Brian Gaynor says he's not quite as positive as he was a year ago, warns of damage from house price correction at some point

Brian Gaynor says he's not quite as positive as he was a year ago, warns of damage from house price correction at some point

By Gareth Vaughan

As 2015 gets underway Brian Gaynor says he's a little less optimistic than he was this time last year, and warns the housing market is heading for a fall - at some point.

In a Double Shot interview Gaynor, executive director at Milford Asset Management, told interest.co.nz he expects 2015 to be a good year.

"I think it's going to be a good year, (but) probably I'm slightly less confident than I was this time last year," Gaynor said.

"If you look at it I think (New Zealand) economic growth will be slightly lower than it was last year. I think the sharemarket's performance will be positive, but a little bit lower than last year. But there's a lot of momentum going into it. And the fact that Australia is suffering, which means that we are not losing our talented people to Australia to the same extent, we are getting some of them coming back, means that's always positive for New Zealand."

"So (I'm) positive but probably not quite as positive as I was feeling this time last year."

A year ago Gaynor said he expected 2014 to be a once in a generation year for New Zealand. Looking back now he says 2014 didn't pan out quite as well as he'd hoped.

"It actually was a good year from a New Zealand economy point of view, but two things happened that probably took the steam out of it. First of all in February dairy prices peaked and then they fell 50% from there till the end of the year. And that put a pall of pessimism across the country. And the second thing of course (was) the Reserve Bank increased interest rates a number of times."

'Stock selection opportunities harder to find'

In terms of the domestic sharemarket, Gaynor said it's a stock selection environment.

"Are there opportunities out there? They're harder to find, there's no question about that but there will be (opportunities)."

"I do think there'll be more IPOs this year, and I do think some of our bigger companies may do a bit better," Gaynor said.

"Last year was up 17%. I doubt if the (share)market will be up 17% this year. I mean we've set lower expectations to our clients. We're saying 7-12% (and) if we can do that we'll be very happy. Whereas previous years we said 8-15%. So our predictions are a little bit lower for this year, but they're still positive. But it will be hard work, no question about it."

In terms of Australia and the Australian sharemarket, Gaynor's more pessimistic.

"I think they have a lot of issues. Capital expenditure in the mining industry is going to drop dramatically, and therefore the Australian government will be forced to use some stimulus. But with the huge budget deficit they're facing over there I think they have less room to move. So I think Australia maybe more difficult this year. But there's over 2000 listed companies and it doesn't mean that 2000 companies go down in value," said Gaynor.

"There'll be 300 to 400 that will do very well so it's going to come back to picking the right companies once again in Australia. And because of the huge number of companies listed there, there are going to be opportunities there, but you're going to have to work pretty hard to get them."

Housing market 'a massive medium-term concern'

With the latest Real Estate Institute of New Zealand and Quotable Value figures having shown a strong finish to 2014 for the housing market driven by Auckland, Gaynor predicts this will continue into 2015 but won't last forever.

"Property's hard to pick. There's no question about it there's massive momentum to the property market. The way that the property market normally runs out of steam is a big increase in supply. The supply doesn't look like it's coming this year. So I can see housing going even higher," said Gaynor.

"But it is a major medium term concern because there's no question in my mind at some stage, and I don't know when, the property market will come back. And it will come back 10, 15, 20 or even 25% and that will have a really devastating impact upon the New Zealand economy because of the high level of debt. Will it be this year? Probably not, but it could be. Will it be next year? I'm not sure. It could be two or three years time but it will happen at some stage."

"Asset prices don't keep on going up year after year although most New Zealand investors believe that they do," Gaynor added.

Asked what could trigger a significant fall in house prices, Gaynor said supply and the Australian economy were key factors.

"It's supply. It's a big increase in supply and a big upturn in the Australian economy. When all of a sudden Australia does better you get people leaving, going to Australia and you get less New Zealanders coming back here, and at the same time there's a big increase in supply. Supply is normally the major thing that kills it and we're not getting the supply this year, and particularly in Auckland we're not getting anything like it."

"There's talk about the amount of houses we need to build but we're not building them. A lot of the companies are very cautious. They're finding it difficult to make money building houses because although prices are high the cost of materials and the cost of labour, (is also high)," said Gaynor.

"If you look at the Trade Me latest job ads there's a huge amount of ads for people in the construction industry and property industry. It's a sign that the big companies just can't find the skilled people to work on these projects, and when they do get them they're having to pay them very high wages."

US has 'right kind of positivity'

In terms of the global economic picture Gaynor said he had recently spent a few weeks in the United States where there was "the right kind of positivity."

"It's not a bubble, it's not crazy optimism, it's just that things are picking up. The (US) economy's creating about 250,000 new jobs every month," he said.

"However the rest of the world is probably not as good. Certainly Europe is not in a great shape and China is certainly slowing. But the oil price decrease is a bit like a tax cut right across the world and it's going to benefit quite a lot of countries."

Overall it ( the global economy) is positive but it's probably not booming. But with low interest rates and oil prices down, I'm reasonably optimistic about the year ahead," Gaynor said.

In terms of oil prices he suggested they could fall further, perhaps to US$35 to US$40 a barrel.

"I don't think we're going to get much of a pick up in the next three to four months."

Dairy prices 'interesting in 2015'

And as for dairy prices these would be interesting in 2015.

"A lot of what happens in New Zealand will be dependent upon that. If prices start picking up, and even if they only pick up 10-15%, it will be incredibly positive for New Zealand because the direction which prices are going is just as important as how much they increase," Gaynor said.

Overall he expects a mixed year for dairy prices.

As for the New Zealand dollar, Gaynor doubts the parity with the Australian dollar picked by some pundits will occur, sees the US dollar strengthening, but expects the Kiwi to stay strong against the likes of the Euro and Yen.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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This is music to my ears, as someone who has endured NZ's obsession with property. I see this obsession as something akin to a religion than anything as simple as a roof over your head.

OK, I've read all the comments below...
Removing the emotion and wishful thinking I doubt prices will drop.
Let me explain, Auckland prices are fuelled by immigration (and regardless of the watered down stories by those with heads in the sand, the heart of the city is being sold to Asians) and a lack of housing - supply (which isn't going to be resolved anytime soon - the politicians dont have any idea - and due to the geography there is no convenient 'expansion').
As for the banks, interest rates are dropping as we speak, so access to money will be easier.
And as for the GFC horror stories, they didnt apply to NZ or Oz as the banks were restricted in what they could 'invest' in by government legislation of the time (which still applies). For those who need reminding, NZ survived the GFC well.
The obscene Reserve Bank restrictions on FHB's and Kiwis in general has still not caused any drop in Auckland prices.
So, will Auckland house prices drop? Not any time soon.
 

well said, what about the rest of the country. Who'd wanna live in Auckland anyway, let em have it.

I suspect before long (started already) Aucklanders who retire will cash up and move to the provinces...Tauranga and the Mount are popular...

I would like to know how many properties Gaynor owns, or has owned, how much experience he has in the property market and why he thinks he is qualified to make the prediction he has?
Or are his comments only designed to discourage people from investing in property and investing in managed funds like his instead?
 
 

Or is it Big Daddy trawling for more people to off load his dud properties too ?  Brian has been very clear about the propects for his funds.  And they are not as flash as previously. 

It is irrelevant whether he owns 1 property, 20 properties or no properties. You don't have to own a property to be an expert in the property market.

Haha, that sums up interest.co.nz commentary. 

I have that level of expertise in the commodities and bond markets.
I don't know enough about them... so I keep well away because I would lose myself a lot of money.
What more expertise do I need to know :)

More to the point, people who do own properties for investment purposes automatically assume a position of expertise. These are the people who are most a risk of not meeting expecations. 

More to the point, people who do own properties for investment purposes automatically assume a position of expertise. These are the people who are most a risk of not meeting expecations. 

Somebody's rattled!
 
Might be time to start selling B(&)D...

Brian is always worth listening to.  But predicting the housing market is a bit fraught.
And remembering we need to talk of two things.  Auckland house prices and other New Zealand house prices.  Very separate issues, separate trends and when /if the bubble pops, very separate futures.

Sounds similar to another prediction made... fact is, most PI's don't care if the market drops in 2-3 years time by 10-20%, capitals still 20-30% up. Be a good time to go hunting for more.

They don't care? They might care if the implications for the wider economy are negatively affected. A butterfly flaps its wings....

He's making some sense.  
If you think Auckland's housing market is HOT, try Sydney!  And remember, Australia is sitting higher on the list of favourite destination for Chinese house buyers.  Even Sydney, Melbourne and Brisbane are showing signs of a slowdown.

Maybe house prices will fall 25 %  ..........If all of the thing listed below , happen

  • Immigration of over 1000 new people each and every week comes to a complete stop .
  • Asian buyers who raise money at 3% in Hong Kong are stopped  from buying here
  • Interest rates double,  and
  • Banks stop lending recklessly on overpriced houses , and
  • Banks run out of QE money that has arrived here ,  to lend
  • Auckland council allows the orderly development of the city , instead of restricting the city limits in some arbitrary line around it .
  • Auckland Council  stops charging $100,000 in a list of fees taxes and other charges to subdivide a section
  • If Auckland Council's Watercare unit  stops rorting everyone and charging $12,000 for a $600 water meter .

And then we also need leadership
Len Brown needs to keep his focus on the city's development problems instead of young Asian babes , gets rid of the pie in the sky dumb ideas that will bankrupt us ,  and keeps his you- know - what in his trousers 
Realistically , none of the above will happen , so we are faced with more of the same for some time

Yep, nothing can stop Dorklands house prices from thier preordained destiny of ever increasing prices.  I would'nt touch them with a shitty stick, but thats just me.  Keep pouring your money in by all means.  It's such a shame there are those stupid limits on how much you can borrow :(

You have worked it out Boatman.   There is no other town in New Zealand other than Auckland.

So Brian what your saying is I should take my money out of property and put it into managed funds...  I take it you would suggest Milford is the place to talk to....

You'll forgive me for taking your property market predictions with a hefty side of scepticism 

 

Look out!  Somebody's rattled...
 
Might be time to start selling off some of those investments properties Big Daddy.

Not rattled at all.  Just Laughing all the way to the bank.

Mr Gaynor, if the property market were to drop 25% how far do you predict the NZX and your fund value would drop at the same time?  Which would be the lesser of two evils?

The NZX would be the lesser of 2 evils. Most NZers have not bet their future on the NZX. 

Difference with the NZX and AKl property is that a lot of good high dividend stocks can be positively geared as evidenced by the ramp up on these this morning following the deflation figure that came out. I don't think you can say the same about many investment properties in AKL. It always puzzles me that the IRD is toothless in sorting out this anomaly.
As interest rates plateau / fall will we see a run up on the NZX - probably. What about AKL property - surely there are no more gullible fools out there?

Lot of whistling in the dark going on in these posts.

Brian Gaynor doesn't predict anything that has been unknown by most: of course house prices will level off at some point in time, will stabilize and, given the steep rise over the recent years, might even go down. Is that different from what happened in the previous cycles? - No, it isn't. Brian cannot and does not predict when the slowing down and a correction will happen, he does not know that and openly says so. I can't see what the whole hoo-ha is about. 

I tend to agree with him mostly. This year is good, next year good but less certain and after that at some stage, maybe 2017, maybe 2018... there will be a downturn in property prices (before they track back up). I think it's called the property cycle. 
A highly relevant point he has raised about property is the high cost to build, the shortage of skills to build and the continuing lack of supply. This in the face of high immigration figures. Something has to change for the worse before property prices decline.

Thats not too bad - most of those houses are probably more weather tight than AKl's plaster homes.

I like the indoor outdoor flow of that one on the far left.
 
Although it's IEP may come in a little under 33% for earthquake strength, i think that building has good bones and would probably fetch about $4M in our current market.

More like this:
 
https://www.flickr.com/photos/38745062@N02/3841677517

Yes but less and they are all one dollar bills.

Predicting anything is a very high risk occupation.
 
How many experts predicted oil would be under US $ 50 bbl just 12 months ago ? 

Matt Simmons predicted this saw tooth effect.  He also said most ppl would not get Peak oil and its effects, volitility and recessiosn until no3.  This is number 2 btw.  The only unknown is the timing.
 
 

There are about 40000 new immigrants every year coming into the country.
 
The govt plans to build about 39000 new homes at some point yet they have built about 360. Even if all those new homes were already built which they aren't, it is just simple demand and lack of supply. I can't see how it would drop really. Its a one way bet.

2015 is the year NZ is supposed to fall of Harry Dent's "Demographic Cliff".  As I recall he predicted a 30-50% drop in house prices.  Seems to me that government is mitigating the effect with deliberately high immigration and sucking up foreign capital.  Perhaps Auckland will be saved, but the provinces could be eviscerated.

I think HD talks of demographic trends?
 
--edit--
 
yep and he seems to be pretty acccurate from what I recall
 
 
 

Yes and from a demographic point of view NZ is in a terrible position.  we're in the 3rd year of baby boomer retirement.  According to Dents studies, peoples real estate spending peaks at 53 then drops like a rock.  This is taken from statistics NZ....
 
"Over the next 50 years, the 65+ population will more than double to 1.18 million by 2051, and will peak at 1.23 million in the late 2060s. The largest increases will occur during the decades ending in 2021 (up 215,000) and in 2031 (up 250,000), when the baby boom cohorts reach this age group....."
 
Bearing in mind the milk solids price, if China falters, and if there's some sort of global liquidity "event", and considering the demographics, it's could shape up to a perfect storm which obliterates the Auckland housing market.  Auckland looks perfectly positioned for a downturn IMHO. 

Much as I respect Gaynor residential property has characteristics that are different to shares, bonds and commercial property mainly that people have to live somewhere even if they think of their house as an investment. I don't think Auckland residential property prices are likely to go back in nominal terms to any significant degree.
 
Demographics in NZ are not as scary as they might be in other parts of the world. NZ is alone (I think) in the OECD for still having natural increase - each year more people are born in NZ than die. And that will be the case for a couple of decades yet.
 
Contrary to what people on this site seem to believe the majority of immigrants are either Kiwis coming home or Australians. Although 2014 was an aberration, discretionary immigration normally only accounts for a small percentage of our population increase each year. So, the government could stop granting residency visas tomorrow and it would make very little difference to the demand for property.
 
Short of a massive intervention by central and local government demand for property will continue to exceed supply for the next 30 years. Indeed that is Auckland Councils current housing plan: demand will exceed supply for 30 years. Currently Auckland is about 40,000 to 50,000 homes short of what it needs to adequately house its current population. It's no wonder that every day 7,000 people commute from Waikato District and Hamilton City to work in Auckland.
 
About the best we can hope for is a plateauing in nominal prices with a 5% oscillation around that peak.

Kumbel do you believe the property (clock) cycle no longer exists?
 
Are you certain this time our property cycle will be stuck at 12 o'clock for the next 30 years?
 
History generally has a way of repeating itself....

Auckland is not a normal market. It does not attempt to meet total market demand at all.
 
If the Auckland development sector was into food retailing almost all of it would be the organic specialty store in Parnell and maybe a farmer's market; none of it would be Pak n Save.
 
The sector only needs a comparative trickle of reasonably well-heeled people to enter the market to take up their new housing stock. So its no surprise that in the 25 months of Auckland Council's hilariously named Housing Action Plan the best performance to date has been less than 90% of target - and most months have been hovering around 50%.
 
That's the target that, if they consistently met it month in and month out it would still take 30 years to wipe out the deficit.

The UK property crash in the late 80s was not caused by an increase in supply. All NZ needs is a downturn in fortunes or a withdrawal of easy credit (GFC2) and prices will fall. If they fall fast, panic selling will push them down further.
 
Unless the supply issue is fixed then the the bubble will re-inflate once the good tims return.

What I really struggle with in the Auckland market is the speed with which prices have increased post 2008/09. I don't disagree that there is a supply/demand imbalance but surely this hasnt just suddenly evenuated to the extent that prices have shot 40-50% in 4-5 years. Reversing immigration is a factor during this period but as you say yourself, just a small element of our overall population growth. I would have expected a much more gradual increase in priices. The current trend says to me that the market increases have been driven to a large extent by low rates and the pschology of "having to get in the market before it's too late". Both of which are the primary drivers of the cycle. The property cycle will run its course and prices will come back. I'm staying sensibly leveraged and holding cash back to pick up bargains when they come.
 

My take is that you have to think of price levels and the rate of price rises as two separate things.
 
The speed with which prices have risen is no doubt strongly influenced by hot money in the form of domestic and foreign speculators, fear of missing out, momentum: all the stuff of bubble markets. All enabled by low interest rates.
 
I believe that prices would have risen that high without speculation, just more slowly. There is an enormous shortfall of housing in Auckland, some 40,000 dwellings. Auckland Council's housing plan is to take 30 years to eliminate the shortfall. So for the next 30 years more people will want to buy a house in Auckland than there are people willing to sell. Under those conditions it is hard to see any significant downward move in prices (volumes yes but not prices) unless there is a sharp sudden recession or a trebling of interest rates or the government intervenes by becoming a major developer in its own right again.
 
Auckland is not your grandfather's property market.

Here's the simple truth, regardless of the nonsense which the media and politicians push:
 
http://www.barfoot.co.nz/News/2014/April/Top-25-salespeople.aspx
 
21 out of 25 of B&T's top agents are Asian.  That's 84%.  It says it all.
Anyone without blinkers on knows where the driving push behind property inflation in Auckland came from.  Asian buyers and low interest rates.
 

In 2011/12 we had a net outflow of 3,000 people. Betcha the prices still went up that year in Auckland.

 
The B&T top 25 salespeople says it all - anyone who denies it is either a fool or has vested interests.

I can categorically assure you that I have no vested interests in Auckland property - I'm from far far away.
 
As for me being a fool: you might get a few takers for that proposition around here :-) But that's the glory of the web: we can all have our day in the sun.

Low quality housing in AKL will go down...that’s for sure...all those rat boxes that are being built either as apartments or terraced housing....Ponsonby 'antique'  villas will only ever appreciate in value...it will work like this: interest rates go up, rat box housing will go down and villas in AKL CBD will stay the same value...if you have a choice between a rat box or a wooden antique house which would you choose?
 

Prices will only drop if owners must sell, e.g. they can't service their mortgage anymore or the rental market dies. Otherwise i'm sure they'll hold on to them until they can get at least what they paid. There'll need to be some other sort of shock to the economy to trigger a crash IMHO.

Again, the UK crash of the late 80s shows what could happen - people lose their jobs and can't pay the mortgage so houses are repossessed and forcefully sold (we did see some of this post-GFC but were saved by the printing presses of the world). Note that rents also fell dramatically as these are linked to wages so investors also had to sell up.
 
Those who waited for house prices to increase back to the same level were waiting had to wait 10-15 years.

Good analysis. The idea that prices can't fall without massive supply is deeply flawed.
 
I suspect California ~2008 provides a similar example of a market where supply didn't materially change but home owners couldn't service the debt. Yes there was plenty of sub-prime lending - but home many Auckland households would be unable to service their debt if one earner lost their job?

I am grateful to hemihua for reminding me that my opinion above only applies if there are no black swans. Gaynor was crystal ball gazing over the next three years and I guess I was only thinkiing about the short term too.
 
A significant rise in mortgage rates would obviously cause a bit if a fire sale as would a significant reversal in the economy. These are possible but not likely in the short-medium term.
 
But the thing about Auckland is that there is massive pent-up demand that is still slowly getting worse. Any dips because of a change in immigration, say, would be taken up by the group waiting to buy on a dip. This suggests to me that oscillations of 5-10% are possible but a collapse by 25% extremely unlikely. Especially in the next few years. Smith's lacklustre response to rising house prices pretty much guarantees now that these price levels are here to stay unless a big bolt of lightning strikes (in which case we are all in the shit).

I wonder, sure there seems to be a pent up demand to buy, but with rents flat not to live in it seems.
regards
 

"black swans" or grey swans?  ie my long ago reading of what a black swan is is an un-expected event and probably one having an impact far in multiples of what could be expected from that event?
So an example would be someone assasinating Obama which triggers a Great Depression Mk2, when all we would expect is the markets get frozen for a week while the VP gets sworn in.  ie it is a small risk the timing you cannot predict (if even if it will occur) and has an impact far more severe than expected.
Given the poor economics state of various areas of the globe, ie EU, Japan, China and probably the USA plus the oil exporters soon to be dire positions its not that hard to predict a big global recession seems probable inside 2 years. 
Will NZ dodge it yet again?   I dont know how you can (or that anyone can) say NZ will be fine.
Further, this is the second dip of what is expected to be re-occuring dips and recoveries, just how many can NZ dodge?
I suppose its like putting your finger in a 60 blade table saw say at 2000 rpm, you dont know which of the 60 teth chopped your finger first, but you sure now its messy and hurts.
 
 
 

House prices will drop by 25%......
Brian qualifies that by saying the big "sign" will be a large increase in supply..
I can't disagree with that...???      
The perfect storm will be complete ineptitude by local bodies and Govt regarding Aucklands housing shortages.....  AND then a complete overreaction on their part by opening the floodgates inremoving the artifical supply constraints...
The perfect storm is that house prices might well  go up much more from current levels.... and the collapse in prices might well be more than 30%.......    AND NZ will have our own version of a Banking Crisis.... ( this could be up to 8 yrs away )
SO......   over the next 10 yrs..... if prices go crazy....   watch out for the Beauracratic response to to  the wrong thing at the wrong time....     Watch out for a "tsunami" of supply .... which will probably forshadow Brains   price...'CRASH".
Makes sense to me...
In the meantime.... Auckland real Esate is going up.....  ( sadly...in the bigger social context )
 

I can if there is a significant % of buyers who are speculating on capital gains and especially foreign speculators that can run with their money quickly.  Now by significant I mean 5~10% and not 0.5%.  I mean if rentals are flat it cant be for the expected significant income increases, ithas to be gambling on a bigger foll buying it off them.
As for houses go up more, well the current multiplier is  in excess of 6 to 1 (if not approaching 8 to 1). and a 9 to 1 is considered dangerous and way over-priced.  ergo just how much higher can it go really?
 
 

steven - long time no see - I got bored of all the same people saying the same old things on these blogs!
"How much higher can it go really?" - well, we could look at places like Hong Kong approx 36 to 1, Beijing 33 x, Rome 24 x, Moscow 22 x, Singapore 21 x, London 16 x, etc etc...

Where are those numbers from?
Looking at a more "realistic" number for say London its more like 8 to 1, so I cant see where you have got 16 to 1 from for instance, and Hong Kong 15 to 1.
 

Numbeo - supposedly the "World’s largest database about worldwide housing prices"
www.numbeo.com/property-investment/rankings.jsp
It has Auckland at 299th out of 491 cities.
Also depends if you're talking about central city areas or greater metropolitan areas. This article has Kensington in London at 28 x ratio a year ago, and prices have sky-rocketed in London since then....  ftalphaville.ft.com/2014/02/17/1774432/go-forth-and-multiply-london-edition/

I predict that at some stage over the next year it is going to rain in Auckland
It may not be in February, It may not be in March, It may not be in April, but at some stage this year it is going to rain.
 
Not hard to make predictions like Mr Gaynor......
 
 

The point is it is going to rain.  So do you ignore that imperitive and get wet some days, or take an umbrella.
What is not hard is to spot the ppl who dont get it.
regards

interest.co.nz needs to utilise better 'predictors'. Maybe someone with a ouija board, or seeking the opinions of pupils at the local intermediate school would yield better results.
 
Bernard Hickey loudly 'predicted' in 2008/2009 that Auckland house prices would fall by 30 percent.
 
Oh yeah, they fell by 11 - 13 percent according to official bank and industry stats.
 
Ooops part I
 
Then the same Mr Hickey forecast in 2009 that Auckland house prices would not recover their value untl 2020.
 
Oh yeah, they actually recovered their value by 2012/13.
 
Oooops part II.
 
So, obviously now with little to no credibility, interest.co.nz has found another patsy to make outrageous headline grabbing claims.
 
We waite for Oooops parrt III

The big Ooooops is already with us.

The core dynamic of debt-serfdom is that debt-serfs must borrow money to buy essentials while the wealthy borrow to invest in productive assets.

This is not merely a random result of free-market capitalism; it is the structure of cartel-capitalism in which highly profitable goods and services must be paid for with highly profitable debt.

This need to borrow to pay for essentials is already evident in student loans, vehicles and housing.

The cost of these essentials is so high that few debt-serfs can borrow enough to pay for these essentials and then have enough borrowing power left to buy productive assets.

Those few who do attempt to buy productive assets face regulatory hurdles and costs that limit their ability to own or launch small-scale profitable enterprises.

The net result is a system in which the vast majority of productive assets are owned by the few who then have the means to exploit the many. Read more

The inevitable outcome is a road to deprivation for a significant and rising minority.

Ireland  visibly exposes that which many NZers are already enduring.

Almost 1.4 million Irish residents, or 28 percent of Ireland’s population, were forced to endure “enforced deprivation” throughout 2013, the state's Central Statistics Office (CSO) says.
 
New figures, published on Wednesday, offer a sobering insight into the socioeconomic impacts of Austerity Ireland.
 
The CSO’s research analyzed Irish citizens’ income and living conditions throughout the course of 2013. It found the rate of enforced deprivation in Ireland had more than doubled between 2008 and 2013. Read more

 

 

 

 

Their predictions would have come true had it not been for QE, ZIRP, and NIRP and the accompanying tidal wave of rent seeking foreign capital that those overseas policies produced. 

Then if Interest.co.nz is so bad why visit?  just to troll?
---edit---
The entire idea for me is to learn. So if a 30% drop was expected and the drop was only 10%, then why? is a further 20% possible just delayed? is  50% drop possible? or was the drop fundimentally wrong?   
 
 
 
 

Analyst, if you were in the buying market around 2009, you should rememeber there were houses being sold for 20-30% under CV. 
 
......and there were apartments being sold for 50% less than vendors paid for them.
 
Auckland prices didnt fall by 30% across the board because most vendors didn't need to sell.

Yes, Triple, my point exactly. You've got it right.

This prediction will end the same way as Bernards infamous 30% prediction almost a decade ago.
And the bloke in the late 90s that wrote a book about how property prices were guaranteed to fall 40%. Anyone that followed his advice missed out on buying a house at $175k which by now would be mortgage free and worth around $450k....    I know of people in the 90s that were waiting for prices to retreat to 1970s levels, which they were convinced was going to happen, I kid you not!...

Yep, Robert Sciller made the same mistake back in 2004 and get mercilessly pilloried by the media, who are about as ignorant of risk as the average Kiwi buying property. But then the unthinkable happened. I'm not comapring Bernard with the great Robert Schiller, but anyone who believes future events cannot happen becuase they have not occured before is not a terribly deep thinker.

Agree...all it says is the risk of it is quite high, it doesnt make it a certianty.  

Anyone that thinks people who have no problem paying their mortgage are going to turn around and sell their house at a loss is maybe not a terribly deep thinker either. A wishful thinker, maybe... but not a deep thinker...  ;)
This was just one of the many oversights Bernard made in 2008.

Oh you mean like Japan. People had no problem paying their mortgages during the great bubble. They didn't sell if they didn't have to but it idn't prevent Japanese house prices collapsing over time. 
Have to love the George Will vs Robert Schiller interview. Here's a quick excerpt:
 
GEORGE WILL Shortly before Alan Greenspan made his famous December, 1996, pronouncement that we should be careful about irrational exuberance, you met with him. Did you plant the idea?
ROBERT SHILLER Well I certainly said the market was irrational. I didn’t use the term ‘irrational exuberance.’
GEORGE WILL At that point the Dow average was about 6400. That was 4,100 points ago.
ROBERT SHILLER Right.
GEORGE WILL If people had heeded you, they’d have lost a lot of money.
ROBERT SHILLER I gave forecasts for five or 10-year horizons at that time. But it is true. I didn’t expect the economy to be as strong as it has. I don’t think you should judge me on one mistake — you call it a mistake. And there’s a tendency for people to think that their gurus should know exactly the future.
GEORGE WILL But you’re undaunted. You’re still saying how — that the market could go into a steady decline and the decline could be — cut it in half, the equivalent in value of all the American housing stock.
ROBERT SHILLER That’s right.
GEORGE WILL That’s still your view?
ROBERT SHILLER That’s right. The — the — unfortunately, the way the public sequentially judges people’s arguments is they feel that people who were wrong recently, underestimating the strength of the market, are discredited. When as a matter of fact, they’re all the more relevant and important, because the market has gotten more out of line since then. It’s got to correct itself.

groooaaaan!... not the Japan argument AGAIN!  everyone here kept quoting that at me back in 2008 when I was outlining why house prices here would not drop 30%...
I won't go back in to it in great detail, but suffice to say Japan has a fairly unique declining population problem, and their property market didn't "collapse" it drifted sideways while the rest of the world caught up, such was the enormity of their lates 80s boom - Tokyo is still more expensive than Auckland to this day...
As for Shiller, what does he make of the Dow Jones now at 17,500... ??!!  does he still think the market was irrational at 6,400?!
 
A lot of people unfortunately get held back financially by listening to "expert" opinions...

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Is Japan irrelevant? Were the demogaphics of Japan not known in the 1980s? If this were a driver of the crash, why was there a bubble in the first place and why were people not able to see it? It's all well and good in hindsight, but the population structure was not the driver behind the crash. That's a ludicrous suggestion. As for Tokyo being more expensive than Auckland, what would you expect in one of the most densely populated cities on the planet? 
It seems like you fit right into the George Will camp. I would say that Schiller would have an interesting perspective on the DJ Index and it would be a good idea to read his response again. 

JC, I didn't say Japan was irrelevant or that a declining population sparked their property decline (although it is definitely stymieing any recovery).
 
What I said was their late 80s boom was so massive it's taken the rest of the world 25 years to catch up...
 
Had Auckland prices been the same as Tokyo 25 years ago, and our population declined the same, then no doubt we might have followed the same path, but they weren't and we haven't so I see little point in trying to draw comparisons...
 
Had you owned a property in Tokyo over the last 2 decades, you would have enjoyed near zero interest rates, making the rental yields profitable, providing a small income, and the property would now be mortgage free. If that's the worst case scenario it's not too bad.
 
I doubt Shillers current perspective would be interesting, it would most likely be the same old spiel about bailing out now before it's too late...  I'm glad I chose not to listen to him 20 years ago or to Bernard 7 years ago..... ;)

Fair enough. Actually Japan was not necessarily a residential property bubble that affected everyone. It actually only affected people who chose to buy homes and apartments. Japan has one of the largest public housing systems in the world. People could chose to rent over purchasing and the rent is tied to income. This is a much better option for lower income people and makes "investment properties" a tough business for the average punter. Also, the Japanese don't buy into the capital gain dream that is pervasive in Australia and NZ. 
Furthermore, the idea of Japan's population declining is rather silly when you consider that 35 million people live in the Greater Tokyo Area (approx 25% of the population). 
The idea of "making money/losing money" by listening to Schiller or Hickey is stupid. They are not finacial advisors. In the case of Schiller, people may have "made money" by doing nothing. The idea that the price of things always goes up over time is overblown. And Japan is a case in point. As for Bernard, he was wrong. But so what? Thinking that the future only replicates the past is an incredibly risky way to think considering the complexity of global economics and asset markets. 

Fair enough. Actually Japan was not necessarily a residential property bubble that affected everyone. It actually only affected people who chose to buy homes and apartments. Japan has one of the largest public housing systems in the world. People could chose to rent over purchasing and the rent is tied to income. This is a much better option for lower income people and makes "investment properties" a tough business for the average punter. Also, the Japanese don't buy into the capital gain dream that is pervasive in Australia and NZ. 
Furthermore, the idea of Japan's population declining is rather silly when you consider that 35 million people live in the Greater Tokyo Area (approx 25% of the population). 
The idea of "making money/losing money" by listening to Schiller or Hickey is stupid. They are not finacial advisors. In the case of Schiller, people may have "made money" by doing nothing. The idea that the price of things always goes up over time is overblown. And Japan is a case in point. As for Bernard, he was wrong. But so what? Thinking that the future only replicates the past is an incredibly risky way to think considering the complexity of global economics and asset markets. 

Good article based on facts and figures available to Brian in NZ. Predicting a drop in house prices in the NZ property market from 5% to maybe 25% does not look good for the months ahead. Brian having recently traveled to the US omitted to tell the readers about the approaching storm cloud on the horizon.with US treasuries. An approaching three minute event that will see US government bonds crash in value causing an upward spike in US interest rates.
The upward spike in US interest rates will create a worldwide flow on. The US interest rate spike will force Banks worldwide to raise the cost of purchasing money between each other. The result ...interest rates rising higher and higher for customers and clients with Banks in North America, Asia the Middle East, UK  Europe and Australia. NZ will not be immune from this event.
Key and English know about the trouble with the US treasuries and so does Bernard Hickey and Brian Gaynor. This three minute event is close, maybe closer than the RMA passing into law. I would say Brian Gaynor predicting house prices in NZ { which i assume includes Auckland } to drop 25% is a bit on the conservative side. 25% will be the starting point.
Hell, what do i know i am just a very average Engineering tradesman. Time will tell.

Let's put our money where our mouths, or in this case keyboards, are people.
 
I'm happy to take on any wagers from those supporting the forecast 25 percent drop.
 
If Gaynor and co really believe what they espouse, then let's see them put some hefty wedge behind it. And thenb we will see if it is just hot air or a truly held belief.
 
Happy to establish set peramiters in regards to stats and data and timeframes.
 
There you go people..... let's get it on once and for all.

Of course we dont know just when, and like I said before a risk of a correction isnt a guarantee it will happen.
In terms of wager ppl are already gambling it wont.
 
 
 

There's an element of risk in any investment and while Aucklanders seem obsessed with property and capital gain, I doubt that Gaynor's prediction will eventuate, there's too much pressure and people want to live there.
Punters have been calling for a downturn in Auckland for years, and they've all been wrong.
I think it's very possible there'll be a slight downturn or level-off, but not a full-blown crash.
"Predictions are difficult, especially about the future"
Niels Bohr