Reserve Bank's Auckland house price correction warning: Why 5% is an important threshold for stressed, highly leveraged home-owners; And why the RBNZ needs that DTI tool

Reserve Bank's Auckland house price correction warning: Why 5% is an important threshold for stressed, highly leveraged home-owners; And why the RBNZ needs that DTI tool

By Alex Tarrant

“The marginal transaction sets the price of the stock.”

Reserve Bank Governor Graeme Wheeler on why he and his officials are so concerned about the prospect of an Auckland house price correction, particularly as interest rates rise.

The Bank on Wednesday warned 5% of existing Auckland borrowers would be expected to face severe stress if mortgage rates were 7%.

It may seem low, but that 5% mark is important.

Deputy Governor Grant Spencer told Parliament’s Finance and Expenditure Select Committee Wednesday that 5% and above could be where we start to experience systemic effects.

And Wheeler said he “can certainly imagine a situation” where a significant decline in house prices in parts of the city – led by mortgagee sales as over-leveraged homeowners are forced to sell – would start to have broad “contagion effects” elsewhere.

Translation of all that: A load of distressed sales will affect the prices of the remaining Auckland housing stock.

So watch out.

It’s not all about to suddenly kick off though.

Wheeler and Spencer were careful to point out that the longer prices bumble along in Auckland at current growth rates of -2% to zero (the last 8 months annualised), then the more the risk diminishes.

What they’re really looking out for is a resumption in house price growth driven by purchases at debt-to-income levels that will come under severe pressure when interest rates rise further.

That’s when we start to get into “correction” risk territory.

We’re not talking about a “crash.” More an “adjustment” or “price decline.” (Winston Peters had asked for synonyms of “correction”.)

But still. All the more strength to the RBNZ’s bow requesting the ability to limit debt-to-income (DTI) ratios.

“Recent borrowers in Auckland and borrowers with high DTI ratios appear most vulnerable, signalling that a continued high share of lending at high DTI ratios is concerning and may present a risk to the housing market and financial stability,” the Bank said in its Financial Stability Report Wednesday.

Perhaps we should start updating this housing stress index chart again.

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

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The way things used to be, if house price growth halted, then over time, people will have paid off some of their principal so the buffer before widespread mortgagee sales and a bank crisis occurs will have been recreated.
However, that does not factor in interest only mortgages! Whereby the risk of this does not reduce.

Is the RBNZ in charge of causing a crash, or in charge of price stability? Clearly raising rates will cause a crash........

"We’re not talking about a “crash.” More an “adjustment” or “price decline.” (Winston Peters had asked for synonyms of “correction”.)"

If there's any more clearer indication than when the crash is coming, it's when politicians try to find synonyms to distract the masses.

This time last year we were clearly in a Housing Crisis but the Government preferred the synonym Housing Challenge instead (http://www.radionz.co.nz/news/political/308084/housing-'challenge'-still-not-a-'crisis')

Oh how times have changed...

Do you have data on mortgagee sales numbers?

This very site used to track it but stopped back in 2014.

https://www.interest.co.nz/charts/real-estate/mortgagee-listings

In 2015 Corelogic provided data to HZ Herald that from June 2014-June 2015 nearly 700 homes were forced mortgagee sales nationwide.

http://beta.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114...

I can't find any reports for 2016 which is when the market peaked.

If you looked at the historical data on interest.co.nz which reports from 2008 - 2014, you would see that the only time that mortgagee sales were higher than the corelogic reported 2015 yoy sales was during 2011.

https://www.interest.co.nz/charts/real-estate/mortgagee-listings

I would really love to see interest.co.nz do some analysis on this data, and offer some interpretations.

Pretty please.

The 2014 figure given in the Herald article was 932..

We need to note the interest.co stats are for mortgagee listings rather than sales as well.

The insolvency and trustee service gives annual stats for personal insolvencies (but not mortgagee sales). 2016 was a little higher than 2015 but a long way below the peak of 2009/10.

https://www.insolvency.govt.nz/assets/pdf/Statistical-Data-Reports/Insol...

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Steve Keen is across it in his latest book. If private debt is more than 150% of GDP all you need is a slowing in credit growth to collapse the ponzi.

We tick the GDP box and credit growth is slowing. You can smell the fear in the pollies and bankers. Remember, all their language is nuanced in an attempt to avoid firghtening the horses.

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Just highlights how irresponsible Key, English and co have been to do nothing but kick the cans down the road and hope it doesn't blow up in their faces, rather than taking more serious measures earlier on.

Had they earlier on seriously addressed supply, or conceded the need to address demand, they might have avoided some of this mess. But their selfishness and that of a segment of their voters means things will likely be worse for everyone.

I'm no John Key fan, but what choice did he/they have? He had the right idea when he brazenly claimed "You don't get out of debt by borrowing more money" and all his previous comments about the property market being unsustainable/dangerous, but he was 'taken aside' by far large Heads of State ( think those of the EU, The USA , Japan etc) and told ( probably in no uncertain terms) that "It's not about New Zealand, matey. It's about ALL of US. And in a global World where if we sink, you sink - get back home and get your people borrowing their way out of this disaster, like we are". The fact that is was, isn't and won't be the answer would never have been enough for John Key to 'do an Iceland".....

Not quite right.
Depends upon the effective cost of interest.
One of the best strategies to repay your mortgage faster is to borrow slightly more. Google "Debt Recycling". NZ is actually better than Australia for it.

Debt ReCycling is a method for taking advantage of Negative Gearing and Capital Gains taxation incentives. It does nothing to mitigate the debt itself! It's all fine and dandy when asset prices are rising ( that's how 'overborrowing' also called Leverage, works) but when asset prices fall it exacerbates the loss and speeds up the road to insolvency.
That works and the individual, corporate AND national level, and John Key knew/knows that.....

It does nothing to mitigate the debt itself!"
Not quite right. Imagine I have can get a new credit card, at a lower interest rate than my current one. If I repay my current one (and shut the facility down) I would be better off cashflow wise and can (in your words) mitigate the debt faster. This can occur even if I borrow slightly more on the new card.
Hence I reasonably refute your initial comment.

"Debt ReCycling is a method for taking advantage of Negative Gearing and Capital Gains taxation incentives. It does nothing to mitigate the debt itself! It's all fine and dandy when asset prices are rising ( that's how 'overborrowing' also called Leverage, works) but when asset prices fall it exacerbates the loss and speeds up the road to insolvency."

Over borrowing can definitely have negative outcomes. Leverage is a two edged sword, I do not refute this. Debt Recycling would involve >7yr time horizon to even out ups & downs in the market, and certainly care on how much additional amount you borrow.
"Debt ReCycling is a method for taking advantage of Negative Gearing and Capital Gains taxation incentives."
I refer to Kerry Packer on this one..
http://www.smh.com.au/federal-politics/political-news/corporate-tax-inqu...
"I don't know anybody that doesn't minimise their tax," Mr Packer growled as he stirred his delicate parliamentary china cup of tea with a teaspoon. "I'm not evading tax in any way shape or form. Of course I'm minimising my tax. If anybody in this country doesn't minimise their tax they want their head read. As a government I can tell you you're not spending it that well that we should be paying extra."

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What could they have done?

1. Not resisted demand-side measures for as long as possible.
2. Not tried to ignore the elephant in the room - foreign purchases.

They could've put in place a foreign purchase stamp duty of 15-20% eight whole years ago, or limited purchases to those with PR or citizenship. They could've removed negative gearing or not ridiculed the idea of a CGT when Labour suggested it.

Let's not pretend that there was nothing they could have done.

Just eight years ago ? So there was no possibility for the previous ( Labor ) government to do it ? Why not if it is such an obviously fantastic idea ? Or do you prefer not no mention anything Labor might just be responsible for ?

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Man, I'm going to have to start saving and copy-pasting the same point in each time someone brings up the previous Labour government.

I have never in my life voted for Labour, and I voted for this National government twice before I started to pay enough attention to their antics to think better of it.

Labour: much earlier in the property cycle, when most believed things would sort themselves out naturally and were probably at their peak anyway. Largely did not address housing due to this, so basically just down to incompetence.

National: Actively campaigned on the fact there was a housing crisis that needed urgent action, and that if elected they would deliver that urgent action in order to make homes affordable for Kiwis again and to prevent Kiwis becoming tenants in their own land (Key's own words). Spent the next nine years cynically denying any house crisis exists, and doing nothing that improves affordability but rather allowing things to spiral horribly out of control, effectively ending the chances of home ownership for many Kiwis.

Hope that helps. I'm going to copy this so I don't have to re-type it the next time someone resorts to whataboutism.

It's not worth pointing out that idiot voters have been believing voting changes things and still continue to spout the importance of voting. Based on what evidence?! LuLzSeC

..an interesting point from his book ..

"Keen’s model shows that a long debt buildup can give the appearance of prosperity, until the crash comes. But when it comes, voters blame the party in power, not the earlier promoters of nationwide debt peonage"

or from a NZ context. John Key verse the poor sod who is iin power when this crash hits.

I'm glad Steven Keen has still got a dedicated fan-base, all these years later. Stopped clock et al. Wake me up when he doesn't predict a crash. That! would be news.

What is the 5% figure based on? SoFIE is dead and gone, so where are these data coming from?

I presume the banks themselves. But we need an up to date measure of household finances.

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The biggest factor will be psychology not a specific percentage of mortgagee sales. Numerous factors will feed into the psychological change of sentiment in housing. Human behaviour is pretty predictable.

Greed is a powerful motivator of human beings, and just as it inflates a bubble on the way up irrationally, greed is what also causes major crashes. Many psychological studies have also shown that we all underestimate risk and overestimate gain. NZ housing market is just a standard example of this.

Many long term investors on the interest.co.uk comments state "long term, house prices return to long term trends" which is a rational fact. However, human beings aren't rational. Crashes are caused by a change in psychology predominantly. So when the tide turns on a populations belief that the price of something will go up, greedy people panic and start to sell because they are worried about loss of money, that drives prices down and causes deflation. The greed causes the rapid deflation every bit as much as the greed caused the inflation. There doesn't even need to be a particular change in the fundamentals (like immigration numbers etc) in the market, just a belief or fear in the fundamental change of market can be enough to cause prices to deflate.

In the case of the NZ housing market, the houses are no longer affordable to NZ citizens or anyone on NZ wages, in most major areas. The banks can choose to lend way above sensible DTI criteria (ie x4 salary) if they believe that house prices will inflate rapidly, but that is because banks are run by greedy human beings too. Just because both individuals and banks are prepared to take unprecedented risks on house purchases prices, doesn't make the house price affordable, it just made those house prices achievable at that time. Which is different.

NZ banks have been lending huge amounts of money, on massively inflated assets (way way beyond what the fundamentals suggest they should be worth ie median wages), with minimal income and affordability checks.

I can't think of a time in history, when an asset inflated way above and became so divorced from its fundamental long term value, in a climate of frivolous lending that has ever ended well. Not ever. If any NZ housing market bulls have an example out there, by all means, prove me wrong.

All this perfect storm needs is one tiny factor to change the majority of peoples expectation on house prices.... just a slight tip in sentiment from positive to negative.... and this house of cards will come tumbling down. Because it is not sustainable. Immigrants suffer the same low wages as native NZ-ers so unless they bring in capital with them, they can't afford NZ house prices either. And we all know that the stream of foreign capital has been turned off.

So who else is left to inflate NZ house prices? Mum and Dad investors? They spook first because they fret about their pensions. Over leveraged specuvestors? They are in it for the capitals gains so have little incentive to hold their stock if the market turns, most of them are not seasoned and experienced investors. And long term investors require a 40% deposit, so unless they are mega cash rich, that will limit how many additional properties they can continue to hold if house prices start dropping because the equity they used in the existing stock they own, to set off against future purchases will also be deflating.

If this extremely precarious housing market crashes, and causes a recession, that will deter migrants, which will further compound negative sentiment about house prices.

I'm not saying that the market sentiment has turned. Or even suggesting when or if it will. I am just observing how precarious the NZ housing market is.

When you say greed, try more fear, fear of missing out, add that to heartfelt messages that go to folks identity.
We have no chance.

"NZ banks have been lending huge amounts of money, on massively inflated assets (way way beyond what the fundamentals suggest they should be worth ie median wages), with minimal income and affordability checks.

I can't think of a time in history, when an asset inflated way above and became so divorced from its fundamental long term value, in a climate of frivolous lending that has ever ended well."
Well said!!

484 properties with the term "reduced" in the listing currently for sale across NZ.

Watch that number (along with other phrases like "below", "bargain" AND "mortgagee") to monitor what the housing sentiment is like.

Alex Tarrant you are a real bear, reveling in all negative news and eager to report them

didn't hear you complain when the property market was roaring :)

Well, there has been 10 years of hysterical front page headlines of "values going up up and up"...

You just cant lose!

Buy buy buy!

All of this fueling the upwards momentum and conning the average rube to load up on cheap debt.

Cant haven't it both ways.

Hi Yvil,

Of course Alex Tarrant is keen to report negative stories. That's what keeps his readership levels up.

Virtually everyone who comes here has their own agenda - and the journalists are no exception!

Bear with us...we've been waiting a long time...now is our turn!! We have been swallowing house price increase headlines long enough!

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Funny how you perceive his opinion to be negative stories. That tells me more about the stories you tell yourself than about an observation of reality.

"AUD, JPY, NZD vulnerable to Chinese wobbles - Rabobank"

"Jane Foley, Senior FX Strategist at Rabobank, explains that growth expectations in Japan, Australia and New Zealand are very vulnerable to wobbles in the Chinese economy and the latest downgrade of China by Moody’s is likely to take its toll on these economies as well."

https://www.fxstreet.com/news/aud-jpy-nzd-vulnerable-to-chinese-wobbles-...

Scaremongering reaching feverish levels this morning - but still no evidence of that elusive housing market crash.......

Bring it on! I'd love to buy some dirt-cheap, savagely discounted property in Auckland. (And so would you!)

When owners of an asset class that crashes come to the realisation of how much money they have lost, the natural reaction is disbelief followed by grief and then anger. Very, very few are in the frame of mind to buy more of what has hurt them so badly for a very long time, if ever again. Amateur property investors please take note.

You might need to consider other things in the case of property price Armageddon in Auckland. I very much doubt the banks will be lining up to fund the eager beavers who think boom / crash markets are a prime investment.

Nope. Not at all tothepoint

I just want to be able to comfortably afford one single house in Wellington, that my two kids can grow up in the area where they go to school. My hubs and I, have a good combined income, we run UK company, that pays its taxes and wages to NZ. We save $4000-6000 a month towards the home we hope to buy and already have more than sufficient deposit to buy at current prices, but we just won't because there are too many indicators that the market will crash. And we don't want to be buying at the peak of the bubble and left with a house worth a lot less than we just paid for it!!!!

That isn't scaremongering. I just want a family home and am not prepared to take the risk with my families finances and future in the current crazy market. You can keep talking the market up all you like, myself and people like me are going to hold off until prices return to sensible DTI's.

Gingerninja, well done for being able to save so much money. Be careful waiting though, there are far more people who regret "not buying then cause it was so much cheaper than now" than there are people who lost money on the value of a house.

I wonder about the single parent that bought my house back in 2006 in the US. Eleven years later, it still hasn't returned to the same worth as the sale price then (NOT deflated by CPI, but actual $ number). I'd be rather confident that there are plenty out there that have regrets in regards to purchasing at the wrong time. I had a nice discussion with my landlord when we finally shifted out last year when we bought a home and stopped renting. She had some interesting comments in regards to the lack of return on the property. She paid cash for the property, and her return was lower than my same funds placed in term deposits.

There is an appropriate pilots saying, "it is better to be on the ground and wishing you were up in the air than to be up in the air and wishing you were on the ground".

Yvil, our savings aren't just sitting about doing nothing. They are working hard and they are offshore in various investments. It's not dead money.

I think the chances of house prices continuing to boom over the next few years are extremely slim, whereas, I think the chances of a bust and a period of deleveraging are pretty high, so i'll take my chances.

I think you should look at why you are buying a house. It looks like you want a home, so your thinking should be whether you can afford it, and if you are saving 6000 per month and live in Wellington, then the answer is you can. If the market turns, then you will still have a home, so you are still winning.

When my wife and I purchased our home, the DTIs were way out of whack, and friends and family were lining up to call us stupid. But that was Auckland in 2011. Suffice to say we haven't regretted doing it.

It may be a home, but its also the amount of disposable income gingerninja wants at the end of the month. Why waste it in interest payments when you can spend it a cool stuff, like travel.

If Winston has a say then immigration levels could drop and so could foreign ownership, plus if interest rates increase, all this with China blocking their contrymen from investing vast sums overseas, there is high likelyhood there could be some bargains coming up.

Especially with the terminology like "reduced sale", compared to last year "get in quick cheap at 1,000,000". I think once there is a continued stagnation some people could panic and sell, as they may see this as the peak. It may not be the peak, but fear does things, like fear of missing out when prices were going up.

Yes we are wanting a home, but we don't want to be saddled with debt related to a house at an inflated price. Prices are so far above the long term trend and affordability criteria that there is a high chance that house will fall quite considerably, or at the very least, flatten and the market become a buyers market, rather than a sellers one. We've only been in Wellington for 8 months and we can see the signs of the market cooling around us.
I recommended to my parents-in-law that they sell their West Auckland home early in 2016. They were convinced the market would continue up, so they didn't. Then end of 2016, they started attending auctions and open home to gauge the market. The auction rooms and open homes were dead compared to previously.

Congratulations. Have courage in your convictions.

While Wheelers stock market analogy is correct in that the latest sale sets the value expectation for subsequent trades, I'm not sure it is completely transferable to housing in the sense it triggers a general rout where large numbers of property owners exit the market in a mass panic. A reasonable proportion of stock market investors actively trade and will dump stock when prices tank. But housing is less liquid and unless an owner is forced to sell due to being under water, lifestyle change etc, they will most likely ride it out.

The MSM will no doubt gleefully report forced sales at lowered prices in Wheelers 5% cohort but meanwhile the other 95% will suck it in, shrug and carry on.

Hi Middleman

You make a very sound point - and one that's often neglected here. Housing/property is not a liquid asset, like shares and bonds are......

Transacting in property takes time - with considerable (transaction) costs and inconvenience. In a downturn this feature acts as a stabiliser. For instance, a sharemarket may dive 50 per cent - literally within minutes. But that scenario won't/can't happen with property.

A 50% dive in a sharemarket also means a 50% discount on shares bought on it at the same time. Some investors can make a decent profit trading during times of fear and panic. Shares are also a lot more volatile than property markets and rarely stay continuously stagnant, unlike some regions of New Zealand that can experience little capital gains for long periods of time.

A 50% dive in a sharemarket also means a 50% discount on shares bought on it at the same time.

Very few NZers seem to be taking that to heart. If you look at the Smartshares annual reports, one of the stunning things to notice is just how few individual investors there are relative to the population. Given that this vehicle is the only way most Kiwis can value-cost-average into the local market, I think it's clear that most are not interested.

No one is pushing passive investment in New Zealand and the majority seem to have little interest in any financial education.

Even on this site there are very few people that discuss MPT, DCA and there's a heavy focus on residential property. It's almost as if there are very few commercial investors.

I have to admit that stuff has gone whoosh over my head.

But I am investing in businesses, I have a startup, that sucks me dry, but we may be going a little forward now, we will see. We are also looking at starting a Travel Franchise and I will look at other businesses later if my startup goes nowhere. But our businesses are opportunities to work from home or anywhere in the world and if they work will provide future income.

So I think there are different investment strokes for different folks. I want to learn how to invest when I have spare cash thats why I am on here.

I fully agree Dictator. The NZ population is notoriously bad at saving, and financial literacy outside property investing is almost non-existent.

Yes this is true property market move slowly compared to listed securities. However there are no long term stabilisers you just need to look at the Japanese housing market that crashed in 1990. It was still going down for two decades and remains 70% below 1989 levels. Very sobering.

Houses might not be very liquid, but sentiment about house prices can move very quickly once the psychology of a boom or a crash take over.

A lot of people have missed my comment about using the keyword "desperate" on trademe. Sentiment is in motion. It's slow as you'd expect but as we head to the middle of the year we're starting to see the first public signs of fear and panic.

I'm adding that to my searches! I am also currently tracking "mortgagee", "bargain" and "reduced" in order to measure changes in sentiment.

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I was a participant of the Home and Housed report as I was a medium sized developer 10 to 26 sections per development. Plenty of suggestions all fell on deaf ears, cost of report $2m.
Then i participated in the Productivity commission report on cost of building and materials in NZ. $1.5m report 12 months in the making. Identified a duopoly and that it costs 30% more to build the exact same house in Auckland as it does in Melbourne. Still nothing came of that.
I was the only developer to attend the Wellington Home and Housed meetings , my other senior developer friends explained it would be a complete waste of time and to grab a couple of copies of the completed report for them to use as doorstops.
Then Govt formed the Social Housing Unit the SHU, budget $104 million, after setting up offices in Central Wellington decking out the offices buying 11 new cars , you know the rest, logo, profile, PR they then hired a fund manager to mind the budget, the SHU did not employ one Builder or Developer, in total they assisted with the build of 100 homes, yep over a million per house.
I have watched National kick the can for over 7 years on housing and now that the ratings agencies have identified that NZ is not in the position to house its populous a ratings down grade is imminent. First the ratings agencies have been told for 3 consecutive years that National are going to build houses to no avail, now the ratings agencies are questioning statements by the NZ Govt. Where are you building the newly stated 10,000 homes? Who is going to build them, show us the allocated funds to build them.
The biggest crisis that will dwarf the home ownership crisis will be the rental crisis and its fast approaching.
With the first home owners age now at 37 years of age coupled with increases in Tin, Concrete, Timber and glass plus labour rates increasing,, houses to construct are not going to get cheaper ever.
NZ hasn't built tenement blocks or mass housing for the current generation let alone future generations. With multiple families up to 3 I know of living in a single dwelling it wont be long before there is an outbreak of Typhoid or other communicable disease in highly populated areas from over crowding.
Watch Milk and tourism take a hit when that happens,,,not if but when. Some members of Parliament still refuse the concept of a housing crisis,,,Bloody Housing Challenge, what dick head PR woofter came up with that...
Sold all the last of my land last year over 20 acres of residential, offered it to GOVT first after 2 weeks of no answer as it wasn't a priority i have sold it to foreigners as most NZ developers just cant find Development or residential construction finance.
With the Salvation Army Full, Mission Full, Camp sites Full, Motels being used to house families give it 2 years and mass homelessness will be NZ's largest problem ever,,forget $5k to move on , I'm thinking NZ will be moved out of the OECD in 3 years and we will be in with Portugal and Greece in a high interest rate economy.

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Interesting and depressing read. And I guess the foreigners who purchased your 20 acres are happy to land bank for ever and a day?

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Very insightful comment, well said MCNZ.

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Thanks, MCNZ.

This is ridiculous.

Thanks for taking the time to post MCNZ - its rare to hear from someone who is at the coalface.

Eye-opening doesn't come close.....mind-boggling levels of incompetence and your vision of the future is confronting, .here's hoping enough good men and women actually put their thinking caps on, drop their petty political biases and think of what sort of country we are going to leave our children, and their children etc...

Yes, really valuable contribution. Sadly, I'm not surprised.

Thanks for the post, MCNZ. This kind of direct professional insight is crucial to building general awareness and understanding, and you find it in very few other places than here.

Wow. That's sobering. MCNZ. I hadn't thought about a pending credit rating down grade.

Keep the supply under control is the name of the game. Things won't change.

Thing is this isn't a crash caused by a recession but a healthy market correction, people are too busy spending money at the moment rather than looking to buy houses. Pay attention to how many people around you are going on an overseas trip. (workmates, friends, families..etc)

MCNZ, what planet are you on. NZ is not heading for a ratings downgrade the government is running a surplus and debt to GDP is low and declining. Usual hyperbole, "moved out of the OECD in 3 years", pandering to the doom merchants.
One of the reason houses are so expensive is the average size is at least 50% higher than the 1980s, with higher internal spec. Auckland, Tauranga and Hamilton are overpriced, but NZ is moving with the rest of the world, home ownership is becoming a privilege, not a right. People may not like it, but it is the way it is. You said it yourself building costs won't fall, with an increasing population this will limit property downside in most regions. The reason property prices are elevated relative to incomes is property ownership is becoming the domain of those with large asset bases or high incomes. So purchasers either have considerable deposits of are first home buyers with high household incomes.

Remember some people make things happen, some people watch things happen and most people say what the f**k happened. And you do not want to be in the last category as the world changes. Wishing for things to be how they used to be, won't change a thing.

Nothing like living off the benefits created by preceding generations then not passing those on. What a time to be born!

Rick, you can either move with the times, or live in the past. Some people are going to benefit, it might as well be my family. If I sit on my hands wishing things were different, I disadvantage my children, and it will not change a thing.

MJA that might be true if social inequality changes only very slightly for the worse. However, if social inequality continues at the current trajectory (worldwide) it is very likely to lead to civil unrest for your children, as history has demonstrated at every turn.

Take South Africa as a fine example. The wealthy spent more and more on security over the decades before the unrest. Outside of the suburbs of the rich, with their high walls, security guards and barbed wire, crime and civil unrest grew and grew. Eventually, many of those rich people were dead, or had to flee and abandon much of their "wealth".

What history has proved is that there is a level of economic and social equality that leads to a more productive and peaceful society in general.
What is the point of hoarding all that wealth, when that means others have so much less to the extent that society eventually destabilises? The benefits of relative economic equality are manifest, the benefits of acute wealth inequalities are written in blood over the pages of history.

And there's the problem MJA. Most people have the same mindset. So you're all trying to beat each other and as a result everyone loses (although sometimes one group wins for a period and they think they'll continue to win, which is a fallacy e.g. darklords in the current environment or property speculators for the last 5 years).

Steven Covey has a couple of good books that discuss interdependence and ideas around win/lose vs lose/lose vs win/win mindset (or 3rd alternative). At first glance, you appear to be heavily in the win/lose mindset. 'Bugger everyone else, I've just got to look out for number one and my kids....'

I think generally kiwis are stuck in the win/lose mindset. As a consequence, the results won't be great. The losers will drag the 'winners' down with them. But you go get 'em mate.

Could be payback, didn't Helen Clarke bail out just before the GFC ? Looks like if National don't get back in they are handing a property problem back in return. Seriously who would want to be prime minister ? Its a sad day when even the USA with 330 million people can only come up with Donald Trump as their best option.

It's a relevant point about timing. The Labor govt never openly acknowledged and communicated to the public what our economic model was all about. At the very least, John Key did...kind of. His departure was timely indeed. Saved himself quite a few sleepless nights.

And in a few days we will probably be waking up to find we have a Sir Spray and Walk Away

There's a new category in Auckland's Trademe listings. Use the keyword: desperate.

wow 12 results, at least one of them was for desperate buyers the rest looked like desperate sellers

The first result is just to test that you looked. The rest are trying their best to avoid getting the best price, just a price and exit whatever terrible financial position they are in.

I would hate to be a desperate home seller, Maybe Zach or Tothepoint can soothe them with their RE speak...

They aren't that desperate looking at those prices. $600k for a plaster house without code compliance in Ranui. Crickey, how much is a normal house in Ranui 'worth'

Reality is those forced to sell in the current market headwinds or cyclone, have had plenty of notice that the ponzi was over a while ago.

Lets check the list, Big daddy went bearish, interest rates forecast is up, Chinese capital controls, politicians promising to stop immigration and overseas property ownership, education immigration scam being slowed, and auction clearance rate in the toilet for over six months now. There is an election imminent as well.

Lets not forget Trump and Brexit. Trump has directed a third Carrier battle group towards the North Korean nutter. The last time that many Carriers were in the same general location they were bombing the crap out of something in Iraq in 2012. Each carrier group is estimated daily financial consumption is rated at $6.5m without combat operations, so its not really a spur of the moment decision.

Summary if you missed those minor events and end up loosing your financial lunch big time, blame the person in the mirror.

Chatting with a friend last night. A few months ago he purchased a 40 square m unit on the coast in northern Germany for 7500 euros. That's not a typo, seven thousand five hundred euros. It was an economically depressed area and the vendor was a bit desperate to sell. Siemens have just announced that they're opening a wind turbine factory nearby and the prices in the area have quadrupled. Its all about timing!

...Meanwhile 88A Kohimarama road just sold at Auction for 3.3 Million dollars. The Herald today reported that Nearly all houses sold to NZ citizens and residents, latest "data" shows. I wonder which Kiwi purchased that lucky-in chinese numbered letterbox.

It sort of reminds me a bit of playing 'hot potato' You don't want to be left holding the overpriced house that suddenly drops in value when the music stops.

It is about picking the right time to sell for these investors, so if overseas buyers are drying up, it maybe a big sign.

I wonder if there are any stats on the number of overseas owners selling recently?

Here is an interesting mortgagee sale in my suburb;

Listed initially March 21st "enquiries over $715" (RV is $750). The owners have had it 16 years.

http://www.trademe.co.nz/property/residential-property-for-sale/auction-...

3 months later it is listed as a mortgagee sale;

http://www.trademe.co.nz/property/residential-property-for-sale/auction-...

The purchase price in 2000 and monthly mortgage payment would be waaaaaaaaaaaaay less than anything like the current RV. Is this the tale of someone who has been using their home as a piggy bank, extracting equity to buy extra properties, financing holidays and cars?

Whatever the story is, it's not a happy one.

Job loss and or divorce after sucking the home equity well dry would be my guess.

Weird that they seem to have found no interested buyer at all when initially listing well below RV. Leaky home perhaps?

Did they have leaky homes syndrome in Wellington or was it only an AKL problem

The Wellington City Council had paid out $41 million on leaky homes problems to 2016.

http://www.stuff.co.nz/dominion-post/news/78407357/wellington-city-counc...

There's been no shortage of leaky buildings in Wellington. Most are resolved now (at least legally, some, no doubt, have a lot of work to carry out).

I'm guessing it's something like that. Loss of income turns things into a big problem. Given that it was purchased for $370k 15 years ago their payments would be low if they hadn't tapped into equity. They would also be a good portion of the way through the principle on a 20 or 25 year loan that they probably had at the time.

All of the mortgages I've been looking at have been 10+ years of ownership.

The age of the house does place it in the time when there was a lot of terrible construction practices.

Lesson to the boomers. Whatever you do, don't get divorced.

But if you must get divorced, avoid flat whites, Sky telly and smashed avocado, work hard and save and you'll be fine.

Also if you don't want your wife to get the house just burn it down and act like privileged snowflake.
http://www.stuff.co.nz/world/australia/93178520/man-set-home-on-fire-so-...