Opinion: Olly Newland details eight reasons why house prices won't crash

Opinion: Olly Newland details eight reasons why house prices won't crash

By Olly Newland

Olly NewlandA few days ago Quotable Value (QV) came out with its monthly report and the headlines that followed were totally predictable:

"Property prices sliding" or "House values slip again" etc.

What a lot of rot.

Government-owned valuer Quotable Value (QV) has reported house values continued falling in October and are now down 1.6% from March.
QV said prices rose 2.8% between October 2009 and March 2010, but have since fallen.

However, they remain 1.1% above October a year ago.

"The low level of sales activity we have seen all year continued through October, with sales well below both last year and the long term average," said QV.co.nz Research Director, Jonno Ingerson.

"There is no sign of the traditional spring surge in sales, and we don't expect any significant increase in sales before the New Year," he said. Full QV stats and commentary here.

If you read that carefully, the part that really matters is buried three lines down, and that is that prices are actually 1.1% higher than they were a year ago.

The error made by many is to look at monthly sales figures and grab the the most catchy headline ... never mind the facts.

When analysing big ticket items such as house prices (which react very slowly one way or the other) it is the annual trend that must be watched, not the the day-to-day or monthly statistical wobbles. Look at this:

Monthly housing index chart here from interest.co.nz.

So looking back over the last twelve months we see that prices were steady with a UPWARD bias. (If anything.)

Exacerbating the whole matter is the fact that sales volumes are at a very low level. As prices are still staying relatively firm it proves what I have always known that 95% or people might want to sell or buy do not have to buy or sell ... so they stay put instead.

So we have no stampede of property onto the market, and forced sales remain mainly in the poorer areas where investors got tucked into buying slums by the now defunct "gee whiz" spruikers who pushed them into them.

REINZ: No Spring Surge In Residential Property Sales

So much for the doomsayers who predicted a 30% crash in property prices, together with the collapse of civilisation as we know it. (Sorry to keep bringing it up, boys.)

It hasn't happened. And it won't happen, for several irrefutable reasons:

(1) Interest rates are low and will likely remain so for some time.

(2) Building raw material costs keep rising ... which puts a floor on second hand house prices.

(3) Building consents are at an all-time-low which creates an immediate shortage.

(4) GST has now been increased to $15% ... which now totals around $60,000 on the cost of the average new $400,000 home.

(5) Immigration and natural population increase requires at around 20,000 new homes to be built every year and this is not happening. (20,000 houses x 3 people each = 60,000 people which is what natural increase and immigration is approx.)

(6) A whole decade of houses has been lost through the Leaky Homes syndrome as mono-clad houses risk major damage or even falling apart and becoming virtually unsaleable except for the land value of the section. (Considerable in some cases, but still a loss.)

(7) The number of rentals available is static or diminishing

and most important

(8) Rents are rising (see my article Rents sure to Rise )

The last point is very important.

The pointy heads in Treasury who advised Bill English to remove building depreciation from investment property in the 2010 Budget should be taken out and be given regular beatings with leather straps for their stupidity as the flow-on effects come back to bite them.

It is a basic fact that removing income from an investment portfolio (which is the effect of disallowing a tax deduction) simply forces the investor to seek fresh sources of revenue - and that applies to any form of investment whether it be houses or any other type.

And it has happened before, one would think the lesson might have been learned by now.

During the Muldoon regime 25 years ago, punitive taxes were imposed on the caravan and boat building businesses in an effort to raise revenue. It failed, and these two industries virtually collapsed within 18 months at an enormous cost in lost expertise and jobs.

There are now clear signs of these painful lessons not being learnt by our current crop of masters e.g.

Monetary policy
The Reserve Bank issued its half yearly Financial Stability Report. Dr Bollard' s statement correctly pointed out his concerns with regard to the strong NZ dollar and other matters none of which we, as ordinary folk, can do much about.

What did catch though my eye was this paragraph:

"On the asset side, the level of banks' non-performing loans now appears to be stabilising after rising steadily from mid-2007. We expect to start seeing an improvement as the economic recovery continues into 2011. Risks to this outcome would arise if the current softness in house prices were to become accentuated or if agricultural export prices were to drop off their current high levels.

Read the whole statement here.

Do I detect a note of concern about soft house prices? Is Dr Bollard saying that soft house prices pose a RISK to the economy?

I would remind Dr Bollard that he was one of the loudest critics of house price rises a couple of years ago, and indeed, I would go so far as to say he 'declared war' on house prices and said that people had invested too much into the property market and this should be curbed.

So now, we have, in typical double-speak, an admission that soft house prices are detrimental to the recovery. Well he should have a cup of tea and a chat with Bill English and John Key sometime ...to get their story straight.

This lot did their level best to derail and damage the property market and we now are paying the price by obeying like sheep.

It can also be noted with interest that the Goodman Property Trust just announced that it lost $100M because of the tax changes That means tax revenue will be $30M approx less and if the loss is carried forward the tax take shortfall will continue. Multiply that by hundreds of thousands of commercial properties up and down the country and the tax losses will be gigantic. Well done Bill and Alan.

Goodman Property Trust takes $131m depreciation hit

It wouldn't surprise me in the least if sometime in the near future the politicians change their tune and one way or the other try to get the property market moving again by changing or softening the depreciation rules in recognition of this monumental blunder.

There is no doubt in my mind that rents will steadily rise as investors re-align their incomes. Why wouldn't they? I will wager that 12 to 18 months from now we will be seeing headlines about rental shortages. Indeed, we already are starting to see the pressure go on when we read Barfoot and Thompson's latest release and see that rents are now at record levels:

Barfoots analysis October 2010

I am confident that inflation is just around the corner and with inflation comes distortions and opportunities.

Inflation is the "speculator's friend". If you stay on your toes you can do very well out of it.

Just to get into the right mindset, inflation is not caused by speculators (as Bill English and others of his ilk try to suggest) but by Government actions, especially by raising costs (e.g. GST or carbon emissions taxes ) or simply by printing more money.

We are, as ever, at the mercy of international trends. So it is highly likely that when inflation takes off overseas through the printing of money, the effects will be felt here as well.

Dollar at Risk of Crashing, Triggering Inflation: Strategist

Investors can protect themselves by buying into assets for which there is a demand, but with a limited supply. Property fits the bill perfectly.

I would place a bet that in five years time, we will be looking back wistfully at today's prices and wish we had bought more.

Even more satisfying will be the blubbering of those silly sods who were convinced that a property crash would be well and truly here by now and instead chose to rent instead of owning.

How many times have I seen this before?
People rent because it is cheaper in the short term.

But one day they will wake up and find property prices have shot away leaving them stranded as renters who don't even own the letterbox ... forever.

Alternative Investment
Then of course there are other investments that should be considered such as gold (read my book The Day the Bubble Bursts - boy - did I get that one right!) and look at the charts and weep:

I've long advised property investors to park some of their spare cash into alternative investments such as gold, art, antiques and the like. Each market has its day in the sun and can come in very useful when things get tight.

BBC: Art price rises 'driven by high-value deals'

Every dip in the gold price should be used to accumulate more as a hedge against inflation but only buy at the spot price, not some fancy price.

While we are on the subject of gold, or other precious metals, including jewellery and the like, beware of the hucksters out there offering to buy your old gold for cash. In many cases you will be ripped off a treat.

Recently, as a test, I offered some gold sovereigns to one of these outfits and was offered NZ$300 each. (A sovereign is approximately one quarter of an ounce.) The market value using the spot price was NZ$420 per coin (viz USD$1400 per oz) at the time ... and when I queried the price, they said that they only paid the 'scrap value' for gold, whatever form it came in! (One quarter ounce = NZ$1800 approx so one sovereign should be minimum NZ$450 plus a small premium.)

There are reputable dealers out there who will pay and sell gold with reasonable margins. Avoid the hucksters at all costs.

Australia
Much has been said about the Australian "boom" and how Australia dodged the recession bullet.

That's true to a point but the bell is tolling for the Australian economy and I predict that Australia will soon enough have a dramatic down turn driving may Kiwis who immigrated over there of late, to reconsider their actions and perhaps even come to regret them.

Australia's Federal Reserve only last week unexpectedly raised interest rates again by 0.25% putting a dampener on the Melbourne Cup which was run on the same day. (It spoiled the festive mood of the day as was widely publicised.)

This was followed by the Commonwealth Bank of Australia (with equally appalling timing) putting up mortgage rates on the same day by 0.45% which caused near riots as borrowers literally took an axe to them. (One fellow chopped down an advertisement for that bank in protest!)

Melbourne was one of the main "boom" towns of late, as was Sydney, and they have both suddenly turned sour. Many people stand to lose their homes because if the overheated state of the market.

Auction rates sink to two year lows

It is also instructive to note that Australia suffers the same blight as this country with property spruikers pushing deals while clipping the ticket at the same time

link: Property spruikers on the return: Sweeping risk under the carpet

I would remind readers of my column that I am totally independent and do not have any interest in any property that clients may be considering - unlike many others out there who blatantly promote 'wealth through property' (whether here or offshore) and who shamelessly clip the ticket on the way through.

A small investors story
I had a sad story came across my desk last week. A working class man in his mid seventies, now retired, had laboured all his life to make a living for himself and his family.

His greatest achievement was to build for himself some 30 years ago, a nice family home and income which he had long paid off.

But he had a dream all his life and that was to make a new type of bed (yes, it's true) and 2 years ago he completed his dream, took out patents, and made some prototypes.

So good was his idea that his bank lent him some $850,000 on his home (now valued at $1.5 million after all the years) so that he could complete the dream which he did. The bank did the research for him, backed the idea and encouraged him all the way.

He then sold the whole idea, some 12 months ago, patents, prototypes and all for $1.5 million to an Asian firm who paid him $50,000 deposit with the balance to be paid 3 months later. (Where was his lawyer in all this? Gone into hiding it seems!)

But then the buyer went into receivership. The patents are now locked up in the mess with the receivers and it will take a year or more to sort things out, if not longer.

In the meantime, the bank that so willingly had lent him the money turned nasty.

Because my client could not keep up the interest payments, having only a small pension on which to survive, the banks raised the interest rates to the penalty rate of 19% turning an $850,000 loan to $1 million in no time at all. Refinancing is out of the question because of his income and age.

Despite pleas for mercy and some time and understanding, and despite the fact that my client has found another buyer for his patent and dream which would clear everything given time the bank is forcing a mortgagee sale of his home.

Next week or the week after he will be homeless, penniless and suicidal - all because the friendly bank - that backed him all the way in the beginning - has now turned vulture, and wants his blood ... and doesn't give a hoot how it gets it.

Sad as the story is, it happens to the big fellows as well. Read about the harsh and unforgiving treatment being meted out to another developer who was doing his best when it all went downhill:

BNZ counsel dismisses Fontein allegation it passed up better sale opportunity

Lesson: Despite all the soothing words and warm and fuzzy adverts, banks are run by faceless bureaucrats. Take care when dealing with them. When things go wrong they have big teeth.

 

Olly Newland
November 2010
www.ollynewland.co.nz
© 2010 Olly Newland. Used with permission.
 

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122 Comments

Reading Olly is like a pleasant meander through the bush.

If you are lucky, you get out to the road by 3 o'clock.

If you lose your bearings you could spend a cold night out there.

Far better to not even undertake the journey to begin with........

It's like being stuck in a plane circling the airport next to a crazy person who won't shut up.

Same old, same old:

"I was right because handwave handwave, some might disagree because - look at that shiny thing over there! Buy my book, long irrelevant story that goes nowhere handwave handwave I was right handwave buy my book, self-congratulatory wank, ignore inconvenient evidence, handwave handwave handwave, 1987!  more self-congratulatory wank, buy my book, deliberately misleading conflation of price inflation with wage inflation, handwave handwave, gloat, ignore more evidence which might contradict one's delusions, handwave handwave handwave ...

 

Olly I think you'll find that Bollard and Key don't want house prices to go down or up. If they go down then we all lose net worth and we start spending even less. If they go up it would be a bubble that is too big not to burst.

And I think you'll find that most people don't care too much which way prices go: most people are more concerned with the facts, not spin and "talking-up" (or down).

It's only those with ulterior motives - generally the undercover RE agents, and PI spruikers, and similar others here - who are determined to do that kind of thing.

As usual Olly has a very positive outlook, and no doubt those who have a negative disposition will come up with the flip side to the coin.  But at least it is a bit different to Wollys etc  of the world who seem to dominate this website. Usually the reality is half way in between, as there are currently a mixture of both positive factors and negative factors at work

Yes ! It drags here , having negative nellies preaching gloom 24/7 . Nice to have a little realistic optimism for a change of diet .  Isn't that so , Chicken-Little Hickey !

Good to have you back , Uncle Ollie .

Ah, so optimism is realistic. Presumably negativism isn't.

Where does realism fit in?

Clean your glasses PDK : I said realistic optimism ( as opposed to Pollyannaistic optimism ) .

they're old glasses, but they were nuance

Thanks me, I needed that....actually I agree with some of what Olly has 'said'. I would change the "beaurocrats" to bastards though.

What Olly skips past eyes closed is the approaching inflation and rate rises. Try telling an Irishman that rates do not rise..haha. Both would bring huge pressure on the large % of households financially underwater....check out the mortgagee listings which continue to be racked up every day and remember the banks are feeding them in a few at a time. In other words, looking past olly's comments, there is a real potential for a bloodbath in the property sector.( this has already taken place in Northland)

He also turns a blind eye to the consequences of property and rents being seriously unaffordable yet he is quick to grab onto other examples of unintended consequences. High rents and mortgage payments are sucking the wealth from the low income Kiwi...less is being spent as a result...and the impact can be noted in for example the Warehouse report just out. So thanks to Olly's happy happy seriously unaffordable housing and insane rents, we get a fiscal crisis developing and a need for greater govt borrowing....or you could believe the unemployment stats....most economists don't!

Were it not for the govt and RBNZ meddling, property would have fallen as it did in the UK and elsewhere. All that has been achieved is to mask the decline as the pop drifts toward Auckland looking for work created by the drfit to Auckland. The aim has been to save the bank balance sheets by holding up the bubble, while lying to the people about growth and recovery. Not once has a singled member of the govt said property in NZ is seriously unaffordable.

Consider what a shutdown in China would mean for Aus and NZ.....this is a bomb that could go off. Noddy remains a property ponzi economy protected by govt and RB policy. The aim is to engineer a 30% destruction of the dollar by 2018. Your $400ooo property will be worth $280ooo! suck on that.

Come on everybody! Mortgage yourself up to the gills to buy an over-priced piece of trash! If you don't you will never be able to! Lol your fear-mongering won't work here Olly, we make logical investments not based on emotion. Sorry mate.

Olly, I don't understand the NBR article re loss caused by the end of the depreciation allowance or your statement that this will result in less tax due. I would have thought this will result in more tax payable, that is certainly the effect for us on our  commercials. Please explain.

Property has been shown to be an inflation haven in the past, how will interest rates react this time? I suspect that we will have a very rapid response so watch out if you've borrowed heaps and your cash flows can't keep up. Don't touch anything at less than 8% after a proper allowance for R&M, rates, insurance etc. This 3 or 4% rubbish is a disaster in the making - inflation or not.

 

  1. Interests rates are low, and many see them rising from here. We traditionally have higher rates than Australia, who have a variable of about 7.6%, and rising, at the moment. A cash flow squeeze is coming to a householder near you!
  2. A second-hand house is not dependent upon new building materials. It will sell for whatever the current owner can or has to sell it for. Many, who are on the cusp of retirement, will sell and see a dollar profit that bears no resemblance to the replacement cost. To them a ‘profit’ is a profit.
  3. Building consents are at an all time low because…builders knows that they cannot build and sell at a profit! Why build if it’s at a loss? They know it will be many years before the market turns up, and always have a lead-time to cater for that.
  4. GST has increased on that average $400k build by…$10k (the 2.5% increase). That, whilst small, will only deter new house buyers, who are the underpinnings of the housing market.
  5. The natural increase of the population is almost all of our increase. That’s; babies, who do not buy houses. But those who are replaced, die, do sell them.
  6. The owners/sellers of the ‘leakies’ will have how much left, to re-buy with? And those that come to market will be sold at substantially less than a ‘good one’, thereby dropping the price of all competitor properties across the board.
  7. The number of rentals is decreasing as the velocity of people moving falls. As people ‘stay put’ in their non-saleable houses, they neither rent themselves, nor put their house into the rental pool.
  8. Rents can only rise to the degree that tenants can afford the rise. If a renter can afford $500 p.w., that’s what he finds and pays for. Ultimately this leaves more expensive propertied unlet at the top, which drop their prices to get income, that drops the whole rental curve.

 

Has the property market stabilised or stopped falling? It hasn’t even started yet, Olly!

I mentioned before that we shouldn't wish for house price to drop 30%. NA response that it will and we are heading in the same direction as Ireland.  I take that all people in Ireland are jumping for joy because their housing affordability is getting better...    

It's not a wish CM. It's just my reading of the economic realities. NZ has lived beyond it's means and borrowed to support itself for many, many years. Sometime or other, we have to accept that we have to repay our collective debts. I'd rather it be now ( when the world is too, suffering), than later ( when we are on our own), and let's get on with productive work. And I have close contact with some Irish friends, and I do not wish that upon anyone. But it has happened, as it will here; and unless we  sort out the problem, now, it' isn't going to go away. We can't 'inflate' our way out of it with this much debt. There isn't enough borrowing capacity left.

According to Luke Malpass , St Nick. , the last time NZ as a country paid it's way in the world was 1973 ! We've been borrowing more than we've earnt , every year since . For the USA , 1975 was their last year of fiscal responsibility .

NZ is living beyond it's means . The current government is borrowing heavily to prop up the additional welfare committments of the previous government .............. So why did we bother biffing Clark & Cullen out , if the Nats are so bereft of ideas  ?

GBH - you must know the answer to that. Just in case here goes....

People were desperate to believe that life will change under the two party democratic sham, and there were enough swing votes which thanks to media polling surveys up to an including voting day, were basically told which way to vote. 9 years was too long for the masses to stomach & rightly so, even if Labour were doing a decent job, they would likely have been removed. NZ's 3 year term means that it is either an election year, just had one, or about to have one, really who benefits from this? Answers are very obvious.

The Nats never had any ideas, and have never had, any more than Labour do. Both parties are working to ideologies, which is as bad as having any other sort of extremist running the country. People do not see the scam that is in front of their eyes because they do not want to, simple as that, its in the way too farken hard basket. They hold onto misplaced hope, and in the meantime the perpetuity of government by the same group of people, being controlled by the same lobby groups and big business, continue to destroy the nations democratic governments pretend to serve. Anyone wonder why Germany, Switzerland, Austria & The Scandinavian nations seem to be ticking along reasonably well in various respects?. These are for different reasons, but they amount to the same thing once you really look into it. Meantime people, your children’s future and most likely all future generations for a very long time have been stolen by the banks, and allowed to be stolen with government sponsorship.

It's not the welfare that matters, its the inflated salaries. I'm all for a safety net that works but object to paying over the odds to government employees, lawyers, real estate agents and the like. What they do is just not worth what they are paid.

It seems whenever Ollie makes a prediction the market ends up going the other way. Ollie said "Sell! Sell! House prices can't go any higher!" back in '06 or so. Now he's saying "Buy! Buy! They can't go any lower!"

If I were paranoid I'd suspect he was trying to play the housing market.

"...I'd suspect he was trying to play the housing market."

YA THINK?!

Olly has a great deal of property-related debt. His options are severely limited.

I'm curious to know Olly why our housing/property market would not suffer the same fate as the US, UK, Irish etc housing markets, not to mention the Japanese property market?

Higher house prices are detrimental to the economy.

Low house prices are also detrimental to the economy.

The economists and central bankers...Will they make up their mind as to what they want please ?

Yes the greed has dug a huge hole, and in fact I think that it has gotten away on them somewhat. If the economy truly tanks then maintaining big business profits will become difficult, even for the PR, spin BS media masters. If prices go higer, the same result is still going to happen, just a little further ahead in time. This is what we are faced with.Either way, the situation must come to a head sooner or later, as even the masters can't keep the whole system afloat forever...

@rc - main reason is that banks didnt make the wildly irresponsible loans here, that they did in USA/Ireland etc.

@NA (Not applicable - I like that)

On rents - imagine a tennant who 'decides not to pay the rising rental prices' (as if he/she has that amount of control)

What is the alternative for them?

That's why we need the property price to be stable and not jumping up and down wildly. 

common SK, get real!

If the rent increase is minimal then tenants  are likely to tolerate it

If it is large they will weigh it up and may move to a cheaper option

My landlord increased $10 pw - I thought that was fair, and the hassle and expense of moving wouldn't be worth it. If he had raised it $30-40, I would have moved, simple as that!

Contrary to your comment, tenants have plenty of power and freedom to do as they please!

   

In the 'tenants decide not to pay rising rents' scenario, who do you really think is most vulnerable?  If significant numbers of tenants refused to pay rent even for a week or a fortnight, it's the owners who'll go to the wall.  They'll be forced to sell up in mortgagee sales long before all the evictions can be processed. 

If you read 'The Sugarbag Years' you'll find plenty of other answers to your question, including landlords giving up and leaving non-paying tenants in place, because there was no chance of finding a paying tenant to replace them, and it was better mojo than kicking families out on the street.

Rodney Dickens put out an interesting report recently that tracked what the housing market had done for some decades. Interestingly, during the high inflation of the 1970's, house prices DROPPED in real terms although in "dollar" terms they seemed to keep rising slowly.

I reckon most governments are set to re-run this scenario, including our government. "Inflate away our housing bubble sins" as Rodney acutely put it.

SK, just because we don't CALL it "sub-prime" doesn't mean we don't have it. The % of income that most first home buyers here are paying in mortgage payments, would qualify them as "sub prime" IF we bothered to call it that. AND the "average TERM" of our mortgages is as bad as anything at housing bubble peak in California.

At least the USA has zones of sanity (most States, in fact) where land stayed affordable and typical mortgage terms involved either paying off in 10 years or less, or paying less than 20% of your income in repayments. Just like NZ before the urban planners set up the land racket. Something else Ollie never mentions. He wouldn't be a "land banker" by any chance, now would he?

Let's say there are 100 houses and 110 families who want to live in them - what will happen?

The poorest 30 will pack in two to a house (or someone in the garage), and everyone else will stack up in rent order, leaving the five most expensive  rents unpaid....

Two families to a house is nothing.  With modern fixtures it would only be mildly uncomfortable.  Only a few generations ago in, for example the St Giles Rookery, they crammed themselves in at a rate of 7 to 10 to a room/bed, regularly skipped out on the rent in all the confusion, burned building fittings for fuel, and filled up the cellars and back yards with sewage.  Not ideal, obviously, but if the money for rent isn't available, there are a hell of a lot of options which don't involve paying more.  If people can't, they can't.  Unless they turn to crime of course.  Is it worth putting up your rents if you're burgled or carjacked for the money to pay it?  Your insurance company will probably vote 'no'.

I'm all about playing the ball not the man but in this case I'm going to make an exception.

SK, you're an idiot.

 

There I've said it.

Shame on you MK. Off to the naughty corner for you.

Hmmmmmmmmm 

I live in Sydney, yes the interest rate has affected people, but the banks would not be putting this up unless people could afford it, and perfect example my friend who moved to Sydney 1 year ago earns 75k au and earned 44k in NZL for the same company doing the same job. I love NZL but woooooooah hahaha are we behind it!!!! I spent 9 months on an around the world trip I went to China states UK etc etc. Australia is in a bubble, but its odd as they have tourisim population and better built quality properties, to the cheapos right to the very exspenisve ones, train's and public transport system. They have a mid back packer tourist's but they all still provide to the economy here. From a generation Y perspective are NZL house prices over the top, I guess you have too look at rents verse mortgage and running cost's and working out if you are buying the captial growth or investing for capital growth to answer that one, so yes they are overpriced, if you are buying the capital growth already built into the price. Im not a chicken little but Au shouldn't be slammed, it has alot going for it. Everywhere in the world is in a boom bust mode, Australia and NZL are just behind the rest of the world as you would expect as we are some distance from central $$ markets and the flow effect. Tourists are far more likely to travel to Au than NZL and people are far more likely to move to Au than NZL. Walking around the shops you can see it is very very busy everywhere here. Property in general has unfortunately turned into a bit of a Ponzi scheme, it is just how it is, as the banks use property as a trading kinda stock, and it is the way that it is. Compared back in the day when you could buy a property that had rents cover mortgage etc. Im not a chicken Little just realistic to how the new market operates in this world, it just concerns me that our banking systems NZL AND AU are being over stimulated, and the end result could be a US situation in our own back yard, I have owned property so im just in case I get slammed as a negative.

Ok Muppet King tell us exactly what these logical investments are that you are investing in. It should be very interesting and may help a few of us that agree with a lot that Olly says.

Not that I have to justify anything to anyone, but I will say that I am a firm believer in different asset allocations for different times, so I'm not saying that I don't invest in property, but I'm saying that spruikers piss me off because they make housing unaffordable for everyone so that they can make a buck.

If you are going to draw parallels between georgian london slums and scaremonger about carjackings - you will be too paralysed with selfdoubt and fear to ever back yourself and do anything.

Cheers!

OK, ignoring your giant nonsensical non-sequitur of drawing parallels=self doubt, what's wrong with taking a broad historical view, mate?  The scenario of rents rising beyond people's ability to pay is nothing new,  and to assume that tenants will just roll over and pay whatever they're asked regardless of income is just wishful thinking.  People have a lot of other options, including increasing the density of occupancy.  There's a lot of wiggle room for this to happen - the country's awash with unused space and spare rooms. 

As for the other point, being crime, what other options are there if basic living expenses outstrip ability to pay?  Earn more?  This appears unlikely - wages have been decreasing in real terms for decades, and whole segments of the job market have disappeared, due to technology making them obsolete, outsourcing, and the decline of manufacturing.  New fields of employment have opened up, but are often a) only open to a small number of people; or b) minimum wage, if that.  Not a trend that's compatible with rising rents except in a very narrow category of properties.  So if the average tenant is unable to earn more, the options essentially come down to running up credit (short term solution only), crime of various kinds, or government handouts such as the accommodation supplement.

Ah - perhaps that's it.  Are the PI's aspiring to suckle at the taxpayer teat via tenants?  How very self-reliant and capitalist of them. 

That's me - a wealthy young idiot!

Cheers!

SK

Haha the proof is in the pudding

Like they said..."The NZ property market has STALLED '

So what happens when something STALLES ?

It falls from the sky !

Or is it a train wreck in slow motion ?

Or am I WONG......Patsy?     Hahaha

To find the answer ring your local agent before they close for the 13 million dollar answer.

I didnt read the article, but I am almost 100% sure it was Olly finding some "new" reason why property wont ever lose value. And if it did, then it wouldnt any more. And if it still does its time to double down.

You didn't read the article , but you have  commented on what you think that Ollie Newland may have said ............ Or not .

When is the Mother-Ship arriving , to take you home ?

I didn't read it either, because its a waste of time to read it, pure and simple. Enjoyed reading some of the comments though, the spruikers are quick to back up anything the mighty Property God has to say 

but to be frank the guy talks a load of garbage

C'mon , give wise old Uncle Ollie a chance . Proof of the pudding is that he's a rich guy . I don't even like property as an investment , but I read wot he says .

London-to-a-brick you'll get wealthier following Ollie's advice , than following Bernard's ( sorry big guy , no offence meant )

....."Psk , breaker breaker"  .............. Make that 2 for the star jump back to Beetlegeuse .............

Proof, bollocks.

Rich people whose advice I wouldn't take.  A not-very-exhaustive list:

  • Paris Hilton
  • Mark Hotchin
  • Britney Spears
  • Brian Tamaki
  • Olly Newland

ha ha ha ha ha ha ha ha ha ha ha ha

brilliant Kakapo

"simply by printing more money."

This piece is yet another showing Olly as simple....

The real world is far more complex.....

To paraphrase a bit "Those who were convinced there would be a crash by now rented but have been proved wrong".....actually I dont know [m]any ppl said that...I have been amazed at their (central bankers & Govns) ability to keep putting off the pain until tomorrow....I cant see if lasting much longer....the Fed for one is out of options. As Dr Bollard said he has to correct for Govn actions, the Fed wont be able to correct for GOP [in]actions....I think....

Therefore the inflation Olly "fears" is baseless....once really out of this depression, yeah sure its reasonable to expect too much money chasing to few goods, so yes inflation....but that could be a decade off....

Housing price collapse, its my expectation the collapse could be anything up to 60%....depends on how bad it gets....or we could see stag-flation for a decade or two as we stagger along....

"Irrefutable" read the papers from 1929....or 1930, or 31....

This is as gormless as the "common sense" line I see some idiots pushing........

1) Interest rates have no real bearing on prices crashing, unles the OCR is very high. Its more likely that the OCR could drop to a fraction of what we see because asset prices are deflating.....ie the OCR is a tool to try and stop something happening....

2) This is an interesting point, there is a demand, if that demand collapses so does the price....Look what happened to oil after July 2008.  Un-emplyment at 15% and growing would see prices drop.....and how much of the price of building materials is forced due to Fetcher etc having debt they have to service.....its simple we could start to see bankruptcies....then assets purchased at firesale prices....in the Great Depression ppl with cash bought at rock bottom prices and prospered....

3) Building consents point to a possible building shortage in the future....not immediately.

4) GST increase, and so? 

5~8) yeah, yeah , bored now.....

Some rents are rising for the lucky landlords....others seem to be seeing empty homes.

Starting to sound desperate/strident Olly........got to the stage that I will laugh when you crash and burn....

Hopefully ppl will see you for what you are and plan their financial health accordingly....anybody else, well for those families who will get in a bad way, I will feel sorry for those.

regards

Olly talks a lot of sense, unlike many of the rants from the paranoid left wing loonies that frequent this site!

Much of what he says is likely to eventuate, but it won’t be next month which seems to be many folks idea of ‘long term’.

I too noticed Bollards about face on house prices. I wouldn’t be surprised if the government eventually does a flip-flop on certain policies. The idea was all right, but the timing was all wrong.

He’s spot on about Australia too. There will be many Kiwis coming back from the Lucky Country with their tail between their legs over the next few years. Same thing happened after 1990 & 2000.

D'oh!, but that’s right, this time is DIFFERENT…..

Totally agree Murray. Some of the stuff written on here by loonies is absolute rubbish.

But i just don't have the time to debate it. In any case I could be debating with a student on his Mum's computer. Instead I have a number of businesses to run in the real world.

And now Bernard's gone troppo as well, this site is increasingly becoming irrelevent, with serious, well informed debate lacking.

As a financial participator and commentator in these markets for many years I have thought about writting some columns to straighten people out, but again, just do not have the time.

I also notice that Roger does not reply to comments on his columns, probably for exactly my reasons.

So keep up the good work!

Sorry Olly I called it first

President of Property...

Nice story about the bed guy.

Good old Kiwi inginuity.

Put together the sale and purchase agreement with hard work, number eight wire, and a couple of mates over a weekend 'cause he's more innovative than anyone else.

Knocked up the best looking agreement you've ever seen, saving himself $5,000 in legal fees.

What a guy! What a battler.

I find it interesting that so many people are against property investment on this forum. As long as the numbers make sense what is the problem? It is like any investment. If you have a decent cashflow, plus "longterm" growth whats the problem?

Maybe go have a look where your "longterm growth"  is coming from, then see if the numbers stack up, then come back and post your findings...

I have property by the way, so am not against it.

You seem pretty bearish, why havent you sold your property?

Not strictly true I think (agaisnt property investment).

Well there are two aspects to this, people (me) who are against too much property investment because its not productive for our economy and those who see it as a huge bubble which will probably take our economy down (me again).

In a business you need decent cashflow and profit and be able when you retire to sell it for some worth as your private pension fund....now yes being a PI can fill this criteria as an individual. I fully agree with that.....Now I see some right whingers in here claiming that we shouldnt have welfare etc but tax writeoffs and credits and LACQs etc are fine....sorry but whats good for the goose shuld be good for the gander....not saying this is you....

The problem I see is the speculators, People who are PAYE or self-emplyed but use an "investment" property as a way to dodge tax and are not professional landlords.....they are gambling in effect...

So these are impacting the professional PIs and me as a tax payer and because so many do it the country....so using low cost mortgages they have borrowed heavily from abroad, produce little if any good and are therfore damaging the country....

Thats the problem.......

 

regards

I predict a slow drop in values, not a huge drop but just bit by bit. When I read Olly's article above It does make sense with future demand and so on, but I just don't know where the cash is going to come from to support this demand. It's like the demand for a Ferrari, everyone would love one, but few can afford so the real demand is low.

I do think that people saying that real estate agents want house prices to increase are wrong, what real estate agents want is sales volumes to increase so they can make a more bucks from more sales. I wouldn't like to be in that game at the moment. Sellers with high expectations and buyers offering too low.

What this country does need is more affordable housing as some people / families are stuck in the rent for life scenario which I think is just starting http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10682322

With more affordable housing being built this can only be good news for builders and low income / first home buyers.

 

"$1835 per sq metre" doesn't sound very affordable to me!  Some budget building companies can still do it under $1,000

Conflicting information though, this NZ Herald article puts it at $1,400 per sq metre and $168,000  http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10673953

and it's somewhere between 120 m2 and 125 m2 depending who you talk to!

With the section it still comes to around $350k, or around 7 times the average male wage.

Good on the government, more bureaucratic nonsense!.....

 

Yet another thing Olly is right about, as he says - "(2) Building raw material costs keep rising ... which puts a floor on second hand house prices"

"Yet another thing Olly is right about..."

When has Olly ever been right about anything?

What's this supposed magical force keeping raw material prices increasing even if building activity decreases,?  Supply and demand works both ways.

"What's this supposed magical force keeping raw material prices increasing even if building activity decreases,?"

It's called 'Wishful Thinking'. Some of its adherents refer to it as 'Being Positive', and even 'Not Being Negative', but it's all the same fantasy in the end. 

Exackerly.

They'll deny vociferously that demonstrably stagnating incomes can put a 'ceiling' on realisable rents, and yet claim that current inflated prices of building materials, which are known to have huge margins and plenty of room for discounts, are at the absolute bottom limit.  It's self-delusion on a massive scale.

"current inflated prices of building materials, which are known to have huge margins and plenty of room for discounts" !!!!

Now THAT'S delusional !

The "Wishful Thinking" & "magical force" you both talk of is called 'inflation', and the RBNZ has a mandate to ensure it stays between 1% - 3% "on average over the medium term".

 

In another 10 years, your wages will be higher, your rent will be higher, food will cost more etc etc...  thinking otherwise is wishful thinking & delusional!.......

"In another 10 years, your wages will be higher..."

In ten years time our wages and salaries will buy far less than they do now.

"...your rent will be higher, food will cost more etc etc..."

That goes without saying, although rents won't be as high as you'd like them to be, because with shrinking purchasing power few will be able to pay more than they do now.

"...thinking otherwise is wishful thinking & delusional!..."

Says Just Another Property Spruiker as he tries to convince himself that buying those houses at the peak of a property bubble was a good idea.

The good news is that as PIs and other suckers go to the wall, I'll be able to pick up a very nice home at a price much lower than they currently are, and by then I'll have a lot more savings accrued, so a mortgage probably won't be necessary. And there are many like me, sitting back, piling up the cash as we await the opportunity to feast on all the dead and dying BBers.

"Says Just Another Property Spruiker as he tries to convince himself that buying those houses at the peak of a property bubble was a good idea"

Been doing it slightly longer than that, Basket case! I didn't buy anything between 2004 - 2007 but I've added a couple of goodies in the last 2 years - does 11% yield sound ok to you?!

Thanks for your concern, but it would take a crash like the world has never seen to wipe out my income & equity!

 

P.S. for the record, I was advising people against buying 2006 - 2007, I recall Olly was too. My advice at the time was to wait for interest rates to plummet - that occured late 2008 - early 2009.

HAHAHAHAHAHAHAHA!

Good luck rewriting history.

"Good luck rewriting history" - what do you mean? Have I stated something that didn't actually occur?

Or are you "rewriting the future" by claiming something that hasn't occured yet?!....

The RBNZ has a mandate.....LOL.....so did King Canute.........Take a look at the Fed its OCR is 0.25%, its printing $ and we see in the core inflation data dis-inflation and its headed down so fast its into deflation but year end....or early next if the can slow the de-celeration....fat chance me thinks...

"In another ten years"...........peak oil will be in the rear view mirror, food will indeed cost more so much more that the money available for paying the mortgage will be less, wages could even be less.....high un-employment....like 15% or higher....energy will be crippling....

"thinking otherwise is wishful thinking & delusional!......."

regards

Meet you back here in 10 years steven, we'll see who polished their crystal ball the best ;)

My point was governments will do whatever they can to maintain inflation...

IMHO, the world will be a better place without the black gold, but I don't wish to fire up that debate!......

Blah, blah, blah Olly. Answer me one question?

Will the ratio of the average house price to average salary  around 6-7 be sustained when the historical norms for the last 100 years are around 3-4?

Everything you are talking about is short term stuff. Maybe it will take 15 years and will mostly be done through salary inflation but I can't see how we won't go back to what has been happening for over 100 years. Houses are overvalued compared to historical data and you just keep talking about short term jiberish.

Can you answer this Olly???????

Blah, blah, blah Olly. Answer me one question?

Will the ratio of the average house price to average salary  around 6-7 be sustained when the historical norms for the last 100 years are around 3-4?

Everything you are talking about is short term stuff. Maybe it will take 15 years and will mostly be done through salary inflation but I can't see how we won't go back to what has been happening for over 100 years. Houses are overvalued compared to historical data and you just keep talking about short term jiberish.

Can you answer this Olly???????

Anyone who thinks that 1835$ / m2 construction cost is cost effective and would lead to affordable housing has no contact with reality. 

 ~ Even the Australians are getting it that ‘it’s different, this time’:

“The modeling by the National Centre for Social and Economic Modeling found 35.5 per cent (of households), were experiencing ''mortgage pressure'', … The figures take into account the Reserve Bank's latest rate rise, but not the banks' double slug, meaning pressure is even higher…(they) said the ''tipping point'' for households was much lower than in the past. ''In the late 1980s interest rates were up to 17 per cent but (that) was a different world where debt levels were more contained.'' 

http://www.smh.com.au/business/tense-nervous-mortgaged-20101112-17r3j.html

~ And the UK has known of ‘different this time’ for a while. 

Biggest drop in Britain's wealth for 60 years…Total household debt as a percentage of household disposable income declined to 161 per cent in 2009 from 169 per cent a year earlier....(Economists attributed the ( previous) increase in household net wealth (in 2009 of) 7.3 per cent…to baby boomers cashing in on house prices.) …They warned high prices are unsustainable and that the typical value of a home in Britain is likely to fall further.” 

http://www.telegraph.co.uk/finance/personalfinance/8126304/Biggest-drop-...

"But one day they will wake up and find property prices have shot away leaving them stranded as renters who don't even own the letterbox ... forever."

Much better than waking up one day and finding out that the $750,000 house you bought is now worth $500,000, and that you are trying to sell that $25 letter box that came with it for ...$250,000 !

If there is a bottom here today, I'd expect to see some good news and some solid growth....then it would be sensible to think indeed price might just keep rising.....I see none....indeed I see in OZ the banks are beginning to panic over the inflated values...that doesnt bode well.

Bearing in mind that house value/earnings ratio is twice the norm, (and three times in OZ) just how far does Olly think they can go..........of course if ppl miss the boat its a disappointment....however he seems for ever sunny....I can understand why, we had 30+ years of a bull market....Ive made money is 12 years, make believe paper money of course....didnt earn it just happened to own my home....

He also seems to convieniantly forget so many ppl owning their home is a post war thing....

And yes I agree there is a downside, a risk of a price collapse or stagnation for decades in which case the ppl who rented are the smart ones...he's really encouraging ppl to gamble on price rises they have not earned, nothing more than a pimp for the banks really....

regards

Exactly, rent at $22500 pa;

or mortgage at $37500 + capital loss of $50,000 pa + repairs+ rates.

Leverage is dangerous, it can work for you or against you but it is always inhumane and mechanical.

The figures are my estimate of the last year in the house I live in, renting against buying.

I really can't be bothered entering this debate but because Olly is such a nut job.............

Key words: "Relative", "Wages", "Productivity"

1: Relative, a house(or any property)  is only worth what any one person thinks based on their "desire" and their  "income" .Investment Properties and perceived returns are based on "speculation" of return.

2: Wages, key ingredient to finance or pay outright for all 3 senarios. Banks look hard at this now unlike a few years ago when money grew on the door of the US FED, (still does but it's now worthless)

3: Productivity, again key to setting your wages which sets your available lines of "credit" . NZ may well be selling milk products to Asia but the farmers are paying off THEIR own climbing debts now so forget about them coming into town to buy that latest tractor

Now......Olly has disregarded ALL 3 not only here but around the world.

I'm sure it's nice in "wonderland" Olly. YOU need to get real. YOUR only fooling yourself buddy. Ive been in this world long enough to recognise a "snake oil salesman".

Justice, points well made :-)

he won't answer because he never engages in debate on critiques of his opinions

Bernard = you know I love this website, but I don't know why you keep publishing such rubbish from this conman 

Sure, it always stirs a bit of interest, but its only really "irritated interest" 

LOL, harsh but true.

Nobody's forcing you to read it, Matt, or even visit this website for that matter!  ;)

It's like people that complain about what's on a particular TV channel, as they sit with their fingers on the remote!.....

(don't go, we'd all miss you & be wondering for the rest of our lives - did he EVER buy a house?!!)

Murray - its an addiction, I know its garbage but I can't resist it either! A bit like the problem some people have with those crap reality TV programmes!!!

I think I will buy within the next 6 months, but  I wouldn't guarantee it! All comes down to the right place at the right price. Its very much a buyers market and I know the market, so I'm in a good position. But at the same time I am not going to pay stupid 2006 money for a place either

I'll let you know!!!!

You didn't buy this did you MIA?

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10687478

Popular place is Remuera ;)

It went for $332,000 less than CV. So if he did, he did well.

We're on the same waka, Matt in Auck.. or M.I. A ( which stands for "missing in action) regarding buying.

having sold at the top in 06 i'm in no hurry to waste that advantage but next 6 months is my target and i'm actively looking.

Gulf Harbour on Hibiscus coast has pretty good value but i don't want to live there?

MIA, there's nothing wrong with your plan in the current market, so long as you're saving the renting/owning difference. Most people (myself included) are pretty crap savers, so a mortgage is better for us as it works like compulsory savings. I would be wealthy even if house prices hadn't changed for 20 years, since my mortgages are all much less than the original purchase prices. Some aren't far off being freehold.

Since I gather you are looking for a home and not an investment, I think you might find the ones that are the right price will be in the wrong location or have some other flaw, and the ones that are the right place will be just over your budget!

With an investment it's all about the numbers, but for a family home it's more about where you want to live and what features you need (or really really want!)

My opinion with your own home (assuming you're planning on being there a decade or two) is that it's more important to get where & what you want than to worry about whether or not you got it at rock bottom prices. 10 years down the track, whether you paid $450k or $500k will seem totally irrelevant, but if you buy a house you're not totally happy with you probably won't stay there long...

Good luck to you though, I hope your patience pays you dividends!

What a bunch of whingers and whiners. You can see that most of the people on this site who criticise Olly are eaten up by envy as they cannot achieve anything for them selves.   Olly just doesn't talk- he acts. A reliable source has told me that he has bought around $5M worth of property this year alone with another $5M in the pipeline. He also controls another $30million or so.  Not one of you has had the balls to do the same - just happy to snipe away from the shelter of anonimity. Olly at least has the balls to give an opinion and act. You lot will end your days raging on how unfair the world is, having never achieved any thing but bitterness on the way.

I'm not annonymous, BigDaddy ( aren't you being 'annonymous" ?!). And, not that it's any of my business, but how much of that property does Olly actually own? You know, the bit the bank doesn't own? Maybe  he owns all $40mio of it. He's entitled to do whatever he likes with his money. But those who are indentured to the bank, are in for a rough, costly and financially painful ride ahead. This is where many who are relying on magical capital gains, are headed.

"Charities expressed concern about pensioners in debt, saying they would be among the worst hit if interest rates rose."

"More than a million pensioners will have a mortgage" 

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8129472/More-than-a-million-pensioners-will-have-a-mortgage.html

I'm dying to know - are you Olly's sockpuppet or just a fanboy?

Wonder where he got the money from.

Maybe USD promisory notes?

What's wrong with borrowing sensibly

What is sensible?

An amount that allows the borrower plenty of room in the event the property should fall in value while leaving a good cash flow and the chance of capital gain in the long term.

The old rule of lending up to two  thirds of value was a sensible one, unfortuntely forgotton in recent times

Just remember that if there are no borrowers the banks would cease to exist over night.

And to set the record straight  a bank  does not "own" a property when it  lends  on it. 

A misconception peddeled by  the ignorant. and believed by the stupid.

Of course the bank 'owns' the property when it lends on it ! It's in the loan documentation - it's 'theirs' untill you pay the money back! All the bank has really advanced to the borrower is - the risk. It's a commercial descision that they make, backed by what they 'own'.

Ownership : Legal right to the possession of a thing.

http://www.thefreedictionary.com/ownership

NA you are wrong I am afraid. In NZ when you buy a property you go on the title as the owner or proprietor.If you borrow money and give the bank or lender a mortgage over the title it gives them the property as security only. The person who has bought it using bank finance has ownership of the property still.For the bank to take ownership it has to go through the mortgagee sale procedure and then it gets ownership if it chooses not to sell to a third party. Essentially a mortgage is only a security.

Interesting article in Stuff this morning and I agree with it. Houses went up in value for a few years and people spent and borrowed like they had never done it before. Now they are going down in value by the month and the economy is spluttering along at best. This is the new norm. Asset values will continue to drop as people continue to stop borrowing and save. What we are experiencing now is the new norm for years to come.

Copy of a reader’s opinion in the UK Guardian (261 recommended)

These deals with countries such as China and India are deals between Wall street and the those countries and they only serve to enrich the barons of Wall street even further.
It's about outsourcing work to these countries in order to get cheap labour and not to create jobs here at home.
read up on the Nafta Highway in the US for a clue as to what is REALLY going on.

Wall street and the big corporations and banks which caused the recession.
Wall street runs the government no matter which party appears to be in power!!!! This whole attack on the poor by the wall street puppets in power is criminal.......this is only a pretend socialist country.
In real socialism we ARE all in it together but in this country like in the US the rich who are a small group at the top control 80% of the world wealth...
These greedy bastards are sucking the country and the world dry of it's resources and leaving a trail of utter poverty and environmental destruction and unless we can stop that we will see suffering on a scale that is unimaginable!
The obscene wealth at the top is supposed to trickle down but it doesn't do so. These rich pigs have caused the deficit and they are the ones who should be going without to balance the books...the books which they fiddled....not the poor and the unemployed and the sick!!!!!!

Wake up you idiots!!!!!

 In comparison :

 Olly Newland details eight reasons why house prices won't crash – a selection.

Inflation is the "speculator's friend". If you stay on your toes you can do very well out of it.

Investors can protect themselves by buying into assets for which there is a demand, but with a limited supply. Property fits the bill perfectly.

 I would place a bet that in five years time, we will be looking back wistfully at today's prices and wish we had bought more.

Even more satisfying will be the blubbering of those silly sods who were convinced that a property crash would be well and truly here by now and instead chose to rent instead of owning.

How many times have I seen this before?
People rent because it is cheaper in the short term.

But one day they will wake up and find property prices have shot away leaving them stranded as renters who don't even own the letterbox ... forever.

 A reminder that we have our own little Wall street(s) right here in beautiful New Zealand.

Funny that we don't have arguments about which companies to invest in and directors fee rorts, dividends and takeovers......it's all property....almost always....now what does that tell you about this economy?

If the German push to see lenders take a haircut on sovereign bond debt stays in play and becomes the rule.....what will it do for the cost of credit....that's right, up she goes and that is the market the banks in Noddy and the govt! are borrowing from. Try using the brain at this point. the household mortgage debt is over 170,ooo,ooo,ooo  and still expanding...the rising cost of the credit whether covered bond shite or govt stuff will instantly hit the floating rate and bring a fast rise in fixed rates. Got that....good. Now still using the grey matter, ask yourself what the impact will be on this unbalanced economy...people spend less and mortgagee listings rise...govt revenue falls yet more and will Bollard be able to do his own version of QE..not a bloody hope...can he drop the ocr to hold down the floating rate...yes but that would crash the kiwi and that would drive inflation up...so he cannot drop the ocr.

Oh and we forgot about the stupidity at the Fed and the fiscal hole in the US accounts...again use the brain...will the value of bonds rise or fall?....would you buy the shite?...not friggin likely...the exodus from the rubbish will send rates soaring...either the govt pays the true price of the loot it wastes or they don't get any. oh bugger!

Well said wolly, the focus on property is so reflected by the number of comments compared to any other subject on this site. The debate reminds me very much of the comments in the LA Times forum pre-crash. Property will only crash here though if the Government fiscal position crashes with it...soveign crsis.. then even the select class is touched...all property here.

I enjoy reading Olly's columns & have read the book he mentions. I admire the man, but don't agree with him. Property values will fall because almost all markets are cyclical. Values in New Zealand have defied gravity for a long time as the average Kiwi finds the idea of losing money very unpalatable - there is an almost religious zeal for the wealth preservation qualities of property. The bottom line is that events beyond the control of home owners & property investors will eventually cause a rout. Sovereign debt issues are rattling the global economy & could cause interest rates to spike. So much of New Zealand's cash is locked up in the property sector that a severe downturn will be catastrophic for the economy. I bailed out of New Zealand several months ago as I had endured 3 or more years of flat income & our combined rate of savings had declined to almost nothing. Here in Australia, we are better off for the moment. We are back saving strongly & there are opportunities here. Companies, while not investing recklessly are at least spending to maintain plant & equipment. There is also almost full employment where I am based so I am able to change jobs easily when I see an opportunity. This was not the case in New Zealand where I was lucky to stay employed right through the recession but was stuck in both an income and a career rut. From what I am reading, New Zealand's economy is as flat as a pancake. What is needed is investment in new technology & value adding industries, unfortunately, this can't happen while the country is so indebted and so much of the country's wealth is sunk in a bloated property market. I am typing this on a brand new macbook pro connected to the internet via a very fast wireless broadband internet connection. The computer & internet connection is supplied as a 'tool of trade' by my employer, the technology is advanced & innovative. Back in New Zealand we were just making our monthly bills & property ownership meant mortgaging ourselves to the hilt to the banks that Olly clearly dislikes as much as I. Here, we are accumulating cash strongly & hopefully will buy our first property without having to sell our souls to the banks. New Zealand needs to break it's addiction with property to the detriment of almost all other sectors of the economy. If & when it does and opportunities again start to appear, maybe we will come back.

The real estate market that Olly sees is not the real estate market others see. Due to his vast experience he sees the good bits and the bad bits and can almost effortlessly tell the difference. What is blindingly obvious to him is largely hidden from the rest of us. Do not underestimate the value of experience.

To me residential real estate is a dangerous place at the moment, but Auckland may be different, it is effectively a different country.

 "Germany is pressing Ireland to seek aid before a Nov. 16 meeting of European finance ministers to calm market volatility and win agreement on making investors help pay for future bailouts, a German government official said" Bloomberg

QED...investors will demand higher returns to cover the risk of being expected to bailout borrowers. There can be no other outcome. Expect the higher costs on credit to slam into the floating rates here and it will help you understand why the aussie banks have all raised above the RBA hike.

Don't complain when your mortgage rate rises. You were warned countless bloody times.

RE:  House Price Index Graph-Top of Page

Something's been bugging me for a while when I look at the scale/spread used, IE x versus y.

I'm not tooled-up enough to be able to articulate it clearly but I'm hoping one of you luminaries  might enlighten me. 

When I look at the graph, it seems almost benign.  Should the relevance given to the spread of years not be related to the 100 year historical average?  In which case would the wave still look like a roller or something you wouldn't want to point your tinny at?

And is there any reason why it starts at 2005, instead of before?

Thanks in advance

For all those that think Olly's got it all wrong, seems like Donald Trump and his right-hand man George Ross has too!

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10687401

"While others were still in a recessionary mindset, Ross and Trump were forging ahead in the belief this was one of the best times to invest in real estate. Ross said more real estate millionaires would be made in the next two years than in the past 50."

Shhhhhh .....don't spread the secret Murray :)

Glad I didn't listen to anyone else, I did my own numbers and took advantage of the low interest rates and locked in for 5 years. I bought two rentals at the end of 2008/early 2009.

At the end of the day the market is the market

You don't know (1) what the value of the renters will be in 5 years time ( eg: ask The Man, in Christchurch was his properties are worth today. Does he even know?) and (2) you don't know what rent you will be able to charge, or if any at all. You don't even know if you'll still have your day job!

All you do know for sure is that you have committed yourself to pay X amount of principal and interest back to your borrower in 5 years time; and if you can't they'll take whatever they can from you to compensate. But, as you say. At the end of the day it's up to the market....

There's no return without risk, Nicholas.  I wouldn't want all my equity in the bank during a bank run!

As I said in an earlier post, I would be wealthy even if house prices hadn't changed for 20 years, since my mortgages are all much less than the original purchase prices - some aren't far off being freehold...   it just takes time & a bit of patience.... ;)

And as I've said before, property WAS a good venture; it's not now. The secret of any asset is to get in/and out. Have a good look at it when you're out, and you may decide "No, bugger it! It's going to go again" and re-buy. But it's suprising how clear the market appears from 'the outside'. And if the banks here ( the real ones!) do have a run, it won't matter where you and I store our wealth ( which is still giving me a nice, steady, increasing holding yield), as it will mean the system has gone belly up. After all; won't the banks want their money back from those to whom they have lent? (and they can. Just like... that... ). In that scenario, chatting on interest.co.nz will be the least of our problems!

As the saying goes, if you have a million$ in the bank, you have the problem. If you owe the bank a million$, they have the problem!

"The secret of any asset is to get in/and out" - sounds like trading to me, not investing.....

Hi Nic

Answering your statements

1. Im very confident the value of the propertys will be significantly more the mortgages I hold on them. This is because I use P&I mortgages, I pay down debt regularly on my mortgages ( I paid off my home in 3 years) and I am confident the economy will rebound + inflation = increase house prices.

2. My rentals are in great location. Working-middle class, near popular schools, motorway exits,  and cul de sacs, etc so they have a great rental demand. I have only had 4 weeks of vacancy on all three rentals over the total of 2-3 years. One rental was snapped up for more than I was asking for it after a lick of paint!

3. My job is secure. Own my own businesses in aa secure industry.

Call me young and stupid but I have done my sums, taken into account my personal circumstances and borrowed sensibly. You have done well out of property good for you. I am confident in 15-20 years I will be very happy with my decisions and sitting on interest.co.nz blogging away like you with my 1.5-2 million cash in the bank (in todays $ terms) :)

Regards

 

Murray & 28_29 yr old : I am very pleased to see that you are immune to the  virus of gloom which has infected interest.co.nz ( Bernardium hickeystrium ) .  [ A.K.A. the " Chicken-Little " syndrome . ]

Live long  and prosper , dear friends !

Interestingly or not, RT, there's been several surveys of PIs that always discovered one common denominator - they tend to have an optimistic outlook!.... ;)

A quote from that newspaper article stood out for me : " Have confidence in your own business or investing strategies , because there will always be people to knock you down " .

And that kind of sums up the gloomy gusses around here . Several of whom were scathing of Olly Newland personally , and of his article particularly , even though they've never met the man , and they admitted to not reading his article .

I'm no great fan of investment properties , but it got Donald Trump / Bob Jones / Ollie Newland into the mega-rich class . So pupil Gummy will diligently read and learn .

I'm 100% convinced of my business strategy, GBH! And it's dynamic. At the moment, it's cash and an interest yield. Lots of knocking on that strategy on this site, for sure! Tomorrow; it may be something different.

St. Nick : If that is what you want , and it helps you sleep at night , then brilliant ! 'Cos I know that you're a big enough boy  , as are  Murray & 28_29 yr old , to take it on the chin if the strategy goes pear-shaped .

I wouldn't expect anyone of you , nor me , to go bleating to the government for a bail-out ,  if we screw up .

You reckon cash helps me sleep at night, RT?! Seems 'no one' wants the stuff just now ,for any number of understandable reasons. But me; I've always been a "pick your market, and give it all you've got" sort of person. None of this 'diversify your risk' sort of thing, for me. So when I had property, I had 100% of my assets in it. Now, I don't have any.

Just about now , all that Kiwi dosh would buy you alotta rental income property in the US-of-A !  And that may be Donald Trump's point , that those who are prepared may be rewarded when things pick up again . Do you reckon that  the economic power-house of the world , the USA , is gonna remain comatose for ever ? Not me , St. Nick ! And your $Kiwi is on a high , currently . Go on , snaffle a bargain , you know you want to [ aha ha de haaaaa !!! ] .

Roger - you have forgotten to list a few others, who belong to the same category  - greedy wall street bankers. (See 14.11. 11:03am also)

Hello Walter : You might have to jog my mammary on that one . The computer is playing silly buggers again . Painfully slow on dial-up , in Panay Bay . [ we're still recovering from the effects of the Manny Pacquio fight , last Sunday ! ]

Roger - don't go overbo(a)red.

Thanks GBH

While on the subject of Investments. How are those looking that purchased Gold with the big adjustments in the US dollar? Everything carries a risk, that's just a fact of life!

All the lucky Olly brigade are invited to hear him and bank lackey Brendan O'Donovan and some accountant/ money screwball show how to waste yours on property investment on 7th December

(see the advertising side bar for "Market Education")