Opinion: Why something is brewing in the property market again and it smells familiar

yawn! 

This topic is so stale - lets talk about our sharemarket which is becoming another endanger specimen..

Yup its true... the lending team here at work (a bank) have been busy for the last 8 weeks or so, which is always an early sign things are changing.  Looks like the combination of low interest rates and lower asking prices are drawing out the buyers.

Also, interestingly, I know a number of people who are actively looking or who have just bought (more) investment property in Auckland... I was surprised to find that they still view property as a great investment, and were all sighting reasons of medium term tax advantages, long term capital gain as the reasons for doing so.

So it seems for many, for whatever their reason, property is back on the table.

Old habits are hard to change, maybe more bad news is required.... Something tells me we won't have wait long.

Im all about the Elliott Wave Theory, I reckon we are still in the fake bull stage and are about to see heavy capitulation.

Hers' a reason for Wave 5 for you MK!

"The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China"

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8182605/Chinas-credit-bubble-on-borrowed-time-as-inflation-bites.html

I think it's true also.  I've recently returned to Auckland from the UK and have my eye on inner city suburbs (Grey Lynn, Westmere, Mt Eden etc) and prices don't seem to be dropping to me.  Plenty of desirable properties are attracting lots of interest at auction and prices seem pretty hot to me.  I've just seen an absolute dump in Grey Lynn (3 bedrooms on 500 sq ms and such a dump that you wouldn't move into it as it was) go for $837,000. 

Mental.

It's like sex or lack of it..pent up demand gets you in the end and then kickback time prevails!

didn't we have a blip like this in the housing mkt in  november last year and then it fizzled out?

people will always buy houses and i would surmise that these stats. are showing interest at the lower end of the market and the median increases are just being driven by high end house purchases which always skews the figures upwards.

even the Barfoots man admits that.

what will will be...but for my money there are just too many fundamentals in  play around the world, incl. a potential  serious downgrade on NZ by S & P , for our housing market to defy the rest of world ( jeez i'm getting deja vu typing the same words a year later)

fools rush in where angels fear to tread...those daft enough to get loaded up with debt either personal or investment in the housing market are asking for trouble...only cash is king!!

( and bernard hickey, of course?!)

This simply shows how regulation/tax/State is not the answer the Kim Jongs' think it is - it is the problem.

Why would you invest in the NZX: the exchange is dying and the FMA may well kill it - http://www.solopassion.com/node/8169#comment-93827  - and we have an over-regulated, over taxed business environment, which is at the heart of it all, destroying innovation and entrepreneurship . Everybody wants Nanny State to protect them from the big bad finance company people, but Nanny can't - apparently the legislation was there the first time round, but wasn't used, so what makes anyone think that even more regulation will fix the losses from the next (keynesian) bust. Regulation just attacks the symptoms, not causes of investor losses, and nothing can protect an investor other than caveat emptor - they have to get themselves educated.

All this taxation and regulation (AFA's, FMA, all the stifling gobbly gook) is simply serving to grow the State - which is unproductively consuming just about half the economy now - and choking the free market and thus business. So the answer it not to tax and regulate property, it's to free up the environment for doing business.

The first government which courageously sets the target of halving the government spend over the next five years will be onto the true, structural (and philosophic) solution. Every party in Parliament at the moment, is committed to growing the size of the State.

This current government is great at talking up the smaller State, but they've not put a single policy in place to effect that.

Investment in our share market is a bit dicey at its current status - same as investing in our production sector, given our NZD is still skyhigh and most are export based.  the only viable options are:

1. Bury it in the back yard (or mattress for those apartment dwellers)

2. put in the (Aussie) banks

3. buy an investment property (or several)

Guess you can't really blame them!

Bernard, you seem to be implying that there is something wrong with buying a house to live in - apparently we "can't kick the habits of a lifetime". I think in the top end of the market where there seems to be some activity we are not talking about investment property - so what do you have against people owning their own home?

The only thing brewing in property is the hype and BS from the vested interests...banks pushing cheaper credit on easier terms...agents singing loudly about the great sales numbers and the poodle media printing the BS knowing they live on the advertising.

Peasants must by now see they are the target for the banks and they have the power to smash down these insane prices...all they have to do is get out debt and avoid the bank bait.

I can't see this getting out of hand.

1/ Bollard will jump on any major (non productive) credit (debt) growth.

2/ Any pick up we are seeing is localised, certainly the towns and provincial cities are still very slow.

3/ There is still very high levels of household debt - near all time highs in relation to income.

4/ The global economic situation is as unstable as it's ever been with sovereign defaults now a distinct possibility. A major slowdown in China  (and therefore Aussie) could send our unemployment  rate to 10% in short order.

We won't see a return to double digit annual realestate price rises for decades IMHO. A global hyperinflationary event (unlikely) excepted.

FYI from Rob via email

Thanks for that Bernard..

A working paper by the International Monetary Fund said several Asian economies including India, China and Hong Kong faced asset bubble threats and argued that more measures needed to be implemented to rein in the property market (FT).

Can't see li'l ole NZ property mkt breaking the world mould?

BTW

UK house prices fall sharply in October

" (Melbourne's) Middle Park's median value fell 38.7 per cent from $1,910,000 to $1,170,000 in the June quarter, while South Yarra slumped 32.3 per cent from $1,920,000 to $1,300,000."

Sadly, my sister bought into Middle Park in March,having sold in Hampton the month before. She didn't listen to her big brother...!

http://theage.domain.com.au/real-estate-news/house-prices-slump-near-city-20101201-18gn1.html

FYI via email from Orlando:

I have followed your musings on investments and what we should be doing as a country. In most part your line is correct if we were in a homogeneous market and from the point of view of established theory and if we were a conventional large economy that had the luxury of plenty of suppliers competing honestly.

But we are not there really – we are a small country with all its major suppliers being monopolies or oligopolies who are blatantly colluding to ensure prices are increased at every opportunity – The banking sector, the oil sector, the energy sector, the food and dairy sector – does not leave much else of necessity.

But let us look at the finance sector in this country - $8.6billion and counting is what has been stolen, defrauded and incompetently managed and lost in the last four years. This is the biggest financial disaster to beset this country ever and yet not much is said or done to make the systems and companies involved more robust in their risk management or their responsibilities. So as the wild west in this industry carries on – why should I invest there? It’s clearly a very high risk strategy at any level of perceived risk. Until the government puts in place regulations that are seriously robust and a regulator with serious powers and teeth no one should be investing in that sector. Further the licensing structure of operators in this industry needs completely overhauling and should be in line with how the real estate industry was changed. I would also suggest that investment managers and financial companies should only be paid a fee based on performance same as the real estate industry – you make the investment profitable you take a cut of the profit – otherwise no income – and build in some claw back capabilities just for good measure and to ensure they don’t do short term profit long term wipeout.

The stock market – particularly in this global atmosphere – is just a no go high risk roulette game

Let’s look at the banking sector and interest rates – you say they are at their lowest in years and have allowed much better housing affordability – I disagree in part. Yes they are low but relative to their historic relationship with the OCR they are about 15% higher than they should be – for years the floating rate has tracked the OCR being about 2.5% higher – for the last two years it’s been 3.5% higher for no particular reason other than “because we can” attached. The reason given is that NZ has a huge foreign debt so people won’t lend cheaper money – partly true – but if our credit rating and long term outlook really is that good why can’t we get money at lower rates than Ireland?!! Or any of the other virtually bankrupt countries – hint oligopoly. When the banks in Australia recently just looked at tring the same thing and increasing that gap with the OCR there was a massive outcry and now the whole Australian banking system in under the microscope with a host of new regulatory steps in the offing.

So how should the New Zealand population invest what little money is left to them after the monopolies have taken most of it? Clearly in New Zealand there has been a huge distrust developed in putting ones money with anyone where we don’t have direct control – hence housing – bricks and mortar which we know is going to stay where it has been built – an investment that pays out even when its own value drops due to slowing economies – mostly safe if geared correctly and managed properly. The housing market is a huge jobs machine creating wealth and investment so any tinkering with its demand immediately reduces jobs and spending – as the government has recently discovered.

People choose to invest in housing because it’s what they want and prefer – they will not in most part be put off by unfair tax changes to encourage a change in direction – they will simply put their rents up, reduce their debt burden to reach a gearing point that continues to work for them and save more for the next deposit in the next property – this is what is going on. New Zealanders don’t invest in housing any less than many other countries – it’s just that the there is nothing left afterwards to invest in anything else.

It would be ideal to have in addition to the investment in housing to be able to have the large funds available for investing in producing tradable products – but we don’t have what many other countries have – a compulsory superannuation scheme. We also are not investing in the natural resources we have in order to have a better baseload economy such as mining.

Instead we have a buffoon telling us the best way to increase our wages in order to become in line with Australia’s wages is to actually get rid of the minimum wage and pay people less!! Don Brash has been very selective in comparing us with Singapore – a geographically very small and compact nation with relatively low infrastructure costs and low wages where the government has to pay for 40% of your house because it’s not affordable any other way. Not very credible really on his part.

No – in fact Australia’s minimum wage is NZ$19 and ours is NZ$12.75 – just maybe this is where that 30% difference may be found – and just maybe because its that much higher they can afford to have a serious superannuation contribution which low and behold gives us that huge investment fund. But it needs mining to be opened up, the emission trading scheme to be scrapped, a few valleys to be flooded so we can have clean hydro power for the whole country with some descent baseload fossil fuel stations and a minimum wage that increases by 5% per annum for the next few years with an incrementally increasing super scheme contribution - until we catch up with our neighbours.

I wont go into the exchange rate inaction on the part of this government – they are clearly caught in the headlights on this one.

Orlando

From John via email

After reading your piece I submitted the following.

Go the housing market. Sure as hang beats anything else.

I bought 860,000 shares in a company a few years ago. without giving me one cent, I now own little over 500 shares and their value hasn't risen any for all that got done. Not one of my houses I have owned during my life time has ever sold for less than I paid for it.

On that basis, why would I invest in the share market?

Buying shares off Joe Public certainly doesn't do anything for the business does it? So, how do you invest in production Bernard?

Regards

John

Between 3 and 4% price increase in most central auckland suburbs according to heralds quarterly property analysis today.

Pretty healthy for a four month period.

SK

you are going to get all the old boys uptight and restless with statements like that :)

Bernard, Auckland is a different market from the rest of NZ as many have stated the past few months....it will continue to simmer along.

regards

"off the back of a 52% increase in the previous quarter."

Overall, prices of all dwellings - houses and apartments - in metropolitan Melbourne increased by 5.3 per cent in the June quarter, with the median house price rising from $470,000 to $495,000.

volatile. 2 suburbs. Victoria as a whole seems healthy.

(it's not like you to worry about being repetitive is it?)

I am 22 and have about 20k saved up and looking into buying a rental in West Auckland. Why on earth would I keep my money in term deposits earning 5% or in a share market that has no good companies that are good value.

Why wouldn't I invest in real estate?

Give me a reason why not? (this isn't a rhetorical question)

Orlando sounds like a flipping genius!

Elliot, one reason not buying would be, as Wolly has warned, the roof will collapse on you!

Go for it Elliot!

I have 3 rentals in the WEST. The rental demand has been hot the past 4 months esp if your rental is in the right area/location close to motorway and schools

Three beddys are being advertised at 10-15% below CV out west currently and the occasional house yielding 8-9%. Lots of interest in baby boomers at open homes the last few weeks

Te Atatu Pen is a sough after area so rentals go at a premium. Massey, Henderson and Te Atatu South I can definitely recommend.

If I were you I would save up a bit more and wait til March-April 2011 for a good buy. Rates will still be ok then.

Do your numbers and good luck, regards

   Auckland follows Sydney..allbeit 20 years behind..Sydney dosn't follow Auckland.The housing market in Aussie has hit the wall..The strange thing is if you believe the hype their economy is going great.Something smells...Mabey the posh suburbs are ticking over..because thats where the doe is for the Real Estate agents ,the same as here.Theirs a lot of cashed up people  but per capita they are the minority.

  When Chinas economy slows as it will..because America will stop imports,the Baltic dry is down big time..Aussie will wonder what has hit them.

Plenty of 2-3 bedroom places in the low 200 thousand bracket in Henderson, Te Atatu, New Lynn, etc.

Yields of 8% or better

Close to Westfield, bus stations, Pak n Save, schools, motorways, etc.

The bottom of the North Shore, Auckland housing market was Dec 2008 to Jan 2009. For those wanting to live on the shore If you didn't buy in that period you missed it (sorry)

The reason so many homes are on the market is that the perception of plaster homes has changed substantially and these homes have taken a hit.

Plus there are is also a huge volume of leaking homes.

Consequently the homes most want to buy in Auckland are in short supply and that is why the market will continue a gentle increase.

I'm not at all surprised banks would rather lend on houses than businesses as business has always been very high risk.

I just feel sorry for all the want ta be home owners who listen to the doomsayers.

Just be very very wise on your gearing and never over commit yourself. 

"Put all your eggs in one basket - and watch it like a hawk"

(another perspective)

From someone who has had a long experience as an Auckland based property speculator and sometimes property developer. While some may not agree, investing in property is a proxy for investing in inflation. For the period 1950 through 1990 property prices never went down while inflation inexorably rose and property prices went with it. Having never seen prices fall in my lifetime, I went for it, diving in at the deep end, buying investment properties, negatively gearing, using interest only Solicitors Loans at 18%. Yes interest rates were 18% in the early 1980's. Then I got caught up in the "recession" of the 1990's but managed to avoid getting smashed. In the new millenium the property bubble began in the US, then overflowed into the global market as interest rates came down to offset the dot-com-crash, and again with the GFC making gearing attractive for the many. Now, to echo GBH's warning above, there is great uncertainty in the global economy. The local financial economy will either stagnate, inflate, or deflate. The risk is deflation. At the moment the US property market has deflated and the US Federal Reserve is frantically inflating in trying to avoid a widepread deflation trap, while Ireland, UK and Greece are deflating. The question you have to ask yourself is can you afford to get wiped out, and start again. Apart from my own home I'm fully cashed up waiting for the crash.

-Oh please, less drama! It's only the usual case of people with cash picking up bargins during a decline. They are a very small number and this will prove to be VERY short lived and inconsistent. It's NOT a NEW bubble. It's more like "the groveling over the last few crumbs" 

I know a couple who bought into the bubble, now decided that they want to get out, trying to sell their rental but because of lack of demand can't, wen't to auction, didnt sell, obviously they paid a lot more for it than they should.

 Kiwis buy too much stuff and not enough do stuff – ha and now we are running out of paff to do and buy stuff . We are stuffed !

http://www.motifake.com/index.php?start=48202

Nicholas: Yes that is a fair question and I beleive there are a few answers to it.

1. Certainly the prices have dropped for those that own plaster houses and in some cases unfairly as they are good homes. (its amazing what perception can do to prices)

2. Leaky homes are another issue. For those built from untreated timber, many will be written off, if not sorted out quickly. In a lot of cases that is unlikely to happen. I know a number of investors who are still buying them. They plan to rent them for three years or so and then possibly reclad. (fairly high risk in my opinion) However it is always only the land that increases in value, not what is built on it. (that only devalues)

3. Other investors are buying up properties that have never had a code of compliance issued and are stealing them. eg Govt Valuation of 1.1M and purchased for $605,000. Nothing wrong with the house and a great rental. (Makes more sence to me) Many quote these sales statistics to justify a fall in prices. Some beleive it without doing the research for the reason. (fools)

4. Whatever way you look at things, from my viewpoint there are some great buys out there with all signs from my perspective , pointing to a long term housing shortage.

5. For those that only have a recession to look forward to. Good luck! More money is always made in these times than in a time of boom. You make your money when you buy! but again watch your borrowing levels.

yep Auckland will simmer along, I would see flatness over the next 2 years in the big AKL. Obviously the increases reported in the media in the last couple of days are distorted by the larger number of higher end properties skewing the median. Rest of NZ could see further falls in the order of 5-7% in the next year. Wellington will be interesting - will expect further rationing of the public service which is likely to exert some downward pressure on prices

So overall still sticking to my call of about another 3-4% drop through 2011 over the country as a whole

 what really interests me is what happens in 1-2 years time, when peak oil sees soaring petrol prices? Throw in what is likely to be a weaker NZ dollar and we could see petrol prices exceeding $2.50 a litre, possibly testing $2.75 . That will change property dynamics again - central properties will do well, further flung suburbs may drop substantially   

I hope prices don't go up. More of the money in NZ economy to get gobbled up by higher debt repayments pushing up the cost of living and making us less competitive internationally.

Hi

here's some extracts from Tony Alexander, BNZ economists, survey from last night:

this probably says more?