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House prices to fall over 2009, won't rise until sales up for some time, ASB says

Posted in News

ASB's latest New Zealand Housing Confidence Survey for the three months to January showed 60% of respondents believed house prices would fall over 2009 (55% in the October survey), with 28% (29%) saying they expected prices to remain at current levels.

The survey also showed 53% (45%) of respondents believed now was a good time to buy, compared to 15% (21%) saying it was a bad time.

ASB Chief Economist Nick Tuffley said they expected house prices would continue to fall over much of 2009 and wouldn't increase until sales turnover had been on the increase for some time. House sales in New Zealand fell to a 17 year low in January.

Of the 600 respondents around New Zealand, 63% (48%) said they expected interest rates to fall further in the next year, with 11% (18%) expecting levels to stay where they were.

"As has appeared the case since early last year, declining interest rate expectations have continued to have a significant influence on attitudes towards the housing market," Tuffley said.

"Lower house prices help, but the swing in the costs of debt serviceability has made a big difference to whether or not buying a house is in the grasp of would-be purchasers," he said.

"Since interest rates fell dramatically late last year there have been anecdotes of renewed foot traffic through open homes "“ which is in keeping with the results of the latest Housing Survey and the preceding results."

"Nevertheless, through to the end of January house sales and turnover showed very little signs of the market reviving to any great extent."

"Realistically house prices aren't likely to increase until sales turnover has been on the increase for some time. In the here and now the market remains firmly a buyers' market. Turnover is very subdued even if it has stabilised. Buyers have choice and time on their side."

"For the past six months the ASB Housing Confidence Survey has reported increasingly favourable perceptions towards house buying, yet the housing market has shown very few signs of recovering to date. There will be a variety of reasons for this. One is also in the survey: ongoing expectations that house prices will fall, which makes for little urgency amongst buyers. Higher deposit criteria will be another aspect."

"But increasingly an air of uncertainty about the direction of the economy is taking hold on decision-making by all and sundry at present. Taking on added debt to buy a house at present does mean taking more perceived risk in the current climate, with job security one key source."

"Notwithstanding the huge decline in interest rates, we still expect the housing market will remain weak over the course of 2009. Lower interest rates may well have put a floor under turnover and could aid some recovery in housing turnover during the year."

"Nonetheless, we continue to expect house prices to fall over much of this year, though at a slightly more gradual pace than was the case last year."

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I see from the RBNZ

I see from the RBNZ site that last week was the first week that we have a growth in loan number approvals for a long time. This was based on the 13 week period for the last financial year.

http://www.rbnz.govt.nz/statistics/monfin/c16/data.html

But those nice people at

But those nice people at the REINZ were saying now is a good time to buy, into a falling market.

Is this correct? Buying into a falling market is a good thing?

Three weeks ago people said

Three weeks ago people said I was fool when I said it is a good time to buy. Now it seams that most of KIWIS are fool at least at the moment about housing market.

As a average NZer, I don't know where is the market going, I can only check if I can afford the house I want at the moment and seeable future. But people in this forum gave me hundreds of "ifs" to try to prove I was fool. You might be right, who knows?

Hmmmm...Let me think. emcd or

Hmmmm...Let me think. emcd or Nouriel Roubini ? A good time to buy or 20% further to go, worldwide ( NR's view from today)? I know who I place more stock in.......

While it is difficult to

While it is difficult to say when is the good time to buy, we can easily say when it is NOT a good time to buy. The volume of sales is the indicator. The current volume of sales is very low, and hence this is not a normal time to buy. Volumes will increase when prices fall to affordable levels or our afforabilty increases. I do not see our incomes going up suddenly during a recession. So it is wiser to wait for a big price fall and a more stable (flattened) housing market. This is NOT a good time to buy.

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Hi emcd, Nobody is suggesting

Hi emcd,
Nobody is suggesting that you are a fool but information is king in these times.
"¢ A fact is that 15 months ago "everyone" said housing prices never fall - now we are down 7-8%. Looking through the property press today I see a number of very nice houses in lovely areas significantly discounted (more than 7-8%)- I also see a much fatter property press - so greater supply (go back to the rules of supply and demand in economics 101).
"¢ Very few have been advising caution in purchasing housing over the past 2 years.

"¢ A fact is that 15 months ago "everyone" said that the share market was going to boom for ever - and now we see it falling day after day with some people loosing significant amounts of money.
"¢ Very few have been advising caution over the past 2 years (usually they are told they are idiots - out to frighten the innocent public).

The best thing you can do is ask lots of questions and look at as many different view points as you can find- both positive and negative- and than make up your own mind.

Do what every one does - get what every one gets.

Have a look on YouTube at the video below and see what you think.
"Glenn Beck's heart-stopping housing chart" on YouTube http://www.youtube.com/watch?v=lrW6UO5Zkok

It would be interesting to see a similar chart on the NZ housing market "“ maybe Alex or Bernard have something similar that they can upload for everyone to see?

sam.p - "The current volume

sam.p - "The current volume of sales is very low, and hence this is not a normal time to buy" - are you suggesting it is better to buy when everyone else is? For me personally, the lower sales volume the better - less buyers, more desperate sellers = better deals!

And no all you conspiracy theorists - I'm not a Real Estate Agent!

People who think it is

People who think it is a good time to buy a house now are the people who make housing bubbles burst slowly - woooooosh. (and, of course, the time it takes to sell a house) Whereas the 1987 crash and the dot.com crash stock prices went down so quickly not many people were heard debating whether or not to buy in its aftermath.

Beware of the slowly reducing house price.

Janet, Nouriel Roubini may well

Janet,
Nouriel Roubini may well have predicted our current predicament, but he did not act on it. He did not sell his shares and has lost a large proportion of his wealth. Who is the fool?

When is a good time to buy an investment asset? When everyone says it is a bad time:)

Cheers,
Chris

chris - exactly. It doesn't

chris - exactly. It doesn't matter whether you're talking property, shares, gold, whatever - the best time to buy is when no-one else is and the best time to sell is when no-one else is. Gold, anybody?!!

If you support buying a

If you support buying a house now then be a bit bold and say what you expect the house price to go up to. Because if you believe the market is going to rise then it can be understood why you believe its a good time to buy.

Interest rates and tax cuts (minimal effect) versus unemployment fears and a current housing bust and massive de-leveraging of banks overseas which in-turn reduces local borrowing for houses.

Wheres the good news for INVESTING in a house

Chris only 21% are saying

Chris only 21% are saying its a bad time to buy does that mean its a good time to buy?

Murray - less buyers, more desperate sellers = prices to keep falling

Now is a better time to buy than last year, next year will be a better time to buy than this year, so is now a good time to buy?

At least the ASB and ANZ economists are more realistic than Tony Alexander at BNZ who seems to think house prices are going to recover at the end of this year (He was saying similiar things last year)

Which planet is REINZ living

Which planet is REINZ living in? House prices are falling, its real bad out there, a big percentage of people cannot even qualify to buy one, and many cannot move because they have no equity today. Prices are down, and home owners know the, trend 'sales down it does not show the thousands that are unable to sell their home. And look at Median home prices not average, there may be many rich people buying million dollar homes but fewer middle class family homes can be sold today.Countdown has just started...

If you are a buyer

If you are a buyer then patience is still required
We are constantly looking and the real pressure is just not high enough yet to get sellers to give things away.

We wont see house prices esculate rapidly but there are some decent yeild plays coming up.

Watch out for next headline....

Watch out for next headline....

Rental property is in demand.....Rent set to rise --- %%%%% time to invest in property---

Naastik, may be 10 years

Naastik, may be 10 years from now.. lol

was talking to a National

was talking to a National Bank manager y/day.

told me he had just approved a 100% loan for 650K on a house purchase.

the couple have an existing 600K rental property. as collateral.
they are both pyhsiotherapists being g/teed by ACC for their income stream.

the money is there but the story has to be good.
these are the sorts of people that will always be out there buying.

equal supply and demand will cause an upward trend but that won't be around for at least 3-5 years.

Hello Murray, The investment risk

Hello Murray, The investment risk is low when the market gets flat, and volumes restore to normal. House prices are less volatile than currencies, and hence more predictable. Upward or downward trends in house prices continue for a stretch of time. When the current nature of trend changes from negative to positive, it does not happen suddenly. The market goes flat for about an year or more. So buying at a flat period is wiser because the waiting time for capital gain is shorter. When volume is at the normal level, it confirms that the market is not going to get worse, and confidence and affordablity may restore later on. At this point of time, the downside risk is still much greater for house prices than upside risk. There can be bargain at times. If we are able to find a solid property with 7% or more rental returns, we can invest. The house prices are still high and does not provide good returns. So this is NOT a good time to buy.

I think as long as

I think as long as we live in a world where 2 physiotherapists can afford to buy 1.2 million worth of property, things still have a long way to go. Average physio salary working for ACC is probably about 50K. Even with both working full time that would give an income of 100K. They might be getting an additional 20K rental income from their property. Normal lending would give them a mortgage potential of 300K, maybe 350K with the rental included. The other 850K is probably how much value they will lose off their 2 properties over the next couple of years.

Definitelly good time to buy.

Definitelly good time to buy. Prices might fall a bit more, but interest rates won't stay low for ever. Just bought my second property, for investment. Tenants are paying off my mortage :)

I agree with Murray, the

I agree with Murray, the best time to buy is when no one else is, much more leverage with sellers.
Who knows how much lower things will go, very hard to say.
If I was buying, I wouldn't be expecting it to go up in a hurry.

If this is the right

If this is the right time to buy, then banks wont insist on 20% equity. They foresee a greater risk of fall. It is simply not rational to buy in a declining market unless we have 50% equity and can wait for a longer time for capital gains. Opinions of 'good time to buy' do not translate into actual house sales unless the conditions are 'right'.

Low mortgage rates may provide a 2% relief per year at the moment. If prices fall 10%, which is more than likely, then advantage of lower interest rates is lost. For any investment safety, liquidity and returns are important. The market is not liquid right now; housing investment may be safe over a 10 year horizon and not in the 2-3 year horizon; the rental returns are poor because prices are still high. Only a further bigger price fall will activate the market.

"If this is the right

"If this is the right time to buy, then banks wont insist on 20% equity."

Historically that is not correct, such policy and legislation has existed for decades, except in resent yrs...when ppl decided it was not good to save for their home, and banks became unrestricted in the Free Market, with free thought that old sensible ways where wrong just because they where old.

Hi all. Hi sam.p -

Hi all. Hi sam.p - if you are at all risk averse it may be prudent to wait another year and see how things pan out, my own opinion is that by the time the "median" price levels out the best buys will probably have gone already. Also by then you will be competing with more people, especially if the banks move back to 90% lending which they may well do once things level off.

There are places already selling at 30% off the 2007 peak, and some mortgagee even 40% + so there are some very good buys out there right now. I agree with Bernard about trying to get 30% off - I just disagree that the "median" will go that far, and I think by the time the median flattens out the ones selling at big drops will have gone.

We've just upgraded and bought a place at 12% below it's 2006 CV and 20% below it's original asking price. Another one we looked at went for 30% below it's 2008 CV, but the location wasn't so good and it didn't have a lot of features we wanted - so it's not all about price! By the time it went unconditional there were 2 back-up offers so we weren't the only ones that thought it was good value! I appreciate it's different for 1st home buyers - we are buying and selling in the same market, so if prices drop another 10% the one we're selling would've done the same, so there's no benefit in waiting as the house we liked would have sold.

You mention wanting 7% returns, I've seen several blocks of flats recently at 8 - 9.5%, so with interest rates at 6% this is where I'll be looking next.

rbot - "be a bit bold and say what you expect the house price to go up to" - I don't expect it to go up at all for several years, but I don't expect it go down much on what we paid either.

Kieran - "next year will be a better time to buy" - if there's places currently selling at 30% off, and next year they're gone but the "median" is down 15%, which was better buying? All the economists & commentators seem to be in agreement too that the fixed rates won't get much lower and may even head back up.

Exciting times, it will be interesting to see who polished their crystal ball the best! I still believe that if you're paying off a 25 year mortgage, annual ups and downs aren't that important - though I wouldn't recommend buying in an obvious peak and for rentals I don't like negative gearing, they should at least be neutral and preferably positive.

Hi all,, well on monday

Hi all,, well on monday I am going to visit the bank..... looking for a pre-approval certificate on a 300k loan with only 5% deposit...the bank says ofcourse... you work in the healthcare trade with a partner, combined income of 90k, 3 kids, no debt, clean credit....

we shall wait and see......otherwise, a personal loan from a non-bank lender..will secure my 20% deposit (60k) !!!!!! absolutely over the top..!!!!!!!!!!!

com' on banks... dreaming will never get you the return on your shareholders demands.....!!!!!

keep it smiling... it wont last for ever...

:)))

Hello again Murray The so

Hello again Murray

The so called "˜median' is meaningful onlyfor 'cross section' data. For things changing over time, median has no meaning, and one needs a 'running median'. The historical trend line is the "˜median' for house prices. Bernard Hickey's prediction of a big fall is based on this trend line, which represents what happens on an average over a long period of time. The current house price levels are still above the historically expected levels.

If a property gives a good rental return and solid, then it is worth buying. A flat in a block usually suffers more depreciation and does not get a higher capital gain like an independent house gains. So the rental return of 9-10% is needed for investing in flats/apartments. It looks like you found a few bargains. Negative gearing makes sense only after substantial capital gains which often takes 10 years of time investment in 3-4 properties.

House prices fall as long

House prices fall as long as unemployment rate goes up - simple.

Adding to W. Kunz argument,

Adding to W. Kunz argument, I would also say that higher unemployment levels will also lead higher rental defaults, and even property damage in a very few cases.

sam.p - I didn't quite

sam.p - I didn't quite follow you about the median? Graphs might have say a 3 month moving average, but Bernard is picking a 30% drop in the median price from Nov 2007. I'm picking about 15% fall in median, though there will be (and currently are) individual properties going at 30% +

P.S. people that damage properties do so whether they have a job or not, and many don't have a job to lose!

The mean is artically being

The mean is artically being held high as I described before due to the nature of the sales price brackets. As time goes on and the bottom level gets closer these brackets will then become more uniform, and the mean will then reflect the true ave price drop.
We dont have the sub prime issue to the same extent in the US, where the mean dropped real fast due to different price brackets affected
In NZ the ave low to middle house price bracket can afford to hold off, the top bracket is being more prone to have to sell.

Murray the median house price

Murray the median house price is going to fall 30% not 15% based on median rents and median Household incomes. There will be properties that fall 40-50% and others that only fall 5-10% but the median will be around 30% we are not at that level yet, medians have only fallen 8% so far.

If you can buy a property with a 8% rental yeild then good on you, That would mean a $160,000 house with a weekly rent of $300 not too many of them around.

Hello Murray The median of

Hello Murray

The median of the three numbers {1,2,3} is 2. The median of the three numbers {3,2,1} is also 2. The 'median' value 2 does not capture the 'trend' in the numbers in the above example. All averages such as the median suppress time related variablity. The trend line for a very long period of time is the expected average ('median) value. The current level of house prices are well above this long term trend line. When prices fall further and flatten out (and volume reach the normal level), we have reached the safe level to invest. This has not happened yet. If a property gets 7% or more return, then we can buy. As pointed out by Kieran, not many properties fetch such a break-even yield yet. This means prices must fall further or our incomes must go up. Which is more likely? This is rather obvious; house prices will fall further. Easy credit dried out and hence prices cannot be held at this high level for too long.

Kieran - $160k with $300

Kieran - $160k with $300 rent? No, but I've seen quite a few down towards $200k giving 7% yields which is historically about normal for residential in NZ. I wouldn't expect those particular properties to drop much further. 7% doesn't interest me personally, but all the flats I've seen have without fail been in the 7 - 9.5% range. Tell me where else currently I can get that kind of return? :)

Martin Hawe's views in today's

Martin Hawe's views in today's Herald are very relevant to this discussion:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1055...

As he indicates, property is going to have to fall a lot further for the yields to stack up again

Murray - you might get 7-8% yields from inner city shoeboxes, but that is heaviliy dependant on the international student market. At the moment the market is good with the low NZ dollar, but this is a very volatile market. 12 months later with the same apartment you might really struggle. Also I'd say capital gain potential on these shoeboxes would be non-existent

Matt - "inner city shoeboxes"

Matt - "inner city shoeboxes" you're talking Auckland. I'm in the Waikato and looking at tidy blocks of flats, completely different ball game, and not dependant on students at all.

Murray - fair enough, I

Murray - fair enough, I can only speak of what I know which is Auckland
Good for you down there if some investment properties stack up, because they don't up here

We really depend on foreign

We really depend on foreign sutdents.Imagine how much they pump in to our economy that's makes our life easy.

Murray They sound like good

Murray
They sound like good value 7-8% yield is about right. I personally prefer shares- better returns no tenant hassles and easier to sell. Hopefully the tax bias for investment property will be removed to make shares even more viable in the future.

One things probable. Prices will

One things probable. Prices will either go up, or down. If I buy now, and they fall, I will have paid too much. If I do not buy now and prices go up, I will have to pay more. I would rather have to pay more and still be in the money, than pay too much and be out of it.

Murray You can get a

Murray
You can get a return of between 7% and up to 9% on a motel freehold. The owner of the freehold is only responsible for the watertightness of the building exterior. The leasee is responsible for all outgoings and the lease is generally ratchet claused so the rent cant go down.
I cant see many more accommodation complexes being built in the next 2-3 years so a motel freehold would seem a lot more secure and less hassle than a lot of potential high hassle residential property investments