Westpac's economists have revised their forecast for house price inflation this year to 11.5% from 6% and say there is a greater likelihood the Reserve Bank will introduce new mortgage lending restrictions.
In the bank's latest Home Truths newsletter, Westpac chief economist Dominick Stephens said the fact that the Auckland housing market had rebounded was not particularly surprising and that tax and mortgage lending restrictions introduced last year were always expected to have a temporary effect on the trajectory of house prices.
"But we must admit that the power and extent of the rebound in March has taken Home Truths by surprise," he said.
And the economics team had upgraded its house price inflation expectations accordingly.
"Our take is that New Zealand's housing market is reacting to the big drop in mortgage rates over the past year.
"Strong population growth and the reasonably firm economy are obviously playing a role, but those factors have been around for a while.
"The big change recently has been interest rates."
This was showing up in the amount of debt households were taking on, with mortgage lending by banks growing at an annualised rate of 8% lately, compared to about 5% a year ago.
"One has to wonder how the Reserve Bank will respond," Stephens said.
"Clearly, the March housing data will be a mark against the idea of cutting the OCR again.
"But ultimately the RBNZ must adhere to its inflation target and there are other factors, such as the strong exchange rate, that are currently suppressing inflation.
"The more likely reaction lies in macroprudential policy.
"If house prices continue on their current trajectory much longer, the RBNZ will start thinking about another round of mortgage lending restrictions."
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86 Comments
A 5-8% rise would be acceptable had the past 5 years also had increases of 5-8%. However, that hasn't been the case, so a correction or flattening, for the medium term, is neeedd to bring this back into order before the risks increase even more.
I see Australia's employment figures starting to improve - could start to slow the net tide between NZ and Aus. Would be very interesting what a few months of low net migration would do to the property market (as the current pricing has a LOT of net migration factored in for a very long time into the future).
it wont be used to bail you out , the banks will sell you out as quick as a flash and take what they can get for your properties, that money will be used to bail out the shareholders so they dont have to tip in as much to shore up the balance sheets
have you never heard the saying the bank always wins
Is that what happened in 2008? The British Govt bailed out the banks then told them to bend over backwards so repossessions were not made. Come to think of it so did the Aussie Govt. The longer time goes on the more Im convinced the GFC is without doubt the best historic tool you can use to see what will happen if a cataclysmic event appears on the horizon. There is no loose lending like 2008. The banks are required to hold more capital. The banks do not like being real estate agents.
It's called having no clue how the economy works. If property prices fall by 40-70% there will be mortgagee sales everywhere, people won't buy anything from anyone anymore, business will go bust one after the other, unemployment will skyrocket as a result and there will be blood on the street
It could also happen in the next year. Dairy gets worse, Australian economy improves, migration drops, job losses, increased credit swaps for NZ banks, higher mortgage rates, less people being able to service mortgages (either through higher interest costs or they no longer have jobs), less demand for houses.
One or two key events can trigger a lot of downstream impact. This is ignoring the possibilities of effective government/RBNZ intervention.
At this stage, you must admit there are a lot more downside impacts than upside. I know there are forecasted future growth in Auckland for the next X years, and historical low interest rates, but that is priced into the market today. What do you think will change to result in prices needing to go up even more?
Where is the loose lending? That's what caused the credit crunch last time round. Remember the absolutely crazy batshirt mental mortgage market? That simply doesnt exist today. During the GFC Auckland dropped 15% for a very short period of time. Where do 40-70% drops come from in a normal recession?
I think you will find he shifted to Wellington for work reasons and where he is probably making a pile of money. The house he bought then will be worth a lot more than when he bought it as Wellington is taking off house market wise. Lastly he will be enjoying the easier lifestyle traffic wise and being close to the captains of power, ie the politicians and bureaucrats that run the country.
meanwhile in the USA first cracks starting to appear
http://www.cnbc.com/2016/04/14/miami-real-estate-is-melting-down.html
and in london
http://www.theguardian.com/money/2016/apr/12/london-property-values-plu…
and in india
http://www.globalpropertyguide.com/Asia/India/Price-History
but thats right auckland is different from everywhere else we are not part of the global world
Yeah, yeah, yeah we're so different - we don't experience those "asset cycle" things that the rest of the planet gets, despite being inextricably part of the global economy,
Property guys are so funny. Only know and bet on one asset class... is it any wonder that they show an unflinching devotion to spruiking it.
NZ is still cutting rates. The Poms used that trick 5 years ago. Still need a FTB scheme, bank loosening deposits to 10% before the FTB pool dries up. I live in London and in my area prices have gone up 3% in the last year. This is what the Govt is after. If you need a crystal ball study whats happened in London since 2010.
The Poms have got it right apart from the FTB scheme. That is a political sop by George Osborne to the electorate. That just creates more debt for the young. NZ would be bonkers to introduce that scheme.
They realised they had to stop the price inflation from foreign buyers and have deal with it well. 18 months ago 70% of PCL(Prime Central London) buying was foreign. Now it is less than 30% and falling.
At least the Brits acknowledged the fact that their property market was being over inflated by shonky overseas money and tightened up their AML rules.
People that own houses vote Tory and that's why they did it. They also have another scheme where council tenants can buy their houses for a 70% discount! Anyone that has to work hard for a living hates that one. Say the Govt started selling off State housing. Its the exact same thing. Ultimately areas do get gentrified so its not all bad. Mark my words - that scheme will be in NZ when prices even look like falling. The bones of it is already in a State owned bank. https://www.kiwibank.co.nz/personal-banking/home-loans/getting-a-home-l…
All that is going to do is open the market for overseas investment where the LVI is irrelevant; money is money. Auckland (read: New Zealand) is ruined and the only way to fix this catastrophe is put some extreme measures in place. Borrowing money using equity is cheating.
Thanks doublegz. I went to a single property auction and can report that there were no bids from the floor but there were a couple of phone bidders from people speaking Mandarin. I'd love to know where they were located. The property reached 29% above CV before passing in. It had a sold sticker on the sign the next day. I think buyers generally are being a bit more cautious and they are aware of how much over CV is reasonable for the location...as do sellers.
Time travel is theoretically posible. The fact we are not being visited by time travellers indicates that even given the infinity of time we either still haven't cracked it or we f###d up and self destructed on the way. The question being at what stage of history did we self self destruct?
Before we can find the transwarp hub we need to break through The Great Filter. The next step on this long journey, a seemingly impossible task, is expanding the DGZ.
No RBNZ/government restrictions are needed, let the economic cycle run its course, when property values decrease, some over leveraged landlords will fall, just like some farmers are faillng now. But life will go on, there won't be a depression as long as the RBNZ/government stop interfering. It's called the free market, the alternative is called communism
Did that occur in 2008? In the US and other places it did, Why not NZ? Was it the non resident access to buy here? Was it no subprime? Was it our 'wonderful banking system'? Was it our fantastic employment and production numbers?
I'm not playing devils advocate here. I want to know what people think has primarily lead to NZ's bubble continuing? Sure there was a small pause....
the NZ bank parents had to be bailed out in 2008 by the Australia government that's what saved us last time this time the problem will be bigger and the Australian government does not have the capability
the $120 billion taxpayer bailout of Australia's banks during the crisis - that's the amount they borrowed using the taxpayer guarantee
http://www.abc.net.au/news/2014-11-10/verrender-bank-bailouts-its-now-t…
We scraped through helped by a commodity boom and an earthquake that wrecked a city.
The politicians didnt have to choose between austerity or quantitative easing.
In order to avoid this difficult decision the next time, the politicians can increase immigration, turning much of Auckland into something like the mumbai slums.
Ok, Im racist, you choose the slum..
good video on the following link. Maybe the media can make a difference eventually ....
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116…
I cannot tell you how happy I was to see the article in the Herald this morning. That was almost the first thing I have seen in the media in this country giving young people a voice. Well done The Herald. My gut feel is that there will be growing pressure on the government to do something. How can people organise themselves to start really applying that pressure? Or maybe the media will wake up to the needs of the young rather than the ridiculous stories on how marvellous it is for NZ that house prices are rocketing up so much.
Actually this Auckland housing crisis is the fault of the council caused by this urban limit constricting supply and the stupidly high council building costs. They are the ones who want people to live in apartments.
All three interviewees said they wanted a house with a bit of lawn, a tree, a garage, etc. I suspect that's the feeling among most first buyers.
I wonder if the move away from traditional relationships has exacerbated the housing crisis for young people. When I was young and single I never even considered buying a house alone as it would have been crippling financially, or so I foolishly thought. My plan was to save when I got a fiancée and then use an entire income for financing the house. I carried out this plan.
I still pretty much follow this plan today. However if people are not going to commit to each other then how can they practically commit to getting their first home without extreme personal discipline? Many young people these days seem to have a string of casual relationships and a devotion to body piercing, tattoos, fast cars and gadgets. This is not good financially.
Commitment, self sacrifice, discipline and hard work is required for success! Fascist ...I know.
Have you seen the article in the link below?Look at the second video with the interviews then come back and tell me what you think. You can't apply your judgemental morals to this situation. You imply that young people's lifestyle is the cause of this situation. That you are successful purely because you worked harder. http://nzh.tw/11623505
You just need more contact with the real world ZS. What you find is that a lot of young people don't have work, are studying into their mid 20s and what work they do get has terrible pay. My parents at the same age as I completed university had 3 children and a mortgage. There's a big difference between working for 8 or 9 years versus full time studying and starting out with debt. My student loan was repaid over 7 years while paying about 9% interest.
Basically this put me financially behind by 15 years compared with my parents. They also benefited from the low cost of living and buying up cheap houses.
The thing is the young people starting today are in an even worse position as student loan debt is a lot large compared with when I was at university, even though the loans are 0% they will spend more of their life paying them off. Most may be starting off life financially 20 years behind me and 35 years behind baby boomers.
What these large debt obligations do is break down social constructs, then mix in low pay and unstable job positions and you end up with today's mess. What is frustrating people is when they commit to self sacrifice and discipline they find they are hardly making any progress.
With the people I help sort out their budgets and debt problems once they start tackling their finances there are interesting results. For the ones on a high income some discipline will fix their problems in 1 or 2 years. Those on lower incomes take years often 4-10 to resolve their debt problems. When people make bad financial decisions they compound the problem I described above.
Easy access to abusive forms of debt and marketing for the consumer economy are very damaging to our society. What you have described is the result of this not the other way around.
So what you are saying is that house prices are high in Auckland, because a family with two working adults, can afford to pay more than a family with a single working adult. This is true, but in the 'old' days, many families, even with two adults in them, only had one adult working. So in the old days, it should have been as easy for a single person, to buy a house, than a family. Also people are buying houses based on what the bank tells them they can afford to borrow. So they are competing against people in identical situations, earning similar amounts, so people are bidding up to that maximum to secure the house. The problem is what happens if one loses their job, or interest rates eventually rise , say to over 8%, which historically is still very low. But we have now had a generation who are used to low interest rates, and don't remember when they were over 10%
IMO the housing crisis in Auckland is being fueled by a perfect storm of conditions.
- Historically low cheap credit
- Banks willing to lend to people to buy these overpriced shacks
- A lot of overseas money and investors buying houses
- A lot of mum and dads who have got money in bank accounts, after being bitten by the finance company collapses.
- Influx of cheap money from overseas that the banks need to lend out. If the banks don't lend, they don't make money.
- A shortage of quality houses
- Greed
You only had to watch that home program on TVNZ. Someone buys a house for 500-600k, spends 100k doing it up, and expects to sell it for 1 million. This is just for a small basic house! In some parts of NZ you can buy a small mansion in comparison to that.
I think it is going to end in tears when the bubble deflates, but I think it will be the mum and dad savers who are going to take a bath, as the property market is really too big to fail.
Really it needs government intervention, and one of the first things should be stopping overseas people (non NZ residents), buying existing housing stock. If they are buying, they should buy only land to build on. They already do this in states in Oz, and it makes so much sense. It also means that overseas buyers will mainly be buying in more fringe areas, so their oversea money can go into building up the infrastructure in the fringes.
There are quite a lot of chatter on the net about an upcoming financial crisis within the next year, more chatter than I have seen for quite some time. Anyone else noticed this too?
My niece is with us for the weekend. The one from Auckland trying to sell her house for over $2 million. Houses under a million are selling well. She says it has been harder to sell houses for over a million but it seems to be currently improving. Good homes well maintained are still selling. The RB need to step in with new measures and slow things down. I am sure there are a lot of stressed out and frightened families in Auckland who are trying to save a deposit but see the market moving away from them. When will the politicians grab this crisis by the throat and take control of it.
here you go, now you will see why they only pay lip service to house prices and investment properties
http://www.parliament.nz/resource/en-nz/00CLOOCMPPFinInterests20161/2b6…
what gets me is how shallow minded Kiwi's are. And I'm a Kiwi by the way.
All this talk from mainstream of rising house prices, and half the country have no understanding of the real value of a house, its long term value based on household income, or the risks associated with taking on a large mortgage at low interest rates without factoring in a large percentage increase in servicing costs.
Deflationary forces, demographic forces, NIRP, ZIRP, immigration all factor in.
People should be looking offshore for signs of what is coming. This article is case in point. A risk re-rating is overdue, and there are signs in this article of what is to come. Italy looks very bad.
Remember, the Great Depression started in Europe in 1927. But only those who study history are aware of that. The 1929 stock market crash was a symptom not the cause.
Rinse and repeat? Bail in? Read this article closely. You SHOULD be worried.
Sell in May and walk away... for the rest of the decade
http://www.zerohedge.com/news/2016-04-12/what-world-going-banks-week-em…
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