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Opinion: Why I now see house prices falling 'only' 15%

Posted in News

By Bernard Hickey Let's get this out of the way up front. I was wrong to predict a 30% fall in house prices by the end of 2010. I now expect house prices to fall 15% between the November 2007 peak and a trough in mid 2012, which means prices have a further 11% or so to fall from here. It's clear now that the housing market has not slumped as badly as I predicted it would back in March 2008 when I first forecast a fall of 20% to 30% over the next couple of years. I firmed up that forecast through late 2008 and early 2009 to say prices would fall 30% by the end of 2010. I still think house prices remain fundamentally over-valued by around 30%, but a collection of circumstances have changed so that now I think the fall will be shallower and take longer. I think house buyers and bankers are irrational enough to ensure the national median price measured by REINZ does not fall around 30% to around NZ$250,000 from the peak of NZ$352,000 in November 2007 as I originally predicted. The external factors that I thought would jolt the market back to reality have not happened and now look much less likely to happen. I now think the median is likely to fall to a trough of around NZ$300,000 by mid 2012, which is about 15% below the peak and 11% below the current level of NZ$337,500. It should then rise with incomes back to that November 2007 peak of NZ$352,000 by the end of 2016. That means those people who bought in 2006 expecting capital gains of 10% or more a year will not see any capital gains for 10 years. My view is not as pessimistic as it was, but it's still more pessimistic than most. Here's the 5 things that have changed since my March 2008 forecast that has prompted me to change my view.

1. The world has not ended There was a period from March 2008 through to about May this year when there was a significant risk of a massive global financial meltdown. I have watched global financial markets for nearly 20 years and at various moments in March, September and November and again in February and March I saw things happen that I'd never seen before that made me worry about such a collapse. It's not that long ago, but some at the pinnacles of power, including Federal Reserve Chairman Ben Bernanke and then Treasury Secretary Henry Paulson, thought such a catastrophe was a real possibility. We may yet see something catastrophic, but the risks have abated. Bernanke, Paulson, his successor Tim Geithner, Barack Obama, Gordon Brown, the Bank of England and the European Central Bank have taken extraordinary steps to cut interest rates and pump printed money into the system to avert a catastrophe. Governments have nationalised banks. My caveat is that Europe's banks remain wildly over leveraged and have yet to take their medicine of massive losses and recapitalisations. Exchange rate collapses in Eastern Europe could yet cause a meltdown in Europe. America's banks are stable for now and are rebuilding their balance sheets by manufacturing profits out of various dubious trading activities funded with taxpayer money. They could still be tripped up. 2. Some green shoots are emerging Despite my initial skepticism, some green shoots are emerging in both the global economy and the local economy. Consumer and business confidence is returning in New Zealand, as is employment confidence. Unemployment remains low and is unlikely to rise much above 8%. Car sales have started rising in the last couple of months in New Zealand and there are some tentative signs that consumers have returned to the shops, although they are only tentative. Confidence in the house building industry is rebounding from very low levels and other builders of motorways, hospitals and schools are busy spending the government's money. Government spending on infrastructure is surging through the economy. America's economy has pulled out of a headlong dive and may start to grow, albeit feebly, by the end of this year or early next year. The threat of a full scale depression has receded, but the world's biggest economy now faces years of slow growth and a few double dips. Europe's outlook is much uglier and could be the catalyst for the global financial system tripping up again. China, however, looks to have weathered the storm reasonably well after its government spent up large and quickly. This is good news for us because Australia is so dependent on Chinese demand for its commodities, and we in turn are dependent on Australia. 3. New Zealand's banks are strong and back lending to property owners and farmers There were times during the December and March quarters when the big four banks got very nervous about their sources of new funding. Global financial markets froze for several weeks, raising the risk that the banks might not be able to roll over NZ$60 billion of foreign debt that have to be refinanced every 90 days or less. Kiwibank wrote more than 66% of all new mortgages in the December quarter because the banks slowed new lending dramatically. Interestingly, Kiwibank's growth has slowed sharply in recent months because it is not attacking with lower rates. The government owned banks is now capital constrained. The Reserve Bank moved aggressively in October and early November to help the big banks with some short term funding. Between November and May the Reserve Bank lent the banks NZ$8.25 billion in exchange for securitised mortgages. This helped fire up bank lending again. Bank lending to home owners has actually risen NZ$6 billion to NZ$164.2 billion since March last year. It has accelerated since January with an extra NZ$2.2 billion in lending through February, March, April and May. This has helped fuel demand from rental property investors looking to snap up what they viewed as bargains. Bankers have also reverted to a more conservative mode, preferred to lend against land and property rather than business cashflows. Business lending fell NZ$2.1 billion between November and May. 4. Interest rates fell the fastest and furthest in modern history I was surprised at how quickly and deeply the Reserve Bank cut the Official Cash Rate. It cut the OCR from a record high 8.25% to a record low 2.5% between July and April. This helped drive the 6 month mortgage rate from around 9.6% to around 6.2%, which no doubt has helped boost rental investor demand. The Reserve Bank has worried openly about home buyers jumping back into the housing market and firing up the boom all over again. Cutting the OCR that much and that fast has helped stop the freefall. 5. Investors are falling in love with property again. The biggest savers in New Zealand have just had the biggest shock of their investment lives. Stock markets fell almost 50% at some points by early this year, while anyone with money in a finance company had a painful year. The most conservative savers now face earning less than 3% after tax if they leave their money in the bank. The OCR cuts corresponded with the 6 month term deposit rate falling from 8.45% to 3.93%. Many baby-boomers or those close to retirement are turning away completely from stocks, managed funds and bank accounts and hunting for better yields from property. So why am I saying prices will keep falling? House prices remain fundamentally over valued, particularly at higher interest rates. I've revisited our home loan affordability series and used some assumptions about income growth and interest rates to work out where prices would go if over time affordability returned to the rational levels last seen in 2002. Some might argue that there's no impetus for the market to return to rationality, as much as I or anyone else might want it. But those people forget that interest rates will rise again back towards their long term average of around 8% and beyond, while unemployment will rise for at least another couple of years to close to 8%. Assuming a long term mortgage interest rate of 8% and continued income growth of 4% a year, housing would become affordable again when the median house price hits NZ$300,000 by mid 2012. I'm assuming a reasonable affordability level is interest costs equalling 40% of a single median disposable income with a 25 year mortgage and a loan to value ratio of 80%. Some might also argue that there's nothing to stop the banks from again borrowing cheaply overseas and flooding the market with cheap credit. That's less likely in the next couple of years because international capital flows have been restricted by the Credit Crunch and the Reserve Bank has imposed new limits ensuring foreign short term lending won't make up more than 25% of bank funding. At its peak in early 2008, the banks sourced more than 35% of their funding through this 'hot foreign money'. Another slump close to 2020? One final factor that I think will help pressure prices lower, particularly towards 2015, is the impending retirement of many baby-boomer home and rental property owners. At some stage that equity will have to be freed up. Your view? We welcome your comments below

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I thought your initial prediction

I thought your initial prediction was too optimistic.

Interesting! Roubini

Interesting! Roubini thinks USA house prices will drop another 20% before levelling out - ah well NZ must be different eh? We have strong banks and plenty of cheap money.

15% sounds realistic unfortunately as

15% sounds realistic unfortunately as there are a lot of people sitting on the sideline waiting to jump in as prices fall. Emotions rule in many situations. This to me is only insane given current income to price ratios.

Should there be mass redunancies then things could change for the worse but that doesn't look likely at the moment. I wouldn't count on people returning to NZ to start buying up, they have the big deposits but getting the high paying job to service the mortgage could be intersting at the moment.

Prices will hopefully go down and then stall for years at real prices until the trend catches up.

as far as i am

as far as i am concerned the only factors with any REAL weight from the above are interest rates - Bollard is an idiot for selling out savers and promoting debt via lower interest rates. He may have cost NZ the chance to restructure a grotesquely out of balance economy before its too late.

you may be right Bernard, but until we see normal interest rates and unemployment close to 10% (both of which will happen over the next few years), we wont be in a position to know for sure. Even under your rosy scenario housing is still a crap investment when you combine the capital loss and additional costs of ownership v renting. I reckon 20-30% drop by end of 2011 IF interest rate sare allowed to return to sensible levels.

good on you Bernard for

good on you Bernard for admitting you were wrong.
BUT you still put your neck out and predicted price declines at a time when everyone was saying property never dropped, so you were kind of half right
I think we'll see a further small dip again , and then flattish prices slightly rising over the next 2-3 years
Yep Jimmy Bollard is an idiot, forever moaning during the height of the property bubble about overinflated prices, then once there was a sign of correction doing all he could to stabilise and prevent the necessary correction

Bernard, reading here most of

Bernard, reading here most of your dedicated bloggers go round in circles "we are in the eye of the hurricane" and so forth.

It's been more of a storm in a tea cup so far.

The underlying fact is that home prices as you say are 30% over valued and while as a socialist thinking of first home buyers I agree, the realist in me says first home buyers will purchase to the limit of money which the banks are prepared to lend.

It is sad really that new families see so much of their wealth going overseas as interest payments when the money should be spent at home on their children, yet over a longer time frame housing always trumps shares or other investments, so you cannot really blame such decisions. U.S. housing prices will

U.S. housing prices will fall by a double-digit percentage from already beaten-down levels, resulting in an overall 40 percent plunge by the time foreclosures peak in the second half of 2010, Barclays Capital economist Michelle Meyer said.

Meyer issued her forecast two days after the Standard & Poor's/Case-Shiller Home Price Indexes showed for April an 18.1 percent year-to-year decline, compared with 18.7 percent in March, in the rate of home price declines in 20 major U.S. metropolitan areas.

Time will tell, but even

Time will tell, but even the reserve bank said that they will drop 20% ish. I think when you take inflation into account, they will probably drop 30% over the next 5 years, although price wise, it may only look like 15-20%. I never though they would drop 30% as quickly as by 2010, I think it will be a longer slower decline. When interest rates start rising again next year, we will should see a change.

I thought your predictions of

I thought your predictions of 30% was about right, but then I'm probably reading to many overseas economic reports/ analyzes or...........

A matter of interest:
How busy is our immigration department with applications of skilled and reasonable wealthy people/ families wanting to come here to safe "Island- Heaven" of Aotearoa in the current climate ?

...and how relaxed/ encouraging is the department to let them in - thousand's ? Depending on the outcome this can make a difference.

Bank Manager Stats can be

Bank Manager
Stats can be used many ways, as can just about any overseas reports, especially US ones. Interestingly enough the fact that non-recourse states were catalyistic, combined with the situation where certain tax deductions were allowed for mortgage payments, and while we're at it, coupled with obvious bad lending practice.....was always going to mean a different situation when compared to us, and one that I feel wasn't that well canvassed downunder when drawing comparables to many overseas situation's.
Yes there is the argument about us being a pimple on the globe, and when the US sneezes, we........? Well that underestimates Kiwi's I think.
To my mind the real indeterminables this year will be unemployment and immigration. Its going to be an interesting ride.

Bernard, An interesting article. I

An interesting article.
I have always had an issue with your predictions on house prices, because as far as I know, they never took inflation into account. IMO it only makes sense to look at inflation adjusted prices.
This is the way I see things:

House prices may not fall that much, but in real terms, they have already fallen quite a bit, and if the 'inflation' rate stays high, they will continue to fall significantly in real terms. It's no good measuring value with such a variable metric as the NZ$.

I'm pleased you've changed your prediction, and now have a less bearish view, as IMO that practically guarantees an imminent large collapse :)
I think history will show that you and a lot of others have been caught in a dead cat bounce.

I have a long-term view:

which I am sticking to.

After such a large bubble, I can see no free lunch.

The latest report from Harcourts

The latest report from Harcourts says that house prices in Auckland fell by 2.3% in a month. If that rate continues for the next year, that's well over 30% overall drop by the end of 2010.

I suspect that NZ has managed to delay the onset of a house price crash purely by dropping it's base rate - by starting from a higher rate, it has had a more dramatic effect.

Now that property is falling by 2.3% a month again the bank can't drop rates any further, therefore the drop will likely continue.

The mainstream press in NZ is funded to a large extent by agencies like Harcourts which in my opinion might explain why they reported the recent price drop as a 'golden autumn' and practically just reprinted Harcourts press statement instead of actually reporting on the real story of a massive decrease in house prices. 2.3% a month is a 27.6% annualised drop.

I would hold off your apology until the end of 2010 when you can really see whether you were right or not. Unless of course, you've just bought a house and are trying to talk up the market.... ;-)

That should be Barfoot's not

That should be Barfoot's not Harcourts...

Welcome All. Party at Bernards

Welcome All. Party at Bernards recently purchased house Saturday night. Ladies a plate, men a dozen stubbies. Instead of a gift, a donation into the bucket at the door welcome. Cheers

It's almost as if property

It's almost as if property (be it farms or houses) has become too big to fail in NZ.
So as Oz begins to brace & cut NZ'ers will be out eyeing & buying each other's houses (as the collective madness now hunts hard assets). I'm with the 2 posts above. This isn't over yet.
Will the RBNZ hold if Oz cuts and if it does cut will it make any difference to the productive economy? Government and banks seem to be supporting this addiction but perhaps they now realise they have no other choice. Why suffer cold turkey if you are going to die anyway :-)

Hmm, interesting article, the job

Hmm, interesting article,

the job of a bear market rally is to turn the last remaining bear bullish .... and at that point the market can turn downwards again ;-) Housing market sentiment is closely related to stock market sentiment as the stockmarket is a measure of social mood. It looks to me like the current bounce is indeed a dead cat bounce, and with unemployment rising and the baby boomers coming into retirement age (means they will become net sellers of property as they move into retirement homes) - its hard to imagine anything other than lower prices for some time to come.

How low will they go though? The average housing crash results in a 35% drop in real values... but everything depends on what inflation does .... anyone's guess really.


A direct comparison of our

A direct comparison of our residential property market with those overseas was always fraught with risk. The fiscal set up and Kiwi persona are unique. We have a history of using property as a savings and security tool, more so than over countries. And looking at the dismal state of our financial markets and stockmarket ( thankyou Fran O'Sullivan, for enlightening us ), little wonder there is a lack of trust to invest there.

But even so, there is a point where property is constrained by the payment costs. Either the rental, the wage income, or the milk-solids pay-out of the dairy farmer, needed to fund the loan. And we are pushing up against those breaking points now. The property market can inch higher, but it won't surge. And other asset classes, risky as they may be, will leave it behind, for several years.

Well done Bernard, I agree

Well done Bernard, I agree with you, house prices are still overvalued by at least 30% according to fundamentals but the unbalanced amount of housing investment in NZ which is supported by Governmet tax legislation and Bank lending means houses will remain overvalued. Because we haven't had a price collapse like the US & UK simply means we will have a long slow decline like Japan from 1990-2009.A short sharp collapse in prices would have been better for the economy in the long term as we would get over it and move on. But as you say thats not going to happen, its going to be a long slow grind which will hinder our economic growth for the next decade (or longer) while those countries which have had proper corrections will leave us in the dust yet again.

Kieran, surely house prices in

Kieran, surely house prices in NZ are in fact perfectly valued given the current Government tax legislation? In any market, the price reflects value under all current circumstances, conditions and perceptions. To see a major price change in real estate, won't there need to be a change to the underlying fundamentals, such as new tax laws?

So many people say housing is under/over valued, but the amateur economist in me believes that average prices are always exactly what they should be because its a market with many potential buyers and sellers.

Why on earth would anyone

Why on earth would anyone be fooled by a 'golden autumn' in a month where prices fell 2% over the previous month and mortgagee sales are at an all time high?

Although, that said, I can actually see 2-3 months of house price rises in the near term as the general population swallows the hype lock-stock-and-barrel.

What the stats tell me is that market rationality/reality is returning. Sensible sellers are quitting properties they may not be able to afford in future as economic conditions worsen. A mortgage which requries two incomes to support it is an extremely high risk investment going forward. Having just returned from the States - these are the folks who are most distressed presently - and when one income goes, they borrow more (usually via higher interest bearing sources) trying to hold onto the house. Could the conditions be any more perfect for the financieers?

The world was never going to "end" and the unprecedented regulatory action in printing money and nationalising insolvent financial institutions through taxpayer contributions is the biggest dead cat con in history. NZ keeps increasing its level of borrowing, not so much to purchase new assets, but to pay the interest on previous borrowings, particularly so as commodity prices continue their downward trend at a time when our production/supply in so many grower sectors exceeds demand.

Mind, there is always money to be made because power-holder contrived slogans such as "green shoots" manage to fool most of the population most of the time. The power-holders in the US want such slogans to succeed in getting folks back into the stock market and in NZ back into land/housing.

So, whilst this Government sits on its hands in terms of introducing a CGT and/or restructuring tax laws regarding property investment - property purchased at the right price and re-sold to some "green shoots" believer can still be a good earner for the person who has the cash to own the asset outright.

Don't go into politics, Bernard!

Don't go into politics, Bernard! Did you anticipate 15/9/08 when you published your article on 26/3/08? There's a LONG way to go before midnight 31/12/10, when a poli. would conceed they may have been mistaken.

Oh Bernard, Oh Bernard....have you

Oh Bernard, Oh Bernard....have you really became a "bear of small brain"?
Looking at too many stats must have made you temporarily confused.

sharonv, you are quite right.

sharonv, you are quite right.

Yawn Is this the worship


Is this the worship Bernard site - he is our man if he is right and he is graceful when he is wrong.

Its like this - you report on what you see, Bernard, add a little doom to get people to your website.

You don't forecast anything - really. And the only time you stuck your neck out you did so too far.

There is a percentage of this recession that you and all the other media outlets are responsible for.

I like your site as you err on the negative which is a good way to keep things real. But your issue with housing is lame - without going into ALL reasons why.


Mr. TA, pleae have a

Mr. TA, pleae have a read of

so whats going to happen to immigration? thanks to all your predictions about house shortages

John, I read that and


I read that and thought the same thing. if there aint the jobs, we can hardly continue to import skills at high rates. And those that do arrive are hardly going to be able to buy houses if they aint got jobs (or at least feel uncertain about their jobs). To me this is why predictions of how housing will fare are so uncertain. HOW WILL HOUSING LOOK WHENTHE AVERAGE PERSON IS NOT CONFIDENT THEY WILL HAVE A STEADY STREAM OF INCOME FOR THE FORSEEABLE FUTURE. Our unemployment is ticking up, and will be close to 10% - 3 years ago people felt bullet proof. i was the same, the though of being out of work for a long period of time did not occur to me. In my work place they are cutting by 20% due to the recession, I shoudl be ok but may have to take a pay cut and certainly have no idea what will happen in the long term. I would NEVER take on large debt in this environment. What happens when a large proportion of NZers no longer feel bullet proof??? It only takes a few stories of friends, workmates, high unemployment stats and people start to realise that RAINY DAYS DO ACTALLY HAPPEN, and NO - THE RAINY DAY HAS NOT PASSED US BY NZ iIT HAS ONLY JUST BEGUN. If 8% are unemployed, its not just the 8% who cant buy or have to sell that affects the market. Its all those other people who no longer feel bullet proof who are no longer prepared to commit to a LONG TERM liabilty that costs them A LOT MORE TO BUY than rent. Given that even optimistic predictions still see a fall over the next few years, then negative equity is a very real prospect for those taking on high debt. It will not take a lot for negative property sentiment to return - we should all ensure we do our best to spread negative sentiument for the good of the country's long term health, we shoudl all feel negative about a woefully unbalanced economy. For my part I am doing my best at the pub, parties etc to dissuade friends and family from buying property, and have had a few successes. If you cant rely on the govt to get the message across, then do it yourself.

ASB got to you Bernard?

ASB got to you Bernard? It's difficult to be independent when your revenues come from VIs eh.

Now I know prices are about to collapse.

How I crave a Mish Shedlock in NZ.

What's going to happen to

What's going to happen to immigration? Here area couple of clues (although past performance can't be taken as an indication of future performance) :

C and Bobby Many thanks

C and Bobby

Many thanks for your comments.
I certainly have to pay out on some bets of coffee and wine. I'll organise a party.
But it's not to celebrate my house purchase.
My wife and I bought the house we live in with our two daughters in Auckland in May 2005 and we're still here. It's probably still overvalued, but that's fine because we don't expect to move any time soon. We haven't used our house as an ATM and we're just working away trying to pay back the debt as early as we can.
I suspect a few people will be doing that for some time to come.

SJ No one got to

No one got to me. I've changed my views because the circumstances have changed.
I don't always agree with Mish, although I do love reading his views.

One thing that is not

One thing that is not being mentioned in relation to the baby boomers retiring-yes they will most likely be looking to free up some of their equity, but importantly, the baby boomers retiring will create a massive skills shortage and the unemployment rate will plumet from its peak. The scarcity of skills will push up wages making homes more affiodable, driving demand and increasing house prices.

Don't be too hard on

Don't be too hard on Bernard - nobody could have predicted that interest rates would go sub 6% and that is the single factor that has saved the housing market from a 30% value drop.

Had interest rates stayed above 9% we would have already seen a full 30% drop.

Even now crystal ball gazing is more unpredictable than ever. We are in very volatile times.

Bermard wouldn't know shit from

Bermard wouldn't know shit from clay even if it was labelled, his guess work is about as bad as all the other economists, at least he admitted he was wrong here. His future predictions are only further speculation as well, he does seem to get a lot of them wrong doesn't he. All things are cyclic whether it be property, stocks or other. The thing is no-one can predict what the future holds, life goes on with its correcting ways, things bounce up and down just as much as a kids yoyo. Some people get rich in recessions some get poor nothing has changed in over a hundred years of recessions, some get rich some get poor in boom times also. This is the real world these cycles are necessary to balance things.
Think about this: Bollard and crew lowered the i rates to help those struggling, effectively he gave the people with the greatest household debt a break and punished the ones with the least debt who are the savers. Ironical really after they have been telling kiwi's they need to save more, what incentive do savers have with low deposit rates. They should have left rates high if not made them higher as this would have brought down the house prices as people needed to dump their debt,(as they counld not afford it) there would have been a huge supply on the market as people were wanting out, the opposite to what we have at the moment, which is people hanging on to their properties as the debt servicing is lower than before therefore afordable. As to the Baby boomers wanting to sell in years to come, if they can't get what they want they will just leave them rented (as they currently are) and live of the income as they will be debt free by then and leave them to their generation X or Y children who are the non savers. So they new there was a reason they didn't need to save and just live for the day, not like the BB's (whos parents went through 2 wars and the great depression and the majority left nothing to their children) who saved went without till they could afford it. Gosh generation X & Y are so lucky, they didn't have to skimp and save and go with-out, had great OE's brought all the toys they wanted, although not all of them will be so lucky one must assume.

Scott M makes a very

Scott M makes a very good point

I think where i live

I think where i live they have dropped 30%

Rob ( 12.06 am) and

Rob ( 12.06 am) and SteveNetwriter are right. Its declines in real terms that count. Others who predicted 30% or similar declines a few years back qualified their comments by saying it was a matter of how fast the drop went -- if prices simply dropped 30% quickly or if they dropped over time ( a few years ) then the drop of
30 % in real terms was just the same effect

Rod, what a terrorist you

Rod, what a terrorist you are.

If the government had left interest rates high we would have had a bank collapse which would have had to be bailed out by the government alla USA & Briton.

Actually the government managed it quite well when you think what could have been.

As for BB leaving money to generation x and y, that's a myth, health care will eat up most of their savings in the last 5 years.

Aaron, Rod is right -


Rod is right - the govt acted appallingly. The structural problems of too much debt remain and you dont get rid of that by keeping rates too low. So what if there is some pain? Just cause medicine tastes bad does not mean we should not take it. if NZ/Aus banks are so well capitalised as everyone keeps telling us, why cant they stomach a big drop in housing?? They can stomach a big drop, but it will certainly hurt their profits, which is great news for NZ. Why not look at the other side of the equation. HOW MUCH MORE WILL YOUNG NZers HAVE TO SPEND IN NZ (OR INVEST IN OVERSEAS) IF THEY ONLY HAVE TO BORROW 200,000 compared to 400.000 to buy a mediocre house (at best) in a major city. Think of the IMMEDIATE massive cash boost we get by not exporting $16,000 per new home owner EVERY YEAR. EVERY YEAR HOUSE PRICES REMAIN HIGH WE ADD TO THIS DEBT BURDEN - the new debt is being taken on TWICE AS FAST as the old debt is being paid off. Whose laughing??????? the banks you want to save, the investors, boomers - everyone else is screwed.

Why I think property has

Why I think property has a way to go. I am looking to buy a home for my family; it is not the first property that we have purchased. Where we are looking the market has fallen by 20% off peak prices already. The reality is that the lower and middle end of the market is being held up by 2 types of buyers

1. Welcome home buyers helped in by the government, which helps the vendors of these properties take the next step on the property ladder.

2. Investors who are dumping cash into the rental investment market, out of stocks and lousy bank return. Buyers 1 + 2 are in competition with each other, holding that end of the market up.

Either way NZ goes we are in for asset price correction from the lack of profitability in the basic economic driver of this country, and that is primary production. As the dollar stays high the average Joe NZer is protected by the high $NZ; cost of living is cheaper through access to cheaper offshore funds via the bank, cheap food because the high $NZ creates a more attractive domestic market for struggling exporters, housing stumbles along.

We need a lower $NZ to help our strongest exporters survive, if our dollar devalues, export prices will rise, but so will the cost of funds and production input costs. Exporters that have a reasonable level of debt will survive, and produce modest profits.

Average Joe NZer will, however face price hikes from increased cost of funds, to food price rises, fuel costs etc. none of which bodes well for housing prices.
I think we are heading into the perfect storm to sink housing prices this spring, I know of vendors holding off listing houses now as they say that if it is this good now it will be better in the spring. I think listings will surge onto a spring market at a time when interest rates are rising as funding gets more costly. This is when the farmers will be looking for peak seasonal borrowing, and that the banks will have to take a long hard look at where they allocate their limited funds, productive sector or housing. The large uridashi rollover will be a drag on things as well.

These are not good things.
On the international front, Chinas stimulus package has reached its end, and things are sliding backwards. The US knows it can't print more money, and the EU just waits for something to happen.
The global credit crunch is not over; the monkey of debt has just grown bigger.
Bernard, I know you are right at a 30% fall, I can see it happening, and the sooner it takes place the better we will ALL be for it.
People say; "look at the growing global population to feed" yep, but they have no money"¦"¦

Arhhh JH, that second link

Arhhh JH, that second link of yours sure exposes the filth and corruption in NZ politics. I expected no less. Love the comments. Looks like that fool Cunliffe is without a brain.
What's the bet auntie helen is sorting out jobs for the other Labour idiots in her socialist empire in NY.

Actually James, even with out

Actually James, even with out government guaranteed bank deposits it's the tax payers that bear the costs of a banking collapse as per the USA and Briton.

I sort of agree with you but for a different reason, if we had had a major housing collapse the banks would have hopefully had to write off $B, the government would have had to print money (as per Briton and USA), and our dollar wouldn't be at the stupid price that it is today dragging down our economy.

We still haven't seen the last of this and I for one would like to see single income families able to own the house that they live on while having children

james - re. strength of

james - re. strength of banks, you might be interested in Macka's thoughts here:

Perhaps another thing/risk an inquiry might have exposed?

Bernard - I agreed with

Bernard - I agreed with you that house prices were about 30% over-valued, and at about the 2nd highest (next to Aust?) country in the world on an average wage to average house price ratio, unaffordable in the long-term - something has to change. Whether its a 30% fall, or a 15% fall with then 5-10yrs of no rise so that inflation covers the rest, is always the question.

Your initial forecast may still be right however. The amount of debt being created in the world, and the possibility of alot of inflation 2-3 yrs down the track, suggests much higher interest rates coming at levels that the housing mkt can not afford - I think that is almost a certainty.

James - be careful what

James - be careful what you wish for. Some downside in banks profits is ok, and no doubt expected by them, but a collapse would undoubtedly see them allocate capital away from this market and effectively collapse lending - that would be the death knell for any NZ recovery, and most certainly the housing market.

Back in 2007 I estimated

Back in 2007 I estimated house price where 30% over valued..
Based on 30 yr ave price...At that point in time
I also qualified that as time goes on the 30yr ave price if expolated will result in around a 25% drop, depending on when the paths will cross.
If one takes into account the change in types, price ranges, areas and the changes within these ranges, one sees currently between 15% and 20% REAL value drop, not represented by the current mean of 9%.
IE a house that would have sold in an area in late 2007 for around $425K will now sell for $320K to $340
and a house that would have sold for $340K now sells for $270 to $280K...depending how desperate the vendors are.

The other thing that is noticeable is homes on large sections 1000m sq and above tended to sell at higher prices than a neighbours on a 600/700 msq section. The size of land doesnt seem to be a factor in increased sale price anymore.

Another thing is in the local 'rags' job vacancies have got far smaller, and the For Rent got a lot larger....Within a sort drive one sees many "vacant for rent " signs, some thing that was very rare or not at all not so long ago...How long can the landlords hold out with investments not returning any cash flow?
I feel we still have to see many of these houses come onto the market as landlords can no longer afford to hold on to or cross their fingers to get a good sale price.

By the end of next yr/18 months, I think we will see further drops of real sale prices get close to the 30 yr expolated ave, and also there will be a slight increase in the 30yr ave dragged up by the market as has happened before.

BH, personally I think you have bailed out of your predictions way too early. There are still too many things that can/will happen before 2011...unemployment, less buyers, more sellers who are more desperate, further increases in long term interest rates over the next 18 months /2 yrs...And even thu affordabity will increase, less buyers who have saved or able to save deposits.
Oh well, lets see in in 6/12 months if your next revision reverts back to your original prediction....a flip flop? I think so.

Steve Netwriter: "I think history

Steve Netwriter: "I think history will show that you and a lot of others have been caught in a dead cat bounce." During the 1930s depression there was a significant rally....comparing today with then, we are getting near where that cat dropped off the face of a cliff for a second time. I think ppl have got into a mindset, markets always rise....they dont have the memory their parents/grandparents did of the 1930s.

Just read an interesting point, the supplying/exporting nations (China etc) have built capacity based on the GDP of the buying/importing nations but that GDPwas swelled by debt it was not real GDP. Plus some of the future GDP will be converted into savings, plus paying back existing going forward net GDP to buy imports is going to be smaller, so how is that over-capacity going to get used up? How do we avoid huge deflation in some goods (trinkets), yet huge inflation in others (food)....

We coud be able to buy a trinket uh I mean a well spec'd mobile phone for $10, yet not afford the monthly rent........Looking at trademe right now should give an indication of just how much new kit is being sold off a >$300 phone is <$100......lots of production has to go somewhere...

Then there are all the other nasties out there and the speed they are still happening at; oil's recovery to $70....commerial property...un-employment....Eastern Europe....China stopping stock piling....

So got to wonder just how solid this rally which case Bernard's original call could yet be proved was based on a fundimental, the price v earning ratio.

Within 3~6 months we should know with some confidence...


Some fair points here, it

Some fair points here, it might be a little premature for Bernard to concede, just as it might be premature for Mr TA to be jumping up and down saying "told you so"

Wonderful speculation above. The smaller

Wonderful speculation above.
The smaller drop that BH now is happy with still ignore inflation, I am presuming.
Inflation may not be evident right now but it always keeps adding a bit each year so even if you sell your house at a flat actual price you still lose.

An interesting manoeuvre Bernard which

An interesting manoeuvre Bernard which re-ignites discussion and is IMHO conservative. A drop of only around 15% would suggest what we've been through was a boom rather then a bubble - as described by The Economist and other leading publications. IF only a boom its characteristics haves clearly been bubble-like:- i.e relationship to income, rents and its multiple upward legs. Bubble history suggests an in-evitable fall to below the point at which the bubble started. This would/should indicate that Bernard was right first time...but perhaps it might take slightly longer following Govt efforts to have a gentle correction.

Looks like the bear family

Looks like the bear family are not too happy when the chief bear comes out of hibernation!

If by the Chief Bear,

If by the Chief Bear, you are referring to Steve Keen, then yes, he has just put up another post on his blog

In the last six months, the phrase "Green Shoots of Recovery" has entered the economic lexicon. It appeared to some observers that the global recession was coming to an end, while Australia itself was likely to barely feel its impact.

I would be as pleased as anyone if these "green shoots" were true harbingers of a genuine end to the economic downturn"“not because I would enjoy being wrong for the sake of it, but because my expectations for the future are so bad that I'd prefer to see them not come to pass.

Unfortunately, on current data I expect that "green" is a better description of the knowledge level of those making the optimistic predictions, than of the colour of any budding economic recovery.

Of course, it could be argued to the contrary that many of those making such optimistic forecasts are highly trained professional economists, and not merely market commentators who migh have a vested interest in putting a positive spin on the news.

This is true"“but far from being a reason to trust these forecasts, it is yet another reason to be sceptical of them.

Almost every holder of a PhD in economics who works for a formal economic body like the Treasury, the RBA or the OECD has been deeply schooled in "neoclassical" economics, often without knowing that there is any other way of thinking about how the economy functions. They think they are simply "economists", and anyone who objects to their analysis or models must be uneducated about economic theory.

In contrast, virtually all University Departments of Economics contain at least one economist who rejects neoclassical economics, and instead subscribes to a rival school"“like Austrian, Marxian, Post Keynesian, or Evolutionary Economics.

With reference to his recent track record in prediction see

If you have read The Black Swan, there is no reason to expect he will be right or wrong any more that Tony Alexander or Bernard Hickey.

bernard you old fox you!


you old fox you!
very you've read the wind.. what are you going to do come late spring when the flush of listings burst forward as they all rush to the door?

can i see a "well, blow me down with a feather , who woulda thought it" blog coming on?

OK, I think its clear

OK, I think its clear that no one really has any idea about the future of house prices.
I remember going to the House Price crash forum a couple of years ago, most UK economists were only predicting a 5-10% drop, look what transpired!

Seeing Bernard eat humble pie

Seeing Bernard eat humble pie has put a big smile on my face. Yes we are not out of the woods yet, but the fact he has revised his figures to 15% is the most positive, negative news I have heard for a long time.

Try a low fat cream

Try a low fat cream on it, Bernard, 'cos by time we exit "the mother of all recessions" you'll have stacked on a few kilos from eating all that humble pie ! ( I'm in serious indigestion mode, myself )

Maybe Bernard has overlooked the

Maybe Bernard has overlooked the herbicide sloshing around in the rest of the global economy...

Alan Kohler wonders if the green shoots will survive the herbicide.

This morning's US jobs report is a green shoots herbicide: after four months of slowing job losses, payrolls have slumped by 467,000 and unemployment is up to 9.5 per cent.

Teenage unemployment has jumped sharply, to 24 per cent, and the average working week is down to a record low of 33 hours (Australia's is 33.7, by the way "“ not much more).

All signs of life have been snuffed out of the American labour market. Bill Gross of Pimco said on CNBC this morning that unemployment could stay above 10 per cent for a long time, which points to a long period of stagnation in the US economy.

Sung Won Sohn, from the Smith School of Business and Economics, told the Wall Street Journal: "The green shoots in the job market are hard to find. Businesses are determined to trim costs by cutting payrolls. Expecting sluggish recovery in demand in the foreseeable future, employers want to make sure that a sustained economic recovery is here before hiring. The job market will become the Achilles' heel of the coming recovery."

Apart from the human misery, unemployment is now the key long-term problem for the global economy: the credit crisis has now morphed into an employment crisis.

1. The threat of deflation is growing. What is unknown is how flexible wages will prove to be on the downside. Russell Jones of RBC Capital Markets says there is a risk that the relationship between labour market slack and pay proves to be 'non-linear' and that at exceptional levels of unemployment, wages begin to plummet.

2. Soft labour markets and falling working hours and incomes create more pressure on government budget balances and public sector debt because lower taxes.

3. And most of all, persistently high unemployment lowers growth potential because it further disrupts consumption, which has already been hammered by lower house prices in the US. Bill Gross thinks we're in for a generation of reduced consumption because the asset inflation that fuelled the consumption boom has finished. Uncertainty about wages and jobs following a period of 10-plus per cent unemployment will extend that, so that consumption is suppressed for a generation, as it was after the 1930s.

BERNARD - how bout an

BERNARD - how bout an interview with Phil Heatley?
the Nats talked a lot about housing affordability early in their term, we've seen bugger all action (save for the RMA reforms which will only help marginally)
how about:
- Govt freeing up state land where possible for housing
- Govt directing all Councils to ban Metropolitan urban limits
- Govt directing all Councils to free up planning controls within urban limits
- Govt funding a state owned company that manufactures prefab homes

Freeing up land will make land cheaper, and mass prefab housing (with say 5 different options to reduce repetition) combined should mean first home buyers can buy a new house for circa $350K in Auckland.

simple, really

(Ps prefab housing has got slightly negative connotations here, but it is done very well overseas. Its big in America - see for example this firm that does pretty sexy stuff -

ahs great news you were

ahs great news you were wrong on this one for all of us, one can never under estimate the power of the world/nz economy, fundamentally it was always going to happen you see economics by its own exsistence is self correcting, I predicted a recovery and still do, in eighteen months we will see prices have risen modestly to above the peak of 2007, as i said migration/low interest rates and a shortage of construction coupled with a volitle share market = property investment= price rises.

add to this recovering economies and we will probably have a boom as per the property cycle in say 2012. Your predictions are wrong in my opinion but its ok to be wrong and very big of you to reset your predictions, hats off to ya


<i>Rod Says: As to the

Rod Says: As to the Baby boomers wanting to sell in years to come, if they can't get what they want they will just leave them rented (as they currently are) and live of the income as they will be debt free by then and leave them to their generation X or Y children who are the non savers. So they new there was a reason they didn't need to save and just live for the day, not like the BB's (whos parents went through 2 wars and the great depression and the majority left nothing to their children) who saved went without till they could afford it.

That will only work if they (a) don't have to go into a rest home or need healthcare and don't have other savings. If they do, they will be forced to sell the houses, and use the proceeds until they are depleted. (b) If they have their house in a trust. I assume a lot of water will go under the bridge before then, and NZers will lose the free health care, and universal super.

Bernard, well done for refining

Bernard, well done for refining your views. Like many people right now you're pushing the green shoots wishful thinking line. Read (below) the US Treasury's recently published annual report for the citizens of the USA entitled the 'Federal Government's Financial Health'. Let NZ and the world know your thoughts on how a country so obviously facing bankruptcy could realistically climb out of it within a few years. Obama and his propaganda machine will love you for spreading some hope, but really, read this and tell me this 'recovery' you're talking about is realistic. I think you could safely go back to your Depression thinking (at least for the US). And remember, this link is not written by some random opinionated blogger like me, it's written by the US Govt.

@hardsell Twitter Must say Bernard

@hardsell Twitter
Must say Bernard as much as I enjoy your commentary & look forward to your morning radio slot I've never agreed with your 30% prediction. I've no doubt that fundamentally house prices in our banana republic are overpriced however the lack of good housing stock on the market is a direct result of 'if you don't have to sell, you won't'
Even with a % increase in mortagee sales (off a small base) market dynamics will dictate that when things get worse, which they will, we'll avoid the freefall of other markets as the majority of people can stay put. Even those who lacked foresight and bought at the top of the curve are now finding their fixed rates are up for review and, whilst their house values may have stayed static, their repayments have decreased significantly so their property is manageable.
Global situation is ugly and locally we're following suit with the recession now meaning lost jobs and reduced income for exporters, where it all ends up no one knows but without an unforseen step change the decline will be flat to gradual rather than the dramatic double figures bandied about

Bernard, if the free market

Bernard, if the free market is truly allowed to do its work then house prices will fall to their long-run average at some 2-3 times earnings. Thus, a return to the historic mean would suggest your 30% as being far too optimistic. Yet our politicians, and more importantly the bankers and vested interests who seem to command them, do not appear to believe in the free market. They agitate for a gerrymandered system, in which housing can be geared up to ludicrous multiples of income so they can lend vast quantities of newly created debt and 'earn' oodles of interest.

Yet a problem arises on the road to debt enslavement. So outrageous has been the moneylenders activities hitherto that we now face a situation of deeply deflationary financial pathology, because accumulated private and public debts have become so overwhelming. I suspect that, ultimately, only two choices will exist. Either let things run their course and watch house prices fall perhaps 80% from their peak (the historic top to bottom trend of severe bear markets) or monetize everyones debts and see billion dollar houses as part of a Weimar experience that will destroy New Zealand's middle class and, probably, its democratic institutions. As Britain's 'high priest' of free market ideas, Enoch Powell, said in the 1970s - "its too bad there are still those who believe you can enjoy the sweetness of inflating the currency without suffering the pain that follows".

I'm really not that sure

I'm really not that sure what will happen long term, but I think a lot of these comparisons with the States and NZ are stretching it a bit.

The US has been in economic trouble this whole century so far, starting the the dot com bust and then with Sept 11.
That is what caused the extremely low interest rates for the extended time that caused the artificial housing boom.
Over the same period NZ has had much higher interest rates.

Then you also add all the other differences like the like the sub prime, ARM, liar loans etc.

Not to say we aren't still a bit inflated, but I think it will probably just be worked through and deflated over time.
People should still be careful not to go taking out loans so big they can never conceivably pay them off.

While for sure things are still very uncertain, I actually think some people have worked themselves into a bit of a frenzy of negativity and are just looking for any bad news now to try to justify their views.
If you only go looking for bad news, that's all you'll find.

Housing market fail at 1:39

Housing market fail at 1:39

@ Bernard - gosh i

@ Bernard - gosh i am glad to have logged in. Must have been something about that invitational request to check in from time to time, to monitor any changes going on out there in lemmingsville. Glad you woke up from the nightmare you were causing as you realized it was all a (website)dream.

Little bit more to go now Bernard - you're almost there, but well done Champion, there is already a coffee sitting here in Hamilton for you, now you realize you can pick up a cup with your free hand, as there were less holes in the dyke than you thought (or said), but as for your further declines - i think you are busy with that other hand.

olive branch wise Mr Cranium, i can call a peace, as you have lost the 'stark raving' part from 'stark raving mad predictions'

POP... ;-)

"The funding costs of more

"The funding costs of more than $100 billion of foreign bank debts are higher and competition for local term deposits is brutal, pushing up term deposit and therefore funding costs" as Bernard has said. Now unless the USSA slips down into a two decade depression and the green weeds wither away, which would mean a no bottom property collapse, we are in for inflation 1970s style! Aint no escape from it. Throw in the absolute certainty that the cost of credit is to rise due to the massive borrowing going on and it sure looks like the $100 billion foreign debt will see thousands of mortgage holders in NZ slammed with rates in the high teens. Since there is no chance our 10% unemployment rate will drop for at least a decade, it aint going to be a humming economy is it. Therefore, there is a far greater chance that unproductive property will crash in value. I think Bernard's 30% call was most conservative.

Yr Land Value Capital Value

Yr Land Value Capital Value
2005 $ 165,000 $ 265,000
2004 $ 69,000 $ 140,000
This example from the Tasman area of the madness that took place when the Labour fools went for massive immigration on top of the credit splurge. You work out the % for yourself. From a capital value of $140ooo in 2004, the vendor now wants $435ooo today. John Key and Bill English and the RBNZ are mad keen on keeping this insane situation from correcting. Under 'normal' conditions the property would be less than $165ooo today. Even at the Tasman DC valuation of $325ooo sept 08(yes the vendor wants another $100ooo) the required correction to normal levels is a staggering 100%.

President of Property Says: "Little

President of Property Says:
"Little bit more to go now Bernard - you're almost there, but well done Champion, there is already a coffee sitting here in Hamilton for you, now you realize you can pick up a cup with your free hand, as there were less holes in the dyke than you thought (or said), but as for your further declines - i think you are busy with that other hand.

olive branch wise Mr Cranium, i can call a peace, as you have lost the 'stark raving' part from 'stark raving mad predictions' "

Call that an "olive branch"? I would call it a meaningless , sacastic comment that in some circles the respomse would be a 'smack in the head' and/or the coffee cup turned upside down on the table...

I wonder , how many here, know what the ball park realistic sale price of their homes would have been end of 2007?
And know the actual sale prices in a 2 mile radiuus of similar homes in the last couple months?
Then worked out the real % drop.
And how many, who have disagreed with BH over the last 18 months, are willing to post, honestly that % ?....or actually have a/cs at QV to source the info...

As is, we see a 20 to 22% drop,
If we had built, as intended, a 2nd (1 of 2) 3 bed home/2x garage as planed in late 2006 we would have seen a 23% + drop

I think we will see similar real drops across the board....18% to 23%
If that is the case then BH can very well forgive BH for being out on the at this point in time he would still be in the ball park...
His only mistake in the prediction is, he was working off ave, mean stats in a market that has changed its fundimentals of how those stats relate to real sale prices , resulting in the overall Ave stats not representing thev true drop.

So fess up guys, put your money where you mouth is...not the advertised similar homes, but real sale prices off QV.

"but importantly, the baby boomers

"but importantly, the baby boomers retiring will create a massive skills shortage and the unemployment rate will plumet from its peak."

You cant make a silk purse from a pigs ear....

"The scarcity of skills will push up wages making homes more affordable, driving demand and increasing house prices."

Yes and no....lets go with that assumption...less people even if more highly skilled and therefore better paid means less house purchases....there are less people so an over-supply of and demand indicates falling best case the desparity between good areas and bad could get larger.


Wally, I say stick it

Wally, I say stick it to the vendors.

@ Steps... I thought someone

@ Steps...

I thought someone of your intellectual depth would have been able to follow the market and the banter, if you can't, them perhaps try walking and chewing at the same time.

Bernard knows exactly what I mean, as fundimentally he is a very intelligent man, the focus is on his prediction, gosh why am i bothering to spell this out for you, if BH has a problem with my positioning, it is his business, in which case he can let me know, otherwise it is all fair and above board IMHO - so rack off, sunshine...

Oh, and by the way, going off very recent local sales, our properties are the same value as on their peak give or take $500.00, and these neighbouring properties have sold for identical amounts three times now - November 2007, April 2008, June 2009 (+/-$500.00)

There's an article in Saturday's

There's an article in Saturday's Press about a farmer near L. Rotoiti who has a $50,000 rates bill which (he says) he can't afford (they come for his wheely bins). The reason is the Tasman(?) Council has been borrowing for future growth and have re valued his land. Property Ventures (btw) has developments planned for L. Rotoiti (and Te Anau and Five Mile).
Another article is about temporary workers (pawns) dumped as the building boom declines. We haven't been building houses for a workforce for any sustainable industries just pie in the sky industries which clever people will (supposedly) create from a greater population base?

Jack, "James - be careful


"James - be careful what you wish for. Some downside in banks profits is ok, and no doubt expected by them, but a collapse would undoubtedly see them allocate capital away from this market and effectively collapse lending - that would be the death knell for any NZ recovery, and most certainly the housing market."

I am struggling to see any downside to a collapse in lending and the housing market?? Give the majority of our lending seems to go into non productive houses I see this as a fantastic result which will force our economy into a healthy rebalance rather than puffing along on the fumes of past debt excess. Those who actually save money and are productive might start to reap rewards as opposed tothose who borrow and speculate. Bring it on i say.

Pres of Prop, I got

Pres of Prop, I got 2 valuers in to value my property this yr, they said 13% less than GV, from what I see in Dunedin houses currently advertised are not advertised at 13% less than GV. Why not?? most vendors do not get a valuer to do a valuation before putting their property on the market.
So are the valuers wrong then? One of them was a QV guy.
If people in your area are purchasing property at the same price as the peak then maybe they are abit stupid.
Are you aware of the fact that you are making a dick of yourself by insulting other bloggers?



Thank you for your regular

Thank you for your regular comment on both the economy and other matters. I am a working economist and am always searching to make sense of markets. Your comment is always helpful.

People forget history.
In Christchurch, at the start of this residential property boom the investment landlord seller commented to me that they were relieved prices had lifted and they were able to sell without losing their shirt. They had bought their rental properties during the excitement of the boom of the early '90's. Ten years of no capital growth. Ten years of rents insufficient to meet outgoings. AND an over-supply of rental properties.
Signs are that presently there is an oversupply of rental properties.
Who the hell would buy investment residential properties today! Profits look good on paper for rental investment properties if you can find quality tenants. Over supply.

I can not see any reason why prices will not keep falling, and my pick is 30% from the peak seen Winter 2007.
The drivers for this last boom has been capital from overseas, whether immigration or investment. I do not see a lift in either.
Interest rates are irrelevant. I recall the boom of the '80's and the high inflation. People bought property then to protect against inflation and willingly paid the high interest.
Watch happenings during next period of high fuel prices when disposable incomes fall!

I have been an observer of the Christchurch property market for the past 30 years.

I was in the 30%

I was in the 30% camp early this year but not any more. Savers are being forced to sacrifice for the debt takers. Greedy bankers lent too much and the financial system will try their best to save them. This includes tax benefits for housing investment, unplanned immigration, quantitative easing etc. Houses are becoming the new currency and security. No point wearing clothes in a nudist village. So dont save but borrow and be in debt as long as you have over 30% equity on your investment. Poor will be come much poorer overall when the growth is not manufacturing drive. The politicians will do lip service to savers, but lot of damage to poor. NZ will soon become another Asian country where there is a strong divide between wealthy and poor. Cash savers cant be wealthy. Full stop.

Prices dont have to fall

Prices dont have to fall 30%....just not appreciate for 20 years, which after inflation and costs is the same thing adding up to a large loss....maybe reading up on Japan's lost decade(s) would be informative....its does not look pretty....

I still dont see why ppl are so positive. One of the best comments I have seen recently is ppl are still thinking in the mindset of the last 10 years, large and safe profits to be a word, greedy. These ppl are still chasing any opportunity to still make high returns....instead its gambling. There is still a large wealth destruction underway, its paper money and not real....this will only stop when the economies of the world are under-pinned by sound and real production with real instead we will see the continued staggering from one global financial crisis to the next caused time and time again by the in-competent and greedy financial industry, bailed out by us the it could last decades....we should vote out these Pollies...and at some stage I think we will....but that might be two or three crises away...

James "I am struggling to


"I am struggling to see any downside to a collapse in lending and the housing market?? Give the majority of our lending seems to go into non productive houses I see this as a fantastic result which will force our economy into a healthy rebalance rather than puffing along on the fumes of past debt excess. Those who actually save money and are productive might start to reap rewards as opposed tothose who borrow and speculate. Bring it on i say."

I don't disagree if its just housing, my bigger worry would be if its more widespread into business. In the end there has to be a deleveraging of household balance sheets, but hopefully that comes from individuals recognising that fact if it applies to them, and acting, rather than the banks closing up shop - recent history probably supports your case that it has to be forced upon them ?

President of Property : I

President of Property : I thought someone of your intellectual depth would have understood the fundamental difference between the terms " value " and " price ". House values, as you call it , are in fact prices. Pedantic of me, perhaps. But Bernard's original call of a 30 % price fall in houses, led them back to the fair value area. He is now accepting that they may not get back to reasonable value. So, as William has noted, many years of underperformance loom, in the property sector. The actual prices may remain static, but with ongoing inflation, even at modest 2-4 % p.a. levels, value may be restored, in 5 years plus. By which time many "baby-boomers" will be selling to raise retirement funds and to find smaller homes. And that's another negative scenario for the property bulls.

By the terminal stage of

By the terminal stage of the madness in Weimar Germany (November 1923) a single egg was priced at 428 billion marks, a kilo of butter at 6 trillion marks, and a kilo of beef at 5.6 trillion marks. During that astonishing episode gold had risen from 170 marks in 1919 to 'around' 87 trillion marks (per ounce) by November 1923. One cannot imagine the surreal price levels to which that supreme, that unrivaled, that deified indicator of 'wealth' houses would have risen. Perhaps then the 'ridiculous house prices = prosperity brigade' can explain why the historian Eric Weitz noted:

"The middle class, to so many Germans the stable core of society, seemed to be disappearing before their very eyes". Weimar Germany, Promise & Tragedy - Eric D. Weitz [Princeton University Press]

Jack "recent history probably supports


"recent history probably supports your case that it has to be forced upon them ?". I am afraid I have to agree. either forced by govt legislation changes, or by the fact that the herd has changed direction. To some degree its rational to act with the herd (momentum investing), but it reaches a point where it is so obvious that the herd is heading over a cliff that you would think even the lemmings might change tack ... but I would not hold out much hope of that.

The bottom will come when

The bottom will come when the biggest optimist becomes pessimistic. Surprised at BH's decrease in pessimism.

@james : Lemmings only go

@james : Lemmings only go over the cliff at full moon, when they can see where they are going. I reckon it's new moon time, now, when it's so dark the herd can't see the danger and is standing still, even though it's so close they can smell it....

janet : if the lemmings

janet : if the lemmings are in danger, give them lemming aid.

and they can munch on

and they can munch on a lemmington while they wait. Maybe it would be a better bet to head to melbourne and gamble their money on horses at F-Lemmington

This blog is full of

This blog is full of very pessimistic people.
The seems the aim is to find a link to the most pessimistic data in another country, be it USA, UK, Japan, Iceland, then say "It will be worse in NZ".

As Phil said (4/7 11.59pm) 'comparisons with the States and NZ are stretching it a bit'

Here is my list
1/ The reforms over the last 20 years has made the NZ economy much more flexible. Think of how NZ came thru the Asian, Dotcom crisises compared with the 70's and 80's. What USA is going thru is similar to what happen to NZ in the late 80's. Many of our institutions have a memory of that time and have avoided some of the worst problems.

2/ Our debts are different from the US. We have a much smaller proportion of our debt in short term consumer debt (credit card/HP) which lowers the repayment stress. $2500 to $40,000 (RBNZ table C6)

An average American family carries
- $9,000 in credit card debt, - $18,000 in debt and loans inclusive of credit cards, auto, and education - $70,000 in mortgage debt
The $11 trillion national debt equates to over $31,000 per U.S. person.

We dont have the same level of low quality mortgage debt such as subprime/Low doc/low start. Most of our banks lending was low risk. Even low equity loans required high incomes and accelerated repayments. I read somewhere there is 42000 mortgages with under 10% equity but most were to high income households. No NINJNA loans here.
A portion of what appears to be home mortgages is actual business lending to small business which makes the equity look lower than it really is because it doesn't take in the business assets.

3/ Our govt deficit is truer than the USA deficit. The NZ govt includes movements in investment and future commitments eg ACC liability. The US doesn't account for unfunded commitments which makes their postion much weaker than it looks. There is quite a debate in the US and UK on what the real deficit is and some of the numbers are very scary.

4/ The range of exports and range of who we export to is quite diverse
Top two for ye May 09
Dairy 21% Meat 11%
AUS 23% USA 11%

The balance of trade has moved into surplus for the last qtr. Even Aust is running a deficit. I know there is a current account deficit but we are moving in the right direction. First get a trade surplus, then a CA surplus, then repay some debt.

My conclusion is that the NZ economy isn't the weak brittle one that posters on this blog seems to think (or want) it to be.

If the world economy does

If the world economy does a double dip NZ may be one of the better off countries.
In the 1930's the agricutural counties were the hardest hit. This was because during the 1920's there was a big increase in agricutural productivity due to mechanisation and artificial fertiliser and large stockpiles.
This time there are low food stockpiles and the productivity gains (and excess capacity) is in manufacturing.
NZ could be in for a golden period. High prices for our exports, lower import prices

Still cant see any comments

Still cant see any comments from Keiran Trask love to read his take up on Bernards revelations ,or is silence golden, just like the golden comments from BARFOOTS.In another time i recall Mr Trask forecasting the 30%CRASH?

Telephone charges to rise -

Telephone charges to rise - get Telecom and Vodafone investigated.
Banks put up fees - investigate the Banks.
Petrol prices rise - investigate BP, Caltex and Shell.
Rates to rise - investigate the Councils.
House prices to rise ......ummm
So I'm 'pessimistic' because I think house prices will go down? I would have thought the cheaper the better, for anything, at the moment....
PS: NevilleWC - I'm not sure there is a shortage of our major export - dairy.

Janet Maybe not today or

Maybe not today or next week, but as there is more and more mouths in the world to feed and the two largest countries (China & India) are still growing their wealth, would you want to be a food buyer or seller?

It's impossible to know where

It's impossible to know where things will actually head from here with the real estate market. Will stock levels stay low and prices level off/improve or are there a huge number of people waiting to list their homes in spring which may give buyers more choice resulting in less competition for each house?

Right now in many central Auckland suburbs the shortage of stock has seen homes selling faster and for better prices than they would have achieved last year but in the majority of cases still below the peak price they could have attained in late 2007.

If people are realistic about the value of their properties they are selling relatively easily compared with 2008 when it took months to sell, if you could sell at all.

In my area we have noticed that whereas prices were down around $100,000 or 15% they have now recovered around half of that drop in the last 6 months. In fact someone buying a house at the median price in my area last July to September will be smiling today as they are sitting on a $50,000 gain. Homes we simply couldn't sell last year have been relisted and we have sold them in less than a week with multiple offers received and prices well in excess of the offers that were made last time we tried.

For now at least in the Pt Chevalier and Westmere area and I suspect many other central suburbs buyers strongly feel the bottom has been and gone.

Bernard had another thread recently about baby boomers tying up all the assets and certainly in the first half of this year a further opportunity was handed to them on a plate ie bank interest rates around 6% and a whole sector who would normally be competing against the baby boomers shut out of the market by 20% to 30% deposit requirement.

So I suspect in 2009 several thousand homes have been added to the baby boomer rental portfolio due to taking advantage of the unique set of circumstances that developed earlier in the year, which was influenced by frustration with term deposit interest rates and poor performance of other investment products/sharemarket.

I am not sure about the theory that at some future point the baby boomers will sell up all their rental properties - many will be mortgage free and live off the income from these properties, selling only the family home in order to move into a low maintenance style retirement property.

In effect Gen X and Y who have struggled to buy a house may actually do ok out of inheritance in the future or parental asistance to buy a house now.

Personally I thought we were having a low interest rate driven temporary recovery from February onwarsd but the majority of people we are talking to on a daily basis seem to think they have missed the bottom and the worst is over.

I guess by mid 2010 we will all have a better idea of who has made the correct call.

NevilleWC: Long term, seller... shortages

NevilleWC: Long term, seller... shortages are bad for all except the hedge funds/speculators....I dont doubt that some of the rise to $147 for oil a year ago was as food becomes short I expect the hedge funds etc to move into agriculture and commodities big time and drive up the prices for us consumers significantly....and this is effectievly tax/extortion yet we dont see the right whingers complaining about price rises as thats "market forces" at work and not least with a Govn you as a tax payer get something back.



Yes, dropping interest rates to

Yes, dropping interest rates to reward the asset rich and punish savers was a smart move by the govt. We all know what got us into this mess but the only answer seems to be to borrow even more and buy up more houses to rent out.
I was so incensed at the low interest rates on my cash in the bank and the fact that any interest I get is taxed by the govt that I have now invested all my cash in the TAB.
That way the govt which is doing everything to keep house prices inflated doesn't get another cent off me and the banks can't use my cash for any fractional banking voodoo.
If you're all not careful it won't be voluntary euthanasia we'll be talking about when the greedy BB landlords retire, it will be compulsory euthanasia.

NevilleWC, I agree comparisons with


I agree comparisons with US are futile - they are a lot better off than us. You talk about our tradeables improving and next stop is the CA deficit. Our tradeables have been improving for a long time, yet CA continues to blow out. WHY?? Cause we borrow way too much in order to bid up the cost of our non productive assets (IE HOUSING). Unlike the US, most of our banks are foreign owned, so all those mortgage interest payments (which are WAY HIGHER HERE THAN IN THE US, HAVE A LOOK AT THE INCOME/PRICE/INTEREST RATES RATIOS) are repatriated overseas. the last time I looked the US had a CA deficit of 8%. We should not be looking to get our tradeables up and then look at CA deficit. we should be looking to fix the thing we can most easily contriol - reducing debt via a housing crash is ABSOLUTELY essential, and most importantly easily done if the govt shows some guts.

Yes we did not have sub prime like the US, but our debt is MUCH BROADER AND DEEPER. And its not simply the subprime stuff imploding in the US.

Were you joking when you say our range of exports is diverse when the 2 examples listed are both agriculture. The US has plenty of ag, how about some other industries like hmm
- Coke, Pepsi
- Apple, Microsoft, IBM, DELL, Google, CISCO ....
- Cars (yes not gogin great guns, but at least they have an industry)
- Boeing
- Macdonalds, KFC, Burger King
- Finance (yes they are mugs, but stil carry a lot more weight than NZ firms)
- Hollywood, CNN, most of the stuff we see on TV
- Most of the musicians we listen to on the radio
- levis, macys, WALMART, HILTON,
- most of the top 50 academic institutions
- easily the best scientific/technological know how

The list is endless. We are NOT diversified.

james Says "WHY?? Cause we

james Says
"WHY?? Cause we borrow way too much in order to bid up the cost of our non productive assets (IE HOUSING)"

and worse we bid up the cost of our production base (farmland) to an uneconomic level. We may be able to produce food, but we cannot turn a profit out of it.

Dunedinite "We all know what


"We all know what got us into this mess but the only answer seems to be to borrow even more and buy up more houses to rent out." Coudnt agree more - we have been dealt a bum card by our govt - I have done well out of the low savings rates as it forced me to put 30% of my savings in the sharemarket which has returned me about 20% in 6 months - but who knows where to from here, it seems global sentiment is regressing again. A few "better than expected" results (ie slight better than horrific) seemed to buoy those starved of good news,but that seems to be on the wane again with the latest US employment figures.

My analogy of govt handling is as follows. Johnny and Jimmy (brothers) are both allowed a party each year. Johnny's got out of hand last year, so blew the 2008 party budget and Jimmy had to miss out. The next year, instead of giving Jimmy 2 parties and johnny none as punishment, it seems the parents have decided to let Johnny have another party and have put down no conditions so Johnny is expecting another biggie (and Jimmy is naturally worried he will miss out again). This is exactly what is happening at the macro level, and Bernard is right to draw attention to this clear disparity in treatment.

A food buyer, NevilleWC. It's

A food buyer, NevilleWC. It's going to get cheaper. The one child family policy in China is going to have dramatic effects on their population. India is pretty much at saturation point, and when too many aphids end up on one rose bush, you end up with a polulation decrease a la Rwanda. That's why an inflationary future environmemt would be disasterous. Those with little to spend to survive will have nothing to loose by 'taking' it from those who do.

stevel, excellent point re the


excellent point re the farming costs. Another bubble, and you are right - farmers are not turning a profit and guess where the interest is being paid - overseas??????

Ross Brader, thanks for your

Ross Brader,
thanks for your update.

I would appreciate it if you could drop in every month or so and provide your view.

I'm still waiting for Bernard

I'm still waiting for Bernard to say whether he can get Phil Heatley on here.
We won't get him on here becausae the govt won't do anything about home affordability. Our economy is so one dimensional that we rely excessively on house prices staying up and the govt will do all it can to keep them up, at the expense of our longer term interests

James In some ways you

In some ways you are just proving that you can't use what is happening in USA to predict what will happen in NZ because they are so different.
Many of the differences you quote are because the USA is 100 times bigger, but that doesn't necessarily make everything in the USA better.
There seems to be an assumption that NZ is f**ked and that everwhere else is better.
I think that that view needs to be more critically analysed.
As a percentage of the economy, USA & NZ overseas debt and Current Account is similar. NZ's trade, Govt deficit and Govt is better.

Dont understand what you mean by NZ debt is broader and deeper? Is that good or bad?
Iceland tried collapsing their assets but it didnt drop their foreign debt. How can collapsing NZ house prices repay foreign debt?

Correction NZ’s trade balance, Govt

NZ's trade balance, Govt deficit and Govt DEBT is better

Neville, The Current Account percentage


The Current Account percentage takes into account the size of the economy, as i stated before we are > 8%, the US is < 4%. We are twice as bad relative to what we earn. Govt debt is better here, but that is small fry compared to household debt which is a lot worse here.
Broader and deeper is worse - it means that our debt level per household is worse. We dont have the extremes of ninja loans, but that was only ever a smaller part of the market in the US anyway.

How can collapsing NZ house prices repay foreign debt?

It is a start. If house prices collapse this year, it means next year the average FHB wont have to saddle themselves with enormous debt levels. Each year house prices stay high, a typical first home buyer family with 100,000 deposit in a main centre would take on 400,000 in debt. If houses were at their long term levels this would be more like 200,000. The additional 200,000 loan * .08 (long term rates) = 16,000 PER HOUSEHOLD LEAVING THE COUNTRY EVERY YEAR. EVERY YEAR WE ADD TO THIS BECAUSE THE DEBT IS NOT BEING PAID OFF AS FAST AS IT IS BEING TAKEN ON WHILE HOUSES REMAIN HIGH. This is the primary reason for our CA deficit is blowing out, it is not lack of productivity. the US housing market has now corrected back to sensible levels from a level that was never as high as ours to begin with. This means a first home buyer in most areas in teh US face about half as much mortgage liability as someone in a similar sized city in NZ. This is why the US is in better shape than us, their economy has rebalanced - households can afford to buy a house and live comfortably again. It may not make the country's "net wealth" look great, but that was only ever bubble induced phony wealth anyway.

I think it is more

I think it is more interesting that when a property related topic is posted, it always generates the most comments of any other topic. Just shows how much financial interest people have in property in NZ, over other forms of investment. Property is just too large to fail in NZ.

James - you will probably

James - you will probably deride my examples but on a comparative scale I think they are valid

- Coke, Pepsi
- Apple, Microsoft, IBM, DELL, Google, CISCO "¦.
Rankon, Sidhe
- Cars (yes not gogin great guns, but at least they have an industry)
- Boeing
Does that firm in Hamilton still produce planes?
- Macdonalds, KFC, Burger King
Hells Pizza
- Finance (yes they are mugs, but stil carry a lot more weight than NZ firms)
- Hollywood, CNN, most of the stuff we see on TV
Peter Jackson
- Most of the musicians we listen to on the radio
There are a few NZers
- levis, macys, WALMART, HILTON,
Pumpkin Patch, icebreaker, Michael Hills, Warehouse
- most of the top 50 academic institutions
NZ degrees seem quite acceptable when our go graduates O/seas!
- easily the best scientific/technological know how
sucked from immigrant graduates.
For its size NZ has good scientific/technological know how but does have a problem in commercialising for NZ,s benefit. eg low temp wire, MAS.

I'm sure there are others that could be added

I am wondering what these

I am wondering what these so called 'Green Shoots' are. Certainly there are no green shoots happening in my area, Upper Hutt. There are both commerical and retail lots all over the place, and the area is starting to look very depressed. We have a new mall that has is about 75% empty of individual shops.

James Look at the graph

Look at the graph from Credit Suisse in the middle of this article about upcoming Monthly Mortgage Rate Resets and tell me that the worst is over for the US housing market. (sorry cant seem to paste it in)

At least you can get mortgages from NZ banks, When the alt-A (low doc) and Option adjustable rate (balloon mortgage) start defaulting the subprime defaults will look like the good times. Remember most of these mortgages are already underwater now 'the US housing market has now corrected back to sensible levels'

Read the rest of the article and tell me USA is in a better shape than NZ.

Neville, I know where you


I know where you are getting at with the comparative examples but consider this.

- do NZers eat more Hells pizza or Macdonalds??
- do NZers use more microsoft products or Rankon??
- do NZers drink more coke or Charlies??

If we lose at home, I doubt overseas is too different.

and lets not forget that the general rule seems to be that as soon as a NZ company is getting up steam we sell to an overseas concern.

Any anyway, lets not forget my main point - I think we are productive enough. I just think that

1) we are not as productive and certainly not as diversified as the US
2) collectively we owe a heap more to overseas banks than the US does and
3) most importantly the US has rebalanced their housing market so households will not continue to take on great debt to buy a house. NZ has not done this yet to our detriment.

So some stupid prats built

So some stupid prats built something that they should not have built. Wasn't any need for it in the first place. Already the town was overshopped. Lousy research and decision making.

Interesting to note that 3

Interesting to note that 3 year and 10 year bond rates appear to be falling again along with oil prices.
Gaynor did a good piece yesterday about our currency. Worth a read.

Lower interest rates on the horizon? Well quite possibly. Money is a commodity and where there is no demand the price falls. The world has considerably less demand for money than it did. Signs that the USA is being cut out of the money loop.

Rio just raised 19 billion with the blink of an eye. Now even for a world company 19 billion is not to be sneezed at.

BNZ just raised 415 mill at 5.68%. No shortage of money around.

Neville, You entirely miss my


You entirely miss my point. why as a FTber should I consider my economy to be in good shape when I and none of my peers can afford to buy a house, have family and live here comfortably??? Americans can, and its thank to houses being at sensible levels (the word sensible is not used here lightly, it equates with LONG TERM AVERAGE HOUSE PRICES). maybe your definition of good shape is one where banks and real estat agents make a killing and where the day of reckoning is postposed and worsened in the long run? maybe america's housing crash is not completely over, but it is certainly closer to reality than our is by a country mile.

James I was just trying

I was just trying to give some perspective to what is being said.
Another point is that Mcdonald are franchises owned by NZers so the profits etc stays in NZ only the royalty leaves.

Re foreign debt
Going by RBNZ table E3 total gross overseas debt at Mar09 $254 billion 140% of GDP.

Can't find same data for US.
GDP around 13 Trillion
Gross US Govt Debt 11.4 trillion ~90% of GDP (NZ 11%) but this includes domestic holders. There are references to 3.5 tillion held overseas - 25% GDP.

Still looking for private sector foreign USA debt.
There are unreferenced references to 11-12 trillion of foreign debt. My guess is that these statistics arn't collected and these numbers are estimates.
NZ may suffer because we keep better statistics. (like the real Govt deficit)

hells pizza are also franchises

hells pizza are also franchises

Something I've been thinking about

Something I've been thinking about today....
Maybe we just have to accept that NZ, and especially Auckland, is drifting in the direction of other countries in terms of home ownership rates
For example, in Auckland owner occupied housing constitutes about 69%
In comparative centres in North America, owner occupied housing is as follows:

Portland - 54%
Seattle - 49%
Vancouver - 44%

Also more people rent than own in Europe

Why do we fundamentally think that it is a right to own a house? Why do we feel we HAVE to own? Are we getting worried about something which is not such a big deal?

I know there are studies that claim home owners are better citizens blah blah blah. And I know its nice to own, to have your own place, to do what you want with your property

So, I want to get people's views on this? Are we beating ourselves up unnecessarily?
Provided one can rent and save / invest a reasonable amount of money over and above rental payments, is that such a bad outcome?

Is life too short to be a slave to a mortgage, to put off kids, or have kids and send them off to daycare 2 months after birth????

I agree with you Matt.

I agree with you Matt. I believe life's too short to be a slave to mortgage if you can pay much less in rent. Once a month or so my partner and I go on an "open home binge" then come home and do the maths re the mortgage repayments, look around our nice townhouse that we rent and both agree that we don't want to be paying double what we are now for a smiliar house. We religiously save the difference and have a stress free life. We have about $100k saved and both have good jobs, so technically speaking can afford a mortgage, but would have no life and we're both firm believers that "life's for living" so to that end can't bring ourselves to take the plunge. I rather like not having to worry about interest rates, council rates, mainteneance and repairs etc.

And as you point out, in Europe it's more common to rent that own. So what's the big deal if we rent? It's just ingrained in us that we should buy. Don't get me wrong, I would like to buy a house of a similar standard to the one I rent, but not when the exercise is going to cost me double what I pay in rent.

James I think you have

I think you have a far too rosie view of US life.
American sitcoms represent US life as well as Shortland street represents NZ life.

A struggling 25yr old looks at a 55 yr old and asks Why arn't I as well off as them.
The answer that the 55 yr old was a struggling 25yr old but they have struggled for 30 more years.

This was covered on a very active blog last weekend.

Good thoughts Matt in Auck.

Agreed NevilleWC, another big difference

Agreed NevilleWC, another big difference between NZ and the States is, we haven't been fighting two pretty big conflicts for the last 6 years or so, which has cost trillions of dollars, unlike the US.

Although granted we are affected by the state of affairs there and everywhere else.
It surprises me how some people seem to think hundreds of thousands of people and businesses going bankrupt is a good thing for an economy.

Matt yes I think as far as Auckland goes, it may always be out of reach for a lot of people now, at least for closer in suburbs.
If I lived in Auckland I think I'd buy a cheap apartment and live there for 5-10's years, try to get the mortgage down, then hopefully move to a house later when I could afford it.

Interesting, just noticed on TV Westapc advertising home loans for less than 20% deposit now.

Phil - I too saw

Phil - I too saw the Westpac advert but most banks will now lend to people with less then 20% deposit if they have the income to cover the repayments or in the case of a rental investment 100% if they have additional security.

Guys I think Gen x

I think Gen x and y need to realise that the game has changed
Our parents didn't face the same barriers as us to home ownership
And why do we have to be the same?
I've seen my parents slave away at thier mortgage, they are now 67 and only just debt free
And that kind of commitment was in relation to housing far more affordable than we see today
I'm not saying that Gen X and Y should give up on home owenrship, just I think we should be philosophical about it.
As I said as long as we rent and we save / invest a decent amount then we will come out fine
And who knows, house prices might still crash again in the future (when the boomers retire en masse?) at which time we can buy a house with a 30-40% deposit
At the end of the day, the Govt isn't doing anything about housing affordability so why stress about it

BTW I kind of like the flexiblity of renting. We were able to shift flat last december and move to another flat in a better school zone for our son's intermediate schooling. Other friends wanted to do the same but struggled with selling their house
We don't need to pay rates or pay for repairs, and if we wanted to live overseas for a few years we just have to give the necessary notice and bugger off

and we can afford to live in a good area with good schools and good safety. We have two sets of friends who were desperate to buy, they've bought into lower-middle price areas and both families have had multiple burglaries. They have lost out financially but also feel insecure

the benefits of home ownership?

Hi Bernard, I'm amazed how

Hi Bernard,

I'm amazed how negative your views are...30% and now 15%. Do you seriously think people believe this.. when demand is currently exceeding supply! Normally this leads to increases not 15% decreases!

I think your economics needs some work.

Matt, Surely its about choice.


Surely its about choice. If we CAN have a society where houses are reasonably afforable to an average family, then why not?? People can make the choice, and I agree with you that home ownership is not what it is cracked up to be. In myopinion we most certainly CAN have affordable housing (reduce immigration, open up urban limits and inner suburb restrictions, raise interest rates to take heat out of market and help saving, reduce speculation by evening up tax treatment, remove negative gearing on housing etc....). Why should we suddenly have unaffordable housing compared with 7 years. HAVE THINGS REALLY CHANGED THAT MUCH OR HAS THE HOUSING MARKET JUST GONE MAD??? Its not like the population has skyrocketed that much .... and not in ALL areas, yet the massive price rises have pretty much been across the board, not just Akld.

As for Europe, you are right - many people rent. But fot the most past that is through choice cause houses for the most part are a damn sight cheaper than they are here. My point is that our changing ownership rates are not happening because thats what the average family wants, and its not happening because there is no way to stop rampant house price growth - its happenng becasue we have a bubble that a lot of vested interests want to maintain it.

Why has Bollard hit savers

Why has Bollard hit savers so badly?

Why is he absolutely smashing those of us that have over the past ten years of good times put money away in the bank, instead of going and buying a 3rd property?

Why is he rewarding the guys that borrowed to the hilt and purchased that 3rd investment property?

Isn't the RBNZ responsible also to promote macro economic stability? NZ economic development? Promoting macroeconomic stability requires a rebalancing towards exports. No matter who has been in government, NZ has made zero progress in 50 years.

It is the big scandal, in my view, that no media ever dare tread.

A total cop out weakling feel-good nonsense which suits the silly politicians' short-term electoral interests at the expense of the very rebalancing that we actually require, in my opinion.

john, check the definition of


check the definition of "demand" in the textbooks. Its something along the lines of "want or need backed by an ability to pay" - the last 3 words is your answer as to why we will continue to see price drops.

Can you really blame Bollard?

Can you really blame Bollard? I mean we had pretty much the highest interest rates in the world for a few years running, and now we still have one of the highest going as well.

As it was it caused a lot of problems with keeping the dollar very high.

But I kind of agree with people that say tax on savers should be lower.

neville, i dont watch many


i dont watch many sitcoms - but when I see houses in the US are nearly half ours relative to incomes AND interest rates are much lower, I think it appears quite desirable. America has plenty of excellent cities round the 500,000 to 1 mill mark, great outdoors and opportunities abound given the size of the economy. I loved it when I visited, unfortunately cant get a green card and prob too late now as I have 2 kids and am settled.

Jimmy - good point re:

Jimmy - good point re: demand. And with high income Gen x and y people like myself unable to buy, what will happen to demand? It will drop away. Not to mention the impact of rising unemployment

Jimmy - re: your points at 8.32 pm. I totally agree, housing could become more affordable but I have no faith in this or any other govt to make the changes necessary to make it happen. No faith at all. As you say far too many vested interestes unfortunately. So since it is out of my control I have decided to be philosophical and turn a negative into a positive. Its quite empowering not to get into massive debt really when you think about it. And the more Gen X and Y people that decide to be empowered like this, to not buy, the more likely it is that a further correction or even crash will occur in the next 5 years

And finally Jimmy I agree re: USA. I love it too, there are some cool affordable cities still around like Denver where the house price to income ratio is only about 4 to 1. I'd be over there in a flash if the old Green Card was realistic

Hi Jimmy, You obviously do

Hi Jimmy,

You obviously do not have any current contacts in the real estate game, as if you did you would know how short listings are at the moment and how many buyers are wanting and able to buy.

Last three words of this statement explain why 15% is not gonna happen.

with regards to westpac's ad,

with regards to westpac's ad, my mate that works with WP, said they have been hit by the recent guff ups.. i guess this is their way of attracting people back...

The Bank Manager... (interesting name)... i'll be surprised if banks take the risks you have mentioned, esp with our unemployment going up... already the banks are writing off more Bad Debts.. cant imagine them taking on more risks...

The inside word - the

The inside word - the banks are struggling
A good friend of mine works at one of the major banks, she told me today they are dead quiet, and yet their performance targets have been rasied
So much for the resurgence huh????

John - I think re:listings

John - I think re:listings that people are holding off to spring. Winter is always quiet on the listings front, we will see a surge in spring and the demand will not match the supply, with flattish / slightly dropping prices the result

This debate is interesting and

This debate is interesting and that is about all.
Prognostications are futile at the moment.
There are too many unknowns so any trends short term are likely as not to be just 'noise'.
Personally, I would not be buying right now and I am likely as not wrong. On the other hand the cost of being wrong seems to be too small to worry about as a flat market over several years is not damaging and in fact allows many to save faster because rents are lower than the cost of ownership and so far below that a buyer needs to be absolutely certain they are getting what they really want.
Affordability for the individual buyer has two parts:
a. What they can afford now
b. What they add by waiting and saving further

Logical Dave - "Prognostications": nice

Logical Dave - "Prognostications": nice word!!!
I agree with you. I don't think the cost of not buying now is great, given even the more optimistic housing experts are saying things will be flat or only rising slightly over the next 2-3 years

When America stumbles as it

When America stumbles as it is now....there has to be an impact on NZ....

"Some 342,000 homes were foreclosed in April, pushing a small army of children into a network of charity shelters. This compares to 273,000 homes lost in the entire year of 1932." That's a nasty statistic....

One comment, "Europe is a year or so behind" NZ also? Fontera's numbers just keep getting worse....$4 a kilo? what about $3.50? is this the US effect trickling into NZ via our commodities? Do we get a delayed whammy from the US and then a double one a year later when Europe stumbles?

Look at some of the youth un-employment numbers, double the norm....thats a lot of youth sitting around for maybe a which point are they even employable?

and finally,

"We are moving into Phase II of the Great Unwinding. It may be time to put away our texts of Keynes, Friedman, and Fisher, so useful for Phase 1, and start studying what happened to society when global unemployment went haywire in 1932." Those historians who studied the Great Depression must feel so lucky they get to live through the re-run!

Matt, I shall now "prognosticate"

I shall now "prognosticate" but only in suggesting your 2-3 years is rosy. Taking inflation into account the figure could extend well beyond 5 years and this is what Bernard did not put any emphasis on in the header. I think he suggested earlier that a longer correction was in order.
As an aside I can recall on a visit I made to the UK in May 1999 there was a very small paragraph at the bottom of a column in the Daily Telegraph stating that average house prices had just that month equalled the average for exactly 10 years earlier.
Inflation is ignored too.
But then "property never goes down" does it?
I just looked at a graph from UK

My New Video on the

My New Video on the New Zealand Housing Market

I hope you find that funny :)
(It's a remix of someone else's work)

Hi Bernard appreciate your ability

Hi Bernard

appreciate your ability to admit you were wrong. I must say there are still a few things we disagreeon but time will tell what happens with the market. I can report from Wellington City & suburbs a strong demand from buyers remains and we are seeing people starting to list again as they realise that all is not doom and gloom (looks like they have not been reading som of your posters here haha).

I eagerly await my bottle of Sav and would be happy to drink it with you if you ever have a free lunchtime in Wellington. I would be happy to take you to lunch and believe it would be educational for me at least and maybe we can teach each other something who knows.

It takes a good sized heart to admit when we are wrong and I admire you for doing so.

What a wonderful future we

What a wonderful future we have in store for Kiwi families. A result hard to imagine when the banks first began their cheap loan plays back in 02 on the back of Greenspans bubble blowing efforts. Now they are assured of fat profits for at least two generations and the full backing of the poodle govts, the gutless RBNZ and of course the greedy RE mob. Property so bloated in price that families are forced to hand over their entire low incomes either to the thieving govt as tax or their landlords the banks.
You were right Bernard, young families and the youth of today really must emigrate if they are to find a better future. I think the only question now is where best to go?

Glenn, Many thanks. I'll be

Many thanks. I'll be Wellington for the next RBNZ Monetary Policy Statement on September 10. Email your details to me at and we'll arrange a lunch if that suits.

For those in Auckland who feel like a bit of a gloat, I shall be holding a Humble Pie party at the Gables Tavern at 5pm on July 17 (next Friday). I will bring pie... I'd prefer people didn't bring their own pies to throw at me... All are welcome.


I predict house prices will

I predict house prices will be up 15% within 3 years. If you read between the lines we will be having both a house and section shortage by then. It is always supply and demand that push prices up and within 3 years the supply will have reduced further and prices will be getting pushed up!

Good on you Bernard! Well

Good on you Bernard! Well handled!!

Good , civil thread, chaps

Good , civil thread, chaps and chapesses. And hi, William, from Chch.

A few thoughts about Der Future, touched on a little above but mebbe my take is useful.

- Boomers (I'm one) have resigned themselves to working until 70 or so. Either the fabled equity has taken a dive, or the super funds have, or the tenants have trashed the unit once again. And few of us really think that National Super will be there in quite the current form, when the happy day eventually arrives. So I wouldn't do a linear projection on employment, or make too many assumptions about what happens to said housing equity, which is in a great number of cases in trust to whanau. Hi ho, hi ho, it's off to work we go.

- NZ is still a considerable haven for the well-heeled of the world. It has big moats, pleasant citoyen, the rule of law, and a heap of land with sea views. While the natives may not like the thought of becoming a servant class for said WH, hey, it's a living. And this factor, which rumbles away quietly all the time, may have a lot to do with prices and the state of the market.

- second, absolutely, the notion of breaking through the crazy risk-averseness and immoderate fees of TLA's, and getting a good prefab industry going. Just, for the latter, puhleeze not the Gubmint. Guaranteed high prices, enforced choice of yesterday's technologies by the time the committees have finished designing their camel, and a cycle time measured in years. Whereas a boatbuilder/fabricator/CNC type chappie could knock up a prototype in weeks. Houses, contra the current TLA view, are extremely simple things compared to say a chip or a car.

- Houses are traditionally sneered at by common taters who won't classify them as capital goods. That is losing its validity, as working from home actually means that the house becomes to some extent a factor of production. Publishing, software (indeed, authoring of all sorts), support, small fabrication, running (as the Japanese subbies do) a CNC lathe in the garage - there is a lot more Production at home than is perhaps realised. Just don't tell the TLA's - they are simply clueless, especially if said production occurs behind high walls and/or one has quiet work habits.

- when things come back, they won't look the same. Having spent up on durable goods, tools, vehicles, etc to position for a less certain future (at least, those who saw all this a'comin'), means that we won't need to be spending as much for a decade or two, and thus GDP will do without us, comparatively speaking. This does not bode well for the service sector, retail, discretionary spend, and other hangers-on in the Great Value-chain of Life. They are simply less necessary in a more austere future. And what cannot carry on, won't.

We have clear evidence in

We have clear evidence in Epsom Mt Eden Remuera areas that the average actual price drop is between 15 and 25% from the heady heights of 2007. We have actual sales data to back this up. Trying to predict anything from median price is not accurate in my opinion. Just as we are now seeing a huge surge in the lower end price range (probably due to cheap mortgages) there were fewer lower end properties transferring and therefore the median price was holding up. Those of us at the "coalface" know what really happened over the last 18 months.

In the deep, dark, despair

In the deep, dark, despair of winter last year, when it rained and rained, oil heading for the stratosphere and DJIA to an early grave, it was possible (but not necessarily easy) to buy solid, well located properties for 30% less than the same property would or did sell for in the spring of '07.
For a brief period that Sav Blanc was almost in your grasp Bernard. The Jeremiahs nearly got their wish. They still could, who knows. Risky strategy conceding with so many votes still to count. If things really turn pear shaped and you have to recant, no one will care. (Apart from Janet, Wally etc.)

Glenn, "I can report from

"I can report from Wellington City & suburbs a strong demand from buyers remains and we are seeing people starting to list again as they realise that all is not doom and gloom " - so extra listings means more supply surely??? This is maybe the issue at the heart of the problem - unrealistic sellers expecting they can hold off for a while and then return to the market to get 2007 prices. But if they return in enough numbers then the downward cycle will presumably return. In essence the crux comes down to interest rates. If they head back to >8% then expect 30% plus falls. If they stay at 6 then more like 10-20%. (Assuming further catastrophies are not around the corner).

DOOM all is doom. I

DOOM all is doom. I am bloody certain I would not be hanging around to join the ranks of the fools destined to feed the banks or the landlords while paying for the fiscal deficit being run up by the morons in power. I continue to ask you all for ideas on where the skilled youth of today would be best to emigrate to. Canada, Australia, India or China. Or someplace else. Maybe the Carib or South America. We know they will be screwed every which way if they stay.

Ous skilled youth will be

Ous skilled youth will be fine here, Wally. They'll both find a job. The rest of the produce from our education system will have to compete against the productive economies in the far flung countries you mention. NCEA goes down well in India...

Matt in Auck - My

Matt in Auck - My wife and I were mortgage free by the time we were 27 and 28. Wasn't any slavery involved. We did borrow 100% of the purchase price when we got our first jobs out of uni. Since then we have fully furnished it and spent 2 years in Europe.

Of course we brought in Papatoetoe where we could afford a decent house and didn't try to buy in Remuera or Parnell straight away.

Wally, I still say the


I still say the US - but it near impossible to get a greencard (AND THIS HELPS TO EXPLAIN WHY THEY ARE BETTER OFF _ THEY ACTUALLY CONSIDER THE IMPACT OF IMMIGRATION ON THE EXISTNG POPULATION'S QUALTY OF LIFE AS OPPOSED TO HEADLINE STATS). I would be there in a flash otherwise. People fail to see that the problems happening there are a necessary correction and essentially a good thing. NZ is in denial, and while the bubble remains, young families will continue to be screwed. The sad thing is that there is little choice for most NZers - Aus is at least as bad.

You've done a wee bit

You've done a wee bit of zipping round the planet Janet, where would you scoot off to?

Jeeze Matt - you seem

Jeeze Matt - you seem to know a lot of losers. You talk a good game though. You would think you would be capable of a decent salary and making some decent investment decisions. It amazes me that you can't afford a house.

Hey Jimmy, wouldn't it be

Hey Jimmy, wouldn't it be great if we had a RBNZ that actually had the balls to impose lending restrictions on the banks, allowing no more than 3 times the annual average income as a mortgage sum and a govt prepared to back the RB up with laws stopping second mortgages. Imagine a midnight rule change. My gawd within 2 weeks we would see an end to bloody stupid property bubble. Families would actually see a future worth saving for.

I had a good answer

I had a good answer for you, Wally. But then I read the post from Shorty, and now I understand why I'm off... anywhere....and Cheers, Matt in Auck.

Shorty, I think the issue


I think the issue is that even with a decent salary housing is basically unaffordable in NZ.

Shorty - a nasty and

Shorty - a nasty and uncalled for comment reflective of the arrogance of the real estate brigade. I don't know a lot of losers, these are educated people on middle income salaries who can only afford to buy in lower income areas. You tell me how someone can afford to buy a $450-500K house in an average suburb in Auckland on 80-90K with a 10% deposit?
you had the good fortune to buy at a time when the banks accepted 100% mortgages and prior to the mental boom this country experienced
And yes I could afford a house if I wanted to live in an unsafe neighbourhood with poor schools. But I don't. The safety and education of my children is more important than "getting on the property ladder".

MAtt, completely agree, and Shorty


completely agree, and Shorty - pull your head in.

Shorty - could you have

Shorty - could you have done the same thing off the same income and today's price / bank situation?

If not (and I assume not - 100% mortgages on $400k houses are not available to grads with a 70k combined income and 2x student loans), other than smugly pointing out how easy it was when houses were half the price they are now, what are you trying to say?

I see to banter has

I see to banter has become rowdier after the genteel conversation of the weekend.


It must be a different lot of punters with time on their hands at the boss's desk.

Did anyone else pick up

Did anyone else pick up on a little something that Bernard said today, that as a country we're almost exclusively focused on house prices, and that it's a pity that entrepreneural investing doesn't get more focus from us ......... see, we do listen to you "Venerable Eater of the Humble Pie".....( well, sometimes we listen )

Shorty : well done to you. But, not everyone has the same combination of foresight, good timing, discipline, and street-smarts, that you do. So you must be patient with us lessor mortals, as we muddle our way thru life, trying to progress and to make some sense out of it all.

IanC - We paid $300K

IanC -

We paid $300K and secured the 20% deposit against the olds property - which you can still do today (if your parents aren't losers with no equity in their property). A similar house just down the road just sold for $350K - so thats no where near double. Our salaries were $80k combined. No major student loan debt as we both worked through uni - both of us paid rent and paid our own fees.

We rented out the spare rooms for $100pw for the first few years and poured 1 salary into the mortgage to pay it off super quick. Then we went to Europe and rented the house out while we were gone.

Schools had no relevance to us as we had no kids. When the kids are ready to go to school we will sell and move.

Shorty, If you made only


If you made only 15% capital gain over the past (I am guessing 8-10 years??) then it would appear you were sold a complete lemon, and most definately paid over market value. I doubt then you are the one making "decent investment decisions." More than likely you have lost money over this period v renting. I woudl have though that an almost impossible task given the enormous property bubble we have developed over the last 8 years.

Matt - buy a town

Matt - buy a town house in Pakuranga Heights for $400K - decent schools and facilities and safe neighbourhood. 20 -30 mins to Newmarket in rush hour. Good bus service as well. Forget the villa in Grey Lynn. And get yourself a partner and a couple of flatmates. 5 years time your mortgage costs will be less then $20K pa your salaray will be $100K and your woman will be bare foot and pregnant.

You know that's just crazy

You know that's just crazy enough to work ;)

Can you not see that while this is ok for approx 0.5% of the population, the other 99.5% also need a strategy? Until this is addressed (my opinion - basic but adequate starter homes in the $200-250k bracket), there's a problem.

jimmy - more like 5

jimmy - more like 5 years. Since May 2004. In 07 properties were selling for $400K plus, but we were overseas and couldn't be arsed trying to sell in from there. Our CV is $395K compared to $290K when we bought. We rented it out for $350pw while we were away.

Since your asking - we also own a quater share of commercial building in Tauranga returning 13%, have a small share portfolio and $50K in the bank.

Sounds like you have a case of the green eyed monster.

Shorty - I've got a

Shorty - I've got a wife thanks and we've decided that her being with the young ones is more important than us buying a house and getting her back to work two months after delivery like many do
by the way I'm not aspiring to a villa in Grey Lynn
also I 'm already earning over $100K
I'm surprised that one could get a townhouse in Pakuranga heights for $400K, I'll check up on that, you're right there are quite good schools there. When you say townhouse does that = leaky run down terrace house? I'll have a look on trade me - thanks

See, Matt already falls into

See, Matt already falls into the other 99.5% of the populations since he has a wife **and** kids. Without being able to income split, despite being on a good salary he gets royally screwed over, which really won't be helping the property maths.

You'll also probably find that neither his wife or kids are that excited about renting out a couple of rooms.

Here in Wellington in a

Here in Wellington in a semi decent (read: not Karori/Khandallah etc but not in the back blocks of Upper Hutt either) I've looked at open homes and the asking price of a 3 bedroom stand alone townhouse that is finished fairly cheaply is circa $400-$450k. I don't have kids/dogs etc so don't want a big section, nor do I need to consider zoning for schools, but the mortgage on even that sort of house is getting up around the $600 p/w mark. WHAT THE ???? Even with two reasonable incomes that's ridiculous (plus rates, insurance, maintenance etc......)

I've looked at places a bit further out of town but the neighbourhoods become considerably less desirable and/or the commute is getting up around 45mins. I realise I have a choice at this point, so I choose to keep renting for much less. And that's fine with me, but I do think it's insane that average Kiwis are faced with this scenario, and that's while interest rates are "low"......

Part of me just refuses to buy into this crap; even though we could technically afford the repayments (very begrudgingly), by doing so says that I think it's OK, and I don't, so I won't. The thought of paying that sort of money each week appalls me, because I don't think it represents fair value.

Matt in Auck - re.

Matt in Auck - re. your question, I'm no property buff but I'll repeat an idea I gave to some friends in a similar situation a fews years back, when of course things were very different, which may well invalidate this idea now. That is, enjoy the flexibility etc of renting, but buy a/some rental property. I've little doubt from what I've seen on these blogs, that some of the more savvy/prof. type PI's are doing this and probably making it work? In the present circumstance one major aspect has to be good buying and smart negotiation, achieving the kind of outcomes Chris_j appears to have for instance. Essentilly you'd negotiate quite differently for an investment prop. where emotions and all that are not involved, as they are with a place you want as a home.

In many ways it's a bit like, if you can't beat em', join em' - not forgetting you'd then be able to enjoy the structure of our tax system and 'the subsidy that got away', just as your landlord probably is while you pay that mortgage. Not sure this is really very helpful in today's market, but thought I'd share it as I haven't seen anyone else suggesting you consider this - maybe with good reason, as I've indicated.

I guess one thing you will have to watch out for is a change in the taxation system..... oink, oink, flutter, flutter.....

Sure, I and others will still advocate for change on that issue, but if it's raining porridge, and you need to get ahead, then why shouldn't you have your spoon out too? Everyone else has.

Ian - quite right. Veedub

Ian - quite right.
Veedub - your thoughts on these matters are scarily like my own
"Part of me just refuses to buy into this crap"
Couldn't of said it better myself

veedub, IF ONLY the majority


IF ONLY the majority of kiwis would think AND ACT the same as you, collectively, we would not need to discuss house affordability. That is really the saddest part of it all, that WE are in control, but we do not exercise it in sufficient numbers (yet). Whatever the reason for that is, it would be hard to fit into a blog site let alone a single comment here...

Sit tight, times will get more interesting by the month!

veedub, couldnt agree more. 500,000


couldnt agree more. 500,000 in a main center seems cheap these days, but it really does not get you much. What irks, is when you think in terms of 400,000 mortgage if you had saved up 100,000 deposit. At long term rates you would be looking at 400,000 * .08 in interest (32,000), 1500 rates, 1000 insurance, 5000-8000 per year maintenance (every now and then a big job will come along eg roof, wiring, plumbing, paint job, kitchen UNLESS you want to live in a tired/broken down house - not to mention basic wear and tear), transactional costs for buy /sell (on average every 8 years in NZ). So for the enormous pleasure of owning an average house in a dreary suburb you get to pay premiums of > 40,000 per year (EXCLUDING PRINCIPAL). You could rent out the same place for around 450 per week AND still earn interest on your 100,000 which at long term rates would be about 5000 after tax per year.

There is absolutely no rationality to this equation.

Shorty - I am not remotely jealous. I pay 450 per week to live in a 1,000,000 home in Melbourne. I easily save 20% of my income and have a great life (oh and my savings are accruing nicely as well). I could afford a crap house in a dreary suburb, but dont really see the point. I coud also afford a reasonable house in a nice suburb but the wife would have to go back to work or we'd be stretched a bit beyond comfort. I would however like to see houses return to sensible ratios so housing becomes a rational choice again (just as it was for our parents). This is something quite achievable with the requiste govt will.

Jimmy - on the money.

Jimmy - on the money. I was looking at a 500K property recently, I have a 100K (20%) deposit. Was looking at outgoings over $700 pw, this is for a pretty average place in an average - good suburb
I'm currently paying $530 pw in rent for a lovely 3 bed villa in a top suburb, handy, great schools. The house would be worth over 700K

Les, Agree re the raining


Agree re the raining porridge scenario. You may not agree with something, but if its on offer you are not going to turn it down (eg K Rudds handouts, i took one of those - but it was still a dumb idea).

The problem we face now though is that even with govt taxation assistance and preferential treatment, property is still a bad investment. Insane laws helped the bubble to grow to obscene levels, but that does not justify it, merely helps to explain how. An investor buying now will (and especially once long term rates return) lose money on most property and it is unlikely this will be offset by big enough cap gains even with the tax offset. Given the likelihood is that prices will be lower in 5 years than now (nominally) it is fair to say most will lose money. As outlined above, what is most irksome is that govt/rba policy is not allowing ppty to return to sane levels so it can again be viewed as a rational financial investment. meanwhile we all pay via reduced tax take, lower affordability and a higher current account deficit. Tragic really.

Shorty : you have done

Shorty : you have done well for yourself, with some smart thinking and some hard work. There is a touch of the "green eyed monster" in several responses to your blogs. Nevertheless, I appreciate your candour, and the good ideas you have thrown into the discussion. Go you good thing !!!

Matt, exactly right. So you


exactly right. So you are saving 170 per week, plus earning money on your 100,000, AND living in a far better neighbourhood. Are you like me and have parents and friends telling you MUST get in the market or miss out forever?? I ask them exactly what I am missing out on.

Jimmy - in fact the

Jimmy - in fact the theoretical $700 pw was only interest and some principal payment. Rates / maintenance over that would probably push that to $800 pw, so a saving of $270 pw
Hah, people seem to have given up on telling me to buy, mainly (I suspect) because they were saying from 2 -3 years ago that property never goes down ( I said it would), since the slump began they have been awfully quiet

rates / maintenance would add

rates / maintenance would add at least $100, but maybe even $200 depending on the house and sheer luck. Then insurance, and lets not forget transaction costs. Av NZer buys/sells a home every 8 years. At 3% REA commission AND 1% for solicitor costs and report etc you are looking at about 28,000 or $65 per week spread over 8 years.

Greg Ninness in the Sunday

Greg Ninness in the Sunday Star Times looked at housing as an investment.
Conclusion. It would be hard to make any money in the foreseeable future.
It is even worse for a FTB even if you have that bigger deposit because you forego any opportunity to get interest income on the deposit. That is not often considered by most buyers.

logical Dave, agree - the

logical Dave,

agree - the best case scenario of muted capital gains would result in coming out with no gain after additional ownership v rent costs are taken into account. This is why I think ppty must drop - the best case scenario is a no win result, so why would you invest????? Once people cotton on to that fact (maybe after a few years of small drops) then I think the possibility of a wholesale collapse becomes more likely.

Jimmy - interested in your

Jimmy - interested in your earlier comment about rent in Melbourne. $450 pw seems a good deal for a $1 million property. How many beds, detached, semi detached apartment? I might be headed your way :)

The funny thing is for

The funny thing is for all the cracks about BNZ's Tony Alexanders forecasts, so far this year I think he's actually been about right.
I even thought he was too optimistic.

2 beds and a small

2 beds and a small study - on 600square site in leafy blue chip suburb (Hawthorn). We probably have a good deal, but my impression when I arrived a few years back was that you got a lot more for your money. Its not uncommon for people about 15ks out to be paying round 350 per week for a 3 bed property eg Boxhill,Blacburn, Coburg. I think that is a lot better than Akld. I was paying 400 a week 4 years ago in Akld to live in a small 3 bedroom proeprty in Hillcrest, and I though that was good.

here is an example of

here is an example of what 350 per week would get you - try getting somethng similar in Albany (a similar distance from the city) - Boxhiill has excellent public transport (train) into the CBD, prob about 25 mins

jimmy (July 6th, 2009 at

jimmy (July 6th, 2009 at 5:10 pm) - good example with accurate figures. However, if you can rent a 500k house for 15k per year cheaper than owning it, I would still choose to own it. Capital gain of 3%+ per year might seem unlikely at the moment, but I wouldn't want to bet on it staying that way for 10 years - houses won't get any cheaper to build, and they won't get built unless they can be sold for above cost, and when they don't get built at some point demand exceeds supply - I don't know about Oz but in NZ there are already signs of this happening.

Personally, I don't call the house I live in an investment, it doesn't generate income and is therefore a liability. The house I live in, I buy for it's location and features, not for it's price and what I could rent it for. My investments, on the other hand, I buy mainly on price & rent returns (though location obviously still has some bearing). This is why people will always pay a premium for their own house over an investment property.
I wouldn't buy your above example as an investment, but if I did you also need to take in to account things like depreciation & tax refunds. Interest rates also make a huge difference, try doing the maths at 5.5% which is currently available. Yes, I realise they might go up in the future, but the cash rate (OCR) and floating rates generally only rise if property prices have also been rising. This is yet another reason I prefer property over shares - if my property prices fall, the government (oops, make that the "independent" RBNZ!) slashes my borrowing costs for me. I've bought shares with borrowed money before, and when the price dropped 50% there was no such bail-out ;)

Murray - you need to

Murray - you need to think like someone who doesn't have a house. The question isn't "will this house go up in value in 10 years". It's "will this house go up in value in 6 months".

If the answer is no, you keep renting. You can stop renting at any time, and may as well add to the deposit in the mean time.

Its very different if you already have a house - you are just trading up/down/sideways in a market and expectations on future returns have a different impact on your decisions.

IanC - fair comments. At

IanC - fair comments. At the moment the odds for the next 6 months look like sideways or slight increases more than slight decreases. It will depend on how much cheaper it is to rent and how much you can save as to whether you'd be better off owning or renting in the next 12 months, and also what interest rates will be available in 6 or 12 months. I still maintain the biggest price discounts and best interest rates were around Jan/Feb this year.

As Steve Keen notes :

As Steve Keen notes :
"It's common practice for both sides of the property market to quote data that supports one side and ignores the other.
Whilst debt levels still have to fall, the process will necessarily cause a dramatic blowout in unemployment. An increase in unemployment will become a recurrent phenomenon this year, as the change in debt starts to reduce aggregate demand rather than increase it. There are no groups who can be encouraged to take on yet more debt and thus pull us out of this crisis.
Fisher's Paradox"“that the attempt to reduce debt levels, can actually cause debt levels to rise"“is now with us once more."

Just in case there are

Just in case there are any new readers wanting to explore the rent vs buy consideration - Consumer have this handy on-line calculator:

You of course have to decide on your own predictions regarding interest earnings on savings, inflation rate and potential house value growth in %age terms.

Bernard - How did last

Bernard - How did last nights "Humble Pie" party at the Gables go last night? Did you get a good turnout and what was the general consensus re the future of house prices?

I suspect you had a few people telling you that you were right after all and 30% will still eventuate.

The Bank Manager No one

The Bank Manager
No one turned up!
I sat there in the Gables on my lonesome with a big apple pie.
I waited for the gloating but it never came

LOL! You can't be serious!

LOL! You can't be serious! Nobody at all? Or had you shaved the goatie and nobody recognised you?

Nobody. It was an awful

Nobody. It was an awful night weather wise. I'll blame the weather.
Still have the goatie...

Gee Bernard, at least you

Gee Bernard, at least you got to eat all the pie. Half glass full and all that.

How much do people consider

How much do people consider fundamental things that happen in all share market bubbles with the housing market?

The price of an investment goes up drastically when it is expected that 10% plus p.a gains are almost guaranteed (as NZ housing market has been last decade). The future capital gain gets 'priced in'. I.e part of the value of the property is the fact that the property will be worth a lot more in the near future.

Once the trend gets broken and 10% gains are unlikely (and most importantly people begin to accept this as fact, the hard part for most N.Z's), and any gains what-so-ever are not guaranteed, then the 'priced in' value gets lost. Around the world and over history 30% value for this 'added price due to expected capital gains' is very fair and in this particular case conservative.

It may take a while for the property bulls to realise the days of 10% gains are gone (as a country we simply can't afford to borrow to spend on housing with very large foreign debt already, not to mention the income to house price ratios...), and so it will take a while for this 'priced in' value to be lost. Housing markets react slowly and time will tell. I agree with your first prediction.

Bernard, get some hands on

Bernard, get some hands on some property before you torture yourself anymore. Like you exporters have been saying our dollar should be low since it was floated in 1985. If economics made sence it would be. How about looking at every other down turn - back to where it was at the peak in three years. It will happen like clockwork. Watch and weap all you Bernard supporters that have no property now and because you listern to an economist, will have no assetts any time soon. Most of New Zealands wealthy people have substantial property. It show long term commitment and does not require reading markets. Thank you property to all my properties for looking after me. mmmmm.

I myself am a Walmart

I myself am a Walmart shopper (regularly!) and I just tried an offer that I found online to get a giftcard. There were a few hoops to jump through but in the end I got a $500 gift card (took me about 1.5 hours). I'm a regular reader and saw you wrote about Walmart so I thought I'd share with you and you're readers. Hopfully everyone else can have the same experience I did this holiday season!

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