No thanks, Barfoot and Thompson and all the other people guilty of creating a housing market that is one of the world's most unaffordable. Do you people never learn? We happen to be in the middle of a global recession largely caused by unsustainable housing bubbles. And on simple mathematical comparisons of income and house prices, NZ's one is still one of the world's most over-inflated. We are kidding ourselves if we think that somehow we are exempt from tha laws of economics that apply to the rest of the world, and that we are not going to get our crash or our "lost decade" or whatever, depending on our policy decisions and our collective wisdom and prudence, or lack of them.

Phil, is your posting here part of "First home buyers association" strategy, trying to talk market down?
You are working very hard, must admit. BTW, who else is member, apart from you and Matt?

When volume was down, prices were "holding firm" which was good news. When prices are down, volumes "jumped" which is good news. You only get good news from B&T, which can hardly come as any surprise.

Still, can't help but laugh at comments like "edging back to normality". Of course that's true, but not in the way he thinks it is.

Putting this info into context:

1) Many buyers believe this is a good time to buy. So they have taken the plunge (boost in sales, relative to the desperate January figures etc)

2) Many sellers realise that its going to be doom & despair come the gloom of winter. So they have taken the plunge to sell at reduced prices (hefty reduction in prices)

I think the idea that there are a bunch of people with preapprovals about to expire who will not be able to get them renewed would be a good explanation of any small increase in sales. Buy now or be unable to buy next month.
Since any tax cuts are pretty much being eaten up by the increase in ACC that statement is completely irrelevant.

Typical sales pitches for the gullible "20 month highs" and "market prices close to the bottom of the cycle" and "housing market is edging further back to normality"

I beleive there are a number of potential buyers waiting for interest rates to hit bottom and have gotten spooked by rising long term rates and mistakingly beleive the real estate hype. Just like buyers in 2007 They will end up losing their equity in a few years when they discover the real value of their house has gone down a further 20% I feel sorry for them

Do I think NZ's grossly overpriced property market is going to sidestep the depression when I see a swag of Marlborough stuff still unsold after over two years, NO WAY.
Best to ignore B&T. Let them have their fun. Winter approaches.

Thanks, everyone.....except Jerry. How ya feel, Jerry? At least on Interest .Co.Nz the most people are not that stupid.

still waiting for a sensible and rational comment from Jerry - I sense it is beyond his IQ

And spoil our fun Alex ?

Deep apologies Alex
Kieran - you are right, its a big part of the entertainment of this webiste hearing from the believers of the property religion

Ray and Jerry - bring it on!!!!
I'm not that stupid to fall for the hype!!!
Give me another year, prices will be down another 10% and I'll have another 20K for my deposit
then I'll be in with a grin

Ray - where do you think prices will be at year's end?

Another 5% lower like most of the bank economists (including the pro-real estate Tony Alexander) predict?

Or another 10% lower like the independant and usually conservative Reserve Bank are predicting?

Or another 20% like Bernard is predicting?

Or are you going against all of the above and think we'll be 5-10% higher by the end of the year?

I'd be interested in your views

I think the biggest problem is that the most of housewives don't understand what is happening on the housing market. When they see interest rates droping and other people buying, they will kick their husband's butt to look for a new home(house).

What is the best way to teach housewives to know the economics, recession and housing market?

mattinauck, none of the above, why do I have to go with an increase in prices, for what its worth my opinion is for a steady market until spring then a slowish increase, so even if I'm half right I guess that makes you and your ilk TOTALLY wrong

One thing I have learned is the trend is your friend to a degree. It is okay to say "it shouldn't be happening", "it doesn't make sense" which frankly the cost of housing in NZ doesn't. But you would have been better buying in 03 even though they were expensive then by following the trend.

Zero growth for 10 years is my pick, prices bouncing around up slightly here, down slightly there, making every body picking up or down wrong and right.

Matt,

This is my real name so thank you. Zero nominal. That is my point.

My opinion is that zero, okay i'll give you little, growth over 10 years. Inflation will erode the real value. Those that say houses never lose value will say "I told you so", those that say they are overpriced currently will say "I told you so"

My understanding is that it was similar through the 70s in NZ?

By the way the lead news item on at least one mainstream news channel is Auckland house prices sky rocket again.

Do you believe the hype Matt? As a previous poster said, there will be a few housewives giving the old man a hard time about buying a house (I dont have to look to far for that)

mattinauck, methinks you presume to much, I bought two investment properties in August 98,yes during the last property downturn,at a cost of 320k, had them revalued last week at 680k this was about 8k higher than a valuation I had done in March 2006. Marking time for the last 3 years is hardly a collapse in the property market especially when you take into account that the current valuations are to some extent affected by the bad publicity generated by youself and others like you.

So you do the percentages, 360k increase over 11years all profit, no tax payable and all expenses tax deductible.

Now you be honest, was that you I heard whisper "if only"

Jerry I think you are blowing in the wind really on this housing stuff , I work and make my income in the construction Industry as a plumber that means I have a hands on understanding of the gross pricing of houses in the past few years when I was 24 I built my first home I could aford to save a third of the total price of the land and house while an apprentice that today would be Impossible in fact to make matters worse the high level of taxes and costs of living today added to the local council charges etc etc make it just a dream for most young people today. That concerns me greatly that there are people out there still talking rubbish about some rise or lift in house prices when in fact they probably peaked in real terms in about 2004 just whatch this G20 zombie show and go along with what they say and Im sure all will be just dandie.
Baz

Prosperopink - exactly!!!! very good points
the prices here wouldn't be so bad if the houses were great
but the quality - in general - is poor.
buy anything built from about 1993 to about 2006 and there is a good chance its leaky

Thanks Ray you have made my day I needed a good laugh or are you being serious?

Prosperopink, you are 100% correct. We have been looking for around for several months now. We can afford a house around 500-550K, but the quality of the houses are putting us off. Most of them are nothing but assembled card-board boxes, held together with super-glue, with the developer making a hasty exit by dissolving the construction company to escape any liability when they start leaking and rotting away.

Most people continue to be ignorant of the real cause of the global housing bubble - availability of cheap credit. The decade long party is over and the sooner people get over the hangover, the better.

Ray - if the properties were purchased as an investment and if you are renting them out meantime - when you sell, are not the capital gains taxed?

Hopefully the high sales.. represent a normal distribution.. showing a truer median.. ie lower than recent medians

God.. I don't want my mother to be right again about buying a house in last 2 mths

Should be frantic open homes this weekend with such positive property headlines abounding everywhere and a 5 year fixed interest rate 2% lower than a year ago.

Poor real estate agents will be working all day and night with offers coming out their ears! Not enough of them left in the business to cope with the demand! Just like the banks - real busy!

Wow, there's some fairly emotional and offhanded comments on this one! I'm not sure who sounds more desperate, the property owners who want prices to stabilise or take off again - or the first time buyers who desperately want a crash! - seems like maybe the latter in this thread.

It's fairly predictable with such a dramatic drop in interest rates that the volume of sales would pick up a bit.

Kieran - "we still want to hear from property buffs I find it quite amusing reading their one eyed thoughts" - so if someone's pro-property they're one eyed and if they're anti-property they have an open, unbiased view ?!!...........

Matt - "you happened to buy just before the biggest property boom that has, or ever will, occur in history" - that's factually incorrect about the past and a very brave prediction about the future! The boom's in the mid 70s and 80s were both over 200%, with the mid 80s nearly 300%, compared to the last boom of around 100%.
You & I are likely to live for another half a century, so to say the same thing will NEVER happen again is a brave call ;)

Alex - What about some decent in depth reporting - interview Barfoots - find out how many of these sales were mortgagee auctions (Barfoots handle most of them in Auckland) and also quiz them on how many sales that were attributed to March were actually signed up in February but went unconditional in March. Interest rates were a lot lower in February and early March.

I would put money on it that in the last week of March Barfoots had a lot less activity than the first week.

Perhaps up to 150 of Barfoots increase in sales could be mortgagee sales. http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=1056...

End result of all this poorly investigated journalism http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10565167 will be owners putting prices up and buyers sitting on their hands with much higher interest rates putting them off buying.

i agree with murray

Bernard is conspicious by his absence on this thread- I would really like to know if he still stands by his prediction of a 30% drop in prices.

Neville

Help us here in regard to your last comment - what would you define as "good stats"?

Neville,

I would draw some interesting comparisons between say the UK Halifax report and the REINZ monthly report.

The REINZ report provides detail for all residential sales reported by all licensed real estate agents in NZ - it is a mandatory requirement of membership of the Institute to provide timely and accurate reporting of all sales. They are reported as Unconditional and certainly some do fall through - equally it does not record all sales as private sales are not included; however both of these factors are consistent and always have been as a standard factor. The level of private sales (analysising REINZ stats to registered sales shows private sales account for a pretty consistent 10% of all sales.

One weakness of the REINZ stats is they do not report seasonally adjusted figures preferring to just report sales numbers. Statisticians can debate the merits of Median vs. Average when it comes to price - the fact is the data supplied by REINZ can deliver both if needed.

Now the Halifax data is based on mortgage advances - sure its is seasonally adjusted and based on completed sales, but its can never truly represent the whole market as the factors of market share for the Halifax and the fact the segment and proportion of houses purchased with a mortgage will establish a degree of bias in the data - certainly a factor that has always been in the data but over time trends could develop that would or could skew the results.

Ray, I will go on record and say that as well as you have done, it will be many many years before you will end up back in as good a position as if you had sold out of your investment properties in 2006.

The supply of suckers for "the bigger sucker" gambit has to dry up somewhere.

I admire your willingness to do serious hard work including research. I could recommend a lot for you to read, but the quickest and easiest way you could get to know what I believe you need to know now, is to read as much as you can off Gary North's archives at Lew Rockwell's site.

http://www.lewrockwell.com/north/north-arch.html

And seriously, very very seriously, anyone still taking any notice of books and how-to guides like "Building Wealth Through Property Investment" needs to do a study of Gary North too (just for a start).

I'll post a few specific article pointers.

This one is absolutely PERFECT, relating to the comments earlier about wives attitudes:

http://www.lewrockwell.com/north/north368.html

Should You Sell Your Home?
by Gary North

April 30, 2005

Whenever I write a report on residential real estate, I get a bunch of e-mails. It's the same question: "Should I sell my house?"

I am always amused at these letters. First, the person writing is always a male. This means that he has no authority to sell the house. His wife does. Wives buy houses; husbands, at best, retain only the right of veto. The wife has not sent the e-mail. Thus, the poor schnook has not a snowball's chance in Death Valley of selling his house. It's not his house. He merely makes the mortgage payments.

Second, the noun is always "house." Should he sell the house? But wives do not live in houses. They live in homes. Their homes. Homes that reflect their tastes, their dreams, their sense of the social pecking order, and their ability to wheedle their husbands into signing 30-year mortgages. What I do not get is THIS letter.

"My wife and I are concerned that this may be the top of the residential real estate market in our area. We have talked this over, and we think the equity in our home may be at a peak. We are both willing to rent. In fact, we have talked about moving to a region that has a much lower cost of housing. What do you think?"

Such a letter reflects a joint decision "“ which buying and selling a house ought to be. It reflects an awareness of economic options.

If a wife sees the options as "owning my own home" vs. "renting," she will take "owning my own home." If, on the other hand, it's a question of where to own her own home, and how nice a home, that's a different matter.

A WISE DECISION

Recently, I received a note from a specialist in real estate construction financing. He lives in northern California. He and his wife recently sold their house. Their decision process is quite illuminating. It offers a case study in how to make the decision. Notice his opening words:

"I read your article with great interest. I want to share with you my experience regarding the purchase and sale of my family's home......."

He speaks of a home. He also speaks of his family. He understands the difference between his house and her home. But as soon as he gets to the economics of the matter, he reverts back to "I." This, too, is reality. He has to pay for it. She gets to live in it. The motivations are entirely different.

"......I purchased my home in California at $320,000 or $16 per square foot in March 1993......."

Either he bought a super bargain or else he made a typo. Sadly, he made a typo. He bought it for $160 per square foot, as his story later reveals. That is a lot of money in my book. I recently bought a comparably sized home "“ a little under 2,000 square feet "“ for $90,000, or $47 a square foot. It is 9 years old, clean, in a middle-class neighborhood in a boom area. But it's not in California.

".......The housing market was soft after a run-up in home prices in the late 80s peaking in 1990. The assessed value of my home was $380,000 which also indicated that the prior owner purchased the home at the top of the market in 1990......"

Housing can go soft. I remember 1990 well. It was during Bush's recession. People started leaving California. The only areas where California residential real estate was not soft were Hispanic barrios, where multiple families lived and pooled their income to pay the mortgage.

The seller had offered the home for rent after taking back the home from his sister who could no longer afford to pay on the mortgage. The market was so soft at that point that he thought he could only rent out the property. I had been a renter prior to my purchase of this home and was moving into from Lodi after taking a new position in San Francisco. If it wasn't for the seller of the house offering seller 15% carry-back financing, I would not have been able to buy this house.

The seller, as it turned out, made a huge mistake "“ probably the biggest economic mistake of his career. He had a rentable property, but he decided to sell it. He sold it to someone at 15% "“ presumably a second mortgage.

To sell under these conditions is foolish. Either the buyer is an even bigger fool "“ 15% financing is outrageous "“ and will probably default or be forced to sell, or else interest rates will fall, and he will borrow cheap money and pay off the initial loan. The seller will be holding cash. But if rates come down, housing prices will rise. Conclusion: don't sell the house. Rent it.

Up until early 1997, my home's value remained at or lower than my purchase amount. From 1987 through 1997, I was employed as an income property loan work-out professional for three different Savings and Loans. In 1997, the housing appreciation boom was fueled by rapid expansion of technology inter-dependent companies in the Bay Area. Income property loan work-out died off and I went into Bank lending to help on the real estate construction boom beginning at that time.

What goes around comes around. Soon, this man will be out of the construction loan business and back in the property work-out business. In California and Boston, that's the business of the future.

Concerned over the dot-com bust in 2000 and 2001, I began thinking about selling my home, fearing we had hit the top of the market at $565,000 or $282 per square foot for my home.

He was thinking rationally. But the housing market in California is fueled by wives' emotion and husbands' credit ratings. "Rational" doesn't apply until lenders get a dose of it.

However, with kids in elementary and high school, my wife resisted intensely any discussions about selling our home. Also, real estate developers on both residential and income properties became increasingly bearish in their outlooks for about twelve months, which was bad for new business. I thought at that point, we had reached the pinnacle of the market.

This is understandable. But he did not count on one thing: Alan Greenspan's commitment to fiat money. Greenspan talks the "woe, woe "“ inflation is coming" line, but he worries most about recession. The FED in 2001 pumped in liquidity like there was no tomorrow. Rates fell.

Post 9/11 interest rate drops had changed housing outlook. With over 350,000 jobs lost and housing demand off, there was no doubt in my mind that a housing deflationary period would begin to occur. However, 40-year low interest rates together with hyper liquidity in the real estate markets began to emerge in home mortgage financing to an extent that demand for housing perked-up and has not slowed for the past three years.

This lucky soul was sitting in a 2,000 square foot house in the midst of a housing mania. Nice work if you can get it!

I sold and closed on my house in March 2005 at $900,000 or $450 per square foot. The demand for housing is so acute that all contingencies of sale were waived at the offer table on the first day of our open house. The buyers purchased the property with 100% financing and closed within 30 days.

Buy low, sell high. Not a bad way to do business. He has unloaded his house onto the shoulders of a much greater fool.

He did not retain ownership. He could have rented it. But he is in the real estate field. He senses what is likely to take place. The price offered was too good: $450 per square foot, cash. As my friend, real estate guru and certifiable good-old-boy Jimmy Napier says, "When someone puts a million dollars in your hand, close your hand."

I ended up renting a bigger 2,300 square foot home in a better residential neighborhood for a year lease at $2,500 month. With no debt, a great deal of liquidity, and excellent positive after-tax cash flow, I figure I can wait out the market until it swings back to a buyer's market. It is a good time to sell and be a renter in my case.

He is thinking clearly. The poor lump who bought his house wasn't. He will wait out the market. That is to say, he will buy some other poor lump's bad decision at a discount.

He says: "My wife was at first very resistant." I can imagine. But he had outside support: the local property tax assessor. There is nothing like a property tax assessor to bring a little dose of reality into the lives of mortgage-payers.

Living paycheck to paycheck with a mortgage, property taxes, and mounting maintenance costs was becoming very stressful for both of us.

Costs rise. This is the same in its effect as rising rents. Yet rents are not rising in California at a rate to match the housing mania. Why not? Because, at the margin, renters cannot and will not pay more. Renters vs. renters set the price. Consumers are sovereign, not producers.

Also, there are owners of rental units who bought early and who can do quite well by renting at today's rental prices. Life is therefore better for renters in California than for new buyers.

We now feel free to pick and choose how we want to live and not be dependent on consumer debt to pay unexpected expenses. We can now pay unexpected expenses with free monthly cash flow and actually save money every month. Being a serf is no fun and is no way to economically provide shelter for a family unless the monthly cost of shelter is 25% or less of your monthly income. Not the 45% or more many lenders are accepting as a minimum for qualifying for a ridiculous interest-only loan!

He can see it. She can see it. But the marginal home buyer and the marginal mortgage lender who loans him the money to buy do not see it. That will soon enough be their problem, not his. He is sitting on well over half a million dollars in the bank, or wherever it is.

It is maddening to see what I am observing in the home purchase marketplace. With the aggregation of incomes not increasing in the Bay Area for the past few yew years, it will be only a matter of time that the buyers at the margin will become distressed sellers. Those who are liquid and disinvested will be the few in the market that will be able to take advantage of these attractive home buying opportunities.

He has the picture! He will be a buyer in a buyer's market because he persuaded his wife to be a seller in a seller's market. But notice what persuaded her: not entrepreneurial timing but the financial pressure of ownership. They had become serfs. They were legally tied to a loan and a house. They could get free only by selling.

She was not thinking "Let's become real estate speculators." She was thinking: "How can I pay the bills?" She had outside pressure that she wanted to escape. They escaped, and took a pile of cash with them.

CONCLUSION

A house is not a home. (That would make a great book title.) A house is dwelling space. A home is a happy family. You can take your home with you when you sell your overpriced house. An overpriced house tends to disrupt homes.

If I were in the letter-writer's shoes, I would start looking for a new job in a new state. I would put my money to better use. That $600,000 in cash would buy six or seven houses debt-free in my area. He could be paid at least $7,000 a month in rental income, and probably would double his money in seven or eight years. Or he could make down payments, buy 20 homes, and get renters to pay off his mortgages in 20 years.

To stay where he is an expensive decision. It is costing him a fortune.

He should go to John Schaub's site and do exactly what it says.

But at least he is no longer a serf.

http://www.lewrockwell.com/north/north366.html

The Marginal Home Buyer
by Gary North
April 23, 2005

ONCE IN A LIFETIME

At the tail end of any asset bubble, people who have watched the bubble grow from its inception kick themselves for having missed out. While it may be true that for them, they stayed on the sidelines too long in a truly once-in-a-lifetime opportunity, they don't shrug it off and say, "Lots of other people missed out, too. So what? Something else will come along." Instead, they climb aboard on what they think is the last train out.

In manias, a few people buy in at the top. They buy an asset that will fall like a stone from astronomical levels. People who would not normally have been willing to roll the dice on such a high-risk venture buy in and gratefully sign the mortgage papers. Normally, no lender would have loaned to them. But the mania affects lenders, too. Both participants make a once-in-a-lifetime contract. Both will pay a heavy price when the mania ends. It is a once-in-a-lifetime opportunity to lose money.

This is true of all housing manias. We see these manias from time to time. The sign that the end is near is when people line up to bid, auction fashion, on properties that, five years earlier, would have been on the market for six months. The mania is revealed by the presence of above-asking-price prices. People bid frantically against each other to buy a property that they would not have considered buying two years before, or even a year earlier.

There are never many of these people. At the top or the bottom of any asset market's big move, there are few participants. Every mania ends when the last remaining group of potential buyers is finally unable to afford to buy. Then the market turns down.

The people who were the last ones to buy are left holding the bag. They committed themselves to huge monthly payments. They bought in at no money down or close to it. A month later, they are owners of a depreciating asset that may be worth 20% less after the sales commission than the day they bought it. But they owe full sticker price to the mortgage company.

The once-in-a-lifetime boom was not used by most owners as a way to sell at a huge profit. Why not? Because most families don't want to move out of the mania region. Also, wives don't want to rent. The nesting instinct is ownership-biased among humans. So, most people hang onto their homes. Then come the property tax hikes, which are based loosely on market value, which has risen. The mania giveth. The tax man taketh away.

THE LAST IN LINE

Housing prices have been driven up to manic levels in California, Las Vegas, and east coast urban centers. Where brains congregate, where the division of labor is high, and where businesses pay for talent, housing prices are astronomical. I define "astronomical" as follows:

"Whenever the monthly payments on a no-money-down home are twice or more than the rental price of a comparable home."

Into these markets come the Johnny-come-latelies "“ the people who thought they could not afford to buy when prices were merely stratospheric. They see the last train out leaving the station. "I'll never be able to buy a home!" they wail. This cry of despair has unstated qualifiers:

In this region
In my present job
At today's interest rates
At today's property tax rates
They can move. They can find lots of places to live where home prices are half as high, and wages are only 25% less.

They can invest in occupational skills improvement the money that the mortgage/tax/upkeep will cost them. They can capitalize themselves rather than paying off the lender for 30 years. Within a decade, they could double their income. Then they could afford a home.

They don't. They buy the house.

Mortgage interest rates will rise. But when they do, selling prices will fall and home equity will disappear.

Property taxes will rise, which will force late-comers to sell at a loss. Wait. Be patient. Shop.

But people in the last stage of a mania are impatient.

Waiting is what they wish they had not done earlier.

Meanwhile, the lenders are offering them deals.

Renters want to become owners.

Why? Because they want to be part of a never-ending boom. Because they forget about rising property taxes. Because they want to know that they will not suffer rent increases "“ as if property tax hikes were not rent increases.

Serfs in the Middle Ages were locked into their family's land. They could not leave. They were immobile. They owned their land, but the land-owner owned their services. They were owners, but, in effect, the land owned them.

A person who lives in a mortgaged home that he cannot afford to sell because he owes too much on the loan is like that serf. The home owns him. The mortgage company owns him.

Yet, unlike the serf, he can lose the home. He can be evicted if he misses payments. He can lose his property if he cannot pay his taxes. Yet he thinks of himself as way ahead of renters, who can shop for lower rents, and move at any time, and do not have their credit rating at risk for mortgage payments.

Today, the recent first-time buyer in mania regions is now at great risk. He stayed out of the market. He may have bought in at the top "“ way above rental costs. He is locked into the loan contract. He is stuck. The equity in his home "“ if any "“ is dependent on a stream of buyers: other late-comers whose credit ratings are so low that they would not have been eligible for mortgage loans five years ago. But credit standards have dropped as long-term rates have fallen.

In short, late-comers' net worth is dependent on even poorer credit risks than they are. This is not the basis of long-term capital gains.

CREDIT RATINGS

Today, interest-only loans with variable interest rates are available to middle-income people. People can buy for no money down. All they need to do is sign on the once-dotted line. These people have spent their adult lives as renters. As renters, they have been unaware of the following:

Mortgage rates can (and probably will) rise.
Property taxes can (and probably will) rise.
Equity can (and probably will) become negative.
Maintenance costs are born by owners.
These people have had such low credit ratings that the lowering of their credit rating for non-payment poses no immediate threat to them. They can walk. They can leave an empty house behind. They can become renters again.

In a story run in the Los Angeles Times and picked up by other papers, the situation of one woman is described in considerable detail. The lady consented to be interviewed by a reporter. He, in turn, offered an assessment of her seemingly precarious financial situation.

She is a police dispatcher. She just paid $211,000 for a one-bedroom condo in Oakland, California. If you have ever been to Oakland, the thought of paying $211,000 for a condo may come as a shock.

She had sat on the sidelines for years. But then a mortgage company offered her a chance to buy for no money down. It is an adjustable-rate mortgage (ARM). If mortgage rates rise, her monthly payments will rise.

On Nov. 1, 2007, she will have to start paying off principal. "I don't know what I'll do," she said. "I'm already working overtime to pay my bills."

The reporter got the story correct. He has assessed the risk to lenders and borrowers. What happens when mortgage/tax/maintenance costs rise faster than wages, which are not rising at anything approaching the rising cost of homes?

In the most dire scenario, if they owe more on the home than it's worth, they'll walk away. Abundant foreclosures could spark a downturn in the entire housing market, leading to the long-feared bursting of what some call a housing bubble.

Interest -only loans, and other forms of so-called creative financing that are far riskier than the traditional 30-year fixed-rate mortgages, have allowed more people to afford homes even as prices skyrocketed.

Under normal, non-mania conditions, as home prices rise, fewer people buy. But in housing manias, the reverse is true, assuming lenders can be found to finance the purchases.

When the price of houses in California soared 17 percent in 2003 and 22 percent in 2004, a curious thing happened: Instead of home ownership decreasing because fewer people could afford houses, it rose to record levels.

During the last two years, according to U.S. Census Bureau data, home ownership in the state rose to 59.7 percent from 57.7 percent. The previous record was 58.4 percent, measured during the 1960 Census.

While home ownership in California traditionally lags behind the rest of the nation, the 2-point increase during the last two years was greater than in all but a dozen states.

The mania is being funded. The buyers must have lenders to make the market boom. We can readily understand buyer's motivation in a housing mania. What is not easily understood is the lender's motivation.

Rather than closing the door, lenders have apparently been opening it wider, inviting in people . . . who would not have qualified for a mortgage under the more rigorous standards of an earlier generation. "If you can fog a mirror, you can get a home loan," said mortgage analyst Ralph DeFranco.

An interest-only loan offers the ability to defer for three, five or seven years any payment for the house itself. That allows a potential buyer to stretch to afford a place that would be otherwise out of reach.

Of course, everyone else using an interest-only loan can stretch too. The result is that prices keep rising. That encourages still more people to use interest-only mortgages, which fuels still more appreciation.

How extensive is mortgage lending based on interest-only contracts? This is where things get dicey.

In 2001, as the current housing boom got under way, fewer than 2 percent of California homes were bought with interest-only loans, according to an analysis done for the Los Angeles Times by LoanPerformance, a San Francisco mortgage research firm.

By last year, the level had risen to 48 percent. Nationally, interest-only loans were used in about a third of all purchases.

When things get tight, a percentage of these people will default. Nobody knows what this percentage will be. Remember this: These people have been renters. They have no equity. They have walked away from housing in the past. What is to keep them from doing it again?

The new federal law on bankruptcy is tighter, but it is not so tight that lenders will be able to squeeze blood out of turnips.

CALMING MANIACAL LENDERS

We think of buyers as participants in a mania. But it takes two to tango. Lenders are equally maniacal.

Lenders seem reluctant to turn away any potential borrowers, no matter how few their qualifications. At the moment, at least, this is a profitable venture, although by their own admission it is becoming a riskier one too.

In the midst of what is a mania in certain large, influential real estate markets, the voice of Alan Greenspan calms mortgage lenders.

Federal Reserve Chairman Alan Greenspan has a different point of view. "I do believe it is conceivable we will get some reduction in prices, as we've had in the past," he said in February. But he added this wouldn't be a problem because housing prices have gone up so much, providing homeowners with "a fairly large buffer."

To which the reporter "“ who gets my vote for economic rationality "“ responds:

People who buy at the peak, however, aren't going to have that buffer "“ or, if they have an interest-only loan, much room to maneuver.

The reporter understands the fundamental principle of economics: decisions made at the margin. Today, as always, it is the marginal buyer who determines the price of housing. Today's buyers are more marginal than at any time in history.

I cannot get the words of Groucho Marx out of my mind. In "The Coconuts," the first Marx Brothers movie, Groucho is selling Florida real estate. He tells a crowd of mania-driven buyers about the homes available. "You can have any kind of home you want. You can even get stucco. Oh, how you can get stucco."

It keeps getting worse. We would expect lenders to come to their senses. They don't.

The Federal Reserve regularly queries banks whether they're tightening or loosening credit standards for home mortgages. In four of the last five quarters, standards were loosened. The combined drop was the biggest in more than a decade.

Meanwhile, the range of home mortgage products keeps expanding. Some lenders offer mortgages that are spread over four decades rather than three. Others extend the interest-only period to 10 or 15 years.

"A few years ago, you would have had to go to an infomercial to get the kind of deals we're offering now," Wells Fargo home mortgage consultant Jimmy Kang recently told a group of new real estate agents.

The interest-only loan is being matched by the adjustable rate loan.

In California, the traditional fixed-rate loan is in danger of becoming extinct. According to recent LoanPerformance data, the percentage of new loans that are adjustable in Santa Rosa was 85 percent; in Oakland, 84 percent; in San Diego and Santa Cruz, 83 percent; in Los Angeles, 74 percent.

About two-thirds of these loans are also interest-only, compounding borrowers' risk of "payment shock."

Those at the margin want to buy. They are emotionally committed to buying. So, they seek rational justification in the musical chairs aspect of the mania.

Amy Matz and her fiancé, Chris, a restaurant manager, are closing this month on their first house, a three-bedroom in Palm Springs that cost $495,000. They're borrowing $60,000 from their parents for a down payment, and financing the rest with an adjustable-rate loan that is interest-only for the first three years.

"We will be extremely nervous if we decide to stay longer than three years in that house and interest rates skyrocket," Matz said. "We are just banking on the hope that the home will gain enough equity by the time we sell."

In every mania, there are late-comers who buy in at the top. Manias end when the late-comers cannot afford to buy in. That marks the top.

Credit ratings will fall with equity. How much money would you loan to a person with an interest-only ARM who lives in a $400,000 home for which he owes $465,000? This is the median price of a home in California today: $465,000.

CONCLUSION

There is nothing wrong with renting. It is wiser to buy with a fixed-rate loan than an ARM. It is wiser to buy where rental income will pay for mortgage/taxes/upkeep. But there is nothing wrong with renting. In a mania, it is the wise thing to do.

Today, mortgage loans are made by local lending institutions and short-term national mortgage brokers. These mortgages are immediately re-packaged and sold to investors in Fannie Mae and Freddy Mac.

When homes are abandoned, there will be no local lender to take care of them, or price them rationally, and get them sold. They will sit there, empty "“ the target of vandals.

That day is coming. There will be motivated sellers. When you are an investor, always buy from a motivated seller.

Buy the other guy's disaster. I refer to the foreclosing lender. The overextended buyer is long gone. There is nothing like a house sitting empty for six months to motivate a lending institution.

Murray
Come on, as someone with a genius's IQ you should know better than to say the house price booms of the 1970s and 1980s were comparable to the 2002 - 2007 period!!!!
the 1970s and 80s might have seen periods of 15% NOMINAL house price growth per annum, however inflation was consistently running at 10-15% during that period!!!
From 02 to 07 we had inflation typically at 2-3% and price gains per annum of over 10-15%
In real terms the recent boom has been MUCH more significant and indeed unprecedented
And no I can't guarantee that there won't be another similar boom in the next 50 years. But I'm pretty certain for various reasons (ie. demographics and economic fundamentals ) that we won't see anything like it in the next 20 years.

more proof:

http://www.infometrics.co.nz/article.asp?id=722

real prices rose 60% between 1970 - 1974 before falling 37% between 1974 - 1980

over the 70s decade therefore minimal real growth

From 2000 - 2009 we've seen real growth in the order of about 70-80% accounting for aorund 10% drop in the last year or sao and annual inflation around 2%

So MUCH higher in the decade of 00's versus '70s

good to see you back matttinauck

I'm looking forward to someone taking a counter argument to my own
however I don't think anyone will be able to - my data clearly shows that the boom of the last 5 years was an unsustainable bubble
bring it on

That chart says it all Matt. The only way is down for the next year or so and then sideways for a good while.

Anecdotal evidence has large price decreases on sales prices which should continue through winter.

The agents will be hoping for a good easter sales season, which it could be if prices are cut but it seems people (from my unscientific browsing) are putting prices back up!

Interesting to see too that some of the scandanavian countries, amongst others - also had pretty big increases. Yet they have't had big immigration or population growth
Makes me think more and more that the boom was less about supply and demand as opposed to huge access to credit and speculation

jeez mattinauck

P.S. It would be nice to see on interest.co.nz some "real" (inflation adjusted) graphs of house prices, rents & wages - and also some logarithmic graphs of "nominal" prices.

My preference is nominal prices on a logarithmic graph, as they aren't subject to manipulated indices as mentioned above.

Graphs of "nominal" prices on a "linear" scale could still be made available for people that like looking at bubbles ;)

Rob good comments.
Murray that graph shows about 4 years of very high increases in the seventies followed by about 7 years of decrease (between 5-10% each year) in 2000 it shows we had 8 years of large increases so how many years of decrease are we going to have this time?

The graphs and data are certainly pretty revealing
Typically 3-5 years of boom in real prices versus an equivalent period of balancing declines
The net result seems to be that after the correction (a further 3-5 years) property is usually 10-15% higher maximum in real terms than when the boom started
If we see a similar phenomenon this time then nominal prices must drop at least another 10%
As real prices increased around 70% between 02-07 then similar trends in the past if occuring again will mean that real prices will need to fall at least 50% from peak
Real prices have probably already fallen about 15% from the peak ,that means about another 35% to go
12% drop over the next year in nominal values + 3% inflation would take us to a real drop of 30%
Then perhaps flat for 5 years with around 2-3% inflation per annum
So by about 2015 prices would have dropped about 50% in real terms from the peak
Still about 20% higher in real terms than in 2001
Of courses in nominal vlaues fall 30% as per Bernard's prediction then we'll get to that point quicker - probably by 2013

Matt - "I'd rather go off the compehensive international data than NZ specific data from an investment company" - As far as I can tell it is the same data as other graphs, but it was the only one I could find that covered the entire 1970 - 2008 period. Most seem to show only the last decade in isolation, or just the pre-2000 decades in isolation depending on the point the author is trying to illustrate!
The NZ data is generally more up-to-date and accurate than a lot of overseas stuff, not to mention if you're looking at buying property here then it's slightly more relevant! ;)

- "the boom of 02-07 elevated the median multiples to levels signficiantly higher than was ever apparent in the 70s and 80s"
Remember too though that interest rates are a lot lower than the 70s and 80s, which makes the affordability similar. I'm not saying affordability is great right now, but as a percentage of take-home-pay to service the average mortgage, it is similar to what it was in the early 90s and early 70s.

- "Or are you a believer in the "NZ is different" view?"
I don't subscribe to the "NZ is immune from global events" view, but I do think every country is different and it's impossible to say "one size fits all" when it comes to interest rates, rental yields and income/price ratios. Indeed with yields and price ratios, there is huge variation from one city to the next, one suburb to the next, one street to the next.......

- "12% drop over the next year in nominal values + 3% inflation would take us to a real drop of 30%"
That is a possible scenario, unless building levels stay low and immigration continues to pick up (for which you can thank National for last month lowering the english language & minimum investment requirements)

- "I'm pretty certain ......... that we won't see anything like it in the next 20 years."
I'd agree with you on that one. Personally I think it's highly likely there will be another boom each decade, but I would expect them to be more modest than the last one.

Kieran - "how many years of decrease are we going to have this time?"
At this stage I wouldn't expect a repeat of the late 70s, for a start we don't have Rob Muldoon, car-less days and price freezes! But yes, after the last boom I would expect 5 years of flat prices - though as I mentioned above current building levels and immigration may prevent even that happening.

Interesting comments:

I came across this article the other day:

http://seattlebubble.com/blog/tag/japan/

The article is basically comparing the recent US boom in house prices against the Japanese boom in house prices in the late 80's.

Of note I think is the last graph on the page, which shows real house price changes for the two booms, both for the countries as a whole, and also for the major metropolitan areas. It shows the major metropolitan areas having a much more pronounced boom/bust than the countries as a whole. It also shows the Japanese bubble for its main metropolitan areas was much higher than the US bubble.

I tried to do some rough calcs to compare the NZ bubble against these two bubbles. I took the Auckland market to be NZ's major metropolitan area (arguable I know). I used the following stats:

Start of NZ boom at end of 2001. End at end of 2007. (Note the 6 years lines up with the 6 years for the US and Japanese booms) Total inflation over this time of 1.17 (based on the rbnz index downloaded here: http://www.rbnz.govt.nz/statistics/econind/a3/download.html)

NZ prices - start/finish - 175k/345k
Auckland prices - start/finish - 245k/443k

I have used the REINZ data for the numbers above, and have used the 12 month data, as it appears that is what has been used in the charts I am comparing them to.

So to get real house price increases over the period:

NZ prices: 345/175/1.17 = 168%
Auckland prices: 443/245/1.17 = 155%

Most notable at first from these numbers is the fact that NZ has had a bigger % gain than auckland. But anyway to compare to the graphs in the article I referenced above:

NZ peak/US peak/Japan peak = 168%/135%/140%

Auckland peak/ US metro peak/ Japan metro peak = 155%/170%/260%

So for NZ as a whole it is quite a bit higher, although for Auckland a bit lower. It might not be appropriate to compare NZ to Japan or the US as a whole, given how small NZ is. It might not be appropriate to compare Auckland data to the major metro data for the US or Japan?

I know there are various ways you can interpret these numbers. I thought I might as well post them seeing as I went to the trouble of working them out ;-)

One last note - I think the New Zealand/Auckland numbers might be a little bit high compared to what they should be, as they are based on REINZ data, which doesn't account for the increase in the size/ quality of houses over the time period (leaky houses aside of course!). The US data does, as it is based on the Case/Shiller Index. I dont know about the Japanese data.

@prosperopink - Great GBS quote.

Could someone explain to me the benefits to NZ society regarding the law allowing overseas investors to buy NZ property/land? I cannot see any benefits but would genuinely like to understand the pro's.
Regards
Paul

I own 8 rentals , 4 in Wanganui, 3 in Blenheim and 1 in Dunedin. Cashflow positive properties are out there with 100% financing at the moment. For the long term I can't see the downside in buying a house in Wanganui for $140,000 , renting it out to a nice family for $220 per week and just holding it ... I recently fixed 3 of my mortgages at 6.15% when previously I was paying between 8% & 9% on the loans, the cashflow benefit was huge. This doom and gloom mentality is presenting tremendous opportunities, lower financing costs , lower prices but still good demand from prospective tenants. Most retailers would kill for conditions to be like that in their sphere of the economy.

Until you see hundreds of empty houses in new sub-divisions ( places like Phoenix and Las Vegas have thousands of empty new homes, hence huge price falls for existing houses ) on the edge of Auckland or Christchurch then good old supply and demand will ensure that property values won't fall much further. It's getting to the point where renting will no longer be cheaper than buying ... something we haven't seen since the start of the last property boom .

If my thoughts are right.. we will have huge sales in lower end of bracket..
lowering the median or average price..
which then leads the market to thinking the prices are heading downwards. which they are.. but just haven't shown through recently..

stats are are an interesting beast.. and it could be the downfall of Real estate moguls..

fingers crossed its as low as I am hoping.. imagin if the sales are very high.. but median drops by 5-10% in a month

Murray, fair enough with your anecdotes, but as I mentioned previously if things bounce back now NZ's post boom recovery would be unique and unprecedented
Of course it might happen, but I think the current rise in activity is a temporary blip (and you seem to imply that youself).
But who really knows, I guess time will tell!

Matt - why are not you posting on this NZ Property forum as well. I think it would suit your ideas.

Click on the NZ Discussion link.

http://forum.globalhousepricecrash.com/index.php

I understand many people can't invest successfully in real estate - what are you going to do instead to hedge against hyperinflation? Maybe buy discounted fine art, take a cheap lease and build a pos cashflow from entrance fees? Seriously, what is the solution here other than property investment - I'd like to know.

".....Even if house prices achieve 0% for 25 years, you will be approximately $350,000 better off than renting," etc.
Murray, I assume that your calculation is based on interest rates at 6% avarge rates over 25 years(?!) and 100% finance of the property and interest only payments? What about 25 years worth of rates, insurance and maintenance?
Also,and it is highly likely prices will do a lot better than 0% over that timeframe.". That's what the Japanes thought back in 1990. Their market is still going down, even after 19 years !!!....

Murray -

I think its far from black and white as to whether property is still a good investment

I think a lot of it depends on what kind of deposit you can lay down

I'm renting a three bedroom house in Remuera for $540 pw.
Same house to buy would be $700,000

Assuming a deposit of $100,000, weekly payments would be close to $1000

there's a big difference between $540 pw and $1000 pw.

If one saved or invested the difference ($1000 minus $540) say in shares I would suggest you would be just as well off if not better after 25 years than having the house, assuming only moderate average gains in housing values over that period

But if you had a $300,000 deposit on the same house then things would start to turn in favour of buying

So I guess if you've got a whole lot of money for a large deposit then it can stack up

But for much of the population large deposits are just not possible. This will be particularly so for the younger generation coming through

So in conclusion I think the large disparity between rents and houses prices make renting a pretty good option (and conversely buying not such a good option) at the moment for many (though of course not all) in purely economic terms

but of course owning your own house has got many intrinsic non-financial virtues which most still aspire too

Kieran - a few flaws in your figures there - if house prices and rents achieve 0% over 25 years, what makes you think you'll get 4% in the bank and pay 7.5% on a mortgage? Take a look at Japanese interest rates. You also forgot to add the deposit to the total cost of the house.

Option 1 buying a $420,000 house with a $335,000 25 year mortgage at current 6 % P&I repayments would be $498/week also rates, insurance, maintanace $50/week so a total of $550/week or $28,600pa or $715,000 over 25 years if real growth is zero then at the end of 25 years you will have an asset worth $420,000 for total costs of $715,000 plus $85,000 deposit = $800,000

Option 2 renting assuming real rent growth is zero, depositing the $85,000 plus the difference between renting and buying 550-450=100week= $5000pa at 1% real return equals a total cash asset at the end of 25 years of $252,000 for the same total cost of $800,000

Conclusion $168,000 better off owning.

This is at 6% mortgage rates, but in reality if house prices and rents have zero growth for 25 years, savings rates would also be practically zero and lending rates would be much lower than 6% meaning you would be better off again.

Kieran - I should also point out that I'm trying to work on a worst case Japan style scenario here too........
If property prices or rents rise at all during that period you'd be even better off again.
If you're buying a rental and can claim things like depreciation and get a tax refund off your wage, then you'd be even better off again............
Are there many people out there that would place a bet on rents and property prices being the same in 25 years?

Murray,
Why have you used the real rate of return in your calculation Option 2"...1% real return equals a total cash asset at the end of 25 years...", when you have used the nominal rate in calculation Option 1"... 25 year mortgage at current 6 % ..."?. Surely you would have to assume a nominal investment rate of, say, 4% instead of a real 1%, in Option 1, to calculate the amount the alternative use of capital would be for whatever deposit is used to buy a house? Then use compound interest to calculate that benefit over 25 years, instead of simple, and see what a difference it will make...!!

Janet you are right a 6% real mortgage rate and a 1% real savings rate are both unrealistic. Also a nil real rent increase actually assumes a 2% nominal increase each year this is unrealistic as well considering rents in Auckland have fallen recently.

Murray you said "One of the big differences between property and shares (aside from volatility) is the ability to borrow between 80 - 100 % of the purchase price. This leverage is what gives property the upperhand as an investment, as well as the fact that it is a real thing and not just numbers on a piece of paper"

Banks only lend 80% on property, the days of 80-100% loans are gone. You can also borrow 70% against shares (margin lending) and its far easier than getting a mortgage. The advantage shares have over property is higher returns, no tenants, no maintanance costs, no real estate fees, more diversified, more liquid (if you need to sell it only takes a few minutes rather than months) also you can own bricks and mortar through a listed property trust. A share certificate is no different to a certificate of title on real estate both are peices of paper showing ownership of real assets.

As an investment shares are a far better way to build wealth

Keiran said ..."I believe nil growth over the next 25yrs is optimistic"

Dear oh dear , some people must lie awake at night having nightmares about a big black hole swallowing us all up !!

I am on the board of a large company with a Japanese director ... the pyschology of NZer's to the Japanese is like chalk and cheese ... to say that the Japanese property market over the last 20yrs is what could happen in NZ is just ridiculous. Do you know that at the height of the Japanese property boom NZ sold a tennis court attached to the embassy in Tokyo ... and paid off 25% of our national debt with the proceeds. By extrapolating certain land sales at the time to the size of the nearby Emporers Gardens the Gardens were theoretically worth more than the entire rateable land value of the state of California. It was a mania more hyped than the 2000 tech bubble by a factor of about 1000 !!

Janet - interesting comments. Sounds like you are an "empty nester"?
So what would be your housing preference from here on in? Would it be a detached townhouse on a smaller site, so you are still getting a detached house, but more affordable and less maintenance, without going to a shoebox apartment?
Auckland has got tens of thousands of sections around 600-800 m2 where you could comfortably build a small townhouse at the back of the section, if the Council rules changed from the status quo which favours large houses on large sections

Janet,

Interesting points. I suppose people such as yourself might help to lead the demand for other forms of more sustainable housing, away from the traditional 3 bed detached house.

Regarding my point on expensive Manchester stand alone houses, thanks for your comment, I should clarify: Stand alone houses in Manchester are very rare, maybe less than 5% of the total housing stock, and they are very nice large brick and stone houses in the better areas. The point I was trying to make was there are a lot of people living in terraced houses and apartments quite happily. I dont think this points towards the suburban stand alone house in Auckland continuing to be very expensive.

Once house buyers start getting the choice of a 3br terraced house or apartment within walking distance of cafes, bars, restaurants and public transport links, a lot of people will start to choose this over a 3br house in suburbia with no access other than the car. There is a lot of potential for this type of development in Auckland, which will in turn help to reduce the prices of the rest of the housing stock. That is my hope anyway. My fear is we get more sprawl all the way to Orewa...

Janet - interesting - the rent / mortgage differential on the place you are renting is quite similar to the place I am renting
Just further evidence how out of whack things are

"Kieran Says:
April 7th, 2009 at 1:33 am
Murray
I didn't add the deposit to either option it doesen't make any difference."

"Kieran Says:
April 6th, 2009 at 8:53 pm
Option 2 renting assuming real rent growth is zero Depositing the $85,000 plus the difference between renting and buying"

Did I miss something? :-o

"Since 1990 mortgage rates have averaged 8-9%" - true, and so have house prices.
"7.5% is a low estimate considering future inflationary pressures" - also true, but what makes you think "future inflationary pressures" are going to apply to everything except rents & house prices?

Janet - those figures were with compounded interest. I used 6% as a worst case scenario, but I also said "in reality if house prices and rents have zero growth for 25 years, savings rates would also be practically zero and lending rates would be much lower than 6%" - again, take a look at Japan's interest rates.

Kieran - "Janet you are right a 6% real mortgage rate and a 1% real savings rate are both unrealistic" - true, I was trying to be as mean on property as I could for the sake of an example. Savings rates are usually around 2% lower than lending rates. If lending rates are around 10%, savings rates would be around 8%. After 25 years of zero growth in property and rents, savings rates would likely be between 0 & 1% and lending rates between 2 & 3% meaning the above examples would favour property even more as I already said.

Kieran - "Banks only lend 80% on property, the days of 80-100% loans are gone" - that's why I said 80 - 100%. Banks will return to 90 - 95% lending once they perceive price falls to have leveled off, and they are still lending at these rates depending on your situation.

Steve & Roger, thanks for your posts regarding Japan. I had decided not to even bother mentioning it, but yes the boom in Japan prior to it's current slump made the last global boom look like a blip. Prime properties in Tokyo by 1989 were fetching over 100 million yen ($1 million US dollars) per square metre!!! I shouldn't even be entertaining the idea that NZ will follow Japan, but I was trying to help people understand that property works just as well in a low inflation/low interest rate environment.

A good friend of mine that is a very successful agent has been flat out since Dec 2008 and has not seen it slow down since. However as a born and breed New Zealander he has said to me "Gavin the saddest thing is that we are selling our country one house at a time to foreigners"
In many cases due to the exchange rate variations they find our houses very affordable.

Why is that sad, Gavin?
Isn't that what a lower exchange rate is suppose to do ie: make our goods attractive to foreigners ( just like, any exports?).
After all, we have manufactured lots of housing, so why not sell it for foreign exchange? It's not as if a "foreigner" can dig it up and take it away!
As for pricing ourselves/our young out of the market; well that's the unintended consequences of our actions.
And "yes" Keiran. In the dealing world there is an expression;"There is always a spike, just before the big chuck!".

Kieran - "Succesfull investment means understanding the cycles- buying at the bottom and selling at the top"

Absolutely NOT, that is trading.

Successful investment means buying for keeps and very rarely selling.

Kieran, the rent is the return (yield). What you are talking about is capital gain. If your intention is to buy and sell for a profit later, the IRD will class you as a trader and tax the profit. There is no time limit on this. It can be difficult for either party to prove intention though.

1 year+ is still short term, 10 years should be the minimum, preferably lifetime.

"Buying at the bottom of the cycle and selling at the top gives you the best return" - no, buying and never selling gives you the best return. Eventually the loans are paid off, any past & future rental income is yours and any past & future capital gain is yours.

Why would you sell? What are you going to do with the money? Buy another property for the same price and give some commission to an agent in the process? Unless you want to move the money in to something else like shares, fixed interest, bonds etc - fair enough, it's personal choice, but with property you will always do better in the long term by not selling.

Murray capital gains are included in the return along with rent. Intention is very difficult to prove but very easy to fake. Thats why the intent rule is a major loophole that needs to go. If never selling is your strategy fine but buying at the bottom is still going to give you a much higher return over the life of your investment than buying at peak prices. However if you really want the best returns then investing in shares is the better option.

Nice post, keep up the excellent work