I've read on here and agreed with so strongly - that's when the logic prevailed. So thanks heaps guys - you possibly just saved me from financial suicide :-)

veedub - just fix for 4 years at 7.5% and you will be ok.

veedub, whats to lose putting in a low tender? Im supprised to see banks lending 90% again already so obviously they are comfortable with current prices. How long did 20% last, 3 months???

veedub - I'm with buyerinchch, whats to lose putting in a low tender? at a price you are comfortable with? Nothing ventured, nothing gained, I say. Everyone else might be thinking the same as you and it might go for a song. Although around us things are quite active at the moment, I don't know what area you're looking in though...

We're very welcoming on the dark side ;)

Murray, my partner is thinking a bit like you, and so the RE Agent is dropping off the tender form tomorrow. I'll let him fill it in (he's ruthless!!!) and I suspect he'll go in a good $50k less than the CV. Even then, I don't care if we miss out or he changes his mind altogether. We're happy renting where we are (which is Wellington BTW). I'm absolutely intrigued as to how the next couple of years will play out and am content to sit tight observing. We only went to check this particular property out because it appeared to have everything we want in a place (albeit on the high $ side).

veedub - I'll cross my fingers for you! If it's a first house and you're stretching your finances then it's good to think like you are. If it's an upgrade and you love the place, have the equity, and another 50k or 100k on your mortgage doesn't affect you that much, then I would say put your best foot forward and offer your best price.

Has there been a Registered Valuation done on the property at all? The CV figures can be a bit all over the place, if it's low then you're ok but if it's a bit on the high side then $50k under might already be market value, depending which year it was done.

Yes, I read both their columns this weekend and noted that also. And I liked the piece by Rod Oram too. I particularly loved Mary Holm's comment "isn't it funny how when Managed Funds shed value people want out and vow never to return, yet when property sheds value people want in" or words to that effect. It's a very good point, though she does note that property didn't shed nearly as much value as the likes of shares/equities and property syndicates/funds. But it IS funny how the opposite reaction occurs.....

Matt - I've always found Mary Holm and Martin Hawes extremely conservative, they were pretty much telling people all the way through the last boom to hold off even though they'd be much better off by now if they hadn't, apart from those that got caught at the end. Mary Holm doesn't like property and often promotes shares as the better option, though when they dive 30% she goes quiet on it for a little while.

I think the time to get a 400k mortgage was back in Feb when you could get 5.95% fixed for 5 years ;)

Call me old fashioned too, but I agree a 3 month old needs their mum! My 3 month old is very lucky to have mum AND dad.

veedub - yes the price affects your equity (assets vs liabilities column) but interest rates affect your cashflow (income vs expense column). Lower interest rates mean people can afford to borrow more, but for a first home and especially in the current environment I would recommend as small a mortgage as possible.

It's all a trade off between risk and return - don't take any risks and you won't make anything - take big risks and you will make big returns or lose everything. Somewhere in between is better! I also recommend long term with property, the shorter the term the riskier it gets. Anyone thinking of moving house in the next couple of years would quite likely be better off renting.

Murray, if we add 30% on to the male income for an assumed household income, then the 30% of females working would have had to be earning the same as men?

No, the male participation rate was about 90%, so if we assume women earning 75% of male incomes it comes to about 125% of one income for 1961 and 133% for 1971, without any allowance for extra earners per household.

Murray Says:
"....The average house price in Auckland in 1975 was $31,586 (Valuation NZ) and in Christchurch $24,701 - so yes, Steptoe was probably talking about an area around Auckland somewhere - looking back over the REINZ figures Christchurch is generally closer to the nationwide figure..."

Yes Papatoetoe and Manurewa

Veedub...you have done your figures , 20% deposit and If one of you loses your job, @10% you are down the tubes....
So just do what we did in the last downturn about 18yrs ago....
See a home (working on our number 18 yrs ago) Yeah we would get laughed at, and did for 6/9 months, till we found a home we loved. Advertised for $107K, offered $76K, after a bit of negotiation, brought it for $84, with 6 month rent to buy, and the rent came off the price....So in effect picked it up for $78K...20 to 25% below market value....
Another advantage, was while we where renting we had a fire in the meter box, because we where 'tenants' the landlord had to upgrade/make safe any faulty wiring in the home. happened about 2 months into the 6 months.
Superstitious? It was just before this we realised the settlement date was Frid 13th, and we extended the date 1 week. lol
It just a matter of being prepared to walk away, regardless how good the home suits, being patient.

Think it was Brierly who said something along the lines...."any deal he does, before signing, assess if it goes wrong, would it in ANY WAY put at risk, any other part of his business."

Cheers for the clarification Philly, it's a wonder Mary Holm ddn't articulate that as it's a very good point. I still think it's funny how people are so scathing of Managed Funds and want to race back to Property. I have a Super Fund back in Australia that skyrocketed in value in the early-mid 2000's without me having to lift a finger, yes it has come back a bit in the last year or so but my gains have nowhere near been eroded.

The point that you highlighted about the loss of the equity to the homeowner is something not many homeowners would think about I suspect. They are fixated on the value of the house, and spend accordingly.

Yes, those unemployment figures are starting to pile up. Hard to see how that can be a positive for the housing market.

Hmmm, thanks again Philly. I garner so much valuable information from you posters on here and have to say - I side with you, Matt, Wally, Jimmy, Steps etc. I totally accept "we" may be wrong, but you have to go with your head over your heart in these matters. I, myself, sold in 2006, went on an 18 month OE (using minimal proceeds from the sale) and put the balance on term deposit - thus returning to damn near what we started with once interest was added (we travel cheaply) and have rented since our return to NZ in early 2008 and added to that deposit on a weekly basis as a result. The timing of all this was a fluke and very good luck on our part, but I'm loathe to "undo" the position we're now in by buying too soon. My mindset has changed somewhat about "the need to own my own home" and so we're sitting tight for now. Having said that, we'll probably put in a ridiculously low tender for the property we viewed yesterday and see what happens, though I'm feeling more and more indifferent about that with each passing hour!