If we accept the housing upturn, then what, in this environment, is driving it?

Rodney,

Aren't percentages fun? But let's deal with some absolutes. In April 2009, REINZ total dwelling sales were 6,210, which was indeed a 39% increase on April 2008's 4,450.

However, in April 2007 the number of sales was 8,194 and in April 2006 there were 7,576 sales.

You see, what happens when a market turns, is all the people left holding the parcel, don't want to sell for "less than it's worth" (read: less than I paid for it), so they hang on in the hope of getting a higher price. Would-be buyers sensing a turn in the market, wait for lower prices and you get a stand-off, and volumes fall off a cliff. Then gradually, the market clearing begins as people are forced to sell, not necessarily mortgagee sales, but personal reasons, going overseas etc. We are in the early stages of the market clearing process, which in a real estate market can take years (just ask the Americans, or the Japanese).

When one house in a neighbourhood sells for, say $100k below the last sale price, that effectively knocks that much value of everyone else's house in the neighbourhood and these people feel a bit less well off, because in effect they are less well off and consequently they will spend less.

Could it be, that the Treasury and RBNZ forecasts are actually grounded in reason and logic and a realisation that things that can't on forever actually don't?

I have real confusion over this topic.

I think Rodney's figures do bear out something substantive happening in the property market, and it's a new phenomenon, plus seems to be consistent with my experience. I live in Diamond Harbour, Banks Peninsula, and have a holiday home in the Marlborough Sounds. In the Sound where we are in, and on the 7 kilometre road we are on there is not one house property for sale, and there are two larg(er) houses being built: there are three sections cleared in the bush on the market, all for way higher than GV, and the seller (one) is under no pressure and won't sell for under that price. Thus, there doesn't appear to be 'any' pressured sellers in that property market, so nothing to say price will come down. In Diamond Harbour, which while close to Chch, is not really Chch (much nicer place to live, over the sea, though), there had been probably nine to ten properties around us on the market for many months (perhaps four and over months), yet, when we came back from a three week holiday last week, I think up to eight of these properties are sold. [I guess this could be the operation of what Del talks of above, but my understanding of one of those properties that I know of, is the seller's price was attained.]

Unlike Rodney, I would not be prepared to then make an assumption this will flow through to new house consents, as I suspect past patterns are particularly not a good indicator of future trends in this exaggerated environment, when many eggs in the Statist monetarist system are coming home to roost, and in Canterbury the lower than expected Fonterra payout will/must have a downward effect now, but, I am confused at what cannot be dismissed as a turnaround in the domestic property market (for now). It is real, yet given all the economic factors would be against this, what is driving it?

The equivalent of a dead cat bounce in the property market, thus, just a sociopathic psychology involved?

No, I think they're razor wiring them for the State Gulags they're going to put the productive in who refuse to pay the new CGT that every damned economist in here wants. I understand Dave Henderson has a buy back option to purchase them all at half what the CCC paid for them, plus he has the management contract to feed these 'enemies of the State'.

Now we're onto councils, my rates are getting close to $100 per week: obscene. Local councils have become a bigger bunch of thieves than the mafia in Wellington, so I guess I'll be one of the inmates.

Oh, now look, you've got me started ...

Oh yeah right. If Parker is given the power to do that then he'll be looking to buy New York with my money. No, that's thinking small for such an empire builder - perhaps Dubai. He's already in the paper today worried that if they don't spend my money at a breath taking rate, Chch might turn into a big retirement home. I could be glib and say, yay, no boy racers, but the real issue is, I just want him out of my wallet and my life, like central politicians. And if I want a flower show, I'll organise one. And there's an easy fix for boy racers: shoot them: as you say, a win win.

I'll take a state of freedom in an old peoples home, rather than living the life of a slave in one of those Matrix pods, any day.

Hey Mark, yeah, we were paying that amount, on a postage stamp section, coutesy of our view (beachfront). Decided enough was enough and sold up prior to the crash, thank goodness. And guess what, we still love life!

My suggestion, buy into a normal neighbourhood - you'll feel great about all the others subsidising your lifestyle.

Shuttle (sorry Rodney, we're way off topic now), the worst thing that happened to BP and Chch was that they, somewhere in their history, got councils. But yes about Parker. And my holiday house has roughly the same market value in the Sounds and here in BP, yet my Chch rates are more than twice up there, so you can see where I'm retiring to.

(Note that Mr Parker, Chch will never be a retirement destination: most Kiwis can't afford to, you've priced them out of the city, and others will be philosophically opposed to living there. The only people in inner city Chch will be boy racers, and that is a direct result of the Council's amoral largess).

As for Pegasus, that was a dog. I couldn't see why anybody bought there: it must be the coldest place in Chch, and that commute would kill you.

Rodney,
You may be right you may be wrong - but one thing for sure "Roddy's Law" is
"You are more liklely to be wrong than right" when you try and forecast the future!
Just as one swallow doesnt make a summer nor the first snow fall ushers in winter - a flock of swallow does and three weeks of wind, rain & snow sure tells us winter is here!
So just keep your hat on Rodney don't throw it in the air and then stamp on it!.
Wait a while and see what May & June real estae sales brings. I'd opt for winter rather than unseasonal summer.
But of course I have to wrong wouldn't I ??

Q: What have Bob Robertson, Dave Henderson and Nigel McKenna got in common?
A: They all own ( or did!) a chilly hole in the ground that they want to sell 'you'.
Ahhh... property investment....

quote DelBoy "all the people left holding the parcel, don't want to sell for "less than it's worth" (read: less than I paid for it)"

Read won't supply at lower prices. Read don't need to make a loss. Read interest rates have fallen making the house and the beach house more affordable than anytime since the purchase.

Meanwhile there are some buyers who waited and waited many years for the market to turn and now that it has will find it won't descend to the level at which they started their waiting.

And the real estate agents that still have jobs find they have to talk up property to get listings and then have to achieve those prices to make sales and maintain credibility in their neighbourhood.

Good time to build before the hyperinflation kicks in and forces materials and labour up

Mmm, there is a lot I disagree with in this analysis.
I agree with Treasury's forecasts of continued drops in consumer spending. With even the more optimistic economists saying unemployment will get to 7%, why would we expect consumer spending to trend upward?
And it is highly Likely that the recent gains in housing activity will not be sustained. I strongly suspect the recent activity was prompted by a reaction to the big drops in interest rates, it was a bit of a gold rush that will subside
And with all due respect to the author the Treasury have got a lot of economic expertise and resources at hand to formulate their predictions, and they are as close to an independant commentator as you will get

he says extra work and income for lawyers, real estate agents and valuers will drive up consumer spending, but ignores the signficant loss of jobs and incomes in other areas where people will spend less

There is no paucity of cheap credit because overseas lenders are still lending us. Unless the unemployment increases drastically, houses prices will sustain without much further fall. I am being forced to invest in a rental property given that the Public Trust cash deposit interest return after tax is below 2% for me.

If the author is reading this blog, I'd really like him to explain how small increases in business for a small sector of the workforce is going to drive up consumer spending when so many sectors of the economy are struggling?

Sam. P - no one forces you to invest in anything. There are other alternatives to investing in property, or bonds or shares etc. How about investing in our own ideas and talents?

Thats what I'm doing, and I'm starting to reap the benefits.

Oh dear oh dear Bank Manager
Its an increase off a very low base, and a likely temporary bounce
I'm telling you, I work in the development industry, I meet developers on a regular basis, confidence is still low and funding scarce, THERE WILL NOT BE A SIGNIFICANT INCREASE IN HOUSING CONSENTS THIS YEAR
If there is I'll be very very suprised and will eat humble pie

@The Bank Manager

Really, do you actually think the worst of recession has been? A recession that started before the credit crunch meltdown and is yet to bring the full force of the problem to NZ's shores. We have only just started.

The collapse in dairy prices, increase in long term interest rates, increase in unemployment, stagnant wages, fall in retail spending are all still feeding slowly through the real economy, and yet to have their final impact.

Just like a snowball it takes a while to build up speed coming down the mountain, but it will arrive like an avalanche when it gets here.

Its a bit like being made redundant. The worst day isn't losing your job, its when the money runs out....and that is quite often a few weeks, months later after the event.

Be afraid.

Bank Manager - the RBNZ stats at
http://www.rbnz.govt.nz/statistics/monfin/c6/data.html are interesting

NZ$1,897 Billion increase in lending in the last 4 months. Gee, Much more impressive than March 2006 when lending grew $1.859 Billion in 1 Month. Or April 2007 when lending grew 1.733 Billion in 1 month.

But not quite as impressive as March 2007 when lending grew $2.198 Billion in 1 month.

During the boom the amount that housing lending was growing at was averaging well over $1 Billion NZD per month.

If you download the excel spreadsheet and look at the tab "% change and net monthly change" from the above link and look at the stats for April 2009. Looking at column C - 2.9% increase in Housing debt in April 2009. Compared to average around 13 to 14% increase during the boom.

Column E Consumer Y/Y% increase in Consumer Credit Negative 0.5 %.

Overall increase in housing and consumer credit in column G 2.6% Y/Y%

Net Monthly Change in outstanding debt in Columns H & I are very interesting.

April 2008 Housing debt net increase was 656 Million (the month housing lending fell off a cliff and the boom looked like it had come to an end. )
April 2009 Housing debt net increase was 488 Million

Jan to March 2008 were all over 1.1 Billion
Jan to March 2009 max was 581 Million, Minimum 297 Million. April was lower than March by 100 Million.

Deat Cat Bounce or Boom Baby Boom?

Bank Manager you're talking up a storm in a tea cup. The over riding influence is the American $$$ and while they're busy their printing it. Other countries actually have to earn it. By printing money the US saved NZ from the worst of the current international collapse how-ever it wont last long before a second crisis arises through the need to pay interest on debt.

I guess that's why the bank managers always get their bonus.

The Bank Manager,
Much Higher Rate than Last Year. But Much Lower Rate than the Rest of the Decade.

Here is an example - Dominion Post reports "House building surges" yet the headline on interest.co.nz reads "Building consents fall in april to second lowest level in 26 years"

Tens of thousands of people will have read that in the newspaper but how many will see the true story posted here?

Yet Texas is going well

OK hard to know who to beleive unless you read the stats yourself
Having gone to the Stats NZ website these latest building figures have been hyped up beyond all proportion by the media

Anyone know what portion of residential consents that get issued get finished? Is it 100% or 90% or what. I know from experience that in the commercial world having a consent granted and using it are two different things.

And what's the background behind the apartment consents. More empty commerical buildings with no tenants getting converted, or just temporary accomodation coming into play that won't get sold...

I would assume all those projects in Queenstown when they got consented told a different story to now.

Realist - very good points. You are quite right, a building consent doesn't necessarily mean a finished building, as you say there are tonnes of spec projects which get consents but never get built
For example I have two or three apartment projects from 4 or 5 years ago that got consent all that time ago, developer has just sat on them, now wants to extend the lapsing period of the consents so he doesn't lose his rights

Matt in Auck makes a good point. Even if there were an upswing in private individuals beginning building projects (though I have difficulty seeing where the confidence to do so en masse is coming from), the bigger property developer market is mortally wounded, or at least for, I would have thought, five to ten years, as, even before the credit crunch, their NZ based funding model (Hanover, et al) had already self-destructed. I can't see banks touching new developments in this environment, so there is no funding for them, and that is a structural problem that won't be miraculously fixed (by the end of this year anyway, or next ...)

Though, for Matt's sake, given your job, I hope this is wrong.

@ Matt in Auck! Re the Nautilus in Orewa. The "Don't touch that one!" rumours were out on that block well back into last year.

@ Aarron Brunner - residential housing will never ever ever be a "worthless commodity"!
though like all markets it does go through cycles. Buy the wrong shares however, and they can become completely worthless ;)

I reckon Councils need to look at allowing more rural residential village / hamlet type developments. Any concerns that such developments may lead to increased carbon emissions from greater car use could be countered by a requirement to plant trees in the development and for houses to meet a certain "green" requirement.
Not that I am convinced that per capita carbon emissions from car use in such settings would be higher than urban settings anyway, because trips might be longer but there will be fewer trips made.

An uptick in housing now is like a drunk hicupping between retches. Gotta dump that stock eventually.

Those vested in the industry want to believe in a 'permabubble' (permanent bubble) like in the Art world where items of no intrinsic value are valued to ridiculous extremes all the while an entire industry exists to support it and foster that culture. Gold too, to some extent - it's intrinsic worth as a consumable much less than its price.

Hi Aarron, yes I agree the leaky homes situation is a very sad situation that should never have been allowed to happen. I was involved in the construction industry from 1989 and by '95 I was predicting a looming problem, which was made worse once untreated timber began to be used in '99.
Even these houses however still have at least a land value, which is why I will always hold my equity in property over any other asset class. I've owned shares in the past that became worth less than the paper they were written on!

MatH - property will always have intrinsic value because unlike art or gold it actually has a use - a house provides somewhere to live and a building provides somewhere to work. It's not people in the industry talking up the market that sets pricing, it's the replacement cost (people will build if it's cheaper than buying existing, and buy existing if it's cheaper than building) and also supply/demand (too much building/supply and/or too little people/demand - prices fall - too little building/supply and/or too many people/demand - prices rise).

That's well and good Murray, ref. MatH comments until you read:- http://www.performanceurbanplanning.org/ and the Demographica reports that point out point blank the the cost of housing should be no more than 3* household income.

And that's why I wouldn't be looking at jumping into property today. Because it increased in value relative to peoples ability to afford it / there fore / it is quite likely it will return to the historic norm.

3 x income for the NZ average house price

It's the media household income, and it's a good measure of affordability because there are so many other expenses involved in raising children and living in a sustainable measure.

Remember there are really only two factors for increased prices which are migration and interest rates.

People often quote location, increased building costs ext... for justifying increased prices, infact the real-estate agents have a whole book of such story's to help you part with more money. Like "oh. the seller wont sell for that offer, not in this market".

The agents get together at the end of the week and have a good laugh at their one liner success stories.

Murray, the natural increase in population doesn't increase property value because for atleast 25 years children wont be able to afford property, and even then they don't bring new income into the market just a redistribution of existing resources.

Housing supply doesn't really increase property value either for the same 25 year reason unless you take immigration into effect. It's these "rich" people coming into the market driving the prices upwards.

Interest rates are important, as per the current market, because people can borrow more. It's a bit like in Aus they introduce a first home buyers grant and surprise surprise entry level homes and apartments went up in value to the same tune as the subsidy.

Aarron - yes there is a big lag between natural population increase and the year they start buying property, but the point is there is x number of kids turning 18 every year and becoming potential home buyers, it's kind of like a ripple effect.
"and even then they don't bring new income into the market just a redistribution of existing resources" ?? Any population growth adds to demand on resources, and creates new jobs, new income etc. If an island of 100 people doubled in size to 200 people, do you think they would all share houses and jobs? No, new houses and new jobs would be created.
I agree with you about the importance of interest rates and the effects of first home buyers grants.

Janet - I agree with you a little also, as I said there are a myriad of other influences. Personally, though, I don't know too many people that need to or would even want to sell their houses to live off the proceeds.

Aarron - "If transport in the same market can do it why carn't housing?"

It gets back to the supply issue. With vehicles and Japanese imports etc there is never really any supply shortage. Also if the demand picks up, more stock can be brought in quite quickly. What happens in property is that when demand picks up, there is quite a big lag (often 1 to 3 years) before new supply comes on board. This creates a head of steam that puts upward pressure on prices. Eventually supply catches up, usually just as demand is dying off, and this creates a steam vent that puts downwards pressure on prices.

Back on the island of 100 then 200 people, yes I agree the cost of building the new houses should be the same - except that again there would be a lag between people wanting them and the houses being built. Again, a head of steam, the few tradespeople that were on the island are suddenly flat out and increase their prices etc, and on and on it goes!

Some people have posted that during the boom of 2002-07 there was an abundance of properties and declining population growth, but they are forgetting to take in to account the time lag. There was a lack of construction early 2000, followed by a large increase in immigration which set the ball rolling. By about 2005 demand & supply had reached equilibrium again and as usual the last few years were purely speculative, as people jumped on the bandwagon and tried to make a quick profit. By the end of 2007 immigration had died off yet construction had kept on soaring, so it was fairly obvious what was coming next. These indicators are currently swinging the other way, but again there will be a time lag.

Murray the natural population growth is predictable as you mentioned each year x amount of people turn 18, so their is no need for builders to be suddenly busy or put up prices - they just train another builder and the process is continued.

I don't agree with your supply and demand theory on the island. The old people will charge what they deem the youngsters can afford through bank mortgages and bank interest rates which are the driving force for inflation here.

So it's still new immigration and interest rates driving prices higher. In my opinion.

Look at America and England there populations are the same as two years ago yet there home values have lost between 30 - 20% respectively, that's not a vent on supply and demand, that's young generations realizing that they shouldn't spend all of there income on accommodation. (and ofcourse the markets breakdown due to easy plan mortgages).

For those who claim that the property market is gonna go up, perhaps they should take a look across the "The Great Ditch"

http://business.smh.com.au/business/king-tide-hits-gold-coast-20090529-b...
"King tide hits Gold Coast"

Care to explain how the Australian fundamentals are different than the NZ?

Actually Murray, while the US population does increase at less than; 1% per annum their overall birth rates have slowed dramatically.

They used to double in population over 20 years, now they double in around 55 years and growing. This trend is likely to continue.

So where 33 million people were born between 1990 - 2000. By 2010 the expected growth is only 27 million.

Some people point to contraception, others homosexuality. Personally haven't thought as to what is causing their island population to shrink - they are not big overseas travelers like us.

Also speculative housing was outstripping population growth. Similar to the Gold Coast or Auckland appartments

Interesting link, Robert, given the headlines in our paper today. I especially note:

"...we are in the eye of the hurricane and markets abhor a vacuum, many people have a necessity to rush out and buy something...large portion of these buyers are from the prudent class that are simply throwing up their arms in the air and saying, "up, down, up, screw it! I want to own a place for my family so I'm diving in."..... (They) are simply buying because prices have dropped at an astonishing rate. Yet we need to remember that prices shot up for 10 stinking years! We are in year 2 of prices falling. Do you really think this is the bottom?"

@Aarron

Remember there are really only two factors for increased prices which are migration and interest rates.

You are missing the single biggest reason - inflation. Put a graph of the house price growth rate from 2000 onwards alongside the NZ M3 growth rate. They match almost exactly. What we have been tricked into beleaving is a factor of demand growth is really a factor of inflation.

We are also about to see the baby boom downsizing as people look for smaller houses. Remember also that housing is it for 90% of NZ people. Its the only savings they have.

So you don't want me to lob an Austrian in to spice it up a bit Bernard? ;)

I like one thing about the USA, they are way more sophisticated in their economic debates, property not being an exception...

add in shadow inventory for properties and the indicators for move up buyers and it would be interesting to see what is expected in the New Zealand scenario, unfortunately we don't have the data to compile a complete picture here.

Joeinwellington, it's all good news. house prices are coming down and hopefully to a level where young couples can afford to own a house to raise their family.

Rodney. is the main optimist that thinks the year is off to a flyer and he's right the statistics he has showed comparing 2008 / 09 clearly show that.

That is until you look at the real world where unemployment and interest rates are rising slowly but steadily.

The current unemployment figure is 115,000 people and that to me is a far more worrying figure than house prices dropping 9%
ref. http://union.org.nz/news/2009/worrying-trends-in-unemployment-figures

Aaron.

Its only good news if you did not buy a house at prices 9% higher than they are at... Nothing worse than being upside down in a death bond. (mortgage: mort = death, gage = bond (or so i read somewhere)).

Remember - when house prices decline, the "owner" loses his equity first, then the bank.

I take it that you are not one of those who bought a property in 2006 then.

Billions of dollars worth of mortgages were re-fixed at the last low in Feb/Mar proving that the average home owner is very astute.

If you have just fixed at the last 3 and 5 year lows which were below 6% then you will not be planning to sell during the next 3 to 5 years and will instead enjoy living with far cheaper mortgage payments and owning rentals with breakeven scenarios that previously required a top up.

This is one major factor as to why stock levels have reduced and will stay down and with virtually no new housing being built to satisfy natural populatioin growth let alone a future migration surge, those who have locked in and are going to sit tight will be laughing in 5 years time!

The 30% house price reduction predicted by later this year is simply not going to happen. It is more likely that the period between November 2009 and March 2010 will see the median house price exceed the prior peak of November 2007 by as much as 10%.

Following that we will have the build up to the rugby world cup, a surge of migrants and a house building recovery.

For housing the future looks good!

The Bank Manager,

If housedebtors take your advice, with interest rates trending up along with unemployment, they may regret it. Especially if they lose their jobs. My gut feel is that people will be optimistic and think unemployment won't happen to them. Especially as a lot of younger people's work experience won't have any experience with a downturn. So I'm picking a lot of people will hold off selling at this time.

Bollard has exercised his put and placed a couple struts in place to prop up the housing market and provide some relief to housedebtors.

Your advice is designed to restrict supply and, if all plays out according to your script, prop prices up, or restrict their fall.

However, if house prices are resting on a ledge before another downward drop then those housedebtors who could sell now at a profit, but are holding on by the skin of their teeth, may regret listening to your advice.

I believe we are in the eye of the storm.

I believe the US is going to get punished for its excesses. And that there are going to be wild swings in currencies and, despite the Bollard Put, I believe interest rates are most likely going to go up from here.

When the bear market rally fizzles out expect:
NZD to go down against USD
Interest rates may ease for a while, or stop their upward trend.

Followed by:
NZD to swing back up against USD
Interest rates to spike higher as USD looks more like the winner in the race out of the Currency Toilet Bowl and Down the S Bend. (CTBDSB winner).

The OCR may come down in response. (I'm picking 1% or less by March 2010 if the rally is a Bear Market rally and it dies badly). But so much of NZ's borrowings come from off shore, events offshore are going to have an overriding impact. Especially as the NZ Government is going to start competing in earnest for investors money with the NZ banks.

Bollard has been quite creative and he may come up with some more tricks to keep the housedebtor and credit card debtors afloat. So its nothing like a sure bet the above will pan out.

In NZ we appear to continue to think holding hands and singing "Kum By Ah" will mean a smooth path through this global event.

@JoeInWellington; They might come here because it's the furthest place away from anywhere else, replacing Melbourne in Nevil Shute's "On the Beach"

and no way will the rugby world cup make any difference to NZ. (I refuse to call it the world cup as it isn't and please no more 'its the third biggest sporting event in the world rubbish'.

It will have half empty stadia, little coverage outside the big rugby nations and tie up a huge amount of money that was better spent elsewhere. What benefit does Eden Park/Dunedin stadium really provide. If they were such good ideas they would stand or fall on their own commercial merit.

Just watch the next year or so as we see how many tourists etc are coming and how the 'huge' number of sponsers that were supposedly lining up haven't actually opened their cheque book. All that will happen is tourism/visitors will shift their holidays period with nil or even negative impact. Just ask Sydney how it went.

Tina
I disagree, this sounds like a 2kph breeze to me:
1. Unemployment rapidly rising, job security poor
2. interest rates starting to climb up
3. poor economy for the next two years, even worse with our exchange rate shooting up impacting on any thoughts of an export led recovery
4. Home buyers commonly needing 15-20% deposit

Net "immigration" is not surging. Net migration is up a bit from very low levels.
One of the reasons numbers of new houses being built is low is because demand is low.
Rents have hardly gone anywhere in the last two years.

We are not in the middle of another housing boom, although I think towards the end of 2010 we might see things pick up.

the Rugby 10 competition (my name for the "world Cup" - basically the European 7, minus Italy, plus The SANZA teams and Argentina) will make squat all difference to the housing market

Hmmm.

1. Net immigration on 5 years high and surging

http://www.stuff.co.nz/national/politics/2458645/Kiwis-face-job-queue-or...

Karla Gunby knows about hiring and firing - she was in charge of 17 staff and 10 volunteers at her last job in London.

But since returning to New Zealand in December, the best job the 36-year-old's been able to get is temporary data-entry work.

That ends in a few weeks and with the Government expecting tens of thousands of people to join the dole queue she is bracing herself for stiff competition to find more work.

Ms Gunby who has eight years' managerial experience and ran a community centre in London has applied for more than 30 jobs since January, and has had unsuccessful interviews for about eight.

Many were for government positions, and she is worried things will get even tougher as departments cut services and former public servants join the jobless ranks.

She came home because she wanted to. Her English partner was also recruited to the New Zealand police force. "There's a lot of people coming back from the UK and they are very worried by the situation."

Green Shoots anyone?

Two further points. When ever did Treasury ever get any budget or any other predicition right.? Its is unheard of.
Rogers reports if you went and read them at his website are extremely accurate.
And that's without using the pay ones.
Fortunately some of us never take too much notice of broke people so while we read all the negative and justifications by those same broke types we just get on and do sensible stuff. Unlike those that are broke.