Bernard - are you sure house prices in Eden/Epsom are down 30% from their peak?

Bernard

I suppose if the price was right then a house in Auckland does interest me and so I rushed off to check out mt eden prices and saw that most were by negotiation. One massive house with a price caught my eye and i viewed the pictures. Have a very close look at the wrecked cars in the garden and the rubbish skips:-)

http://images3.realestate.co.nz/edi/OSLBARF001/photos/395269-5.jpg

I might wait a while to make my decision!

Slight error in the link above.
It's here: http://www.reinz.co.nz/reportingapp/default.aspx?RFOPTION=Report&RFCODE=...

... and when it becomes difficult to determine 20% equity in a falling market - banks will become very selective. Lending criteria tightens. Many who think they are sweet at present may not be able to remortgage on favourable terms in the future. Previously friendly banker will say either pay down mortgage by $50,000 - $100,000, sell now or pay a much higher interest rate (due to risk). The market keeps falling and so on and so on. It's ugly and it happens.

Steve.
Many thanks.
Fixed now
cheers
Bernard

Bernard

Unless you really look at all the data and all of the trends you cannot really say what is happening by lookng at the median sale price. If poorer people sell now because they panic then the median sail price is recorded as low. Yes? I learnt to my cost overseas that if you sell in a panic then you can miss out on huge gains. I sold after the london bombings. Not saying that prices are not falling but maybe you are not really saying it like it is for your suburb? In time it is true that the prices set at the margin do effect all prices but what is happening now? Is it still the Mexican standoff you have reported earlier for the higher priced homes that are not selling.

...... and most people Sharon are on 2-3 year fixed rates, so the bank has the readily available justification to look at those mortgages, via new valuations, at the home owners expense I might add!

Sharon
Last time I checked out the price of Meths it was more expensive than a nice bottle of Wine (but maybe not quite as much as the bottle of Chatheau L that Bernard has cellared to settle his debt)
I dare say that if the French economy is doing as badly as it is reported then you must be seeing plenty of nice Cheap French wine in the UK supermarkets. Maybe you might like to put some aside for Bernard :)

Bernard,
I've only just got the chance to watch your vid.
I get the impression you enjoyed doing that comparison :)

Very interesting.
Steve

Keith W
Many thanks. I have a couple of bottles of Moet ready to go.
You can have one if I'm wrong. I'm sure you'll remind me come November 2009 if I am.
cheers
Bernard

Keith I believe your definition of Profarcy is not quite correct...

Profarcy: The Peddling of Farcical information and selective statistics by Professionals that should know better but use the sensationalised claims to establish a profile for both themselves and their website.

Many good points Bernard as to why you believe house prices are overvalued (and I agree they are overvalued ... slightly) but you have not provided any that would support a reason for kiwis to sell at a 30% loss?? Where are all the forced sales going to come from? Where is the mass oversupply of housing stock going to come from? Rental vacancy rates are minimal! Remember if prices fall, so do interest rates along with the kiwi dollar. So any prices falls are amplified to immigrants, foreign investors and returning expats - a 10% drop in price combined with interest rate drops make an exponential difference in affordability to these groups. There will be a correction but not a collapse.

Put me down for bottle of Moet Nov 09'

Bernard

Would you like to throw some other US homeowning costs in, ie Heating (this can be thousands), Commutes (100 mile plus not unheard of). Yes they have cheaper petrol but until recently the most popular vehicle in the US was a Ford F150 Truck.

Another factor, immigration, what effect will that have in price support, it is easy to draw lines and draw graphs based on selected data within those lines but your resulting comparatives could well be erroneous.

In the US they now have a new class of house "those that will never be occupied", have we got that in NZ?

Neven

Andy yes rents, like house prices can fluctuate at different times of the year but the year on year average rents are still rising in almost every part of Auckland for the July year end stats. Kate remember the supposed reason for the bubble - speculators who purchased in the last 3 years. Why would they sell at a loss of hundreds of thousands when they can take a punt and rent out for a few years in the hope of a house price recovery. We need forced sales for this to happen which I just dont see on the horizon!

Paul - the point is all house prices (whether people sell or not) will devalue in accordance with the sales that do occur. Re-valuations for rating purposes are likely to go down. Many of the sales over the next few years will be older homeowners downsizing or moving into assisted care. As the whole market therefore corrects in terms of pricing, banks will become more alert to the fact that many of their recent (2004-2007) borrowers are in negative equity. They subsequently put the squeeze on these borrowers either when they re-finance or before if the monitoring of their current accounts turns up concerns (say one income in the household ceases, or credit card debt balloons). And from that, the stressed/forced sales start to occur. It isn't likely to happen overnight, it will be a long slow processes over a number of years.

Andy you're comparing apples with oranges and to be honest I am growing tired of the belief that everything that happens in America, Japan or the UK 'must' happen to NZ. Very different countries with very different economies.
Immigrants to the UK are predominantly from poorer EU countries - I dont think 10 polish people sleeping on stretchers in the lounge are going to prop up the property market in the UK where as NZ immigrants, as a requirement, need to be either highly cashed up or highly skilled which undoubtedly do have an affect on the housing demand. People move to NZ for a lifestyle - not to move into somebody's lounge and sleep on the floor!

Kate for the very reasons you point out I believe a slow correction will occur over a number of years but for values to drop by 30% we will need a very quick collapse - something drastic will need to happen resulting in more forced sales. With houses falling by 10% a year (as your prediction implies) along with interest rates dropping and wage and rent inflation the affordability measure will reach normal standards long before prices drop to 30%. If we all still have jobs and landlords still have tenants everybody will be jumping back on board at around a drop of 10-15% I predict. Everything currently points to this holding true.
Bernard you're the stats man "“ how about a graph that points to expected OCR if house prices fall by 10% in one year. Take into account current wage inflation and calculate the estimated "˜joint' household income in one years time. Use the new mortgage servicing cost against the new house hold wage and see just how "˜affordable' property will be in one years time then show me why properties should decrease any further in value that 10-15%?

and lets not forget that those immigrants migrating to NZ from the US and UK do not have the same purchasing power as they had a couple of years ago for a number of reasons:

1) their currency is worth less (between 25-40%) (this could change but who knows?)
2) their houses that they sold prior to coming out are also worth less (10% for UK, 20% for US)
3) like everyone else be they immigrant or local, they are subject to more stringent lending criteria and higher interest rates.

So even if we return to a steady supply of immigrants we would expect their reduced purchasing power to push the market down further.

Well it's a good question as to whether we will have a steady supply of immigrants - our rural economy is pretty strong, but everything else is pretty weak - where will all these highly trained, well educated immigrants work? Why would they emigrate here if there are no good jobs? Anecdotally, the housing boom and credit expansion driven retail spending has provided a significant portion of the economy's growth over the last few years (certainly in Auckland), and its debateable whether we'll see much of that for another few years now.

Inflation should be recognised in this discussion too - house prices down 10-15% in a year, and near on 5% inflation, means a real decline of 15-20%. Another 2-3 years of minimal gains can hit 25-30% real decline.

Andy the fact that we both immigrated there and are back here again now says it all. Like most immigrants to UK you go there to work hard and play hard for a limited time, not buy a house and settle down like most immigrants that move to NZ - that was the only point I was trying to make. But like you I am tired on the immigration argument as it is only relates to a small portion of the point I was trying to get across.

As far as vested interests go, you're right but there isn't one person in this forum without a significant vested interest in this discussion.

Kate, the banks of the People's Republic of Australia are being bailed out as we blog. The Future Fund, which has a mandate to achieve real returns of 4.5 - 5.5% p.a., has been investing heavily ($35bn as at April 1) in short-term bank bills that currently pay a negative return after tax and inflation. Possibly justifiable in the very short term while everything else is tanking, but not over the medium to long term. In the meantime, the government gets a reprieve due to the fact that the banks are not forced to seek higher cost sources of funding and lift their mortgage rates even further.

Thats assuming Andy that our dollar holds up in value which assume our interests rates remain high which assumes the housing market wont tank. Nice try!

Ian C statement:

"Inflation should be recognised in this discussion too - house prices down 10-15% in a year, and near on 5% inflation, means a real decline of 15-20%. Another 2-3 years of minimal gains can hit 25-30% real decline."

This is untrue for the 100% fully leveraged speculative buyer you lot hate so much. So a moot point Ian unless you are trying to depress the good folk that saved hard and used only their 'own' money to buy a house!

If I am a homeowner with no mortgage on my $500 000 then in your eyes I am a good person but I am still affected by inflation. If I become a speculative, selfish, greedy wannabe property investor and go out and buy 3 more houses and borrow a total of $1,500 000 for these purchases then that $1,500 000 is not my money and therefore putting 3 years of inflationary adjusted losses as a percentage of the total borrowed is incorrect. If I sell the 3 houses I suffer capital gains losses and the bank suffers the inflationary losses of the full loan amount so what exactly is your point? Your point affects people with money in bank, or money in their house or whatever regardless of what they have borrowed and I am assuming you are in one of these groups so like I said before who exactly are you trying to depress?

ps By the way there are plenty of paper money speculative buyers who never had a cent to start with in the bank for their first purchase! An unfortunate result of this bubble.

I'm sorry Paul I can't follow your example. All I see is that $2m of houses with $1.5m of loans becomes worth (say) $1.8m (down 10%), of which $300k is the borrowers equity. Chances are the borrower has paid in a whole lot of cash to top up the mortgage for the privilege of being a landlord too.

The same single $500k house is worth $450k - proves the "power" of leverage - increasing the volatility of returns.

I can't be bothered going through the exact maths (I've done it before), but with 0% capital gains per annum, and assuming normal wage and rent growth and average interest rates, it is much better to rent than to own for a householder at a 4% yield, and this holds up to 3-4% capital gains in excess of inflation (ie 5-7% in a low inflation environment).

In today's money the speculator has ~$270k, less what they paid to top up the mortgage etc, the home owner has ~$405k, and the (extremely theoretical) renter has about $500k, assuming income (less tax) on $500k and rent paid net off.

My point is that if a house doesn't increase by a certain amount per month, your new worth is being eroded by inflation. People tend to forget that (hence comments like "the market will go sideways for a bit" ---> sideways is actually quite bad).

Here is a simple example, which may help clear up this debate (I hope).
I did it for someone in the UK, so in £, but it obviously makes no difference.

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

House prices = 5% down/year
Deposit interest = 4%
Renting = 5% of house value, and rent a £150k house, so £7.5k/year.
Mortgage rate = 6% on £135k, so £8100/year.
£15k deposit.

Renting:
Start: £15k
After 1 year: £15k + £600 interest - £7.5k rent = £8100. Total wealth =£8100

Owning:
Start: £150k house, £135k mortgage.
After 1 year: £0 + £0 interest - £8100 mortgage. House is worth £142.5k. Total wealth = £142.5k - £135k mortgage - £8100, so Total Wealth = -£600

You would have more expenses owning than renting, but ignoring that, you are £8700 better of renting.

This also ignores the possibility of earning more than the deposit rate.

With the rental cost being close to the mortgage cost, you can think of it like this:

1. If you own, you lose say 5%/year on the full value of the house. So a massive £7500 in the first year.

2. If you rent, you don't lose anything on the house, and you gain a little interest on your deposit money.

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

With mortgage rates being higher here, owning will be worse than the example.

Ian lets try and make this really simple for you. I have $20 000 and I buy a $300 000 in the 'side ways' market so this time no capital losses - nice and easy. So after 3 years I sell the house for $300 000. Your reasoning dictates that because inflation was at 5% pa I stand to lose another 15% of the house's value - a staggering $45 000 worth of purchasing power. But if I started with only $20 000 how could l lose $45 000. The inflationary losses are only against the original deposit - not what I borrowed. Understand?

Paul - Just so you know this is a tough room who only want to believe that the "bubble" is about to burst or is currently bursting all over the show. This is mainly because they have been beating that drum for about 5 years and probably did not buy any property over that time missing out on 100's of thousands of dollars, they are not happy so hence the venom you are facing here.

BTW I could tell you a great story about a Chief Economist of one of the MAJOR banks here in NZ who sold his house about 5-6 years ago because the "bubble" was going to burst (sound familiar) and has recently purchased again. He purchased again for roughly the same price as he sold for but got significantly less house for his $$$ in comparision to the one he sold. Then to add insult to his obvious injury his previous house also sold recently for $430K more that he sold it for, LMAO, and he still has his job LMAO x 27.

For the graph/spreadsheet/US/UK tragedy lovers...sorry to report that sales are steady in Wellington city with about 20% of properties currently selling with multiple offers (ie 2 or more but mainly 2). This tells dumb ol me "the market" is seeing value in houses and with the normal spring lift in number of listings we (Agents) all await eagerly the chance to satisfy the MANY buyers we all have on our books looking to purcahse a house. The biggest frustration faced by buyers at the moment is lack listings available to buy and that will soon be sorted. I have also talked with many buyers in the last month who are eagerly awaiting the next OCR announcement in the hope that rates will fall again, and when they do this will be passed on no doubt as the banks look to keep the tills ringing so all in all things are looking quite rosy.
Hi SharonV I see you are being your sweet self to Keith (meths....really, why meths when wine is so cheap), what a lovely person you must be, does it make you feel good to be so nasty to people, remember play the ball not the player.

Long post but revealing:

On Monday, the REINZ sponsored realestate.co.nz manages to place a story in the Herald under the title "˜Overseas buyers move in':

http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10528640

The article opens:
"˜'International buyers are snatching up New Zealand property as the dollar drops, banks lower interest rates and the market reaches realistic prices.
Alistair Helm of realestate.co.nz says the surge is encouraging for sellers and indicates an "interesting time" in the property market.
Last year 22 per cent of realestate.co.nz's browsers were from outside New Zealand. This figure crept up to 25 per cent around April and May this year and is now up to 27 per cent, Helm says.Most of the interested buyers are from Britain, Australia and the United States''.

There is the usual propaganda one would expect (very little by way of hard data, but the message is clear "“ buy now before some foreigner gets in).

One can imagine Monday evening much back-slapping at REINZ/realesate.co.nz headquarters "“ a job well done, that should help get the market going again.

However, in response during the week the Green Party steps in and says things like "We believe land should be owned by New Zealand citizens and residents only and our laws should be changed to say that.''

Holy Moly! Pandemonium at the REINZ/realesate.co.nz headquarters -the last thing agents need "“ not being able to plunder gullible foreign buyers!! Quick get something out in response!!!

Result - today we get a report: Foreign invasion just a myth say real estate agents
http://www.stuff.co.nz/4674125a13.html

The eponymous Alistair Helm again makes an appearance, but this time he is singing a different tune:

"˜'The report makes it sound like New Zealand is for sale but it isn't. Undoubtedly there is a number of overseas buyers looking, after all it's the only way they can look at a property. Looking at real estate is escapist. That's why we have so much traffic, people go online just to look sometimes, it's not like a bank website where you have to use it."

It would all be rather amusing if it wasn't so pathetic. Agents and their spokesmen continue to treat the rest of NZ as though we were idiots.

Hi Glenn, very interesting you should draw such parallels between the real estate industry and the finance company industry. I can see the similarities too, glad some agents can as well. I am sure if you take the time to read the blog you will find the odd comment about the way the finance company industry has worked.

As for what I wish for - well I certainly didn't wish for a debt fueled consumerist juggernaut financed with foreign money off the back of paper gains in a single asset class, lubricated by the activities of rapacious intermediaries in the finance and sales industries. But then maybe thats just me.

The UK housing crash is gaining momentum. Halifax tonight report the worse falls since their records began (thats a 25 year period), a staggering 25,000 pounds off the national average in a year, for a y-o-y fall of 12.2%.

http://www.guardian.co.uk/money/2008/sep/04/houseprices.property

There are mounting fears that more UK banks will go to the knackers yard with the Financial Times highlighting the risks to Bradford and Bingley.

Sharon - correct me if I am wrong but the data suggest that UK housing crashes are long drawn out affairs (I am thinking 1990-1995 for a start); and this one is only just into its first year. Since the Halifax is showing -12.7% already I think falls of the order of 30% plus are now more likely, particularly since the UK looks to be entering a rather unpleasant recession. The government is broke, consumers are up to their eyeballs in debt, and the UK's biggest trading partner (the EU) looks as though its entering recession as well (Germany recorded an unprecedented 7th month of declines in industrial orders tonight), so unemployment will start climbing pretty fast in the UK now (which brings more forced house sales).
I personally believe the UK banking sector is balanced on the edge of a precipice; if the BoE does not extend its emergency loans window in October we will see collapses.

We are in our late 20's and have banked about $150K from gains on properties we've owned and will be mortgage free by the end of the year - unless we upgrade our current house.

We worked our butts off to save a deposit for our first house, repaid a chunk of the mortgage then sold and brought our second place. Repaid a chunk of the mortgage on that place and brought our current place.

Our first place was a 2 bedroom unit in a not so good area. Second place was 3 beddie in slightly better area and current place is a nice home in the same area. We've had flatmates in all three places which helped pay the mortgage.

And would you credit it, those blooming Europeans seem to be racing the Japanese to see if they can join them in recession:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aShQLlVndmcM&refer=home

However I am sure if we all just wear a smiley face it will all be fine here in New Zealand (and the very act of smiling will no doubt help us to make rational decisions about our own financial futures).

Looks like you better make sure you have a real job. Those with obscure job titles (the ones that you have to explain when asked what you do for a crust) may have to swap the tie for a trolley pusher flourescent vest. It was nice while it lasted but you know what they say about fooling people. It may cost you more than a bottle of wine to the boss to get you out of this one.