I'm not getting or seeing the fall in rents. There has not been a substantial increase in residential accommodation stocks nor a substatial decrease in the population so why would rents drop?

Re;rental - when times are hard renters will move back in with their families/and or double up with friends etc, thus causing an 'apparent' fall in demand. These comments from the landlords website indicate how difficult some are finding it to find tenants:

http://www.propertytalk.com/forum/showthread.php?t=17640

Steve Netwriter also has an excellent data set which demonstrates available rentals ballooning.

Personal observation - I have never remotely seen so many rentals available in the Tasman area as now.

Barfoot and Thompson showed a slowly average rising rental price for Auckland properties until 3 months ago - average rental has now reversed and is back where it was in February. These data will not be picked up in annual comparisons as yet as the trend reversal has only happened in the last 4/5 months.

Clearly many who would not accept lowered prices have decided to place properties up for rent.

Interesting comments re: QV and detecting some buying. I believe what has happened is this:

a) Lots of property came on the market Jan -April
b) Some of this has now been withdrawn - (having a go at rental etc). Those that had to sell have gradually dropped prices and sales are starting to be made (though check out those days to sell data - its taking 2 months to move property (REINZ).
c) However there is still a sizeable backlog of property (those that havent lowered prices etc)
d) Pretty soon the Spring surge of listings will come on the market (with defeated proto-renters who failed also returning to the market). Since we will be starting from a much higher base of unsold properties (despite some signs of clearance in past weeks), the number of available properties on the market will surge again - result over-supply.

Just to advance that hypothesis a bit further.

If you look at on line listings (on realestate.co.nz) as a proxy for total houses for sale, the value peaked at around 57,000 in about April.

Its gradually come back since than, but seems to be stabilizing around 49,000.

Inevitably that figure will go up significantly as Spring gets sprung, probably challenging that April peak fairly soon.

Thing is that 49,000 'low' still represents about 10 months supply at recent sales, so we will be starting Spring from a much higher volume of uncleared property.

As to sales picking up massively. Well I want to know where many of the buyers who were so prevalent in 2003-2007 will be getting finance to do the buying.

a) Houses are still massively over-valued (on average income: house price ratio), so anything close to a 100% mortgage is a big step in the dark if your a lender.
b) With the demise of the Finance companies a whole tranche of easy money for spec lending has disappeared
c) The Big banks are under the cosh from overseas lenders (see Bernard's post today). How much harder it is for them to get cheap cash to pass on to prospective buyers.
d) And first time buyers are still priced out of the market.

It really is very, very difficult to make a bull case for housing this Spring; rather easier to see the bear side.

Andy hamilton...
"d) Pretty soon the Spring surge of listings will come on the market (with defeated proto-renters who failed also returning to the market). Since we will be starting from a much higher base of unsold properties (despite some signs of clearance in past weeks), the number of available properties on the market will surge again - result over-supply."

Andy, close but not complete in your summary, you are forgetting about the huge number of potential buyers who have been sitting & waiting through winter for more stock to come to the market. I can tell you that they are looking forward to being able to make some purchasing decisions. If there is an over-supply at the moment it is of buyers but as you have mentioned there is a great increase in listings coming on so all is looking like business as usual with prices holding steady for the forseeable future.

BTW ... Seeing as we have just been through what is traditionally the toughest stage of the market (winter) with all the doom & gloom merchants in full flight (yes that includes you too Bernard) yet prices have only dropped slightly I am getting ready for the bottle of Sav that will be coming my way as the 30% price drop predictions are never going to eventuate. Looks like it's back to the graphs and spreadsheets team to figure out where it all went wrong.....bugger.

If the US catches a cold well get flu. Banks are toughening up. I wouldn't lead a penny to housing. the days of us spending a $1.20 for every $1.00 we earn are ending hence a %20 drop in spending coming our way. We are going to get poorer what industry in NZ is going to save us we are exporting our profits and interest. This equates to cheaper housing. Argue all you want its going to get much harder to borrow Ive asked a friend at a Major bank he agrees. Its very hard to justify house prices to income if the $ falls we get poorer.

Andy

Financing issues hmmmm, I look at it like this...banks & financial institutions need to LEND money to survive...end of session as far as I am concerned.

The QV figures are already dated and easily skewed as explained previously. The rate of decline you now refer to actually went upwards the last month they released these figures so what does this mean.

I can tell you.

We (Tommy's) have seen a VERY strong start to sales this month already (in Wellington City & Suburbs) with the signs all pointing in the right direction. That is from the coalface and not yesterdays news.

Add to that the fact that income ratio's and interest rates have nothing to do with the housing market and never will. If people can afford the repayments they will buy. I will let you know how things are going towards the end of this month but I must say all is looking good.

IanC

We will have to see about the buyers but we all have plenty, the houses that have been on since march/April are still trying to achieve last years prices and so will fall into line soon enough or simply will not sell. You are kidding about the graphs aren't you, thanks but no thanks. Google human emotions and the need for everone to live somewhere...

Glenn -

''Add to that the fact that income ratio's and interest rates have nothing to do with the housing market and never will''

Really. Oh dear.

If you look through the most commented, Housing gets to the top every time. This is a sign of our obsession with housing. we need to get over it. Over time our wages will be similar to Chinese wages like whats happened with Singapore over the last 20 years. Houses may stay high and unaffordable for many kiwis, do we want young couples struggling for years to buy a house shacked to a bloody great mortgage. I say change the tax system lower the price of houses by hook or by crook.

Glen - I understand that talking up the market is what you do in order to generate confidence. You may even need to believe your comments as true in order to feel good about convincing people that now is a good time to buy. You're an agent. Your bread and butter depends upon it.

Now the problem is that on this blog you are dealing with some highly educated and experienced people, not your average unsophisticate.

Leaving aside the finance issue, which is a function of the money supply and hence one of the main determinants of the prices that the market can support, consider this:

A large proportion of the gains in the market over the last few years have been driven by people purchasing properties for rent, based not on a realistic and achievable rental yield, but on capital gains. They have been prepared to purchase on yields that are too low because they have been expecting increases in the capital value of their purchase.

So what happens when prices start falling? A large proportion of these investors are simply scared off, or are locked into their existing portfolios. Those investors that can purchase now are only prepared to buy on yield. Whats more, they need an even greater yield to compensate for loss of capital value, compared to if prices where remaining static.

But then we also have issues with falling rents, pushing the yield down as the capital value slides.

Then the aforementioned credit issues come into play, where those who can purchase must now do so with more of their own capital thereby limiting the amount of purchases they can make even further.

Result? No investor in their right mind would buy anything in this market, with the exception of distressed sales.

You can't deny that this sector is where a huge amount of the inflationary pressure has come from and without it the inflationary effect becomes deflation.

They're not making oil any more (not the sort that gushes out of 175km fields like Ghawar) and China wants some too.
Trademe is an increasingly popular way to sell a house.

So house prices have fallen 7% in 7 months according to QV, who average over 3 months, and so provide a 3 month lagging indicator.

And as Andy says, the trend is accelerating, not slowing.
That makes the absolute minimum yearly rate of drop 12%.

I would have thought the number of rentals advertised (available daily) was one of the most up to date indicators of the trend. They have been going up, and are currently about 50% greater in number than in March.

A good rental investment makes a paper loss (after depreciation) and is cashflow positive (after offseting losses against your personal income). This is assuming you have borrowed 100% of the purchase price. Capital gain should be in line with increases in rent or decreases in costs (mainly interest). Not many of these properties left. Only way to really increase yeild at today's prices is to drop a couple of minor dwellings on the back of the section.

Andrewj,
I think that's a very good point, and one that tends to be forgotten.
It reminds me of the BBC programme in 2003 in the UK on liar loans.
As soon as I watched it I thought "oh boy prices are going to be slaughtered".
Of course I was completely wrong because I was far too naive in thinking lending practices would be tightened up.

But now in the UK that's exactly what's happening. And I guess the same will occur here.

It only takes lenders to change the requirement from 100% loan to 80% and there's a potential 20% drop in prices right there.

---------------

Joe,
I love that song. And in some ways it reflects my attitude. Although I comment on the negative side of things, I also am looking at the positive things.
It makes me laugh when someone says "doom and gloom".
I'm not gloomy. I don't own a house LOL
Steve

Andrewj,
I think there is a shallow answer to that. Namely, we have the same problem as the US. We import and don't manufacture so much. As we get poorer and places like China get richer, no doubt we will swap roles. They will become rich and lazy, and we will become cheaper and start exporting to them.

The more in depth answer is a lot more complicated. As a globe we've been growing due to a cheap energy source. Oil. Without oil we'd still be in the coal age.
Now if you agree that oil is a limited resource, then we face the prospect of growing demand meeting a limit on oil discoveries. Peak oil.

If that is the case, the usual solution of "growing ourselves out of it" may not work any more.
Oil is likely to get more expensive, and so are all resources.
We either find realistic replacements for oil, or we reduce our demand for it and try to make it last much longer.

I think we face a paradigm change, and we should factor that into our long-term goals.

See:
Exponential Money in a Finite World
http://chrismartenson.com/exponential-money-finite-world
September 5, 2008

and if you agree with it, please pass it on.

Steve

if you had 400,000dollars cash would you buy a tract house in papamoa or leave it in an online account earning 32,000dollars a year?the wrong answer last year would have cost you 20,000dollars plus and next year it could cost you more.if you had put it in managed funds or some finance companies you would be clinically depressed.cash is king and money talks and bullshit walks so if you got some where would you put it?

Rick, QV house valuations involve huge margin of errors. QV dont claim their estyimates as accurate. I think the estimates match with the real sale prices within 10% error in 30% of the sales. In 70% cases, the error is more than 10%. So dont rely on your own house price estimate to judge the fall in house prices. :)

Rick is probably about right. A house bought in 2004 is probably 40% up. This is a normal increase over that timeframe. If he compares Jan 2008 with Sep 2008, the house may have gone down by 10% then. If it goes down 30% in all, he will still break even. In 2015, his house should be double what it is now, 800,000.