House prices are tumbling in the main centres. Westpac says market will remain "very soft" for next two years

House prices fell substantially in the main centres last month as sales volumes dried up, according to the latest figures from the Real Estate Institute of NZ.

The REINZ's national median selling price dropped $28,000, or 5%, to $518,000 in July, down from its peak of $546,000 in March.

It was the fourth consecutive month that the national median price has fallen.

In Auckland the median selling price dropped to $830,000, down by $75,000, or 8%, from its March peak of $905,000.

There were also substantial falls in median prices in the Bay of Plenty, where it dropped to $489,000 in July from $557,500 in June, in Wellington where it dropped to $490,000 in July from $530,000 in June and is now down by $50,100 from its April peak of $540,100, in Canterbury where it dropped to $420,000 from $435,000 in June and is now down by $30,000 from its March peak of $450,000.

Compared to June, prices also fell in Manawatu/Whanganui, Taranaki, Tasman and West Coast, while median prices rose in Northland, Waikato, Gisborne, Hawke's Bay, Nelson, Marlborough, Otago and Southland.

Median prices are now below where they were 12 months ago in Auckland, -1.2%, Bay of Plenty -1.2%, West Coast -23.5% and Canterbury -2.3%, while record median prices were set in July in Northland , Hawke's Bay, Nelson and Otago.

The fall in prices in Canterbury and the rise in prices in Otago means that Otago's July median of $400,000 is now almost matching Canterbury's median of $420,000.

The drop in prices was accompanied by a sharp fall in the number of home sold in July, which was down 24.5% compared to July last year, while in Auckland the number of sales fell by 30.6%.

REINZ sets sights on RBNZ's LVR restrictions

REINZ chief executive Bindi Norwell blamed the Reserve Bank's loan-to-value ratio (LVR) restrictions and access to finance as two of the main reasons for the slowdown in the market, and called for the LVR restrictions to be eased for first home buyers.

"The LVR restrictions have done their job of slowing the market, but now it seems they are acting as a hand brake which is why REINZ is calling for LVRs to be reviewed for first home buyers," she said.

However Westpac senior economist Michael Gordon pointed the finger at rising mortgage interest rates as one of the main reasons for the slowdown.

"The slowdown in the housing market has been larger and more persistent than we've observed in the past when loan-to-value limits have been tightened, or when buyers may have been nervous about an election outcome," Gordon wrote in a Westpac First Impressions newsletter on the REINZ figures.

"We have long emphasised the role of interest rates in determining house prices; the rise in mortgage rates since late 2016 following two years of steady declines, appears to have had a significant dampening effect on the housing market.

"We expect the rise in mortgage rates to persist, as they are the product of factors that are beyond the control of domestic monetary policy.

"That points to the housing market remaining very soft over the next year or two.

"The Reserve Bank's forecast of even a relatively modest 4% rise in prices this year looks too high," he said.

 

Volumes sold - REINZ

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443 Comments

Comment 1 (First). "When you throw in winter, school holidays and one of the wettest July's on record, it is little wonder the number of properties sold last month fell so significantly. " Bindi explains a 33.8 percent fall in sales volume. In the past 21 years only on two occasions have there been fewer July Auckland sales . In those years the OCR was 8.0 percent and 3.0 percent.

You're meant to say "First!" Cowpat.

Second!

Although even Anne Gibson in NZH describes the REI request for LVR drops as "desperate", which was unusually brave and candid I thought. Plainly she misspoke.

@Bobster spot on mate

She'll backtrack soon enough I expect with some kind of "never been a better time to buy" type article. and she'll definitely have "they/he/she said" in there too. She's utterly ridiculous and a very poor excuse for a journalist.

Yep, when this moment of national madness is over there will be a special place in the pantheon of fools reserved just for her

My impression is we are about to see a large reserve bank error. With Auckland property prices down 10% (Auckland at this point is likely to be in recession), negative per capita GDP and less than 0.5% inflation over the last 6 months. I think NZ will have data showing negative quarterly growth for the whole country within 6 months, and official recession within 12 months (need 2 consecutive quarters of negative GDP).
Given the high NZ dollar, minimal inflation and property price falls in Auckland, 2 rate cuts this year would be justified, as the LVR restrictions should restrict a further surge in property prices.
What we will probably get is a 2018 recession, 30% plus fall in the NZ share market, 4-5 rate cuts over 2018/ 19 and a 2009/2010 move in to property driven by low rates and a flight to safety from sharemarket and managed funds and concern regarding safety of bank deposits. LVR restrictions will likely be removed due to political pressure in a recessionary environment. The Reserve Bank to avoid volatility needs to move now with a few rate cuts or they risk finding themselves well behind the curve and having to enact a series of rate cuts within 12 months and being forced to remove the LVR restrictions (as the government knows where the property market goes, the economy goes). But, as they tend to be reactive rather than proactive I do not see this happening.

I agree thats probably what they should do, and i also agree they probably wont.

So mja you see 4-5 rate cuts in 2018/19. How will that help the property market?. Out of curiosity what will happen the currency during that period?

I think 4-5 OCR rate cuts will lead to mortgage rates with a 3 in the front (note studies show NZ mortgage rates of 2 years and under are tied to the NZ OCR, 3-5 years rates are a combo of OCR and US rates). After initial decline property prices will stabilise as term deposit rates will be in the 1-5-2% range (reduced OCR and flow of funds to perceived safety of large retail banks), a recession would knock at least 30% off the NZ sharemarket, there will be concern about defaults on fixed income ie company/ bank bonds. Baby boomers with significant asset bases will be looking for a safe haven and property with a net yield above term deposit rates will look attractive for retirement income, without the risk of default. Freehold property cannot evaporate, but funds in financial institutions can.
I would anticipate the NZ dollar would decline to the 55-65 cent range versus the US dollar.

I hate to break it to you - but a fall in Auckland house prices isn't the sign of a recession - any more than an increase was a sign of economic growth. We will have people feeling less affluent and perhaps spending less, but the process of turning grass into overseas currency will still continue.

While the fall in prices may not be the sign of a recession they could well be the catalyst.
Here's how I see it: we've got an economy juiced up on and habituated to a massive injection of fresh money via private sector credit growth (new debt IOW) 30 thousand million last year - that's the annual pretax wage for 625,000 median full timers. With the asset values backing that debt declining at the same time as the propensity to borrow is declining (no one wants to catch a falling knife) credit creation will collapse. I don't know if you can visualise 20 or 30 thousand million effectively removed from the economy but it won't be pretty.

@ex socialist Money supply, learn about it.

For a recession essentially you just need economic activity to stand still, I would say that at this point there is less economic activity in Auckland than there was 6 months previously:
-less spec house construction due to falling sales and prices
-combination reduced real estate sales for a lower average price would cut real estate commissions by approx 33%. Given fixed costs means total real estate agent/ company earnings would have fallen 50%
-less work for valuers, stagers, photographers
-less reno and flips, less work for tradies
-reduced luxury car sales
-less sales on furnishings etc for houses as this is correlated with home sales

This is just the start, I cannot see Auckland not being in a recession with this backdrop.

exsocialist, you'd have to be naive to think rising house values doesn't contribute to NZ's economic growth. It's been the government's economic growth policy for the last four decades at least.

Nothing is materially created when people buy and sell houses off each other. The only growth is debt.

That's not right. When the going is good, you also grow the pool of over-confident and sometimes arrogant property investors.....Their arrogance and confidence has perfect correlation to debt growth....

Renovations and subdivision to name two major factors but most importantly the sense of feeling wealthy can cause spending to rise.

But isn't that pretty much choosing longer term stagnation to protect current speculators? Aspiring to be the next Japan, rather than having a shorter recession that serves to reset things back to more normal conditions?

Dropping LVRs wouldn't do anything at this stage ,investors invested at the moment unless heavily with cash will be out of the market place for some years, but once the market has dropped say 3 to 4 years , give the market a kick in the side maybe by dropping the LVRs , but DONT let the market get carried away again, use the LVR and DVI wisely, there's no need for booms and bust or high interest rates

It wont matter if the official LVR's get removed. Banks wont be originating NINJA or high LVR loans in a falling market. NINJA is an exaggeration, the remaining market participants are LIPJLA's (lowish income, precarious job, lowish assets.

Don't forget it is close to the election. The agents have already said those are the reasons. So why isREINZ saying LVRs need removing for first home buyers? They are there for good reason, and that is to protect first home buyers paying too much. So why would REINZ want to remove them? I know that agebts in NZ they are acting on behalf of the seller in most cases, but still.

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Now the crying and spruiking really gets started. Does it really make sense in a FALLING market to start reducing deposits? Of course not, that would be crazy.

I wonder when all of the industry spruikers are going to realise that the false hope of an election was the only thing holding the market together?

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Surely dropping house prices to a realistic level that first home buyers can reasonably afford is the purpose of LVR's. We have got a long way to go before we should turn the handbrake off!

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The best thing that could happen for FHBs is that prices continue to fall. Adjusting the LVRs will primarily benefit vendors who can then rely on FHBs to take on ever more leverage and therefore give vendors a higher price. Anyway, 20% equity doesn't seem an unreasonable requirement in this market right now. I doubt lenders will fall over themselves to lend to FHBs at a lower LVR.

It also fails to take account of the fact there is ALREADY lending with less equity - for one thing, 10% of bank flows can be >80%.

Secondly, construction loans are already exempt from the restriction.

Other than wanting to increase their commissions, the REINZ gives no rationale for allowing more FHBs to borrow more than they should to pay more than they should for something.

Yep, why should the current level of sales not become the normal level? Whats wrong with that?
FHBs will eventually have a whopping great deposit percentage wise once house prices have tanked.

Plus FHB can tap their Kiwisaver for a deposit.

Hi K.W.

Unfortunately, for most of them that's tapping very little.......

Agreed , prices must fall way more

Jimbo, the purpose of the LVRs was to reduce the chance of future economic instability secondary to a property bust not to reduce house prices for first home buyers.
The Reserve Bank within 6 months will not look particularly astute, given data has now shown they were trying to enact DTIs at the top of the property cycle to moderate property price gains (they were fobbed off by Stephen Joyce) when prices were about to reduce without further action. If NZ enters a recession triggered by falling property prices LVR restrictions will be removed as they will be adding to the economic instability at that point in time, by reducing consumer spending via negative wealth effect and reducing ability to borrow funds secured against own home to fund businesses that will likely be faced with tough times.

When the governor enacted a 40% LVR on investors, he either did it to cool the housing market, or he did it because he thought there was a very real possibility that houses could drop in value by much more than 40% causing financial instability. While a >40% drop is possible, my guess is that he did it to cool the housing market, and I also guess it has worked.

A FHBs biggest problem isn't the LVR s , even if the deposit went to zero how does that help, the prices are to high and banks aren't taking risks, so fhb need more deposit less dept, in short house prices down a good 40%

It's a nice idea Jimbo Jones but that's not at all the point of the LVR's (and you have 23 thumbs up, oh my). The point of the LVR is to make the banking system more resilient by creating an equity buffer.

And yet other articles today telling us nothing to worry about.. insert Tui Ad..

Property investor friends are starting to get excited. Planning take it or leave it offers not much higher than 2014 cv.

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Why not wait a year and offer take it or leave it offers not much higher than 2010 values?

Fair value I guess. Positive rental yields.

Did someone take the punch bowl away? Hangovers incoming...

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Low volumes and falling prices not a good sign for the property market. Slow immigration down and the market will drop more quickly. Market is still well over valued in my view created by excess cheap money and formed a housing bubble.

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The property market is just like a very large supertanker.
There is absolutely no need to buy right now.
Just sit on the deposit and wait for the bottom.
I would not like to predict which side of -20% that will be.

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And said supertanker was periodically hijacked by somali pirates (investors..) asking for millions of dollars per ship. But now the ships run out of steam and might be sinking...bags not paying the pirates...let them sink with the ship I say...

Nice analogy

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I guess we are not plateauing anymore?

lol - lovely comment - you have a dry sense of humour

Auckland median house prices down 1.2%, I'd hardly call that a crash. Also central and west Auckland house prices are up! The media is spruiking falling number of house sales as if these are the house prices dropping. Just simply not true.

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That's 1.2% down on a year ago though when the property bulls were expecting at least 10% y-on-y gains.

Agreed, not a crash, but certainly a substantial trend change. WTFH?

The trend change occurred about a year ago with the property market showing dislocation of prices within the market. Lower quartile showed weakness while upper quartile continued to move strongly. As the weakness climes up the ladder you get a gentle deceleration then a topping and then, id suppose, an accelerating decline.

No one is saying the current situation constitues a "crash". But the market expectation is plainly for prices to fall further. Volumes are a lead indicator, and they are pitiful. YOY figures will deteriorate further. Be patient. It took 10 years to create this mess. It could take years to unravel.

No I'm calling it a crash. It's only just warming up right now and by the time it's identifiable as a crash by everyone it will be historic.

If things weren't going wrong you wouldn't see so much complaining about LVR rules.

Ok, fair enough. Maybe this is our Minsky moment. Who knows. From where we are now a 20% fall in reasonably short order doesn't look unthinkable. 12-18 months? That's not a prediction, just a possibility. The sales numbers are just awful. And sentiment had completely changed.

Whatever ends up happening it will be slow moving. I'm expecting a few bumps in the road along the way, and I don't think it'll be clear cut.

Yep, there will be false dawns

Down 15% yoy over 18 months and then flat for 18 months would, i think, be pretty nice. Manageable fall in price, time for affordability to catch up a little and then, hopefully, more sensible interest rate policy to avoid a repeat.

They sounds to me like a best case. When you say interest rate policy, I wonder if you mean macro pru reg, as that seems to me to be the important issue. I would like to see DTIs as well as something like imputed rent tax.

I think the you cant have DTI's without a ban on foreign buying (which i support). I am generally of the mind that higher interest rates force bankruptcies in non-competitive businesses and i like that, so im most keen to see slightly painful interest rates. I also like mac-pru directed at keeping housing for home owners but this is all just a pipe dream. I expect more of the same and a gradual erosion of home ownership and continued avoidance of 'pain' though interest rate cuts.

Yes I agree on foreign buyers, but needs to be dealt with as a separate issue to DTIs

I would like to see the housing market stripped of it's status as a casino, but not sure how you do that. I would like to see the market for houses as frankly a stable and pretty boring market. There are many social outcomes tied to household. Again, not sure how to do that.

Yes bobster right on, and permanent LVR AND DVI would be a great start, shame it's starting at the wrong end of a cycle, should have been in place years ago, we obsess to much about housing, if we put half that energy into other things imagine how great we'd be

Totally agree

Wise words indeed

In fact, the best comment I have ever read on this site. Well done sir

To get a crash in property is basically impossible. We may flirt with a bear market, but if we do, i expect there would be rate cuts and anything more severe than that and Id guess the LVR restrictions come off.

I understand your argument about affordability. You argue that affordability is a function of income and interest rates, and by cutting interest rates to improve affordability the RB can effectively dictate the broad range of house prices. Implicit in this approach is the assumption that people will buy houses regardless of the expectation for price movements ie if affordablity improves people will be more inclined to buy houses, even if the general expectation is that the prices of houses will decline in the immediately foreseeable future.

I think that much of the demand from owner occupiers and investors has to now been essentially speculative. Owners may be motivated by FOMO, but that seems to me an element of speculation as well. Falling prices may also therefore reduce the demand for houses, not increase it. Falling prices will adveresly affect the value of lenders collateral and will also therefore reduce lenders demand and capacity for granting credit. So I don't uncritically accept that the future course of prices at least in the short to medium term will be dictated solely by affordability, as this doesn't give enough weight to the effect of falling prices on demand and credit creation.

I was also be wary of viewing any possible outcomes as impossible.....famous last words.

Affordability is the core fundamental, as such it has only a minor effect on short term prices, a moderate effect medium term, and a huge effect long term. Overlaid on affordability are dozens of factors, one of which is psychology. The RB cant really effect prices short term, but they do effectively get to pick what price range an asset will trend towards. If they cut today, prices wont suddenly turn around.
As to expectation of prices, interest rates set long term prices and as such expectations on prices gradually change as interest rates do, so as rates get cut, more and more people begin to realize that prices will in the future rise. It takes a while for people to switch mind sets so its not a sudden effect but over time it does take hold and cause a trend change. The head of the BOE was merciless in his lack of emotion towards those who didn't understand that if they are cutting interest rates, they are telling people to invest in risk, or else.
Almost all investors buy with no thought to prices tomorrow, they almost all view themselves as been in the business of been landlords and expect to make some amount of money over 15 to 40 years. The speculative investors (a sub category of traders), are a tiny group of people, mostly tax frauds imo, who run around like parasites trying to feed of honest families.
The thesis that falling prices, begets falling prices because of falling collateral is a thesis that has no exit. Most people did not buy in the last few years and of those who did, most did not gear up to the hilt. I have not seen any data to indicate that falling prices constrains collateral to the point that it becomes a self fulfilling problem. I have seen data to indicate that bank servicing calculations are what is constraining most people from buying. Falling prices will help alleviate that main constraint. Lots of people have lots of equity, but most people have fairly limited incomes
A crash in property has occurred in some countries but to drop a lot of value, in a short period, is very difficult in property as market participants are not very flexible and the market is inherently illiquid. Over priced property tends to grind lower, unlike stocks which can crash.

Applying this logic, if there was a downturn maintenance of house prices via interest rate cuts would require borrowers to borrow money without any internal negative constraint being imposed with regard to income multiples. You assume it would be rationale for a borrower to borrow 10x, 15x, 20x income without restraint provided the debt service was within the envelope of affordability. So there would similarly be no restraint imposed on household debt: 170%, 200%, whatever. But they do this because they believe these levels of debt, previously unmanageable, are manageable now and for the next 25 years. And because they believe any subsequent purchaser, is not in fact a "greater fool" but a rational actor who has exactly the same set of assumptions.

That doesn't seem to me to be a realistic scenario.

As rates drop people know two things:
1) Borrowing will rise and consequentially prices
2) The rise in borrowing will constrain the RB's ability to return rates to historically normal levels

Its like working for families, you cant all of a sudden remove it because it got baked in to loan calculations and would cause defaults and crash the economy. In effect what use to happen is rising debt caused rates to rise, but now rising debt causes rates to fall.
If you expand this out long term you get Japan.
I personally wish it were different as I cant personally figure out how this ends well, but im not prepared to blindly ignore what they say and do. They are convinced by DSGE and firmly believe that there is a holy grail of interest rates, inflation and employment that yields 'stability'. That belief causes them to respond to high debt with lower rates, im dead serious, they dont see high private debt as a problem in the math because its filtered through interest rates.

Bobster, one mistake you have made is working on the policy that all property investors buy with borrowed funds. My last purchase early 2017 in Mt Vic Wellington was was a 3brm townhouse for 590K. The property lets for $700 per week, the body corporate is $3600 with rates $2000, assuming $1400 for maintenance (note body corporate takes care of external maintenance) and have a net return of $28K, this is a net return of 4.7% if purchased with funds. If you are a retiree with 600K, a net return of 28K certainly beats the 18K you would get on term deposit. The rent will effectively be indexed to inflation unlike a term deposit that will erode over time, and also have the security of bricks and mortar for your retirement, rather the potential risk of a banking OBR event. In a low interest rate world net returns on well located property of 3.5% make sense as they put more money in your pocket than a term deposit. In this scenario the capital value of the property is irrelevant, the retiree is only interested in the cashflow the asset can generate.

Mja lots of alternatives to term deposits and bricks and mortar. (In your scenario , Wellington median has dropped 30K since start of year.) There is no allowance for property manager, insurance , vacancy in your calculations and the numbers are not 'net'

Insurance is in body corporate fees, do not use a property manager as easy to manage in high end area as dealing with young professionals, and as a high end area have minimal vacancy

To get a crash in property is basically impossible.

That is just so wrong on so many counts. It's a particularly personal issue for me in that my best girlfriend in the US lost her job, was foreclosed on and committed suicide after a period of 2 years couch-hopping whilst homeless. In the weeks before she lost her job she was riding high - a property valuer in a booming West Coast marketplace.

And my US friend who had to raise $44k to pay her ex to KEEP the house in a divorce (because selling it would have cost both of them a lot more thanks to negative equity).

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Sorry to hear that Kate - this is one of the reasons why I find the arrogance of some property 'investors' a little intolerable - they're unaware of the damage they might be doing to other peoples lives as a consequence of their behavior..

Thanks. I do miss her. I feel more animosity towards the FIRE sector. I really do not think I could be any part of a transaction (be it as RE agent, mortgage broker, or lender) that willingly commits any person/family to a level of debt that is sure to cause stress if any one single, small variable changes - including and in particular, an increase in interest rates.

Yes i say basically impossible because it is not literally impossible. If you have extraordinary fraud at every level then you can get a devastating and fairly sudden market failure. But thats not relevant. In normal housing markets you basically cant get a crash, prices can fall a long way, but they tend to grind down slowly over many months. A crash is a specific sort of market failure where the losses occur over a very short period of time, usually a few days or less. A bear market, which is more possible, is a market that is outside of normal corrective behavior, denoted by a fall of more than 20% that causes some amount of psychologically reinforced selling.

In this case I think there's a good chance that we're looking at years of stagnation or price drops Laminar...(perhaps even a decade)

Well i certainly hope so, not a decade but three years would be nice.

FHBers will pick up the batten at some stage, the cheaper housing , that will help things along the gravy chain slowly, but the really expensive stuff and down, there's housing out there that if went back to the 2008 CVs would drop by over a million dollars and that's only prices of 9 years ago, not saying that would happen but I've said before because of the manner of this boom going back close to the last boom highs (2007) mighted be out of the question at all

I wouldn't be surprised if we see a 50% drop in Auckland prices and 30-40% drops in other parts of the country. I'm not crystal balling this, I'm just saying that I wouldn't be surprised by an outcome similar to this...

Kate
My sincere sympathy
Sadly the spruikers here are mostly ignorant of the damage a housing market collapse can do.
Millions of foreclosures occurred during the GFC in the USA & the govt chose through lobbying by WallSt & former WalkStreeter Timothy Gietner to bailout the banks and not the many good people who lost their jobs and were foreclosed on through no fault of their own. Many had lived in the same house for 20 yrs or more.
NZers are mostly oblivious to that fact and believe that all the foreclosures were deserved which they were not

I don't think nzers think like that at all, many people here and worldwide hated the banks for years and didnt think they should off been bailed out, using Kate's bad news like that is a bit low

No worries about that comment at all. I agree to a degree. It's unfortunately not unusual for folks to see people who are homeless and/or poor here in NZ as having been the masters of their own destiny. Nothing could be further from the truth in most case I've come across. No different in the US.

Exactly, most people are a 1-3 small bad events away from financial catastrophe. The virus of the "American dream" has slipped though biosecurity to get here too. More sleeping in cars and in garages, just like the USA. That is, wealth is to be perceived to be a measure of virtue and poverty is truly indicative of sloth and ineptitude.

If most people are in that state, then so are most societies.

This is just so wrong.

OK property does not fall as rapidly as say shares but over a period of a year to 18 months property can fall substantially and has done in many markets around the world.

The notion that fixing any fall will be to lift the LVR or cut rates is wishful thinking. If the downturn is severe there will be little appetite for borrowing to invest in property. The trick will be to catch the bottom but there maybe a very long weight if you went "in" at the top!

@Tom Joad Yes that is my point, people are talking about a crash, which is a specific sort of market failure. An 18 month correction exceeding 20% would be more in line with a bear market.

20%? Take a look at that link 60% down in 18 months and 75% down 6 years later!

These things do happen - it's just that New Zealand has never experienced a crash.

You do know that on a Price/Income ratio we're the most overvalued overvalued market in the OECD?

1987 was not so good, and we did not have the effect of foreign buyers forcing the market into the stratosphere and we did not have the experience of them vanishing into thin air after a time.

Catching the bottom is not a problem , if it goes so far and up again just be ready, you wouldn't pay that much more up the other side, it's the selling on the way up that can hurt, if u wait to it goes up then you see it come down normally everyone else has to and you mighted be able to sell

Pretty sure the US made much bigger rate cuts than the RBNZ could possibly achieve, and they still had a crash!

@JimboJones Yes, fraud at every level and an economic failure can cause such problems. However interest rates actually did recover the market in the end, which is almost a miracle given how over supplied housing was and how underemployed the population is.

In my girlfriends case - she wasn't one of the 'liar loans' - she had a 70% deposit on the purchase price on her property and an interest only (i.e., flexible) mortgage - effectively an overdraft facility secured on the property.

When her bank determined that she had lost her job (salary not coming in) and that she was effectively paying the interest on the mortgage out of the overdraft facility (which was large enough to keep her going in that way for at least 4-5 years), they cancelled that mortgage and put her on a traditional fixed term mortgage, requiring both interest and principal to be paid on a monthly basis. She immediately put the house up for sale.

Unable to find another job - and we are talking any kind of work (unfortunately this was a critical time when the reality of all the undocumented 'residents' who were working became a real issue for American citizens and their ability to find any kind of low paid employment). Within three months of failing to make those mortgages payments in full - the legal process for foreclosure was filed.

It was a further year before that 'day' when she had to hand over the keys came to pass. She had by that stage still not found work, had sold the car, most of her furniture, all of her jewelry and had been doing dog-walking work for cash - but still the level of money she repaid did not equal the mortgage outstandings (of which started incurring penalties as well).

Point is, she acted in good faith and continued to try to prove to her lender her willingness to do all she possibly could - but to no avail.

Perhaps a useful consideration for all those out there with interest-only mortgages.

That's damn rough. Incredibly sad :(

Kate
The fact the bank foreclosed while knowing she was able to pay interest only using her approved overdraft facility stinks considering her high equity level in the property.
She needed a very good independent negotiator either credit /broker/and lawyer
The banks just turned into animals during GFC in the US
There are a lot of similarly sad eventualities and yet by the spruikers here you'd think GFC2 could never happen and hurt Aucklanders
Again you have my sympathy Kate

It's a symptom of how predatory things get in society when you don't protect and nurture such values as fairness and looking out for others. Parts of the USA are more like a wealthy Third World country in this regard, compared to societies where fairness and equality of opportunity are more closely-held values.

At least, that's my observation from time living in the Third World.

I was living and working in the US through the GFC....the pressures that employers put on staff was horrible..the fear of losing jobs was real and management were using the threat of unemployment as a stick to work people to breaking point....there were literally guys (mostly males in the office) taking sleeping bags to work and crashing under their desks at 3am and sleeping there, pulling 70hr+ weeks (at one point that was mandated for a particular project team) in order to keep their jobs and pay their mortgages...wasn't pretty...all as a result of the GFC...this is just one example, but we need to get real when we hear that National claim our over priced houses and 'demand problems' are a sign of success...its foolish and naive....the conditions I experienced in the US in 2008-2009 could happen here in the next 12-24 months...immigrants and locals fighting for jobs in order to pay mortgages on houses that are losing value...it really isn't a laughing matter at that point.

Yes, it was a world away from perhaps any time we have gone through here, in my experience anyway. And now a 'Trump' (i.e., anyone not the establishment) in the aftermath is completely understandable. The fabric of society there has never recovered and is unlikely to do so within my lifetime.

Kate,

I simply do not understand the rationale behind interest only mortgages. Back in the day,they did not exist in the UK ;mortgages were either capital and interest,or backed by an endowment policy. From memory,I think they started appearing in the early 80s.I have no idea when they first appeared in NZ,but the market would be better without them.

First of all you need to understand what the NZ home lending market was in the 1960's 1970's and 1980's. Banks were not even a presence. It was Life Insurance companies or Building Societies, or you could get Solicitors Mortgages for anything that was not an occupier-residence

Generally Solicitor Mortgages were interest only

A friend of mine in Alabama went into foreclosure in 2009-ish because of fraud. Not hers. She and her family had bought normal house with normal mortgage and were paying it off normally, but when things went completely batshit in 2007/08 her mortgage was in a bank that went under, and in those bundles sold off and transferred to new ownership. They carried on paying the mortgage as usual. But it turned out that their last year or so of payments were just outright stolen by the new institution, and never applied to the mortgage. They were luckier, in that their jobs were secure and the next-door-neighbours were crazy people who were harrassing them with the local police turning a blind eye. They were pretty happy to just hand over the keys, write off their losses, wash their hands of the whole neighbourhood, and move somewhere that didn't have deranged hillbillies training video cameras on their back yard, or spying on their daughter's bedroom window from a specially-built perve porch.

I have had hard discussions with my son over the reality of negative equity, given the fact I will not finance him into an overpriced dwelling with a small or big deposit in the current market. You have my sympathy in respect of your dear friend's demise.

Thanks. I think she'd be really happy to have her story told - but it is certainly not unique in the US, that's for sure. Tragedy after tragedy there. Many dead and not one culprit doing time.

Yes, negative equity is far more destructive here than in the US given we don't have non-recourse mortgages.

The RBNZ are already at a all time low of 1.75% , they have very little ammo , and even in more normal and a lot less risky booms like 2002 to 2008 with the RBNZ at about 8% with plenty to drop the low still dragged on for years

The title of this article says
"House prices are tumbling in the main centres"

And that translates into less money to be spent in the regions. Everyone is affected as Auckland ,Wellington and Christchurch drop in value. Tauranga , Hamilton and Wfhangarei have benefited from people selling in Auckland and buying cheaper in the regions.

"Auckland median house prices down 1.2%"... so far

Down 8.5% from their peak. I bet it wouldn't be hard to find spots in Auckland that are already down 10%.

I'm firmly of the view this has a long way to run........

You cant measure a seasonal market from peak to trough, you need to use yoy or adjust.

in Auckland. Median prices there are -$75,000 below their peak in March, an -8.3% drop in just five month

according to standard and poors more than a 5% drop is a crash....

If you could provide a link please because if true the S&P thinks crashes are occurring every few months in many markets.
Also in seasonal markets you measure yoy or adjust, otherwise stuff would be 'crashing' every year.

Falling property prices seems to be part of a growing global trend, Toronto property prices are dropping $2,100 Per Day and even Vancouver has just seen a big spike in increased inventory.

Toronto Real Estate Prices Are Dropping Up To $2,100 Per Day
https://betterdwelling.com/city/toronto/toronto-real-estate-prices-dropp...

Vancouver Real Estate Is Soaring… In Terms of Inventory
https://betterdwelling.com/city/vancouver/vancouver-real-estate-is-soari...

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Waiting with anticipation to Toothey and Eco National comments..

There's nothing wrong with having a diversity of opinions. I'd have thought we could be slightly more adult about this.

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Spare me..only yesterday they were extolling the virtues of steady and rising house prices...plus its Friday so you might want to loosen the Adult waistcoat off a touch

Not saying I agree with them, but do we really need the childish name calling? This site would be better off without becoming an echo chamber

Fair enough I agree with you..and have edited my name calling. Also see below.. told you its was Friday was for joke telling

Well said mfd, it's great to have commentators like you on this site

^^HAHAHAHA^^ funny comment frazz

What's new?

The market is soft at the moment and might well remain that way for a while - given the significant upswing of 2014-16. But close scrutiny of the data shows some parts of the market (for instance, stand-alone houses in Auckland's inner-city suburbs) are still holding up remarkably well.

Property in New Zealand will continue to be a top investment in the medium/long term - especially well-located property in the main centres.

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You never disappoint

Thanks Bobster,

I always aim to please.

Robert Shillers research clearly showed that over the long term (100 years), property was the worst investment option by a long shot.....Before their bubble, adjusted for inflation, there was more or less no (like 0.2%) gains made in property investments.

https://www.cheatsheet.com/personal-finance/is-real-estate-still-the-bes...

But given this is NZ, and you know better than a nobel prize winner, you're sure to be absolutely right - property will be the best long term investment option...

Don't bother, this is wasted on them.

Shiller's research is not beyond reproach..........

If you (or your ancestors) had bought well-located property in NZ 100 years ago and kept it in the family until the present day, then you'd be sitting very pretty indeed.

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You completely ignored the point...

And if your ancestors purchased and held a portfolio of shares, bonds (and commercial property) of the same value?

Hi Independent Investor

Plenty of corporates have gone belly-up in NZ over the last 100 years - as have finance companies etc, etc.

But there aren't too many calamities with carefully-managed property investments.

I know where I'd rather have my money............

Have you heard of earthquakes, floods and house fires? Perhaps you're allowing for the houses being fully insured and protected, but ignoring the potential for a diversified stock portfolio, an index fund, and periodic rebalancing?

I know where I'd rather have my money, invested over a range of asset classes rather than horribly concentrated in a single asset class in a single country.

Hi mfd,

There have been plenty of "earthquakes, floods and fires" in the financial sector - bonds, debentures, futures etc......

Overall, land is much safer and more reliable.

As I said above, Shiller's work is not beyond reproach. Certainly, applying it to NZ in an unthinking way is not very helpful.

and how many property investors have failed.....

Hi BadRobot,

Not too many of them have failed (as a proportion).

If you're half-smart, it's not too difficult to yield a good return from property investment.

Property has a good track-record.

Not as good as a properly diversified portfolio. Take off the blinkers.

You're make an assumption that people are half-smart. How many property developers - have failed - I can think of two who were spectacular - and ther are most likely many others.How many property investors have tried and gave up because it was not as "easy" as they were told. Many years ago I went to one of those property company seminars - the hard sell to use their services. The problem is we don't know so to make one of your usual bold statements is just a little disingenuous at best. One of your usual word salads.

DP

Dear independent observer
You are wasting your time here educating
It is however really funny to read the spruikers comments for fun

Who comes to an Internet Forum to be educated? I don't see anyone changing their views on either side or wanting to for that matter.

Ex Expat,

Too right. The two sides are bunkered down;one in a silo called Property and the other in a silo called Stockmarket and they just throw rocks at each other.Nobody changes their mind.
For what it's worth,I have a foot in both camps,though with a considerable bias to the stockmarket,but I'm happy to let the property investors get on with it.They certainly enjoya more favourable tax regime.

Ex Expat,

Too right. The two sides are bunkered down;one in a silo called Property and the other in a silo called Stockmarket and they just throw rocks at each other.Nobody changes their mind.
For what it's worth,I have a foot in both camps,though with a considerable bias to the stockmarket,but I'm happy to let the property investors get on with it.They certainly enjoya more favourable tax regime.

Here we are, in the lonely no-mans-land of diversification.

Im definitely not bunkered down.

I dont understand some of the things by the so called spruikers and some things leave a bitter taste. As people in NZ just cant afford the houses in some areas, but this seems to be OK to some. But it makes no sense that property can continually go up past 10 times income and beyond (Reminds me of Toy Story.). I cant see people being able to afford greater then 10 times income and will banks take such a risk.

But on the other hand there are some with property portfolios who say this is a correction and will level out at some point. Which makes sense.

I like the talk from some of these guys, like O4 normal I think, who owns commercial buildings. I find it interesting and commercial may be something I look into in the future. I also like the talk by guys about diversified portfolios with shares and indexes as this is something I will look into as well.

You just have to sift the wheat from the chaff though.

That only works if you don't include rent as a yield. Which is dumb, but you can't argue with confirmation bias>

No it doesn't.
Given that property price is a function of yield, it is intrinsically controlled for.

QED

@nymad Dividends are been reinvested where as rents are not been included at all. In so far as houses are a function of rent, so to are stocks a function of dividends. I hope that clears it up for you.

.

Hi. Devil is in the detail. Dividends are been reinvested but rent is been ignored completely. The cumulative growth rate of stocks from 1929 to 2016 is 2.13% net real. You cant just ignore rent and expect to get a sensible answer. It also doesnt account for gearing. Ive said it so often but if you read investing articles you end up knowing less than you did before you read it. Learn how to work with data.

My ancestors sold land in Saint Heliers in the late 1800s for 800 pounds per acre. According to the RBNZ site that equates to $154,000 in 2017. The same land would now be worth more than $5,000,000 per acre. I know what I would tell them about selling if I could go back and talk to them.

The issue with shares is retail investors tend to exit at lows and buy into highs, as is simple as saying sell to a broker or briefly typing on a keyboard. Whereas, property is more difficult to sell. What happens in the Nobel price theoretical world does not always play out in the real world when you factor in human behaviour
Studies have shown that even though dividend paying stocks under perform qrowth stocks retirees in the dividend funds outperform as they rely on dividends. Those in growth funds rely on capital gains with liquidation on some shares for income this leads to retirees following the market and selling at inopertune times. This is why property investors outperform those who investors over the long term, as tends to mitigate fear based decisions to a degree.

What are you talking about? What do you mean retirees, who look for yield, follow the market and sell at bad times?

Laminar reply to Shiller study listed above showing S and P 500 outperformed real estate over the last century. Shiller's study does not account for human nature, ie need to hold for multiple economic cycles.

Analysis of mutual funds shows better to put clients funds in dividend stocks so income derived from dividends, with growth portfolio rely on capital gain and liquidate some shares for income. As with growth portfolio retirees follow market and tend to liquidate at lows, rather than ignoring capital/ index value and living off dividend cheque. Just saying that studies may say shares outperform real estate portfolio, but shares tend to be liquidated at the wrong time of the cycle. For example height of GFC easy to liquidate shares, probably had many panicked property investors who put properties on market, no takers so were effectively forced to hold through the bottom of the cycle, and went on to get capital gains during the next market up cycle.

"But given this is NZ, and you know better than a nobel prize winner, you're sure to be absolutely right - property will be the best long term investment option..."
Finally you understand I.O.

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These LVR tears are delicious.

Of course now stuff has published an opinion piece about negative equity with stock photo of an underwater house.
https://www.stuff.co.nz/business/money/95494854/rob-stock-living-with-ne...

I mean, a bit early for that. Ridiculous.

'National's housing policy doesn't contain the word "rent"'

haha, don't you just like the DRAMA and TRAGEDIA that authors of some opinion pieces like to portray ....

OMG, like this "Whatever the reasons, some people who bought recently now own homes worth less than they paid for them. ... A tragic few may even be in negative equity, when the value of their home minus the cost of selling it (real estate fees, advertising, lawyers, etc) is less than is needed to repay the mortgage. Large numbers of Britons have had to learn to live with negative equity after a boom was followed by a lasting bust." ...... lol !!

And then they sooth it by saying "In the short term, negative equity only really becomes a problem for a homeowner if they have to sell, remortgage, or want to borrow more. " .. Oh, Ok so there is no real problem then !!

My personal contacts and survey on the North Shore still holds - there is little market movement - what might be selling at lower prices is rubbish quality not worth touching even at 20% discount - any good quality housing is either withdrawn or sold at a premium over last year's prices .... and good stuff is expensive ATM...

IMHO, Prices thus far has not fallen under July 2016 and not even started correcting - we just lost the gain we had during the last 12 months which was about 5-7% ... sure some like to call that a fall, well its all paper value only realised when you want to sell ...
Property investors do not worry too much about these fluctuations , they are there for the long haul - they dont panic as they have seen this before and do not intend to sell anytime soon ( even if the correction goes down to 15%)... on the contrary - any drop on quality stock presents a buying opportunity.

I am sure that this drama will continue and will play nicely to the tune of the doom and gloom seekers until we find out what happens on the 23rd of September ...just few more sleeps :)

All of stuff's opinion pieces are massive dramas for clicks. It's a bit early to be calling negative equity. While it is true that some people have sold their house for less than they paid it's still a very small number. We'd need a big downward price movement for significant negative equity.

Agree. Although there will be some sobering looks around the dinner table between FHBs who bought at 20% equity and parents who have stumped up a guarantee. There are plenty of those around. Don't underestimate how house price falls will cause people's wallets to slam shut.

Yes and as/when Banks have less cash to lend courtesy of Quantitative Tightening buying property with a mortgage may become more of a rarity.

Nice to finally see you coming around to entertaining a 15% drop. ;)

Very good observations btw of journalistic license talking about negative equity... it's a load of rubbish. It does mean that people should think twice about buying now (unless they are buying and selling in the same market, in which case it's 'poTAYtoes poTAHtoes' ).. what it does NOT mean is that people are underwater already. Trust the papers eh :)

Similar to Chch - a lot of rubbish on the market at the moment as investors sell up. However, at some point, buying a rubbish property and doing a full reno on the place, is cheaper than buying one of those expensive places (plus you get exactly what you want). In the end, even the top of the market gets dragged down.

in Auckland. Median prices there are -$75,000 below their peak in March, an -8.3% drop in just five months

So the dumps that are being offloaded are making a huge impact then, and seems it the median price that is taking the big hit that would suggest the quality homes (that you say are holding their value) are not selling, if they cant sell them what would you suggest they do? yep drop the price...

the whole property market went up together (except in elite areas) and they will come down together too

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Was always gonna happen. Takeaway overseas (mainly Chinese) and domestic (need some equity) speculation and some sort of reality had to apply, just like gravity. Kiwis earning and paying tax were never in this market. Have friends, both in great jobs with a combine income of over 500k pa who own their own house outright, and refuse to pay the extra 2M that has been necessary to move into a similar house in the fabled school zone. Note - that is the overcrowded and about to be massively overcrowded school zone (apartments). In their words, "premium makes private education look cheap".

If govt changes and the promises around immigration restriction, ownership restrictions, capital gains tax, and ring fencing losses happen, then those long on debt designed to rinse income tax better put on several pairs of underpants. Severe stress can cause uncontrollable intestinal issues.

Crux of the election is housing.

The crux of your election is housing. I'd say your friends earning over 500k will be kicking themselves for the tremendous loss is earnings they have made by their single property strategy.

Ditto

Er, doesn't that depend on what they did with their left over income? They could have attained much superior earnings through a number of other asset classes.

Of course, if they spent it buying a Bentley, then yes, kick away.

Meridian shares have returned 130% since IPO, Genesis 96%.

Suggesting the investment bank may have ripped off the taxpayer in the initial IPO. Wonder if a few mates were able to buy significantly more than your average mum and dad investors could subscribe for.

No Fake keywest
The couple earning over 500K a year will be in a ever better position to purchase in the "fabled school zone"
as the Auckland market weakens
Have to agree that this sought after school area will end up full of apartment dwellers and without a rapid transit system a transport mess.
I'd leave the country if I were that couple who are obviously well qualified to seek employment in a better developed city in this world

Not sure I agree to be honest. I left London a few years ago after many years. My quality of life has improved immeasurably. House prices clearly bonkers but is it a better place to bring up children? Hell yes.
I lived in HK for a while. Great fun when young but not for bringing up a family either.
Pluses and minus's all round.
Only a good thing that house prices are moderating.

Nah, they have a pile already, but no debt, so not doing the income tax dance. Weak reply btw.

More a comment that the premium Chinese seem to put on a school zone is just not worth it when viewed locally. How many of these owners have their Old people minding their grandchildren? Answer a lot - check a few in zone schools and ask why their school newsletter is available in Chinese - its because the grandparents have nil English and mum and dad are not living in NZ.

So tax payer services are being hit at both ends of the high use demographics (old people health requirements, and kids getting 13 years of free education), and all with Mum and Dad working overseas paying no tax in NZ. On that basis their prices really makes sense I guess.

In Melbourne, those highly sought after state schools are now 75-85% Asian enrolment. Even new Chinese immigrants are choosing to send their kids private so they can have an "Australian" childhood not a Asian one. As for the 4 selective schools, they are at 95% Asian enrolments.

Boom...whatever makes you happy Mr Average, I can only assume you must enjoy your bigoted chit chat with your flatties in your rented house. Go figure.

Since when have facts been bigoted?

A weaker reply than the first one. Actually have owned my own home for many years. I just give a crap about my fellow kiwis.

Its comments like that that give well meaning and professional property investors a bad name. Keep posting your "I'm so superior" drivel. It is simply convincing people reading these blogs to vote against Nationals support of specuvestor debt farming and tax avoidance.

So keep it up. You have convinced me.

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Why on Earth would the RBNZ change the LVR regs now that it has the market's attention?! Let this property sheep out of the paddock again, and this time it will get so far away from home that it will never be caught. I'm afraid the RBNZ has no choice but to stick to The Plan and at the slightest hint of rejection.....do more....

Absolutely, the restrictions seem to be doing a good job. Volume of sales back to a more normal level, prices more stable. REINZ are appealing to first home buyers, who already have relaxed constraints if they qualify for the Welcome Home Loan, and owner occupiers as a whole have more relaxed 20% deposit requirements compared to 40% for investors. Buying in today's market with less than a 20% deposit seems risky at best.

Totally agree

The Banks will prefer to blame their lack of lending ability on the RBNZ and to be fair the RBNZ's record has been one of too little too late and too much too soon.

Auckland house prices have ups and downs but double in value every 10 years. Always have and always will.

How have you accounted for inflation in those figures? Very easy to double in value back in the days of >10% inflation rates, but the common consensus is that future inflation will be much lower than in the past.

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Sorry, maybe you would be more comfortable posting on stuff.co.nz? We are trying to have a sensible discussion here.

@delboy, pretty sure my trusty RE told me it was 7 not 10 years

Hi Bobster,

Am trying to recall what you've ever contributed to a "sensible discussion".......

delboy - unsure if you're being sarcastic or not....if not, do you understand why they have that trend in the recent past and why that trend will be very difficult to repeat in the future?

Very true. Is it just a super bubble this time.

Hi delboy

Records show that sometimes house prices in New Zealand have doubled in significantly less than 10 years.

There's no reason to believe the long-term trend won't continue - especially with NZ becoming an increasingly popular country to reside, internationally.

DEMOGRAPHICS and SUPPLY CONSTRAINTS augur well for property investment in NZ - but, as always, important to take a longer term perspective.

Banter aside, do you genuinely believe they can double again without a lift in income?

Banks will just lend you 20x your income and RBNZ will happily allow that timebomb to tick?

I get that, as with most things, prices will go up (although that isn't the case with housing in a number of countries, in real terms, not nominal) ... but exponential growth is, by nature, likely to end in a bang. Whether it's exponential growth of weird world leaders with odd hair cuts and a desire to nuke (which has doubled this year) or kauri dieback, which has also doubled... bad stuff happens at the end.

Banter aside, Yes we do ... if history should repeat it self and the prevailing conditions remain as they are then certainly will ( maybe in 10 years more or less) but it will!.

I do not believe that it is related too much with income ratio ... maybe for a FHB or recent investor who has not yet built any equity ... but wont matter for old investors

Dream world

One obvious flaw in this argument is that rents have to be basically in proportion to incomes so eventually yield on property goes below putting money in the bank (at that point already for many areas) so property investing becomes purely speculating on capital gains, which is not sustainable as your pool of "old investors" is progressively shrinking. Over the very long term it is not possible for median prices in a city area to grow at a fundamentally different rate to median incomes in that same greater area. Empirical evidence for the very long term:
https://hotelivory.wordpress.com/2010/08/29/a-very-long-view-on-house-pr...

If you genuinely think house prices are not related to incomes and you're not the minority, the country is screwed. Because it's a fact rent is inextricably linked to income and therefore the yields will be worse than bad.

Indeed income to house price ratio is a factor that would normally impact the market but perhaps the low interest rates, Auckland Councils urban boundary rules constraining supply, NZ economy in the best shape possibly ever and continued immigration offsets the income ratio issue?

Also eventually incomes will increase as demand for more skilled workers increases.

Why are incomes/wages going to increase? Ask any taxi driver or hotel worker how Uber and AirBnB are limiting their wage potential. And it's not just them! It will soon be 'all of us' and wages, will fall....

For years, artificial intelligence has been automating tasks—like combing through mountains of legal documents and highlighting keywords—that were once rites of passage for junior attorneys. The bots may soon function as quasi-employees. In the past year, more than 10 major law firms have “hired” Ross, a robotic attorney powered in part by IBM’s Watson artificial intelligence, to perform legal research. Ross is designed to approximate the experience of working with a human lawyer: It can understand questions asked in normal English and provide specific, analytic answers. Beyond helping prepare cases, AI could also predict how they’ll hold up in court.

OMGosh
In case you were asleep throughout GFC get ready for a much greater GFC2
Why ?
because this time around the worlds Debt is more than 40% Greater than at December 2007
During the GFC Auckland apartments were cheap and even Devonports top water views realty dropped in price albeit not drastically. Today is a decade later and the situation is not the same. A foreign buyer ponzi
has inflated Aucklands house prices and even moth balled housing leaving them vacant.

Reality;
There is no special calculation that is to guarantee a doubling of Auckland house prices every 7 yrs or 10 yrs for that matter.
NZ never has experienced the level of foreign buyers of Aucklands housing stock before.
The HongKong buyers seeking a safe haven a number of years back were nothing compared to what the current situation has been
Good luck

I think house prices Crashed by half in 1967 then climbed back after a long low in 1974 but not all the way , yes house prices can have big movements in less than 10 years both ways

Hi delboy,
Haha, True.... ( just qualifying that by saying : 7-13 years depending on the area and how far away from CBD)
but now you have opened up all hell doors on you as you see from people who are trying to have a "sensible discussion" ...

Not really sure what these doomers really want? are they buyers, sellers, or just trollers chewing fat !

As a doomer, (I prefer to ball myself bearish at the moment) I just want to say "I told you so"

I predicted a 25% fall in Akld property prices months ago by analyzing historical data and reading into all the market forces (not just the election) to come up with my opinion.

If that comes to fruition I will feel pleased. If it does not I might feel a bit foolish. :)

Wonderful real estate agents myth

At some stage (soon?) there will be the proverbial Dead Cat Bounce. It will be interesting to see who takes the opportunity to.....get out...when that occurs. It will take courage, but that is always what's needed (and seldom found!) in a down-trend market.

Hi bw,

Plenty of property owners/investors simply won't sell in a soft market - like the current one. That serves as an automatic stabiliser.

People who have got themselves donkey-deep in debt may, however, face catastrophe. But that's what market discipline is about. What's new?

You're quite right....but they should! Anyone with foresight might look to unload....everything..and rebuy in, say, 3 years time ( just to pick an arbitrary time). Downward markets often 'refuse' to get going, but when they do......being positioned to take advantage of 'the end game' is where the real money is made - no matter what the commodity in play.

Hi, your views are valid if you are Not a property investor with good market experience.

Unlike cars, cattle, or other personal items ... Good rental Stock for investment is hard to acquire at a cheap price whenever you feel like buying one .. there are all sorts of quality, location, and availability issues in the area that you would like to invest in ..add to that the amount of investment/ improvement you have put in a property that you own / there are fees and expenses related with each transaction which is very expensive...it is not as simple as making profit on sell high and buy low later....

Most have been through the GFC in 2008 and we watched property going down 10-15% in value - very few investors sold their stock. -- today we are no near the economic conditions of that era - all we have is the repeat of 2003-2007 cycle where the market has gone ahead of itself and is due for a correction and that is fine as most properties in Auckland have gone up by 40-60% if not more since 2012-2013.

Hope that explains why investors do not panic and get too excited like others.

I'll be throwing everything into the caddle market just as soon as I find out what the hell caddle is.

I think it's a reference to candles. Please see this tweet and the two responses to it.

https://twitter.com/dril/status/384408932061417472?lang=en

Well, ain't that a thing.

No, wait, Eco has made a correction and it's 'cattle'. As in 'All hat and no cattle'.

For goodness sake, it's a house. It's value is calculated relative to other comparable houses. It's not your girlfriend, nor is it some strange form of financial kryptonite. It's money in the form of an asset. It doesn't "stand by you" when times are tough because you didn't sell it when houses were 10x income. It doesn't give you "loyalty". If it is stupendously overpriced then sell it, take the cash and come back some other time. Sheesh, it's like a cult around here.

Haha love it more please

"nor is it some strange form of financial kryptonite"

Quality

@bw Total BS mate. What you're describing is property trading and all i can say is be prepared to pay tax, pay fees, make mistakes and sell at the wrong times, miss bottoms and churn your way in to risk. You don't have a clue.

This market isn't "a bit toppy". It's grotesquely overblown. It makes headlines on a worldwide basis. It would be entirely rationale for any investor, leveraged or not, to sell in a market where prices were 10x income and where the expectation is that prices will fall, perhaps significantly.

Auckland properties had been under valued for a Long time and those in the know knew this. Now they have stabilised to their true global market value.

Of course you are only in 'the know' after the fact ;-)

So you're saying that young people wanting to own a home would be well advised to work to make Auckland less attractive to global buyers?

Huh?

@bobster Why are you encouraging investors (land lords) to behave like traders (pay tax, fees, churn risk and generally cause harm)?

In slightly toppy markets the long term hold might make sense, but given where we are there is so much upside already built into the price the most rationale response for investors given the balance of upside and downside risks is to exit the market and capture gains

People can be overweight or underweight in deferring asset classes from time to time. Rebalancing between asset classes is not churn. Selling property assets after a cycle of many years is not trading.

Better be a hell of a lot of years because if you are selling and did not experience a material change in personal circumstances that is likely to cause financial hardship then if its less than a 10 year hold (guide only, not a law) be prepared for a please explain letter.
I get a bit tired of people advocating illegal tax activates on this site.

Incurring an obligation to pay tax is not in itself illegal. Thanks goodness for that. Taxable status is linked to to original intention. You can be a long term investor with intention to hold but still decide to sell all your properties at at a later date, and because of your original intention pay no tax. Merely because you contemplate that you may one day sell a property does not in itself mean you had an original intention to sell. Equally if you decide to sell because the yield you were getting was abysmal that doesn't indicate to me an original intention to sell.

If you sell because the yield is low then you need to pay tax as your intention was to sell if the yield fell.

But hold on, if you bought for yield not capital gain, that's a Good Thing and you don't get taxed. But if the yield falls, and you have a non-performing investment, if you sell you get...taxed?

So buying for yield is not a safe harbour. And buying for capital gain is taxable. So.....why do you buy property at all?

The only acceptable reason to own property as an investor and not expect to pay tax is if you are a land lord. A land lord is a business and as such must pass a business profit test, that is the business must at some point expect to pay some sort of income tax.
More to the point though you did not buy for yield as a landlord you bought to profit from the service you offer. If you bought for yield then you have an intention to sell if that yield drops and need to pay tax.
You buy an investment property because you want to buy a business and make money from rent. You can be aware that it will gain value, like any business, and you can have a general understanding that you will not own the business forever but that is about the limit.
TL;DR
Landlords technically buy to earn rent, not for 'yield'.

Eh? Investors should buy for yield ie the rent that represents a return on invested capital. If that yield drops below a threshold compared to other asset classes that investor should sell and invest in other asset classes. If an investor sells an asset type to invest in another asset type they investor is not "trading" in the asset type being sold. They trade if they habitually buy and sell the asset type being sold. It seems to me a perfectly legitimate decision to sell a property with an unacceptable yield, whether or not that yield arises from an increase in price. That seems to me a perfectly rationale course of action for an investor that does not thereby create a taxable trade.

I can follow your opinion but its taxable. In NZ its fairly straight forward, if selling is part of the reason youre are buying then you pay tax. Investors can have a strategy of buying and selling to follow yield, that's obviously probably going to work out pretty well, but you are in fact position trading and in NZ need to pay tax.

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Funny thing is house prices could fall 60% and they'd still be overpriced as per income/price ratio standards. That's how ridiculously high prices are..

interest rates matter

Yep, and if people start defaulting because they were relying on capital gains, the banks will have to start covering those losses with higher interest rates.

That would cause more defaults and banks are not that stupid.

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This could be the best week for me in terms of news!!!
- Labour poll results jumps
- JA is creeping up to BE in terms of trustworthiness (not sure how BE is rated so high after the TB debacle)
- Auckland house prices fall yoy
#Jacindamania
#voteforchange

Winnie Peters will be PM before Jacinda - like it or not!

If Labour needs Peters to be able to form a government (with The Greens) than his price may well be that he is the PM. He's always been as keen as mustard to be PM. (Jacinda is on record as saying she didn't want to be PM.) Peters will argue that he's had more experience than Labour's entire front bench combined (which is true).

.............and if Labour won't accept Peters as PM, then it's another 3 years in opposition for them.

.............because Peters could equally go with National, which is more his natural partner anyway.

I really do think there's a serious chance that Peters will be our next PM. If you really don't like the prospect of that, then best you vote National.

i don't mind NZF joining National.. as long as National don't come back with a huge majority..

At least winnie can rein in the puppets

"Winnie Peters will be PM before Jacinda - like it or not!" Profound... my word, do you actually engage brain before writing your twaddle?

Not long to go now to see if National can govern alone as you state blue meanie

If Winnie committed to going with National, I'd vote for him, but while there is a risk he will go with Labour, and henceforth put the Greens in power, no way!

and the Green's are that bad how?

The problem is that Winnie always plays his cards close to his chest........ and says nothing until it's too late.

He'll swing either way to achieve what's in his best interests.......

Winnie's been criticised for many things - but rigidity is not one of them.

Maybe Winston will accept Deputy PM and when Jacinda goes on Maternity Leave.... bonza

As Confucius said be careful you don't get you asked for.

hey, trust me... any party in government next term will be better than the current lot

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There certainly will be a few investors out there who wished they had sold a house or two a year ago when the Auckland market was peaking. Nothing like taking the odd profit now and again in any market. The trouble is so many property investors get too confident about the particular market they are investing in. If New Zealand has a Labour/NZF government next month all bets will be off re property taxes. A good time to be diversified. As for poor old Christchurch. What more can I say other than" surely but steadily" including rents.

True , it should have been a warning sign when the RBNZ interevened

gordon, real estate investors do not "play" the market, they do not "buy low" & "sell high", that's a sepculator or the share market. Real estate investors provide a roof over people's heads who can't or don't want to own a house

Yvil in Auckland I suspect that the number of housing speculators is huge. Those who bought since August last year bought high. The move up was unprecedented. There is some serious room to move down. Negative equity will now be coming into play for some speculators and some investors. They need to sell before the Banks sell them up. Limited overseas buyers as a result of currency transfer restrictions , LTI's, banks internal restrictions in order to control risk and the upcoming election have changed everything. I hope you keep your portfolio intact for your children. One thing is for sure. Your portfolio has lost significant value and it is only the start. Why sit there and watch it decrease in value. Why not lock in some profits and buy assets back in the future cheaper with less bank finance. What is so special about property that stops people making smart decisions that increase family wealth?

.

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Wow. Am I glad I didn't listen to the advise in these comments to buy 6 months ago! I am already looking at houses priced much lower in my area, lovely houses too, not bottom of the barrel. And looks like they are going to come down even more!!!

I disagree, anyone who bought 6 months ago should be congratulated. Buying a property is a very valuable achievement as is quite hard to get credit these days. I tried to buy and could not get the credit to buy with out selling even though I have 50% LVR otherwise I would have and would do so today, right now!

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I don't need credit, i'll be buying cash....so this is nothing but great news for me. And I will hold off a little longer too as it looks like there will be further drops.

My best guess (obviously just a guess): if Labour gets in we'll see a significant fall but if National gets in we'll get a dead cat bounce followed by meandering along. Housing markets usually take at least five years from peak to trough because they are so sticky so be aware you may be waiting a while (just from experience, no real data sorry). Shooting up again is always possible given that Vancouver is still more insane price-wise than Auckland, so further insanity is not impossible, but has to be somewhat low probability. If you're keen to buy soon (e.g., school-age kids) then make sure you watch the leading indicators, because by the time something hits the news it's usually too late. Also be aware of the significant seasonality inherent in house prices. Good luck! (And well done on being a cash buyer.)

I guess the real question is why and for how long have you been in cash?

Good on you gingerninja!

But there are many others like you, I suspect.

And that means that sooner or later, prices will rise again.

Hint: don't leave it too long. From your previous posts, I can tell you'll feel a lot better with a house than without one. (Remember, it's not all economics, it's also about personal emotions and sense of wellbeing.)

From experience I can tell you where ever you are looking which has seen losses like that will not be a good place to buy...

Per Eco's point made, good quality housing does not depreciate like what you are witnessing unless it is naturally lacklustre

you are insane! but as they say a fool and his money are soon parted

keywest - sounds like its a good thing that the grownups (Reserve Bank) have stopped your pocket money (debt)....lucky the adults can tell when the children aren't spending their $$ wisely and take it away!

yeah nice analogy...feels good to be a smart kid rather than an angry adult blaming ones parents on their failings and inability to amount to much in life...

This isn't about feeling good

lol, it does indeed - good one.:)

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How to know you're witnessing a bubble?

When its the only thing that people talk about.

Trump is a bubble»¿

Gordon, you are a clown and need to get a life.
I have said that the Auckland market has been overpriced due to overseas money.
Chch market is still holding up and Canterbury is not CHCH and prices have been skewed badly due to the AS IS property which are still selling in large numbers.

Whether prices drop for a while due to the ridiculous LVR requirement doesn't affect us on iota as we do not need to sell property that returns us on average double what our expenses are.
As I have said when things like this happen the true investors do very nicely.
Unlikely that Labour will get in as there is no substance whatsoever to them.

The Man 2, no more personal abuse please.

Yes you know better than the REINZ data out today. I am not so sure about the election. Not everyone has had the luck like you and me in terms of birth date and timing. Many are worried about their children and grandchildren in terms of housing. She might just get over the line with Winston as a lot of people think National has not looked after the underdogs. Who would have thought Brexit and Donald would have happened. Hold all tickets.

then why do you worry about what Gordon thinks....

Interesting series. Volumes haven't at any stage in the recent upswing surpassed the activity of the 2004-2007 "new paradigm" - and it looks now we may have hit the peak in our "return to normal".

https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/stages_in_a_bubble...

It is amazing to believe that New Zealand peak sales was in 2002. 15 years to basically quadruple mortgage debt and support it with an historic OCR.

When we have shortage of 50000 houses then how can you expect to drop by -20%?

What you do is increase the homeless population with unaffordable homes and rents. Problem of success achieved.

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There was a housing shortage in the UK during the GFC and that didn't stop house prices dropping. I got an absolute bargain then.

becuase those 10000 families cant afford a house and the bank no longer wants to play as they realize they're unlikely to get there money back. The level of debt is absolutely unsustainable when the banks are saying enough is enough....you know we are in trouble

Because prices are dictated by supply and demand - and demand is based on what people can afford and are willing to pay. Emotions and perceptions are a huge driver of willingness to pay. A drop of 20% gets us to where - 2014? Of course it can happen (not saying it will, but definitely can - even a 50% drop is possible, although obviously has a smaller probability). The current prices are not supported by any sort of fundamentals (price to income, price to rent), they are simply based on perceived value. People planning to sell in the next five years to fund their retirements should get out now IMHO. Everyone else (except overextended speculators) is probably fine.

Have you not been keeping track of the burgeoning numbers on the social housing register? Every month is a new record - this quarter just passed - a 10% increase, and records in each quarter before since (I believe) 2014.

It matters not what the 'shortage' is estimated to be when people just plain and simply cannot afford to buy or rent. And it isn't simply an Auckland problem - read this from one of the most affordable cities in the country;

https://www.stuff.co.nz/national/95329851/housing-is-palmerston-norths-n...

Surely the smart money has exited or is exiting the housing market now. the writing has been on the wall for a long time now including many warnings from the RBNZ and overseas agencies. Specualtors that choose to stay in the market now will get what they deserved all along. The sad thing is the FHB and younger generation are likely to be burnt in this debacle too.
Investors i know are mostly sold up apart from a few. I have many friends who in there late thirties with families who previously voted national that are switching to labour even though they expect to lose value on there primary property. The general opinion among them is that National has been too unresponsive to issues facing our society and money isn't everything. I suspect huge change from a new government is a bit optimistic!! We should still vote for change and a government that is willing to try something different and put everyday Nzers first for a change. National had 9 years and so much opportunity to make some meaningful change. They failed dismally, expect the fake news to ramp now as national lose grip on the election.

Well, not a lot of smart money on these pages, obviously

@wally Smart money (aka professional investors), are in the business of been landlords, they cant sell or they are in the business of trading and must pay tax. This is just basic mate, are you a labor troll?

Selling after the benefit of many years of an upward property cycle is neither churn nor trading. If you can't lock in gains then, when could you ever do do so?

You basically cant and thats the point. If you are locking in 'gains', then you clearly bought for the gains, so pay your tax.

IRD says: "Nearly everyone buying a property will sell it at some stage. Most people will hope that their property will gain in value, and we know that an increase in value is common. However, this alone isn't enough for any profits to be taxed. In most cases you don't have to pay tax on the eventual sale of your family home. If you bought a property as a long-term rental, then you may not have to pay tax on the sale either. However, when a property has been bought with the firm intention of resale you'll have to pay tax on any profit from the sale. The intention to sell does not need to be the main reason for buying the property - it could be one of a number of reasons for buying." There needs to be an intention to resell as an original intention. You do not need to hold the property in perpetuity, and indeed you can expressly contemplate an increase in value at the date of purchase. So it seems to me "I'll buy this rental and sell it in 2 years time" is taxable, "I'll buy this rental and sell it at the top of this cycle" is taxable", but "I'll buy this rental and sell it at some point not in the foreseeable future" is not taxable.

Which merely goes to show how useless this area of tax law is.

What you wrote above is correct. You can have a nebulous understanding that you will sell. But in practice they will ask you to explain why you sold, if you say, 'i sold because the price was high', youre fucked, pay your tax you dirty trader :-D

It has been engineered by those in power who have property portfolios, and get donations from property investors, to have enough wiggle room in it that it doesn't apply to them, while still looking like they are doing something about the problem.

I don't understand this crazy reluctance to pay tax on profit, we do it with everything else. Investors feel like they are being stolen from, when 99% of the time they personally had very little to do with the majority of the increase. The other 1% of the time, the should know what they are getting in to ahead of time. Like all other businesses.

Great question, when do I intend on selling my investment properties ? NEVER. There's absolutely no point, I'm teaching my kids how to take good care of tenants and I will pass on my portfolio to them and they will pass it onto the next generation

Some kind of modern Feudalism? Oh the peasants will rejoice in the accommodation your lordships kindly provide, and will proudly display commemorative Yvil family plates on the walls.

The view that renters are somehow inferior to owners is your own opinion, not mine

Fair comment was broad strokes, the investors i know are mum and dad investors that bought another 1 or two properties leveraged against their capital gains and many not paying they tax they should i suspect.

I should think smart money can always re position their investments or it wouldn't seem so smart??? right. I suspect there are many investors in over their head due to lack of regulation and greed

Am tired of hearing landlords making out they doing country a favour but saying they get what they deserve is harsh as ultimately the government should have regulated the property market along time ago. Aslo to be fair the problem was also not addressed by both labour and National governments in the past.

Definitely not a labour troll but a keen Labour supporter. I pointed out last week when the labour leadership changed that there were many in the wings wanting some spark from Labour. If the polls are anything to go by it appears i was right. Exciting times the next polls should be interesting to say the least

@wally Smart money is professional, its not smart as such. Professional property investors dont intend to pay tax and generally do not sell as a result. After very, very long periods of time they do sometimes sell if their circumstances change and they need money. Say for example if they have run out of money in retirement.
Most investors are good at math and are not over their heads. Its very unusual to catch an investor with his pants down, they think carefully about the prices they pay, the yields they will get, of any house purchasing class, investors are the best educated on the topic and least likely to make a bad purchase.

I guess time will tell although i suspect your assumption that most investors are professionals isn't correct and many investors are speculators relying on capital gain in highly leveraged positions along with foreign investors
laughing at the way our government has the doors open for a quick buck at the expense of their own people.

Exactly Wally - the people I know who have become 'investors' in the Auckland market have no idea what they are doing nor the risks they have been taking. They've simply been doing it because everyone else has been and it worked for them...classic sheep follow herd stuff...If you try to talk to them about investment fundamentals and markets that go bust, they don't want to talk about it...its like they know it could be real, but its easier if they just block those thoughts from their minds and wish for the best.

Based on this, I think a lot of the investor activity has been based upon wishful thinking...and their wishes have come true...so now to take responsibility for those wishes....time to pay more taxes to pay for subsidies and welfare, and vote in a party that will take care of the homelessness and poverty they've created...

Generalizing personal experience is sad.
Investors dont care to talk about market busts because investors didnt buy thinking about the price tomorrow. They dont want to talk about busts because:
A) it feels bad to be talking about losing money even on paper
B) they dont intend to sell if it goes bust
C) they are fairly sure that in 15 to 40 years they will be fine

@wally I have never said most investors are professional, most investors are not professional and have day jobs. However most investors are not speculates and are not highly leveraged.

Wheres your data source for this assumption? I would love to see some data on how many new investors (by that, i mean owners of rental properties) there have been in the last two years. Given LINZ and Core Logic data, you would think it would be possible.

Then we can answer this important question.

http://www.aucklandcouncil.govt.nz/EN/planspoliciesprojects/reports/Docu...

There are lots of ways to show that most rentals have been rentals for a long time, but the data you want is available in the form of the decline in owner-occupation rates if you are willing to give up the percent that are rentals sold as rentals.

Interesting link. It is from 2013 census though.

My hypothesis I would like tested is that - in the rapid increases of 2014-2016 there were a lot of owner occupiers jumping into investment properties as they saw their equity increase. I'd like to see any increases in numbers of property owners that moved from owning 1 property, to 2.

Grant Spencer will likely have to drop the OCR to 1.5% during his term ( Madness in my opinion, but it's what's possible given the RBNZ mandate). The best thing to accompany that would be to change the LVR's to 25% & 50%......To do otherwise would be self-defeating...

I wonder how long it will be before the RE agencies participating in the self-styled "Open Market Operations" ring are found out with the volumes consistently declining.

I find the property news in Australia most entertaining. SMH is quite over the top and entertaining to read as they are quite oblivious. Everybody buy as prices keep rising and that isn't a bubble. I'm wondering when they'll finally hit the debt limit with no greater fool to buy the property from them.

Thats because property advertising on Domain/Realestate.com.au are the only things keeping Fairfax (The Age/SMH) and News Corp in business. They cant afford for people to realise they are being had.

Just for the record, I am one of those labelled "a greedy landlord" who, in 2000 having no fund set aside to have an income for retirement age (and with urging by the Labour government at the time to ensure we had something coming in besides the pension at retirement age, because they were saying that it probably wouldn't exist by the time I was retirement age) , I got a bit worried and decided to invest in property having a home that was mortgage free. I had worked hard and had a family of 3 children, so wanted something I could invest in that I could take care of while I was still working. Finally went to a course to learn how to buy property using home equity and having rents pay for the mortgage and other expenses, and went on to buy 7 properties in about 13 months in 2005/6. Now they have more than doubled in price
(bought for $1.050M at 20% deposit, and now valued at $2.5M) and for every $1 spent on interest I make over $2 in revenue. If you look back on the stats going back to 1991, every 6.5 years there is price growth followed by 2.5 yrs of negative or flat growth. I don't expect it to be any different in the future and in 2020 we should see growth again, probably more subdued than in this last cycle. I'm not selling as I'm not retired yet, but at some stage I might sell one or two to retire debt. These properties will be going to our kids when we pass from this life. I have put a lot of hard work into these properties, painting, and renovating them over the years, and spending money on them, and its only lately that we have been able to draw some income from them. It was hard to buy a property when I was young but with two incomes we stretched ourselves and made it through some tough times. We haven't had a lot of money through our life but its only now that we can relax a bit. And why shouldn't we??. Our kids will benefit from our hard work at some stage. They are hard workers too and will get their own houses. We don't keep the rent at the highest levels but we try and ensure that rents keep up with the market. I don't see myself as greedy but supplying a service to those who haven't yet got the cash to buy their own. My son has moved out of Auckland and gone to Nelson and is looking to buy down there. That's what I would do if I was trying to buy now; move into some of the provinces or buy rentals in the provinces to get on the property ladder. The market is going to move, and nothing you dream of in terms of lower prices will effect it in the long term. Go with it don't fight it. If you don't use the economy, the economy will use you.

" Go with it don't fight it. If you don't use the economy, the economy will use you." Quite right. But, The Economy works in both directions. Up and Down. Using it is a matter of evaluation based on future expectations, not past performance. The latter only tells us all what has happened. The trick is to see what's going to happen. And right now, right here.....I don't see 'up' as it. What we all choose to do about it will be different. But age and historical performance tend to cloud our youthful vision....

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I had lunch today with my two local brothers and a friend. We are all Victoria University trained and either semi or fully retired. To a man we all agreed that as boomers we have had the best years for a variety of reasons. In particular we thought we had timed it well in terms of having cheap assets to buy when we were in a financial position to buy them. You bought 7 houses in 13 months. I would be pretty safe in saying you could not do that today in 2017. Us boomers are a very lucky generation. We should acknowledge that and try to help those less fortunate than ourselves.

Feel free to run for PM if you get bored there Gordon! Your self-awareness exceeds most..

And this highlights the issue we've had in this country the last 15 years.....it shouldn't be normal for someone to buy 7 houses in 13months! That's outrageous...

Gordon for president! Well, you and your mates too!

This is a truth that can stand to be told more often, along with some of the reasons why.

E.g. this book Home Truths provides an easily-consumable introduction to the ways in which affordable housing was fostered over most of the 20th century, with the idea being that average people in average jobs could afford to raise a family in their own home, and with the pension predicated on that being achievable for as many as possible. It describes the various policies, builds and other mechanisms that helped this process.

Boomers worked damn hard for what they got, just like young Kiwis work damn hard today. But society also worked hard to make home ownership affordable, and it worked - with very high rates of home ownership achieved by the 1980s or so, only for it to plummet since then as these earlier efforts fell prey to the ideological drive of those now in power.

@PKchew, just curious - as you used the equity in your own (i.e., owner-occupied mortgage-free home) - have you managed to become mortgage-free on that home again, or does it still have a security registered over it?

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