David Hargreaves reckons the direction of the housing market over the next few months will decide a lot of things, including who wins the next election

David Hargreaves reckons the direction of the housing market over the next few months will decide a lot of things, including who wins the next election

By David Hargreaves

Well, it's that time of year again, when the 'for sale' signs are dusted off in earnest and we get to find out what sort of shape the housing market is really in.

I'm interested in your views of how you think it will go, bearing in mind there's likely to be differences of opinion if you are in Auckland or in the regions.

I think the market may well be busier and more buoyant than a lot of people expect. But we'll see. 

I actually think this year's Spring housing market is going to be pretty pivotal for a number of reasons.

I'm sure this Government remains within itself fairly mixed on what should happen with the housing market. The very 'Labour' part of it would probably like to see house prices actually fall, so, that the lower income people do come into their own - particularly in stratospheric Auckland - and get some realistic prospect of buying a house.

But of course, it's political suicide to ever suggest falling house prices and realistically Labour would want stable prices and with people's earning capacity gradually catching up with the level prices are at. That would take some time though.

The Government will want the housing market to at least remain stable because otherwise doubt could be cast on whether it is wise to continue full steam ahead - or at least trying to get full steam ahead - on the planned creation of 100,000 new KiwiBuild homes over a 10 year period.

As a party of course, Labour has put a large part of its credibility in Government on the KiwiBuild programme. 

I remain convinced that as a country we do need to do this. But I also think it would be easy for whoever's in Government at the time to lose their nerve and back off if the housing market falls off a cliff in the meantime.

I think, much more than a lot of countries, the New Zealand psyche is centred around housing and how it is performing.

Therefore I don't think the recent flatness of the housing market should be under-estimated as a reason for the grumpiness in recent confidence surveys.

As the strong GDP figures last week showed, the economy has been trucking along reasonably well even as we've been talking ourselves into a funk. But the housing market has been quiet. And I think that's significant.

As someone who didn't own a home in New Zealand in the 2003-2007 period I was for a long time nonplussed about why everybody seemed to be so upbeat about the economy. From where I was viewing it, the economy didn't look all that flash. 

But of course, house prices were galloping upwards. People were seeing their perceived net worth blipping up every week. They were happy. And of course the feelgood factor produced consumer spending, which did help the economy along.

What I'm saying then is that while the housing market can't be divorced from the economy - since it's a big part of it - in a way people's sense of goodwill in this country revolves more around how house prices are going than how the wider economy as such is performing. 

That's why I think there has been this disconnect over recent months. Economy has kept on going okay. Housing market less so. People are grumpy. 

Ironically it wouldn't surprise me to see the overall economy losing speed over the summer months, but confidence surveys bucking up - if the housing market is relatively buoyant over summer, as I think it will be.

If it is, that will give the Government quite a break.

It will feel confident about pressing on with KiwiBuild and that of course will feed into confidence among particularly young people who will see a chance of buying a house.

It will give the banks confidence to lend. Bank lending is going to be a very interesting one to watch over the coming months, given how - anecdotally - it has been getting harder and harder to borrow, particularly for new housing. 

The banks of course have already shown signs of being strongly attracted to KiwiBuild. This should not be a surprise. Obviously it's a good look to get associated with a key Government initiative.

However, more pragmatically - and I suspect the banks might just have noticed this (said with tongue very firmly in cheek) - the KiwiBuild mortgages will fall outside of the Reserve Bank's 'speed limits' on high loan to value ratio lending. So, in other words they will be able to do as much of that as they want. They will be cheering on the Government with the KiwiBuild programme in that regard.

I've previously expressed concern about potential distortions that could occur because of potentially so many mortgages being advanced that will fall outside of the LVR rules.

It will be interesting to see if the Reserve Bank has anything specific to say about KiwiBuild in its next Financial Stability Report at the end of November - or if indeed it does decide to further relax the LVR rules. On the latter point, it will be sure to be looking closely at how the Spring housing market is looking.

I think it's unlikely that the RBNZ would further relax the rules at this stage, but if it did it could really give the market a lift into summer.

If the housing market is buoyant over summer then I would be almost certain that confidence levels around the country will rise. The Government will be able to plough on with KiwiBuild and this will further engender confidence. In such an environment the Government could be expected to get a lift in the opinion polls.

The flipside of course is - and if I'm wrong about happy house prices over the summer - then KiwiBuild starts to look like a less good idea and might be called into question, confidence levels will stay low and National would be sure to rise in the polls.

While the election won't physically be won or lost next year, the prevailing mood of the nation during the next 12 months will be a big factor as we go into 2020. And yes, what the housing market does over the next few months will set the tone.

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

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Shall we start with comparing this week's auction results to the corresponding results of this week last year.
First of all 67% of B & T's auctions didn't sell last week, which is much lower than last year.

Here are a couple of articles from the corresponding week last year.

Noteable takes. (Last years Clearance rate this corresponding week was 54%) Back in 2017 buyers were still happy to buy on the North Shore (clearance rate 71%). This year, not so much...19%.

Last September was Barfoots worst September for sales since 2009 with just 658 transactions. (It was election month), surely they'll be able to beat those volumes this Spring?

https://www.interest.co.nz/property/90004/barfoot-thompson-sold-54-prope...

https://www.interest.co.nz/property/90163/septembers-sales-barfoot-thomp...

$600,000 loan, 30 year term at 4.5% interest rate.

After 5 years of repayments the loan sits at £546,947 with just over 10% of the capital repaid
After 10 years repayments the loan sits at $480,536. approximately 20% of the capital having been repaid.

There will be a lot of people who have bought the credit bubble who could very quickly end up in negative equity. There will be a good number of interest only borrowers who are already under water, but just don't realise it yet.

What a pickle our generous Australian banks have created, the myth perpetuated by the media, the real estate industry, brokers and the boomers. And still over $1,000,000,000 of interest only is leant each month to the poor unsuspecting young. It's high time that tighter regulation was put in place to spare the next generation being slaughtered by debt.

A

And the numbers get rapidly very ugly for those higher middle income couples who have stretched to buy a 3 bedroom house in Auckland for a million bucks.

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How will the market go over the next 6 months will be interesting to watch.
-FBB is said to reduce up to 3.5% demand on the market
-Australian banks are feeling a liquidity pinch, when do they start plundering NZ banks liquidity to prop themselves up?
-House prices starting to drop in Aus, Canada, UK, USA. . . Nothing drastic but a turn is starting. Would we follow?
-We keep hearing that growth is projected to be great as long as we dont have a external financial shock. Seems like the US/EU equities bull market is the only thing still dragging the world forward.
-US is pulling alot of liquidity out of the market, EU will start QT in a few months, If asset prices around the world stall or trend down then how will we find the liquidity to keep everything moving?
-Milk price trending downwards

Sounds a bit DGM but i think we are not noticing that its death by a 1000 cuts.

My thoughts are that we are likely to see listings go through the roof over the next 6 months especially in Auckland where the median household income cant meet the median price of a home. With Finance becoming more difficult to obtain even with lower mortgage rates the pressure will surely go on house prices.

I wouldn't be surprised to see high end properties continue to move while the low end stalls, that means the median sales price & average prices may stay flat or go up.

I expect sales volumes to remain low and auction clearance rates to stay more or less where they have been for the last year or so. Remember the foreign buyers ban is in soon and will have an immediate effect.

The regions may continue on their merry way but Auckland is another story.

This summer may well be a high pressure system for some sellers

This summer may well be a high pressure system for some sellers

Leading to sunny weather for FHBs :o)

TradeMe Auckland listings seem to be up 700 in the last two weeks. Now over 11,650.

My thoughts;
Seasonal up swing in Auckland market which some will claim the market taking off. However for economic stability and risk factors, RBNZ have fingers on LVR buttons if significant sustained increases occur in what is a historically over priced market. Orr would seem comfortable with 2 to 3% pa. Low interest rates and historically high immigration rates (although slowly dropping) will hold prices up. Even if they miss out on the lottery, the existence of KiwiBuild will send positive signals to FHB regarding buying.
Regions will continue to be firm but seasonal increase may not be as significant as some expect. Here in HB it looks like the market is starting to plateau.
As to the economy; it is going better than surveys expected. It is external events that are likely to have any shock effects. In the mean time government influences (WFF package, regional development spending etc) will continue to se stable market.
As for external factors likely to cause a shock; most uncertain - at times conflicting information on significance of trade wars, next few months is the season risk time for share markets and if sentiment shows downturn then the bull market of past decade could come to a sudden and severe downturn as the herds seek safer havens.
External factors could also affect interest rates in the medium to longer term. If not causing major concern to the economy; it could have a significant effect on housing market (although not a major collapse) but sufficient to bring a number individual pain. Very low - or negative - immigration rates will contribute to this.

RBNZ will not remove LVR, they were put in to lower financial stability risks. They will only be removed once a looming financial stability risk has been removed, I.e after a major slump

Interesting Martin North commentary, suggesting comparison of Australian market to pre-bust Ireland. I guess that would make NZ, equivalent to Cyprus then. It's quite an interesting view on credit availability which is so often overlooked.

https://www.youtube.com/watch?v=EdFJtXWWf2U&app=desktop

Credit availability is determined by the banks and changes with the economic environment. It got tightened when they increased their lending standards, particularly in terms of their debt servicing calculations. From what I understand here are some key points that led to tightened lending standards by the banks internally (there may be others).

1) starting applying stress interest rates of 7-7.5 % on a P&I basis to determine debt serviceability for new loans and assessing total debt borrowing capacity
2) starting applying the stress interest rates of 7.7.5% on P&I basis to a potential borrower's existing loans to determine debt serviceability on new loans and assessing total debt borrowing capacity
3) starting applying a haircut for rental revenues on investment properties (25% I believe - to allow for operating costs of a property such as rates, insurance, maintenance etc) for assessing debt serviceability on new loans, and assessing total debt borrowing capacity
4) starting rigorously examining actual household living expenditures to assess a potential borrower's debt serviceability and assessing total debt borrowing capacity
5) redefined an interest only loan maturing date as a credit event to undertake a new credit assessment and applied 1-4 above.

A lot of the above changes in the credit environment was unreported by the mainstream media.

As a result, many interest only borrowers who have their interest only periods coming to maturity have yet to undergo the above process. They may not have needed to access further bank loans since their original loan and as such they are unaware of the changes in credit environment, and they might expect the status quo and be able to refinance into a new interest only loan. A property investor who borrowed from October 2013 to October 2015 has yet to go through the above process, and may receive an unexpected surprise as their loan payments go from interest only to P&I which would result in a significant increase in monthly debt payments.

The key changes reported by the mainstream media were the the LVR changes instituted by the RBNZ.

FYI, Cyprus had a bail-in of creditors (including bank depositors) when they recapitalised their banks ...

Which is why current expectations of sellers are not being matched by the marketplace.

Some of those who have gone through the process above are finding that the increased debt payments are putting them in a negative cashflow position(or a larger negative cashflow position for some investors in Auckland). They may be listing their property for sale and waiting for their desired price.

Meanwhile as time passes and more interest only borrowers are unable to refinance on interest only terms and convert to P&I payments (or are able to refinance however at higher interest rates), they too may become negative cashflow on their property investment(s). Then they may also look to list their property for sale. Slowly, the inventory of properties for sale increases. Then when there is a sufficiently large inventory of properties listed for sale, fewer properties are selling, vendors have listed their property for a long period of time with no buyer interest at their desired price level, the urgent and desperate sellers begin to accept low ball price offers. Others who are financially stressed, or who need liquidity begin to accept lower priced offers.

Potential buyers see property prices falling, lose their confidence to buy and decide to wait until property prices have bottomed out, so the number of potential buyers in the marketplace also falls.

They take 70-80% of rent revenue to account for rates etc - But then still count rates, insurance, maintenance as separate expenses - So they are double counting - They should be taking 90% rent revenue as this is fairer and accounts for a degree of vacancy (even though across 4 properties over past 7 years I have only totalled 3 weeks vacancy due to minor reno after tenants moved out) - So fair enough to be conservative on rent revenue but to double count things like rates, insurance is plain stupid -

The 7.5% interest rate used as a stress test is also questionable when you can get 7-10 year fixed at well below that (BNZ, TSB) - And in 10 years rent, equity are likely to be up A LOT - and principle likely to be paid down a fair bit too.

So like usual swinging the pendulum back too far in the opposite direction; Hopefully sense will prevail once they sort out the mess in AU from genuine shoddy lending - 95% loans on interest only - something NZ hasn't seen since pre GFC

Thanks Simon. Didn't realise that the banks were double counting for rates, insurance, maintenance, etc.

"The 7.5% interest rate used as a stress test is also questionable when you can get 7-10 year fixed at well below that (BNZ, TSB) - And in 10 years rent, equity are likely to be up A LOT - and principle likely to be paid down a fair bit too. "

Whilst you may be able to remain current on your mortgage, note that housing loans in the NZ banks total 250bn (note that this excludes a further 35bn of loans for commercial property development and investment).
This amount represents:
1) 57% of the total loan assets held by NZ banks
2) 591% of the total equity of NZ banks

As you can see, housing loans represent significant risk exposures for the banks.

The banks have stressed interest rates for borrowers to ensure that they can withstand a higher interest rate environment. If interest rates rose to more normal historical levels and many borrowers were unable to meet their repayments, then the bank would potentially have large loan losses which could potentially impair their capital ratios, and liquidity ratios. Bank management is responsible to ensure that the business survives, and meets bank regulatory capital ratios under most business conditions. It would be hugely irresponsible of bank management to assume interest rates remain at record lows, and implicitly take the associated business risks of operating with that assumption.

Also part of the reason is that bank regulators have imposed stricter lending criteria to be applied by banks. Remember that bank regulators can take away a bank's license if regulations are not met by banks. Bank regulators need to ensure the stability of the financial system.

Also, remember that there is no deposit insurance scheme in NZ, so bank depositors also have a vested interest in the safety and stability of the banking system. If a bank fails in NZ, bank depositors might have to take a haircut on their deposits and take newly issued shares in their bank as part of a bank recapitalisation under the open bank resolution (OBR). There could also be runs on banks as one bank failure causes a loss of confidence in the banking system which then cause depositors to take their money out of other banks. Recall the loss of confidence in the finance companies in 2008 / 2009 by depositors when they started failing and confidence was only restored when the government gave deposit guarantees.

Whilst you may disagree with banks applying the higher stress interest rates in debt servicing calculations given current interest rate levels, there is a bigger picture to look at with the safety and stability of the whole financial system.

They're doing you a favour.. stopping you from hanging yourself.

OMG Remuera home attracts crowd of 88 and strong bidding. Three-level character home in Double Grammar Zone leads pack in Auckland auction results, sells for $2.7 million. https://www.oneroof.co.nz/news/35442
八十八是好预兆啊,难怪那么轻易的就给卖出去了。卖得好,卖得妙,卖得呱呱叫,呵呵呵!

Backflips off the top balcony into the swimming pool!

LTVR restrictions
CAPITAL GAINS TAX
BRIGHT LINE TEST
LOWER IMMIGRATION
BAN ON FOREIGN INVESTMENT
FAMILIES NEEDING HELP JUST TO GET BY ( FAMILIES PACKAGE )
FUEL IN AUCKLAND TO COST $2,50
BANKS ACTUALLY DOING PROPER VALUATIONS INSTEAD OF THROWING THE STUFF AROUND
KIWIBUILD FIASCO
BUILDING COSTS TOP $3,000/m2
AUCKLAND COUNCIL INCOMPETENCE
CITY LIMITS NOT BEING EXTENDED
WATER METER CONNECTION COSTING ALMOST $20,000

What an utter mess we are in

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Posted while staring straight into a mirror?

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WATER METER CONNECTION COSTING ALMOST $20,000

I know it's hard to understand, but the $20k isn't for the meter. It's for the pipes, treatment plant upgrades, pumping stations, etc.

But it definitely sounds better if we say it's just for the meter.

What is the ongoing ~$1000 per year cost for then? Just running and maintenance costs?

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YOUR CAPSLOCK KEY IS STUCK ON, JUST FYI.

Keep your eye on global events unfolding and the trouble brewing across the Tasman. Lots of stock coming on to the Auckland market as well. Meanwhile there are now less buyers out there due to a number of factors.

I will still run with history. Prices flat line for this government and then keep on going up when they leave office.

The only opt out clause I get is a nasty global event. Predicting that is like predicting the end of the world.

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Nice article but I don't agree the market will become more buoyant over summer.
Why?
- prices are still high yet vendors often are unrealistic
- many FHBs will bide time for KB
- property is not currently stacking up as a particularly good investment
- foreign buyers ban

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Especially when the waterfall from foreign buyers stops cascading through the market.

Recent stats released for the June quarter that I haven't seen published anywhere in the mainstream media (an inconvenient truth).

• Auckland – 6.5 percent (741 transfers to people without NZ citizenship or resident visas)
• Queenstown-Lakes district – 5.2 percent (27 transfers)
• Hamilton city – 3.5 percent (48 transfers).
That's a big hole to fill when the marginal buyers disappears next month.

https://www.stats.govt.nz/information-releases/property-transfer-statist...

Now remember that $4,000,000 Kohimara vendor who sold to Mr Chan, then bought another in Remuera for $2,000,000, one in the Hawkes Bay for $1,000,000 and one in Queenstown for £1,000,000. The owners of those houses then all went and made their subsequent purchasers trading up, trading down etc etc and so on and so forth. And then the foreign buyer was gone and the banks had to have a sale of cheap mortgages to try and prop up the mess that they'd leant against, but they didn't really have enough money to prop it up themselves so they started getting picky about who they would lend to.

This great 'roll back' is just about to begin.

Part of the problem that you highlight is that people consider themselves richer when their house prices go up and act accordingly in their spending and voting. We need to start by teaching people that this is a fallacy.

Kiwibuild actually becomes a better proposition when prices drop. This is because construction will be impaired more than most things and there will be spare resources that make kiwibuild cheaper improving its value proposition. It also acts as stimulus. So a govt should increase kiwibuild if the housing market/economy declines.

That will take balls, they'll have half their voters expecting stimulus to prop up the market. Not sure this govt (or any recent govt) has the testicular fortitude not to try and reinflate the bubble. And the RB stability mandate means you can probably expect 0.5% OCR if things go south in a hurry.

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Exactly which is why Sir John and Sir Bill should have taken action earlier rather than standing by and using it as a device to inflate the economy. Now it is so much more politically painful to roll back the increase in prices.

Yep, but if the global economy gets the speed wobbles I suspect anything our govt/RB does is akin to urinating into a the face of a good strong southerly.

Trickle-down economics, as it were.

It's going to take time for this to filter into the mainstream so while we potter along for the next six months, there will be pockets of strength/weakness before the market gets sucked down overall. I'm looking to buy in the next couple of years in the North shore so have been following this market closely. There have beeen some big loses this month and a couple of big winners, so it's pretty localised at the moment...

It certainly seems patchy

After the 19% clearance rate at the recent North Shore Auction you may want to buy yourself a good 1980's ghetto blaster and give them a bit of Kenny to wake them up to reality

https://www.youtube.com/watch?v=7hx4gdlfamo

News Flash!
KiwiBuild is not happening and Mr Twyford will need to step down from the housing portfolio as he will need to admit that he has been telling lies about the practicality of this KiwiBuild!
You can be as upbeat as you like and believe Mr Twyford about KiwiBuild, but you must also beleive in the tooth fairy!
18 built and no one in them yet only 982 to go till July and then 99,000 more over the next 8 years!
Where are they going to build them and there won’t be enough takers for them as the Banks will not lend on them. Because they are going to get smaller and smaller and cheaper looking!
It would be laughable if it wasn’t so serious in what Mr Twyford is giving people false hope!!
He cares more about putting people in new state houses than first home buyers as there is no limit to the cost of building state houses!

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My god you are a stuck record. This sort of rant is what lead to the "intelligence" conversation earlier today.

Dunning Kruger in full effect.

The stuck record is this continued going on about KiwiBuild when it just isn’t happening!
The media keeps printing something that gives people false hope, and anyone with serious property investing experience knows too well it is a beat up!!

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Shock horror, a slum lord wants to beat down Kiwibuild.

Is it because, even though you'll think they're small and cheap, the double glazing, insulation, modern fittings and dry air in them make you wonder if you'll need some capex?

RE your comment on banks not lending on them, I think the recent public statements by Kiwi, ASB & BNZ (in that order) may offer a counter argument.

TM2 reminds me of Dick Dastardly from Wacky Races.

Dunno, given his comments about leverage in the past.. and the bank manager being his friend, i think he's doing a pretty good impression of Wylie Coyote just before he looks down.

No worries, he has some Acme rockets stuck up his ...... back.....

While I disagree with much of what you say, the most obvious is that the banks seem to be more than happy to lend on Kiwibuild houses. From 'what happened today':

"Competition to finance buyers for the KiwiBuild program is hotting up. The latest offer is from BNZ who will lend qualifying borrowers up to 95% of the purchase price, and will give conditional pre-approval for up to 12 months. Remember, the RBNZ LVR restrictions don't apply to new-builds, so banks can offer more flexible terms in this market."

Newsflash the man - a couple of banks will be lending on 5% deposits.
It's a good bet for the banks as the kiwibuild prices are about 15-20% below market, so there is good security there if the market tanks

Who told you they are 15% below market? Not the feeling I got from looking at the Papakura ones, and no way the Onehunga apartments are, they are maybe 5% below, if you are feeling generous.

I agree. This 'below market' commentary is a mis-read from people comparing average value in an area (per valuation models) with the Kiwibuild property. Not a like-for-like comparison. Don't get me wrong, I think they're the right direction - affordable modern housing - but I think it's a misnomer to refer to them as 15% below market, as if it's a lolly scramble and a guarantee of capital gains.

new 2 bed apartments for 600k (max) in Auckland.... find me any less than 700k in the current market...

Trade me said >240 <600k

Also, have you been to the website of the developers:
https://www.nzliving.net/wp-content/uploads/2018/09/340-Onehunga-Mall-Pr...

They have identical non kiwibuild one for $640k...so the KB discount, per the developer is 6.7%.

Are those > 240 brand new? If not, it's not a valid comparison.
Ok so nearly 7% less, not to be sniffed at. And you might get away with a 5% deposit whereas the 640k ones will need what 10 or 20% deposit?

Not a 7% discount. its worth at least $10k IMO to be on the northern side of the building, both in views and received sunlight/warmth.

Looks like the kiwibuild tie in has worked for the developer, there are a lot more of the non KB units showing as under contract or sold than when they first announced it. Using KB to get people in the door then talking them up into a better unit for a bit more money would be a smart move.

Exactly right. The problem with these high density housing developments is that many people get the "South Side". The first thing you need to know about property is which way faces North. If your not getting direct sun or your likely to be "Built out" by another block of apartments then forget it.

Obviously I didn't look them all up ... just a quick trademe search. Some will be new and/or modern (no difference between 4yo apartment and new apartment really)

I'll remind you of your comment "15-20% discount to market"... hmm, not right eh. Especially since the 7% differential is on an apartment on the 'better side' ... KB are market value for what they are. The're affordable because they're built to a spec that allows them to be sold under cap.

FYI - there is not specific provision to buy with less deposit on KB than any other property. I think you'll find the banks will lend regardless. Of course, on both KB and non KB, you'll pay more.

A family member just bought off these people. https://www.solutionstreet.co.nz/home. 72m2 for two bedrooms at $589,000 in Mangere. On a per square metre basis it’s as expensive as my Kohimarama home.

Other side of the wall in the onehunga kiwibuild apartment..non kiwibuild apartment, $40k more, but its on the side of the building that actually sees the sun instead of being in the shadow of the other building.

Which Bank so far has lent money on a KiwiBuild property???
Let’s see who wants these McLennan Park properties and who qualifies for them?
Lending to people with 5% deposit is a recipe for disaster unfortunately.
If people rush in and buy these shoe boxes and the Banks lend on them, then there are more people in NZ that can not see value.

Well since they haven't balloted them yet, no-one has lent on them just yet, they haven't been allocated and sold. But those that are qualified for the ballot have received pre-approvals for that amount so there must be banks willing to lend.

It's an interesting one. I know an astute executive who sold his St Heliers house in the 1990s for $400,000 after dire warnings. He had to buy back in 10 years later in a worse suburb for almost three times that. However ... look at Aussie and what Westpac is doing to risky borrowers there. Prices here are among the world's highest, immigration will fall, interest rates will almost certainly go up. If they fall, it will be because the economy's soft, with consequent implications for employment and house prices. It's open season on 'investors' and foreign buyers have been banned, sort of. Plus housing stock will increase. Is there really a shortage anyway? Probably of nice, warm, weathertight homes, but overall? I'm talking Auckland, which like Vancouver, New York, Sydney, Melbourne, were targets for rich Chinese looking to get their cash out of the party's reach. That's cooled, too, by currency controls there and legislation here. More downside than up, I think. Then again, my friend still regrets selling all those years ago.

That's exactly what happens when you SPECULATE like Nic and Adam B - Putting 100s of thousands at stake on a bet that another global financial crisis is going to occur -

Guess what WASN'T occurring in 2006 prior to the GFC? There wasn't the biggest crash triggered by risky US mortgages (biggest crash since great depression) that had occurred and burnt images into everyone's minds just 10 years prior - We had a very mild dot com bubble in late 90s - and had stock market crash in late 80s - that was it -

Today all negative pressure on property is coming from regulators - in NZ they have been for 5+ years already overly cautious - where in 2006 95% LVRs to investors were common, investors recently have been limited to 60% LVR - It is nothing like 2007 - The next crash willl happen one day - my best guess is 5+ years away as the GFC was such an event - And it will be triggered by something no-one is looking out for just as they always are - So it won't be risky mortgage lending this time sorry Nic

Interesting points. Although, it's a risky theory saying we can't have a correction because of the 2006 GFC. Don't forget that NZ market was mildly hit, and more around credit drying up than a fear asset prices were exuberant.

To imply such a thing can't happen again sounds like saying you think NZ housing is not a bubble and exponential gains are possible, disconnected from wages.

As an example, 60% LVR is only less risky if you're confident in the V part of that formula. A 95% mortgage on an average Auckland 3 beddy in 2006 was a $370k loan (393k avg sale price), serviced by median income of 60k per HES.... a multiple of 6.2. The average Auckland sale price is 912k (still likely cold and wet), so 60% on that is $547k while HH income has increased to $100k per last HES, a multiple of 5.5.. only slightly better but the borrower had to find a DEPOSIT now roughly the size of the 95% mortgage in 2006!

My point is, are we SURE it's less risky...

"Auckland 3 beddy in 2006 was a $370k loan (393k avg sale price), serviced by median income of 60k per HES.... a multiple of 6.2. The average Auckland sale price is 912k (still likely cold and wet), so 60% on that is $547k while HH income has increased to $100k per last HES, a multiple of 5.5"

Surprises me that the multiple was higher in 2006 when interest rates were 10% - with interest rates now less than half that a similar risk would be at prices about twice what they are now in Auckland.

Be interesting to look at yield back then vs. Interest rate, I'd say it would also be further stretched than now I.e perhaps 4-5% yields to a 10% mortgage rate compared to 3% yields today to a 4% mortgage rate.

Also note Rbnz new 'neutral' is also around half that reached during last boom cycle (3.5% cf OCR reaching 8.25% in 2007).

remember I was comparing a multiple when borrowing 95% v a now multiple when borrowing 60%. It was a DTI multiple, not a payments multiple.

Obviously, much harder to get a 40% deposit (3.6x income) now than a 5% deposit in 2006 (0.4x income)

Good point MisterB but like so many, you compare debt with income (financial position with cashflow). You forgot to include expenses, i.e. interest costs, which are much lower today

Actually, due to the size of the average loan, interest costs are not lower today. Interest RATES are lower, but not necessarily costs, unless you have massive deposit (in which case, you'd have to factor in time to save and lost interest on that deposit also)

Tell me, what's better - 8.2% on $300k or 4.4% on $770k?? both 80% loans on avg auckland house - the former is 2200 p/m while the later is 3900 p/m - 78% higher, while HH income is 67% higher (HH income has increased due to more dual incomes rather than underlying wage growth)

actually both wage growth and increase in dual incomes in family home. RBNZ inflation calc puts wage growth alone around 45% from 2006 - Which is a decent pay increase! Kiwisaver is also a new thing since then which really pumps up the lower end of the market for FHB's - not much anywhere in decent sized cities under the 400k mark as doesnt take much to accumulate 20k each in kiwisaver

MisterB, good to see you admitting that you left out lower interest rates nowadays vs 10 years ago

The GFC in Aus, Canada and here was pretty much a non event. We havent experienced one... yet

Nic – for goodness sake – don’t leave me here to do all the heavy lifting.

Properties for sale on Trade Me at 31,995 and about to go through 32,000.

Please keep up.

Sorry Custard, i wasn't being remiss, I was just waiting for the magical 32,000 which has just arrived.

33,000 by the end of next week?

My chicken scratchings indicate 31,210 around 15/8 – and so what I initially thought a bit of a bold call could easily come to pass – perhaps 33,000 end of next week – yes.

hi Custard

I've got it as more rapid than that. 30,393 on the 21/08. to 32,000 unsold properties today. 5.2% increase in the overhang of unsold houses in just over a month!

https://www.interest.co.nz/news/95466/review-things-you-need-know-you-go...

How's dorkland faring?

I just checked, 11,674. Was it about 11k a couple of months ago?

Was about 10,800 or suchlike when I checked a couple of weeks ago.

Trademe has broken at 32,000? I wonder why? Check out Wednesday's 90 minutes and 9am and feel free to get in touch with Trademe to suggest they fix it.

The Renminbi tsunami is slowing. It was the only thing keeping the globe going down this end of the world for the last decade. The Yanks had to print their way out of it, followed by Japan & Europe - this is the civilised world. Chinese debt levels are getting to the point of collapse. It's already happening in China but they are very good at not telling you that. The steel industry alone involves millions of workers being laid off, imagine the number of families? Times three. China is in zombi mode and the noose is tightening. Why will they go first? Because it's Economic War and has been for 20 years. Why is this? Because nothing this good lasts forever. Why will it effect us? Because it will effect everyone on the planet, that's the way things are these days. Will it hurt? Yes. Will it reduce my house price? Yes. It's already begun. Where? Pretty much everywhere. If you listen carefully you will hear a hissing sound.
Possible Solution: Don't panic. Stay calm. Make a cuppa tea. Gather the neighbours together and have a wee chat about things. Work together better and you will survive. We're the ones growing the food, remember. Will we still have jobs? There's always work if you want to work. It might look a bit different, that's all. Barter. Help others and they might help you. Become a community. The Sun will come up tomorrow.

If China starts to unravel what will it do? If the rate its been upgrading its war machine is any sign, I suspect that could be the answer. Must say though, the short time frame that they have turned uninhabited coral reefs into full blown military bases is a impressive. And not just one either.

they are dangerous

Rare cliff-top section in Campbells Bay listed at $3.4m - $800k under CV bhuahahaha!
https://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=121...

I think those North Shore cliffs consist of a soft, crumbly rock. Quite a few bad falls further up at Murrays and Mairangi Bay. Would need a good geotechnical report and some retaining at the very least.

Had an old friend lose quite a bit of their property down the cliff on a multimillion dollar property around that end. They got up one morning looked out the window and,... wasn't there a garden, tree & seat at the back. Oh there it is down the cliff. Interesting property though, had a fish tank/stream set into the entrance floor with running water so you could walk on top of it. Working to stabilise those sites so they don't go down is not for the faint-hearted.

David, I cannot see any reason why volumes or prices would recover this spring. I think volumes will still be low y-o-y and prices still retracting in Auckland and flat-lining elsewhere in the country.

Could you please elaborate why lower house prices in NZ would be bad for Kiwibuild? Thanks

I think lending 95% on Kiwibuild is a dangerous thing. LVR's have been introduced because it is considered dangerous for banks to over-lend. KB loans are going to FHB's who have no experience in budgeting for a loan.

I will probably get shot for this comment but if it's dangerous to lend over 80% to people who have experience with servicing a loan, how is it prudent to lend 95% to people who have never serviced a loan before?

Perhaps. But what's the alternative? Saving a 20% deposit on an Auckland home, while paying Auckland rents is pretty challenging, even for high(er) incomes

And aside from the LVR issue (which presumably Kiwibuild buyers will have to compensate for by paying mortgage insurance) is the question of serviceability. Are the banks going to ignore the fact that these low income buyers have been unable to save for a deposit, but miraculously are going to have the ongoing disposable income to pay a $617k mortgage plus LMI? (plus rates and insurance). How long before these buyers get into financial difficulties and mortgagee sales of Kiwibuild homes begin?

My point exactly

*chuckle*. Good to see the landlord squad moaning because people might escape their clutches.

Yeah well I live in the regions & I predict a drop in prices. Reasons behind this is because & maybe you haven’t noticed David that properties are staying on the market a lot longer than they used to be. They are not selling like hot cakes anymore! Buyers still have high expectations because AGENTS or their SALES PEOPLE are boasting their own PAST achievements & trying their best to hype up interest!! But when properties are listed for $100K or more over GV they are just not moving here...