So, have you been wondering what "sustainable" house prices are?
The Reserve Bank has been telling us NZ house prices are above "sustainable" levels - but it's not been clear to the great unwashed and would-be finance writers what 'sustainable' actually is.
Well, hold on to your hats, 'sustainable' is apparently between 5% and 20% less than where the median house price is now, according to RBNZ analysis and modelling.
RBNZ Governor Adrian Orr and other central bank officials put that number/range on it when questioned by MPs at the Finance & Expenditure Committee on Thursday, following Wednesday's release of the bank's latest Financial Stability Report.
Recall that in the report the RBNZ said a sharp correction in house prices remains a "plausible outcome" that would have broad economic implications, while it noted that prices have now been falling from November.
Orr said there were a lot of things involved in looking at sustainable prices. House prices and sustainability could be looked at from either the perspective someone buying a house to live in it or as as from the perspective of an investor.
There are therefore different ways of looking at what is sustainable. "They should in the long run all add up together - in the short term they deviate," Orr said.
"...Over time the two should meet in the middle."
For a household, sustainable could mean earnings relative to price or cost of servicing debt. For an investor it would be about the yield they get as opposed to investing in something else. Orr noted that low interest rates spurred a lot of investment. Over time the market was responding and now prices were easing..
Asked by MPs to put sustainability in figures, Orr said: "There is a range. I can't give it to you in dollar terms."
He then said: "We are somewhere between 5% and 20% north of a sustainable level."
That meant that with a 5% drop from now "we would start to be within a sustainable range".
(For the record, the REINZ median house price nationally as of March was $890,000. A 5% drop on that would equate to $44,500 and would take the price down to $845,500)
Deputy Governor Christian Hawkesby amplified: "In our monetary policy statement we've got house prices falling cumulatively around 10% over the next couple of years and so that will keep them within that range."
He went on: "It's an assessment that we are going to have to continually remake through time because those fundamentals change through time as well driven by population growth and the supply of housing, where we think neutral interest rates are.
"All of these factors will change through time so we will come back and keep making that assessment and updating it."
During the press conference after release of the FSR on Wednesday, the RBNZ indicated that about 25% of new buyers in the past year would have to pull back on spending with mortgage rates at 5%, while for rates at 6% this would rise to about a third of buyers needing to reign in spending, while with mortgage rates at 7% this would become about half of the buyers needing to tighten their belts.
170 Comments
They are not crashing. Average homes are getting harder to sell and their values are dropping accordingly. That will continue to increase in pace, the drops that is. Where I live 21 more houses and sections on the market yesterday and the houses were average. Some ex rentals I suspect. Near new houses up to $1.5m selling in days and multi offers. People do not want to build as too hard. Some new builds are being cancelled. Tale of two cities according to one agent. It’s easier to sell a nice near new home than the cheaper roughies.
The data coming through is entirely consistent with house prices crashing, have you had your eyes closed?
No certainty that they will 'crash' whatever your favourite arbitrary cut-off point for a crash is, but the direction of travel is clearly down at the moment and there is no sign of this stopping yet.
Last time ,gfc period ,here in Auckland,it felt like mania peaked 2006 ,but was steady selling still,on into 2008 ,then troughed through to early 2012.( My recollections only).
Even if we are going to have something similar ,and we are at the early 2008 equivalent now, there would be a 4 year period ,where underlying inflation balances up the nominal prices. However,due to RBNZ double pumping, we got a double peak, 2019/2020 then last years madness . So we pushed the top of the top ,even further.
It will not be as mild a correction overall ,as 2008 to 2012. Can't be ,really. Must be more exacerbated,and a longer period of underlying inflation ,not being expressed in the nominal price,before the catch up surge happens again.
Your ability to ignore all of the market indicators and stick to your position in the face of overwhelming evidence is something to behold. Faith over facts, you are a true property believer.
It may not crash but something significant will need to change fairly soon for it to stabilise or increase.
Here’s a good chart from Brent Johnson (dollar milkshake guy) regarding Aus private debt..
https://twitter.com/santiagoaufund/status/1521839477349625856?s=21&t=UX…
Yea, it definitely seems they're playing a political game now. The idea of FHB and investors "meeting in the middle", walking a fine line trying to appease everybody. Affordable for the OO, sustainable for the economy, profitable for the investor. A lot of mouths to feed.
I guess we'll just have to wait and see where the property market lands when kiwi build... *ahem* net emigration rolls through the economy.
Stuff.co.nz quotes Orr as saying “We have got this. It is business as usual.”
I am absolutely staggered. It is not business as usual. Household budgets are being torn apart by inflation first, and now the mortgage rates rises that are bound to follow
That's a lot harder to do with a middle-class income than a stonking civil servant salary that is well into the hundreds of thousands of dollars, while many ordinary Kiwis trying to get pay increases are being told rising business costs means it isn't an option. This is not 'business as usual', this is 'hold onto your butts' stuff.
But why would you even say this (again from Stuff):
"Disregarding the rising cost of food, fuel and construction, over which he suggested the bank had little influence, prices were rising at a rate of between 3% and 4%, he said."
Sorry, do people not have to pay for fuel, food or housing costs driven by construction factors? Is that something that households don't have to care about anymore? Did I miss something?
"If you ignore all the bad bits, we're actually only still exceeding our mandate by 1%" is not the amazing argument he thinks it is. I'd be keen to know what specific carve-outs there in the PTA for allowing the RBNZ to pick and choose what is and isn't covered by the PTA when it comes to 'inflation'.
The mere fact Orr says "We have got this" show's how woefully unprepared and out of touch he is. NZ and a number of other developed economies are tittering on the precipice of economic disaster. Inflation climbing to 40 year highs (which by they way they all told us was “transitory” last year), massive levels of public and private debt, dramatically inflated asset markets etc etc. Our current situation is much worse than 2008. We just haven’t seen the major cacks appear yet. If anyone believes we went through all the money creation and near zero interest rate environment of recent years without massive negative consequences coming home to roost, then they have never studied economic history. There is almost no chance of a controlled unwinding of the imbalances these central banks have created over the past decade. Orr can point to employment as it’s the only positive metric left, but it’s a lagging indicator and he’s meant to be forward looking. Let’s see if he’s bragging about employment in a year’s time.
But sure “We have got this”. What a clown.
This comment from the Stuff article made me really cross:
People who took on a lot of debt buying houses over the past year would experience some financial stress and might need to “alter their spending behaviours”, he said.
Why is the solution to every economic problem for young people who work bloody hard to make a decent life for themselves to have to cut their spending to the bone, as though they are not already doing so and haven't already been doing so for at least the last decade of bugger all wage inflation and rapidly increasing rents and house prices. The problem is that it's always the same group of people being sacrificed over and over again for the good of 'the economy.'
NZ is a giant grift. From young to old, from the rest of the country to Wellington, from those working hard to those who don't want to.
It's almost like we have a nation-wide case of worms or some sort of other parasitic infection.
Meanwhile civil service leaders on huge salaries gaslight us and tell us that we shouldn't worry about the things that we're worried about. Good-o.
Next will come a revolutionary fasting diet; one week on, one week off. Saves a lot of money and trips to the supermarket!
I also enjoy the advice to "grow your own food :)", I'm sure the FHB in a $1m shoebox apartment appreciates the 2 or 3 herb varieties they have the sunlight to grow.
We really have created a life of convenience, and now that convenience is being taken away there will be a fair few caught unawares. Unfortunate times for some for sure.
But young people don't work hard. They're frivolous and lazy. The only generation that worked hard is the Boomers. They endured interest rates higher than 17% on a single wage with 4 kids and a stay at home wife. Sure term deposit rates were also double digits, but saving hard for a couple of years to buy the house with cash was not an option.
https://www.perthnow.com.au/news/australia/baby-boomers-under-fire-as-y…
Yea, see again, the flippant 'Just do X' in a fevered attempt to normalise an absolutely borked housing market that's so unaffordable that third and fourth generation Aucklanders are expected to leave if they can't afford it even on middle-class professional incomes without enduring a mega-commute isn't a super compelling argument.
To quote Jack Nicholson's Joker: "This town needs an enema".
And like I say, comments that amount to 'just do X' doesn't change reality for people for whom that isn't a realistic option. Moving away from family, support networks and careers are not an option.
Nor will anyone ever do anything about it if the default expectation is to never fix problems because people should be expected to just leave. The fact that this becomes the default suggestion with no wider consequence is the exact reason why it is the default suggestion. If people started asking why people who were born and raised in a city can't realistically expect to have any quality of life there, then there might actually be some impetus to do something about it.
You don't solve a problem by normalising the worst outcomes that result from it.
Spot on, to further the point: "Just move away." implies moving somewhere cheaper, potentially working remotely and taking the problem with you. Evident in almost all small towns over the last 5 or so years.
Wellington for example. When people "Just move away." they take their incomes up the coast, or to the Wairarapa. This drives prices in towns in those areas through the roof. Country cottages at city center prices. The people who have lived there and raised families there are now priced out. Where do they go? A more isolated and far reaching part of the country and drive prices up there where there is literally no infrastructure. No town water no nothing.
It's gentrification of a nation and it's not as simple as is suggested, nor is it a solution to anything.
Yup. And to make it worse, people then blame the gentrifiers - as though those people have made a choice to move far from their friends and family. The 'rich pricks' moving into small towns are, for the most part, people who would dearly love to stay in their own communities but they can't bloody afford it.
Rapidly aging populations and shrinking workforces are fairly common in small towns through the developed world. All the kids went to the city.
Water generally isn't a problem for most NZ, its more that no one's paid enough to maintain it.
If our grandparents thought like this, we'd all be complaining about housing affordability somewhere like London.
It's not simple, or a solution. It's the deck you're played.
And like I say, comments that amount to 'just do X' doesn't change reality for people for whom that isn't a realistic option. Moving away from family, support networks and careers are not an option.
Theres a wealth of options, you just don't find most of them palatable.
I was daily commuting for 5 years, leave home at 5:30 am and get home earliest after 6 pm on the train. This meant I could buy my first home for $200k in 2017, but was very taxing on time and mind.
Fortunately thanks to Covid I now have permanent WFH 3 days per week and WFH school holidays, which means I can take my child to and from school the majority of the time.
I'm 100% certain the switch to WFH in the post-Covid world has been one of the only positive mental health developments in this country for the last five years or so. I don't have that luxury at the moment but I am starting to see traffic get back to pre-Covid levels already in my part of Auckland.
Like... if it wasn't for a global pandemic, this city would have kept getting bigger and bigger and unaffordable. That's kind of a terrifying thought. Doesn't fill me with much hope for how we deal with future growth, climate change or the current crop of social unrest.
I guess it's probably how most FHBs today would feel if you told them that Howick was designed as a cheap affordable entry-point suburb for First Home Buyers. Whereas at that point, 'making a sacrifice' meant a new build 30 mins max from the CBD, today it means taking on four times the debt for a house half the size over an hour away. In the case of Pokeno, which is marketed as being 'commuter friendly' to Auckland, it's not even in the same district.
"RBNZ says house prices 5%-20% away from being 'sustainable'"
10% to 15% prices are already down from its peak. Does it mean another 5% - 20% from here on will be that house price should fall between 20%-35% from its peak.
Possibility that RBNZ knows that this much fall is imminenet so comming out in open to prepare and be in posistion that we said so and not look stupid.
Just heard on NewStalk ZB a very peeved political reporter Jason Walls ... that yet again Adrian Orr has brushed past reporters and refused to answer questions ... unlike his predecessors , Orr doesn't answer to off the cuff questions ... as Walls said , this man ( Orr ) is a public servant , in a privileged position , being paid $ 700 000 per year , well it's about time he started earning that money ! .. ( hell hath no fury as a political reporter spurned ) ...
I mean...good? The impacts of RBNZ missing its marks on emergency OCR rates, LVRs and now missing inflation over and over again are felt by almost all Kiwis.
If I were the Finance Minister and copping heat over living costs, I'd be asking myself if I truly have confidence in the leadership of the Reserve Bank. Or, even more importantly, whether the wider NZ population does.
Those who listened to the drivel coming from Printer8 and his ilk last year are going to end up in penury.
That hard saved deposit sacrificed to capital losses and all their income eaten by crippling mortgage repayments.
And for what... some tinpot infill terrace box in Papakura or Henderson. Apparently that's what "success" looks like.
Yes; after considering my advice my millennial children have and are doing well.
As to their homes (and two with a rental each) their mortgages are 2.99% until 2026, and yes, one millennial sold four rentals late 2020 and is now mortgage free in a very nice home. All done on their own resources without financial support from me.
There is no secrets on my part as I posted at the time.
My comment on interest rates (which were rubbished at the time):
by printer8| 29th Apr 21, 4:04pm
That BNZ five year rate of 2.99% may not be around for that much longer.
My comments on sustainability of house price rises:
by printer8 | 18th Dec 20, 9:19am
Clearly the current rate of housing inflation is unsustainable (even Bindi has publicly said so) and it poses risk of significant correction which is neither in the RBNZ nor the government’s interest.
by printer8 | 3rd Mar 21, 11:35am
. . . I think that most are now seeing current price rises as unsustainable.
by printer8 | 30th May 21, 3:29pm
Talk of significant capital gains from house prices will be simply reminiscing at the BBQ for a number of years to come.
RBNZ and Treasury opinions regarding the next three years support that.
Baywatch
Two reasons:
Firstly I see a many rubbish posts that at best are based on either wishful thinking or ranting and are often fueled with a degree of envy or anger . . such posts are not worth my while commenting on to be shouted down, and as this site's byline is "making financial decisions" to me the comments section is not filling its purpose.
Secondly, while the level of the market is unsustainable (as I posted 18mths ago) there is considerable degree of uncertainty as to how this is going to pan out . . . and RBNZ, bank economists and reputable economists seem able or willing to put a figure on it.
Something I think a number of posters need to consider is that as I have posted on a number of occasions; I have experienced three falls in the housing market, and what I learnt was that it was the same home and same rental income . . . that housing is long term and that market is short (or likely in this case medium) term.
As previously posted; for those who have purchased over the past few years (FHB and investors), the market is not the issue which dominates many posts, but rather increases in interest rates. For those - especially FHB over the past two years or so - I know that they will be belt-tightening and I wish them well, the bank is not going to foreclose on them as long as they meet their mortgage payments.
Brock
You still here?
For the past three years there is not one thing I can think regarding NZ that you haven' have been moaning about. And for three years you have been saying that you are leaving but still haven't. . . . not surprising that you are into continual moaning as you can't even organise something straight forward as that.
Some advice for you son: you don't get ahead simply moaning and blaming others.
Excellent, my day was missing some geriatric pantomime. Thank you.
I know that dementia plays havoc with memory, so I'll remind you, again, that up until about 16 months ago I was living in Europe. This little story about "three years" you spin is a work of fiction like most of the utter drivel you write on here.
The "successful" people that took your terrible advice to buy their first home by leveraging in at peak bubble last year are going to be moaning for a long time to come as they contemplate their ruin.
Thanks for the advice grandpa, that's right, you get ahead by not making suicidal financial decisions like the ones you were cynically egging on last year. Send your poor kids around my way for some proper advice on "getting ahead".
100%....highly manipulative. Even the post above is used to suggest that he knew prices were about to fall by cherry picking 1% of his last 2 years of posts that might fit what is now happening. If there is a big crash now...he'll be the first to say he knew it was about to happen...'I told you guys all along that this was going to happen'.
Yup. He's done it to me too. Topped off with several personal insults. When asked why he felt the need to insult me, his response was that I had challenged his views - in a post where I very mildly disagreed with him. If someone can't handle a mild challenge to their views on a comments forum without resorting to misrepresenting others views and hurling personal insults it's best to just ignore them. They are clearly just here to get a reaction rather than actually engage in a discussion.
No I don’t.
You are one of the very few commentators I would rather not see ever again here. At least TTP provides a laugh.
Consistently misrepresenting others’ positions. If that happened in the commercial world you would be sued. In an anonymous forum you get away with it.
good bye and good night.
Man you are senile. I didn’t retract anything. Nor should I. Lying and misrepresenting people’s opinions ( and clearly several people, not just me, have experienced that) is far worse than calling someone a knob.
knob is a very polite way of describing you.
walk on, troll. You represent everything that is ugly in this country in 2022.
you right there, with the land prices paid over last two-three years and Inflation on materials/labour increase, they won't be able to build a house for what the market is prepared (or can afford) to pay. Trouble ahead, I see a few are now looking for mum and dad investors in their companies...10% returns guaranteed. Lucky some of us still remember Hanover/South Canterbury Finance ..deja vu
Only 20% reduction max to make housing "sustainable"? LOL. What a joke. Housing in NZ was already firmly in bubble territory well before the Covid-period increases induced by his reckless and destructive ultra-loose policies.
Orr has zilch credibility left after all his mistakes in monetary policies of the last 3 years, and this just confirms that he has no idea what he is talking about.
Really appears we are seeing older investors in positions of power trying to navigate the giant rift between the entitlement mentality that has seen the policy-driven wealth transfer from younger workers/savers to older asset owners, and the reality of sustainable house prices and economic policy.
Trying to reconcile the two without sounding completely ridiculous, but not quite managing it. The leeching off the younger and coming generations is too obvious.
That is exactly it Rick - 'see we are doing all of this for you, for financial security...we can't afford for house prices to drop otherwise there will be a recession and you young person will lose you job and won't be able to pay rent or your mortgage....you see making asset prices go even higher is in your best interest'.
Taking anything the RBNZ says at face value is pointless. They are simply attempting to “steer” markets to their desired outcomes.
Just like their description of inflation as transitory. Or their insistence rates would stay low (or negative) for years. They are saying what they would like to happen, not what is likely outcome.
At this point the RBNZ would love to see an orderly cooling of the housing market to ease inflationary pressures, without spooking the horses and creating wider systemic issues. I’d say it’s as likely as their prediction of inflation being transitory.
This angle needs more upvoting, more discussion. I'd imagine Orr is thinking as follows
"Dearest FHB/new owners, buckle up as prices will drop more and interest costs are going up"
"Investors please don't panic but expect further price drops. Don't bail out completely please just accept the 25% dip"
"I'm just hoping we can get to a price level where FOMO is almost eliminated but well organized investors and FHB are willing to play"
When reserve bank says that fall of 10% in median house price will make it sustainable.........what nonsense are they talking as they themselves are not clear.
Average Auckland Media is appox $1.21 Million : https://www.nzherald.co.nz/business/auckland-average-median-house-sale-…
Does it mean that 1.1 Million dollar is sutainable (After appox 10% fall as advocated to be sustainable by rbnz). For 1.1Million with 20% deposit will need to borrow $880000 and mortage with today's low rate (As are going up in future so as of today is lower rate than may be ina month or two in future) is appox $1200.00 to $1250.00 per week that is appox $74000 per annum before Tax.
Minimum wage is $21.10 that is appox $44000 per annum (Coule jointly earning $88000 is ruled out to even dream of a house) but if someone is doing better instead of $44000 is earning $55000 per annum (appox $26.40 per hour - being generous) so two people earning before tax $110000.......and pay $74000 ............judge for yourself what RBNZ is saying is just to say and get away yo select committee as politicians do not grill them and allow bureaucrats/rbnz to get away with rubbish.
data/Maths speaks for itself and one does not have to be economist or an expert.
Most FHBs are not buying the average or median price homes in Auckland. Sure some are, otherwise wouldn't the average price be higher? And who is buying the lower quartile houses? Seems to be a common trend on this site that people think FHBs are all buying an average price house.
https://www.rbnz.govt.nz/statistics/c32
The RBNZ themselves. Have a look at the spreadsheet. Pick a month over 2021. Do some analysis. I am sure that Mr Orr's minions look at the underlying data set every day and poop themselves. Probably why K-Mart Petone is sold out of undies.
Let's say we fall 15% from here in nominal terms....and we're already down 10%...so that is a 25% fall nominal terms. Add in 2-3 years of 7% inflation and suddenly the number in real terms is getting quite significant in terms of people's real loss in wealth/buying power.
Astute observation IO. Inflation may well be the factor that means house prices become more affordable in real terms, provided wages increase roughly in line with inflation. Potential buyers won’t go wrong to wait and see see how this plays out, bearing in mind that if interest rates drop significantly, then house prices could start to recover. Also watch net immigration.
My experience of housing downturns is that lots of rubbish comes onto the market, while good listings are hard to find as fewer people decide to sell. I did notice however that a couple of years after the GFC the market became full of really great listings. I think people held on for as long as they could, but then had to sell. Sadly! While there were some bargains to be had, a lot of very lovely people fell on hard times.
Orr is an out of touch nob. For a normal working couple that are lucky enough to own a home. What they pay on their mortgage is their savings. If they are really lucky then some of that is principal. If they are really really lucky then they have some equity that is available as revolving credit in case the financial poo hits the fan at some stage. All other money is spent. Some spending is compulsory and some is discretionary. But all of the spending translates to income for someone else just like them.
If you want to extract an extra 2% interest of 331 billion of mortgage debt. Be prepared for the collapse in spending.
Already, as the story goes, NZ house prices are 5-7% off the peak, which was in November 21 [depending where you live.] It will also be more or less than that, depending on your neighbourhood. It is not hard to come up with one number for everyone, it's just that everyone's number is slightly different. Prices have definitely levelled off where we are. Auction rates in the Western Bay of Plenty have plummeted or halved, depending on your take, since November. The new build bookings are slowing or in some cases disappearing off the books. Six-figure building price increases over the past 12 months are taking their toll. In our neighbour's case it is up $200,000 & they are continuing with the build, but the bank will only lend for the one dwelling at a time (they're wanting to build two town houses on an old quarter acre). Add in age stage, personal & financial circumstances etc etc. & you get my drift. As for our over-paid friends in Wellington, on both sides of the street, well, what can we say. If it wasn't so overtly stupid, it could be funny. But it isn't.
Its been just over a year since leaving NZ to move to Aus. It has been the best decision we could have made and we have zero intention of returning. Our earnings increased significantly and costs of living dropped. I no longer feel like a have a constant weight on my shoulders, struggling just to get by. My kiwi ancestors (all 6 generations of them) would be ashamed of what has happened to NZ.
Ignore the numbers for a moment, let's focus on the staggering policy U turn - JA /Robertson are on record in the last 12 months saying they wanted a small steady rise in house prices and now the RBNZ are not only saying that further increases are unwelcome but their objective is to establish a drop of up to 20%!
Jacinda last year said price declines wouldn't be that bad... she knew what was coming.
Speaking to RNZ for an extended end-of-year interview, Ardern said she hoped 2022 would halt the recent "runaway increases in house price growth".
Asked directly whether she wanted prices to come back, Ardern said: "Yes".
"We need [the market] to stop heading in the direction it is," she said. "Even if you saw [prices] come away, in many cases it would be bringing [them] back to levels that we were at only a year or two ago."
https://www.rnz.co.nz/news/political/457683/ardern-wants-runaway-increa…
1- Jacinda didn't say she wanted a small steady rise in prices, she said a small steady rise in prices was preferable to the big jumps that had been occuring.
2- RBNZ is independent from Government
3- RBNZ has not said their objective is to establish a drop of 20%
No wonder we are in this mess when people make up their own reality
NZ House prices have approx 50% of non-value-added costs, ie costs that could be removed without affecting their amenity value.
These costs exist because of land and house policies that allow monopolistic rentier gaming of costs.
Further, the bottom to which it can fall is underpinned by its next best economic use, except in cases where the market completely collapses and properties get sold even less than their value-added price.
https://www.oneroof.co.nz/news/41353
Ashley is still peddling his almost unique take on the NZ property market. Can Ashley and TTP prevent a crash? Is anyone believing their narrative any more? The RBNZ certainly aren’t.
That link looks bang on the money to me, still it doesn't support the narrative of most of the people on here so obviously he is wrong. The RBNZ are in the "Box Seat" for engineering the "Crash" any which way they want it unless there are massive forces beyond their control coming from the likes of the FED. They can stop raising rates tomorrow and signal that to the market and we are off to the races again. Its pretty obvious we need multiple rises for the rest of the year to get a serious crash and your a bit of a fool if you think the RBNZ will knowingly crash the market.
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