No sign of coronavirus jitters at housing auctions as sales rates & prices remain steady

Property

Auction activity suggests the housing market remains remarkably resilient in the face of coronavirus onslaught

21st Mar 20, 8:39am by Greg Ninness

Auction room activity suggests the housing market is so far remaining remarkably resilient in the face of the battering coronavirus is giving financial markets.

Interest.co.nz monitored 304 residential property auctions around the country in the week of March 9-15, down slightly from 362 the previous week and 323 the week before that.

However while the total number of properties offered at auction was slightly down on the previous two weeks, there was very little movement in the number of properties being sold.

Interest.co.nz recorded 177 sales last week which gave an overall sales rate of 58%.

That was barely changed from the 179 sales which gave a sales rate of 49% the previous week, and the 181 sales which gave a sales rate of 56% in the week from February 24 to March 1.

Prices also remained firm, with 77% of sales achieving prices that were above their properties' Rating Valuations (where these could be matched), compared to 74% that were above their Rating Valuations the previous week and 75% the week before that.

The sales rate was slightly weaker than the national average in Auckland last week, with sales on 49% of the offered properties compared to 58% nationally, although prices remained firm with 74% of sales at prices that were above their properties' Rating Valuations.

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So auction room activity appeared to be holding steady last week, and a look at a couple of this week's early auctions, which occurred after the Reserve Bank had slashed the Official Cash Rate but before the Government announced it was closing its borders to non-New Zealand citizens, suggested that steady trend was continuing.

But we are living in tumultuous times and the economic outlook seems to change by the hour.

It would be a brave soul, or perhaps a foolish one, that would attempt to predict what might happen in the housing market next week, never mind next month.

Details of all the properties offered at the auctions monitored by interest.co.nz and the results achieved, are available on our Residential Auction Results page.

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107 Comments

by Pietro | 21st Mar 20, 8:43am 1584733432

It’s tempting to blow bubbles with 3% money. But 12% unemployment will burst them.

by printer8 | 21st Mar 20, 10:06am 1584738401

Hi Pietro
Pretty precise there on level of unemployment. What is your similar call for the "burst" in housing?
And that 12% unemployment; is that just a hypothetical trigger level or is it reality? It is just that reputable commentators are saying unemployment may rise to around 7%.

by kpnuts | 21st Mar 20, 1:06pm 1584749198

12% will be an underestimate -- tourism and hospitality are huge employers hotels are closing - again heavy in labour -- many many businesses rely on tourists and tthose employees to sustain their business - retail will get hammered -- who want to buty that latest gadget now -- especially with no security on employment

we may be at 7% already - certainly by teh end of the month we will be

by Seve | 21st Mar 20, 4:43pm 1584762236

Agreed ,one of our major market segments is servicing the tourist industry and we have already had clients close their doors for good ,quite shocked at why you would do that in a very short period time unless your cash flow is on a knife edge,it seems many clients in associated with tourism are heavily in debt in our region and it doesn't help if their is lots of competition.

by Becnz | 21st Mar 20, 2:14pm 1584753288

!2% would be good more like 15% plus.
Also our housing market is very similar to a ponzi scheme and the people buying not going to happy in 6 weeks when price go backwards.
Remember our house prices have just kept sky rocketing even in Invercargill sorry to include you for only one reason easy capital gains and confidence that prices will keep rising.
Why do Ponzi schemes fail? (our housing market)
Since the scheme requires a continual stream of investments to fund higher returns, if the number of new investors slows down, the scheme collapses as the operator can no longer pay the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing).

by Yvil | 21st Mar 20, 4:23pm 1584761022

Quote from Greg's last paragraph:
"It would be a brave soul, or perhaps a foolish one, that would attempt to predict what might happen in the housing market next week, never mind next month"

by Rosenstein | 21st Mar 20, 7:01pm 1584770512

Indeed. If the credit loaned towards housing dries up, then prices will go backwards. Slow the velocity of borrowing, things stall, then go backwards. Housing may be the last man standing. But who wants to be at the stern of the Titanic watching the water come up to meet you? What I'd like to know is of the thousands of overseas investors in NZ houses, how many of them got so burned in the last couple of weeks from shares etc, they need money so badly that they need to sell their NZ house. That would be an interesting statistic. I guess we'll see in due time.

by Yvil | 21st Mar 20, 4:21pm 1584760909

Pietro, 3% money is a reality right now, 12% unemployment is a vague prediction for some time in the future

by Pacman_46 | 21st Mar 20, 5:40pm 1584765609

You obviously don’t know the current retail climate then.

by Yvil | 21st Mar 20, 8:23pm 1584775430

No I don't, nor do you. Unemployment could be 25%, not 12% or it could be 9%, we don't know, but we do know for sure interest is about 3% and that's my point

by Pacman_46 | 21st Mar 20, 10:06pm 1584781582

I work in one of the busiest malls in the country, and it’s like a ghost town. We’re about to lay off 12 staff next week, and we’re one of the busiest out of all the tenants... Your arrogance makes you sound like a fool by the way. Just saying.

by Yvil | 22nd Mar 20, 3:42pm 1584844953

So saying "we don't know about the future" is being arrogant and making a wild prediction in very uncertain times is not? That's a joke

by tothepoint - d… | 21st Mar 20, 11:22am 1584742935

Indeed, thus far into the turmoil of Covid-19, the housing market appears "remarkably resilient".

But the worst is still to come.......

TTP

by mealsonmeals | 21st Mar 20, 9:33am 1584736433

Don't be such a DGM.....

by CN | 21st Mar 20, 12:30pm 1584747003

Will property prices fall much? Property prices won't fall by much, people were told.

These are some reasons given in the mainstream media, property market commentators, property market promoters, bank lending promoters masking as bank economists, real estate agents, property market mentors & other sources as to why property prices in Auckland will not fall by much and that there is a low probability that property prices will fall dramatically:
1) during the GFC, house prices in Auckland fell only 7-10%
2) over the past 50 years, house prices in Auckland have averaged 7.2% per annum (or commonly referred to as house prices doubling every 10 years). This trend can be expected to continue into the future - https://youtu.be/Agp9xFWoBX4?t=172
3) there is a shortage of underlying housing in Auckland, so property prices won't fall by much - https://www.interest.co.nz/property/97513/auckland-councils-chief-econom...
4) there is a growing population which means that there will be more demand for houses - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
5) we have inward immigration which means more demand for houses
6) Auckland is an attractive city with an attractive lifestyle - that makes it desirable and attracts foreigners to move to Auckland and hence raise the demand for houses
7) lower interest rates are supportive of rising house prices
8) lower interest rates make debt servicing easier for borrowers
9) Low interest rates were also forcing retirees and those nearing retirement to look for investments that would produce income, such as rental property. "Plans of the baby boomers to retire and live off a conservative yet well-yielding portfolio have evaporated with low interest rates," he said. "[They] are seeking assets and buying investment properties. They are also seeking assets they can hold and live off of for three decades in retirement rather than just 15 years given advances in health and medicines." - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
10) we mustn't forget either the vested interests in ongoing stability. No government, central bank or trading bank with mortgage exposure wants materially lower house prices. Nor does an incumbent Beehive want falling house prices going into an election campaign https://www.stuff.co.nz/business/110499233/think-house-prices-are-going-...
11) the economy is doing well, with low unemployment - https://www.stuff.co.nz/business/110499233/think-house-prices-are-going-...
12) there has been insufficient construction of new builds to meet the housing shortage - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
13) there are high construction costs to building a house. House prices cannot fall below their construction cost. - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
14) people don't sell their houses at a loss - https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...
15) continued inflation means that house prices will continue to rise in the future
16) The fact is, debt levels have barely changed from the beginning to the end of those 10 years, compared to GDP levels, compared to household assets, compared to household disposable incomes. And much more importantly, debt servicing is very much easier now, an item that is almost universally overlooked. We are not pushing out to unsustainable levels now, and even if they creep up a little, we are far from that point. https://www.interest.co.nz/opinion/95894/if-you-think-new-zealands-house...
17) in aggregate household debt servicing is low in New Zealand - currently at just under 8% of disposable income of households - https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-household-debt
18) property market participants & commentators who have been correct in their predictions about recent property price trends have more credibility and hence their predictions of upward prices are believed by a wider audience (such as Ashley Church, Tony Alexander, Ron Hoy Fong, Matthew Gilligan, etc). - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
19) previous warnings about a house price crash have been wrong - property prices have continued rising upward significantly since these warnings were given, so there is little reason to believe these warnings.(such as Bernard Hickey) - https://www.stuff.co.nz/business/84322204/all-predictions-of-an-auckland...
20) its unlikely Auckland prices collapse. I think the main two reasons though are:a) Affordability has been this bad, and worse, in the past and it only resulted in about a 10% drop. b) The number of homes built over the last decade has been too low and will take some time to recover - https://www.interest.co.nz/property/100670/housing-market-continues-hibe...

by CN | 21st Mar 20, 3:51pm 1584759096

Summary of property price forecasts in light of coronavirus:

1) Bindy Norwell CEO REINZ
what we can do is look to recent examples for guidance.
The Global Financial Crisis (GFC) was obviously global in its nature, so provides us with some reasonable comparatives. Looking at the data from that period showed us that in the first 12 months after the GFC started, median house prices across the country fell 5.9% year-on-year. Whilst the recession technically lasted till June 2009, prices began rising again after January 2009. In the year ending January 2010, median prices increased by 9.4% and were sitting $10,000 above where they were in January 2008 when prices started falling. This really highlighting how (relatively) quickly the market can recover from times of economic uncertainty.
https://www.oneroof.co.nz/news/bindi-norwell-things-are-changing-daily-…?

2) Tony Alexander
Will prices now fall, rather than rising as we were expecting just two months ago? In tourism hotspots the answer is almost certainly yes. These locations like Queenstown and Rotorua

In the main centres however, things may be less bad. Turnover will slow as always happens during a recession, and there will be downward pressure on prices. After all, during the Asian Financial Crisis of 1997/98 average NZ prices fell by 6 percent as the economy shrank 1 percent and the unemployment rate rose 1.7 percent to a 7.9 percent peak. During the 2008-09 GFC average house prices fell 11 percent as the economy shrank 3 percent and the unemployment rate rose 3.4 percent to 6.7 percent.
In the five years after the Asian Crisis average NZ house prices rose by 45 percent after rising by 24% in the three years preceding the recession. In the five years after the GFC average prices rose by 24 percent nationwide with Auckland ahead 58 percent, after prices rose just 14 percent in the past three years with Auckland ahead only 2 percent. Hang on in there is ultimately the message.
https://www.oneroof.co.nz/news/37708

3) NZPIF executive officer
NZ Property Investor Federation executive officer Sharon Cullwick agrees that it’s hard to predict how the situation will unfold, but she too didn’t have a particularly negative outlook for the market.
https://www.landlords.co.nz/article/976516486/what-coronavirus-means-fo…?

4) Nick Gentle IFindProperty.
“When it comes to property, I think many people will sit on their hands for a bit and the housing market will flatten out for a while.
https://www.landlords.co.nz/article/976516486/what-coronavirus-means-fo…?

5) Property panel
https://www.nzherald.co.nz/property/news/video.cfm?c_id=8&gal_cid=8&gal…

6) ASB economist
ASB has predicted house prices will drop 0.5 percent in the next quarter and 1 percent the following.
Overall house price growth is forecast to be zero by March next year, instead of 5.3 percent as previously expected.
https://www.rnz.co.nz/news/business/412028/drop-in-house-prices-and-sal…

7) Core logic economist
"But, even so, I doubt that house prices will fall very far.”
https://www.landlords.co.nz/article/976516486/what-coronavirus-means-fo…?

8) ANZ economist -
"ANZ economists expect house prices to fall 3.5 per cent this year – but say the drop could be nearer 10 per cent, as the impact of a global coronavirus-driven downturn hits New Zealand."
https://www.stuff.co.nz/life-style/homed/120414372/more-economists-warn…?

by RickStrauss | 22nd Mar 20, 2:14pm 1584839643

They may well have an expectation that the central bank and government will inflate away the value of savings to protect property.

by Voiceofreason | 21st Mar 20, 3:50pm 1584759022

TTP, you’ve labeled many here DGMs. It’s now looking like they/we were just being realistic in preparing for what lies ahead. In the meantime, we need to get through this health crisis as best we can. Financially, there will be some deep bargain investments a bit further down the road. For now we’ll need to batten down the hatches and provide assistance to those who’ll need it.

by South_Island_Simon | 21st Mar 20, 9:07am 1584734823

House moving plans are executed over months. There are probably around six weeks latency in the housing market. Six weeks takes us back to early February. When the Dow Jones was 29000. It is now 19000. Go figure.

by tothepoint - d… | 21st Mar 20, 1:03pm 1584749003

Hi South_Island_Simon,

I "figure" that there'll be a lot of people who are very glad their money is in property - and not shares.

Unfortunately, superannuation funds are doing it hard. Most have a significant weighting in shares. )-;

TTP

by CN | 21st Mar 20, 4:50pm 1584762639

" I "figure" that there'll be a lot of people who are very glad their money is in property - and not shares."

I think you're referring to the adverse mark to market in shares.

Here is the investment choice and prices at the end of Februrary 2020:
1) The median house price in Auckland was $888,000, the minimum initial deposit is 20% or NZ$177,600 - https://www.interest.co.nz/charts/real-estate/median-price-reinz
2) Using FNZ.NZ as proxy for NZ sharemarket. The share price of FNZ.NZ was $3.01. Taking that same NZ$177,600 that would mean purchasing 59,003.32 shares. Refer https://finance.yahoo.com/quote/FNZ.NZ?p=FNZ.NZ
3) in a bank deposit spread over several banks
4) NZ government bonds
5) cash tucked in a safety deposit box in a bank vault.

Assuming you're a potential owner occupier buyer today with $177,600 cash available, which of the above would you choices would you choose over a 7-10 year time frame?

by rastus1 | 21st Mar 20, 6:00pm 1584766816

Shares just correct instantly, housing will follow like night follows day.

by Houseworks | 22nd Mar 20, 5:51am 1584809479

Last year the mantra was "where australia goes nz will follow" and that proved to be false. Shares have overcorrected so you will have lost your dough selling into the storm

by stuart786786 | 21st Mar 20, 1:12pm 1584749577

Correct South_island.

Anyone who argues against is fine as long as he or she is arguing for the sake of arguing but if they truly believe that housing market will move up and put their money than pity their family who will suffer for the .....

by guwop | 21st Mar 20, 9:33am 1584736389

Aren't social gatherings of more than 30 people prohibited in New Zealand yet?

The Man! TTP! Yvil! Houseworks! HeavyG! Social distancing please.

by HeavyG | 21st Mar 20, 7:22pm 1584771751

"Physical distancing" is the new term. Social interaction is encouraged.

by mikekirk29 | 21st Mar 20, 9:51am 1584737463

Debt my friend. Watch the credit markets.
Go 8 weeks out from when markets tanked (21.2.20)
That means approx April 18th for when housing market will freeze over.
Also, only 38 cases
When it is 500, people will change behaviour
Judgement at moment is premature

by Nzdan | 21st Mar 20, 11:24am 1584743096

It's now 53.

by Keen Observer | 21st Mar 20, 10:35pm 1584783336

Correct, 53.. goes even pass that estimate of 500? - nothing shall beat the RE wealth creation for sure, all those govt. relief hand-out already being predicted by Ashley Church (RE gospel preacher) - is to serve loan borrower, straight back to the Bank, meanwhile big banks already muttering to get more injection from Govt. /shifted the burden to future tax payers - The priest suggest this will be over in about 12 months, just unsure what that will be .. anyone can throw in their own assessment.

by CN | 21st Mar 20, 12:38pm 1584747484

"Watch the credit markets."

There is already some stress in some funding markets in NZ. Look at the RBNZ actions and Term Auction Facility (TAF) to provide liquidity for banks and other recent actions by the RBNZ

1) "The Term Auction Facility (TAF) is a program that will alleviate pressures in funding markets. The TAF gives banks the ability to access term funding, with collateralised loans available out to a term of 12 months."

2) "The Reserve Bank is providing liquidity in the FX swap market, to ensure this form of funding can be accessed at rates near the Official Cash Rate (OCR). This activity will increase in the weeks ahead to support funding markets."

3) "The Reserve Bank has re-established a temporary USD swap line with the US Federal Reserve. This will support the provision of USD liquidity to the New Zealand market, in an amount up to USD 30 billion. This is a facility that is being offered to many other central banks globally."

4) "The Reserve Bank has been providing liquidity to the New Zealand government bond market to support market functioning."

https://www.interest.co.nz/banking/104166/rbnz-issues-details-its-plan-…

by Pacman_46 | 21st Mar 20, 9:53am 1584737598

If the amount of boats listed for sale on Trademe in the past week are anything to go by...houses will probably follow shortly after.

by bw | 21st Mar 20, 10:10am 1584738631

What did we read yesterday? In the States, people might set their boats free so as to avoid the cost of mooring! Seems like a desperate measure to me, but who knows; if you can't sell the sucker - just push it out to sea and wave goodbye....

by Zachary Smith | 21st Mar 20, 10:48am 1584740902

What about Viking style funerals? That would be ~~cool~~ hot!

by Becnz | 21st Mar 20, 2:20pm 1584753640

Also noticed jobs on trademe for Christchurch was 1985 on Monday now 1763.
Will be interesting how quick jobs ads drop.
Also how quick will vendors switch from auctions and no price marketing to asking prices again in order to attract a buyer.

by Panther | 21st Mar 20, 2:43pm 1584754985

Will be interesting to watch rental availability, with forget Airbnb locations flooding onto the market.

by Andrewj | 21st Mar 20, 9:56am 1584737784

liquidity is going to dry up, smart money is on the move.
https://wolfstreet.com/2020/03/20/ten-real-estate-mutual-funds-suddenly…

by CN | 21st Mar 20, 12:51pm 1584748271

It is already having an impact on funding markets in NZ. There is already some stress in some funding markets in NZ. Look at the RBNZ actions and Term Auction Facility (TAF) to provide liquidity for banks and other recent actions by the RBNZ

4) "The Reserve Bank has been providing liquidity to the New Zealand government bond market to support market functioning."

https://www.interest.co.nz/banking/104166/rbnz-issues-details-its-plan-…

by CJ099 | 21st Mar 20, 10:17am 1584739072

I wouldn't be surprised to see the number of properties on the market start to shoot up due to people selling their Airbnbs. I've already noticed a rash of For Sale signs spring up around Auckland's outer districts even with heading in to Autumn. Things could get really interesting after the Easter Holidays.

by Becnz | 21st Mar 20, 2:27pm 1584754056

Same in Canterbury but vendors are still stuck in old way of thinking with no asking price which means they are thinking someone is just going to come and pay more than they did.

by stuart786786 | 21st Mar 20, 1:06pm 1584749183

Have mentioned before - Just a month ago Stock market was moving up and touching new high and today.....bleeding (understatement) ........Housing market too has to catch up.......wnen.....wait and watch.

by Yvil | 21st Mar 20, 4:27pm 1584761278

Quote from Greg's last paragraph:
"It would be a brave soul, or perhaps a foolish one, that would attempt to predict what might happen in the housing market next week, never mind next month."

by Independent_Observer | 21st Mar 20, 12:04pm 1584745470

Many other people hearing stories of people taking large volumes of cash from banks?

Have heard from parts of my extended family that they have withdrawn tens of thousands of dollars (not just one family, but two). Then another report from a friend who works at a bank where a $100,000 withdrawal was made.

We heading towards a bank run? Bread and toilet paper no more...but cash?

by Pacman_46 | 21st Mar 20, 1:29pm 1584750564

I withdrew quite a bit the other day, and spread some more between other banks. Current events have made me a bit nervous.

by rastus1 | 21st Mar 20, 6:02pm 1584766937

Taking out cash is akin to buying up toilet paper. There is no escaping this, but if it makes you feel better, race in and get your cash.

by Carlos67 | 21st Mar 20, 12:20pm 1584746415

The housing market is going to tank big time. I don't have a big circle of friends but a few have already lost their jobs. Just watched Jacinda live address to the nation. No mention of any economic impacts at this stage, again in an attempt to prevent panic. Supermarket shelves empty again this morning. The timeframe is 2 to 3 months. Lets come back and see how bad it is mid winter. The virus just went community spread, it has begun. Full level 4, this middle of winter, the peak flu season is all going to hit at the same time. Been watching the property market in Tauranga for a while now, the new listings over the last week has risen very sharply.

by CN | 21st Mar 20, 12:22pm 1584746542

Carlos67,

1) How are you feeling now about selling your house a few years ago?

2) How do you think you would be feeling if you had chosen to hold on instead?

by stuart786786 | 21st Mar 20, 1:09pm 1584749362

Going ahead with lose of jobs and business falling, it may not be a choice anymore but circumstances forcing to sell to avoid disaster.....not to all but to many who have paid a premium.

by Carlos67 | 21st Mar 20, 5:46pm 1584765963

Glad to be out of the market and cashed up. Been looking at buying a house for a few months now buts thats now on hold for sure.

Well I would be bracing for a loss right now but I guess you have to take the losses with the gains and the gains have been huge to date. If your mortgage free it really doesn't matter that much if house prices go down across the board an equal percentage but it could turn region specific with much higher falls in some areas.

by Yvil | 21st Mar 20, 4:29pm 1584761376

Carlos67 "the housing market is going to tank big time"

Quote from Greg's ;last paragraph:
"It would be a brave soul, or perhaps a foolish one, that would attempt to predict what might happen in the housing market next week, never mind next month.'

by Fritz | 21st Mar 20, 5:51pm 1584766260

Christ you are getting boring.

Just a little reminder Yvil. You and some of your mates have been slating those of us who said that there will be a correction some time before 2022 - cause unknown.
Yes, it's unpredictable times, and hard to know exactly what lies ahead.

But almost certainly prices will fall this year. Is it 3% or is it 10%? Don't know, and it will vary from location to location. It's going to be a blood bath in Queenstown, for example.

by Yvil | 21st Mar 20, 8:29pm 1584775760

The fall could be closer 25% Fritz, or not, you'd be very brave or possibly a fool to make a prediction in such uncertain times

by CN | 21st Mar 20, 5:56pm 1584766592

Imagine there is a group of people who are going about their personal business including people who are building property, buy and selling property and selling property, renting property to tenants (landlording business). They've been told by property "experts" that the weather is changing and a rainstorm is coming. People shouldn't worry about it as its just a normal rainstorm. The property people don't worry and go back to their daily activities with property.

However there are people who see a huge category 5 financial hurricane. They see the financial hurricane getting closer, they don't need to know if the hurricane will hit directly, they know that the financial hurricane will come sufficiently close to cause some damage. They know to get out of the way and into an area of safety as a precautionary measure. The downside risk is greater than the upside benefits.

by Yvil | 21st Mar 20, 8:33pm 1584775983

I agree, also I didn't say property is not going to go down, did I ? I just quoted Greg's paragraph saying you'd have to be very brave or possibly a fool to make predictions in such uncertain times. He is absolutely right.

by CN | 22nd Mar 20, 3:43am 1584801789

"I didn't say property is not going to go down, did I ?"

No. But here is a comment that you made to a potential house buyer within the past month.

"What we do know though, is that, over the long term, house prices go up. Waiting is dangerous ... "

There were also a couple of other property price optimists who were berating potential house buyer, Big Data for waiting to buy, and suggested that they go buy urgently before prices rose further.

by CN | 22nd Mar 20, 2:37pm 1584841050

Here is another comment made to a potential first home buyer Milkyone in July last year by Yvil.

"he became a millionaire because he ignored all the calls that houses were too expensive AND HE TOOK ACTION AND BOUGHT A HOUSE"

I agree to take action, however taking action for the sake of activity whilst also paying an extremely high valuation for a house is just irrational. A potential owner occupier should take action only when valuations are reasonable (and certainly not at extreme levels) and the valuation risk is lower (we're assuming most owner occupier buyers buy at the market price, not at a large discount to market value). That "take action" regardless of high valuations is something I've seen in many property promoters.

Look at those people who were taking action in the last 12 months before February in the share market. They took action and bought, and have now lost say 30% of their investment, leveraged buyers have lost more. I heard of a guy in his 70's who took action, he sold his investment properties and invested the whole amount in the sharemarket, and is now starting to get nervous after the recent share market price changes. I've heard stories of people invested in Kiwisaver with the most aggressive investment funds, now getting worried, and some are switching to more conservative funds after the recent rapid price falls. Yet for those sufficiently experienced and knowledgeable, they recognised that the market price risk was extremely high and vulnerable last year. After the recent market price falls, and more attractive valuations, now is the time to look for opportunities to take action.

With respect to property in Auckland, some people may have future price expectations of prices doubling every 10 years based on historical price changes in the last 50 years or so. This seems to be a key underlying premise for many property price optimists, and has been widely perpetuated by property promoter Ashley Church.

However, anyone who understands mathematics and looks at the mathematical results of that assumption into the future (which have been provided previously), then some important and relevant numbers get absurd and irrational pretty quickly. Believing that property prices will continue to double every 10 years is akin to people believing that trees can grow up into space.

At some point, rapid price rises will stop, and many people will then ask, why didn't they see it. Look at past asset price bubbles - the thing with asset price bubble is that people can see them, but they never know when it will stop.

by CN | 22nd Mar 20, 2:52pm 1584841972

Yvil,

Here is a property where you attended the auction. This person who took action. Let's watch to see if this action proves to be financially beneficial.

"One old house at 11 Wood St started with a low bid of $2.0 M, I estimated it could sell in the high $2M, the bidding just kept going & going, it sold for an unbelievable $3.71M"

https://homes.co.nz/address/auckland/freemans-bay/11-wood-street/xo91P

https://www.interest.co.nz/news/104046/wall-street-tries-partial-comeba…

by Yvil | 22nd Mar 20, 3:49pm 1584845378

Yes I indeed said that a FHB should buy a house as soon as they can afford one, without overstreching themselvesnfinancially, I still stand by this.
Yes I think Greg's comment that it would be very brave or foolish to make predictions on houses prices now, is spot on.
There's no contradiction in these two statements

by CN | 21st Mar 20, 5:55pm 1584766557

What was your experience during the 2007 / 2008 financial crisis?

What did you learn from that experience?

by Fritz | 21st Mar 20, 6:14pm 1584767660

I had to lay off several people, and I went down to 4 day weeks for about a year. So I learnt a lot.
I also saw that house prices can do and fall, and I saw some people lose 15-20% of the value of their properties (noting the average drop was 11%)
I also saw the criticality of skill diversification, to become more resilient in a more volatile world.

by Yvil | 21st Mar 20, 8:41pm 1584776480

CN, I learned that we, as a society, do whatever it takes to avoid short term pain for a few (bailing out dying companies with taxpayer money) even though it will hurt most for a very long time and it seems to me we're doing the same again now by doing whatever it takes to avoid deaths now even though we will bankrupt most companies and lay off most workers and create extreme hardship for most for a very long time

by Keen Observer | 21st Mar 20, 11:14pm 1584785672

Not as a 'society affecting all populations', but what I observed is mimicking what you've stated, Every politicians from PM, Ministers, Orr's team to decide OCR, Nationwide govt. civil servants upper echelon managerial, Nationwide local body officials etc. - all geared up to agree/sooth saying in tandem agreement to maintain the 'status quo'.. Why? it's on their sub-conscious, as they have their own biggest pie of properties to protect too.
No matter what, in the end? - it will be up from future international loan/borrowing of all NZers to pay for it. Covid-19 just initial test to nudge that consciousness, the next wave of 20-22 will slowly bring them to different area of consciousness. Bug again, oil, trade war/bug blaming, Just like terror attack, travel resume again. This bug? travel will resume normally? doubt it, all world productions will be out of China in anger, another RNA bug popup again. China is now resuming operational, but actually in limping walk. They managed to cough badly to the rest of the world/their customers.. world reactions is still pending, they're all busy doing the roll over lock down/month, hmn about 200 countries on this planet, do the numbers, wait until the unintentional/intentional new RNA adaptation - which going to be distributed via Vaping for example.Borrowing what you've said 'create extreme hardship for most for a very long time'...some natural adjustment will happen, towards equilibrium level .. which is more important; wealth, health, survival - We all shall see the trade/bartering off between those three components (please, by owe means add more to it)

by CN | 22nd Mar 20, 3:35am 1584801339

Yvil

Just out of interest,

1) were you in the property market during the GFC in 2008 / 2009?
2) did you know anyone who lost money or went bankrupt in property during the GFC in 2008 / 2009?
3) what happened to your employer's situation during the GFC in 2008 /2009? or your professional employment situation 2008 / 2009?

The purpose for asking is a number of commenters on here have obviously experienced at least one full business cycle including an economic downturn, as evidenced by their comments. That experience in business is invaluable. If a person has never experienced a recession (recession virgin), then that is a much less experienced viewpoint. If people are around long enough, everyone gets ultimately gets their cherry popped. Some people who have only worked in Australia might finally get their cherry popped after 30 years (the last recession in Australia was in early 1990's)

Having experienced 4 recessions firsthand in business, one gets a better sense of how these business cycles play out.

Also having experienced firsthand previous outbreaks such as avian flu, swine flu, SARS, & MERS to a lesser degree, we are better prepared for the current outbreak. (unlike many who are experiencing their first outbreak firsthand, and getting their outbreak cherry popped)

by Fritz | 22nd Mar 20, 12:00pm 1584831600

Well put CN.
A nasty recession certainly changes one outlook forever, unless you are one of the lucky ones that gets through with no impact.

by CN | 22nd Mar 20, 1:57pm 1584838673

Exactly, if a person is relatively unaffected, then the person learns little.

Similar lessons are learnt in asset price bubbles. Those who experienced losses became wary subsequently, whilst those who have not experienced a loss learn little. Some who experienced losses in the following asset price bubbles have learnt lessons from those experiences.

1) Ireland property in 2008 / 2009 GFC
2) US property in 2008 / 2009 GFC
3) Spanish property in 2008 / 2009
4) Bitcoin / internet coin offerings
5) Listed companies in the marijuana business in the US
6) Internet bubble of 2000 / 2001
7) Global 1987 stock market bubble
8) late 1980's / early 1990's commercial real estate bubble in NZ, & Australia
9) Japanese stock market bubble in early 1990's
10) Asian Financial Crisis 1997 / 1998 - and associated property price bubble in HK, Singapore
11) Russian financial crisis 1998
12 LTCM 1998
13) Argentina sovereign debt crisis 2002
14) European sovereign debt crisis 2010 / 2011
15) many newbie investors since 2008 are learning about stock market bubbles in the current stock market price falls since late January. They are learning the prices don't continually go up and that there can be some large unexpected price falls.

As Bill Gates once said "Success is a lousy teacher. It seduces smart people into thinking they can't lose"

by Independent_Observer | 22nd Mar 20, 6:36pm 1584855403

Read Robert Shiller's 'Irrational Exuberance' and then look at the NZ property market (and stock market) - it will give you chills.

by CN | 22nd Mar 20, 9:39pm 1584866344

Thank you Independent Observer. Read it a few years ago. There have been many objects of speculation in the past from tulips & metals to real estate & shares.

The coronavirus outbreak may be the cause of the Minsky moment.

by Yvil | 22nd Mar 20, 4:05pm 1584846317

Hi CN, here are the answers to your questions:
1) I have been investing in property both commercial and residential in NZ since 1995
2) I didn't know anyone who went bankrupt in property in 2008-2009, I know of a good friend's friend who lost a lot of money in property in the USA
3) I have been self-employed since 1995 and an employer since 2006. My businesses (multiple) did not suffer any material losses due to the GFC. Unrelated to market fluctuations I did lose a sizeable amount of money in one of my business due to a very corrupt person. I also lost a sizeable amount of money in the sharemarket in the early 2000's (hung on far too long in the downturn) and I have concluded I'm not good at investing in shares.

I very much agree with you that experience is extremely valuable, much more so than theoretical education, even though I studied Architecture in one of the best universities in Switzerland

by Carlos67 | 21st Mar 20, 6:17pm 1584767826

No its going to tank for sure. Doesn't really matter to me if I'm wrong either way anyway. You would be a brave soul or is that just a stupid one to predict a housing price increase at this stage. Will take a few months to kick in as it will be the perfect winter storm. I'm going for a 10 to 20% price drop. It does depend on how fast we get a handle on the outbreak and I could see a 50% price drop still possible.

by Yvil | 21st Mar 20, 8:45pm 1584776754

Good on you for thinking you know better than Greg Niness, as for me, I agree with him that it would be foolish to make a prediction in these crazy, uncertain times

by Keen Observer | 21st Mar 20, 10:48pm 1584784085

Brave soul perhaps those owned multiple properties, foolish one? - hardly, some being realistic about it without mentioning the timing. Some, the likes of bull/bear movement shall say so about it, a promo up/down - in the end it's about the herd that they wanted to move, vested plan. It's normal calculated human behaviour, so foolish is not.. but the herd that follow it, will be (save from the cliff edge, or.. free fall). When profit is to be made in the end? we call it business.

by hemihua | 21st Mar 20, 1:41pm 1584751312

Bit early to be judging. Give it a few months.

by Chairman Moa | 21st Mar 20, 2:37pm 1584754642

Shxt will hit the fan soon. I am sure Jacinda is about to turn off the fan. She's great!

by ThePropertyCycle | 21st Mar 20, 2:58pm 1584755916

The virus is a negative influencer of the property cycle (residential property market).

In isolation such a virus typically wouldn't be so bad for the property market nor would it interrupt with the traditional cycle for long ie think of Sars (circa 2002) and the Swine Flu (circa 2009).

Unfortunately this virus is different and yes the impacts are different this time.
Covid-19 has immediately and substantially impacted on some of the actual Key Drivers of the Property Cycle that propel the cycle forward and were leading us towards the next Property Cycle Recovery and Boom.

Namely Net Migration (has ended abruptly), GDP (will be taking a hammering ie tourism, hospitality etc) and Employment levels (will fall quickly and potentially sharply).

Historically there's a direct correlation between these Key drivers rising or at least being strong to sustain (or help to increase) house prices.

The Banks will certainly be taking at least a shallow bath before long on losses from some big (and probably many small) businesses. Not to mention the potential for the commercial property market to suffer before too long as businesses forfeit their premises back to the landlord who then has the unenviable task of securing a new tenant. I just heard this week that a large amount of commercial property lease deals that were about to be signed through a major real estate firm have fallen through this week. An instant impact.

In Auckland at least expect the residential market to suffer before long as job losses force the number of people per household to rise and potentially soften (or downward) rents. Auckland has a large number of newly constructed and underway being constructed properties which will now languish for buyers and may need to be rented out (when they don't sell within a reasonable timeframe) adding to the downward pressure on rents and values.

Of course the Pollyanna principle is in full force in the industry right now but that's just an attempt at perception management which will soon be revealed for what it is, unrealistic optimism in light of a considerable storm to get through.

Low interest rates wont save the market, they will delay some pain but they will not increase Net Migration, create jobs or have much if any impact on GDP.

Even if this virus is under control in a month or two the knock on train of effects that have now left the station are huge and will not able to be reversed quickly.

Batten down the hatches for 6-12 months or more and of course Cash will be King.

The sun of course will rise again and before we know it we will see a Recovery, just don't expect it to be anytime soon. A lot of water has to pass under the bridge first. Only fools rush in.

by J.C. | 21st Mar 20, 3:08pm 1584756490

Naturally. The industry runs on appealing to the public's emotive reations. No disrespect to the intelligence of Ashley Church or Bindi Nowell, but they're not really in the same league as Robert Shiller when understanding asset markets and behavior or Daniel Kahneman when understanding how people think.

by CN | 21st Mar 20, 4:01pm 1584759712

Summary of property price forecasts in light of coronavirus:

5) Property panel
https://www.nzherald.co.nz/property/news/video.cfm?c_id=8&gal_cid=8&gal…

7) Core logic economist
"But, even so, I doubt that house prices will fall very far.”
https://www.landlords.co.nz/article/976516486/what-coronavirus-means-fo…?

by J.C. | 21st Mar 20, 5:06pm 1584763574

Some or all of these people quoted here run the risk of being perceived as frauds or con artists into the future.

by Fritz | 21st Mar 20, 6:16pm 1584767762

I don't think history will judge Church's simplistic and biased proclamations favourably...

by Independent_Observer | 21st Mar 20, 4:08pm 1584760120

Irrational Exuberance and Thinking Fast & Slow were two of my favourite books to understand markets and human behaviour!

by gingerninja | 22nd Mar 20, 7:12am 1584814351

I was studying Narrative Therapy, a decade ago, and as Shiller points out, the theory has successfully made its way into multiple academic disciplines, but OMG, his recent book, Narrative Economics? I'm just reading it and it's chilling to the bone. His presentation of epidemiology and human narratives, during this time of pandemic and the crisis of narrative?!?! It could not be more timely.

by Fritz | 21st Mar 20, 6:46pm 1584769578

My view is the damage won't be massive in Auckland.
Sadly, much of the job losses will occur in low wage sectors, where home ownership is low.
I can only see falls greater than 10% in Auckland if job losses become widespread in 'white collar' jobs.
I think there will be lay offs in white collar jobs, but they will be moderate, not large.

by printer8 | 22nd Mar 20, 10:25pm 1584869129

Frtiz
A very sound observation.
Those businesses wanting to come out of the pandemic on a strong footing will be creative in trying to hold staff with skills and/or institutional knowledge. It is worth noting that the 1918 "Spanish Flu" pandemic in NZ peaks' passed within a month in the each of the four main centres; Korea seems to be consistent with this and, despite widespread skepticism on this site about the reliability of information, evidence suggests that China may well be through the worst.
We wait and see.

by Keen Observer | 21st Mar 20, 11:33pm 1584786825

You can discount that Net migration, long has been discounted by previous govt. - and clearly, the rule by the current govt. which has being passed on half halfheartedly, only dented a little. Vested interest are already deep ingrained within NZ upper echelon decision makers.. that's how the $ injection works from C***a all over the world; lobbying the rulers, possible movement of funds/'investment' to buy land and granted permission to move it's people. Sadly, currently world confidant are being eroded slowly as a result by their own free dietary requirements. - No, I just reiterate the govt... 'migration did not affect the RE pricing here in NZ'.

by J.C. | 21st Mar 20, 3:02pm 1584756125

For a reference point, the NZ Property Fund (Smartshares) is down 26% at the moment. The NZX50 (using Smartshares index) is down approx 28%. So we should take something away from this:

- Property as an asset class is being effected
- The magnitude of the effect appears to be not much better than the wider econony (ex-govt)

by Voiceofreason | 21st Mar 20, 3:38pm 1584758294

I think the world is heading for deep recession, it’s all but assured. No doubt it’ll be the catalyst (along with COVID) to finally pop the housing bubble. Share markets could go to -40% to -50% or more, the economic data hasn’t even started coming out yet! The good news is that if you have some cash, good stocks will become very cheap as the market overreacts in the other direction. We’re likely to get back to average price to income ratios for property too, eventually. That’s not a great situation for those who have large loans at current expensive prices though.

by CN | 21st Mar 20, 3:44pm 1584758655

Seeing that some property investors are rushing out to get bank loan pre approvals so that they have financing to buy residential real estate.

In sharemarket parlance,"buy the dip"

by Voiceofreason | 21st Mar 20, 3:56pm 1584759411

I’ve seen an article about that happening in Australia but frankly I just don’t believe it. Crazy if true but I think it’s vested interests desperately trying to keep FOMO going with a bit of fake news.

by CN | 21st Mar 20, 4:44pm 1584762248

In NZ.

Comment made on a property investor group:

"Rather than all out selling, we are refinancing to free up capital in anticipation of any opportunities which may come up."

by Independent_Observer | 21st Mar 20, 4:10pm 1584760244

FHB's in Auckland the last 3-4 years might have years of financial pain ahead of them.

by Foreign buyer | 21st Mar 20, 5:43pm 1584765813

And its all the selfish spruikers fault. Greeeed!!!

by Yvil | 21st Mar 20, 8:47pm 1584776871

and the foreign buyers, being… YOU

by printer8 | 22nd Mar 20, 11:18pm 1584872324

IO
Re: FHB financial pain.
Why is that?

by Weld | 21st Mar 20, 6:28pm 1584768482

"Auction room activity suggests the housing market is so far remaining remarkably resilient in the face of the battering coronavirus..." Give it time. Give it time.

by THE MAN 2 | 21st Mar 20, 6:55pm 1584770149

Housing market is about the only market that will hold up at the moment.
First home buyers have lost a lot of their deposit thru being invested in the so called productive market that many say we should be invested in.
When rental returns are positive why would you be selling?
Personally it is a great time to be buying at auction without competition and I love to help out people that want to sell!

by J.C. | 21st Mar 20, 7:02pm 1584770577

Sure. I'd imagine there'll be some great bargains on all kinds of assets like boats and automobiles too.

by Rosenstein | 21st Mar 20, 7:18pm 1584771500

I hope so. I'd hate to see a grown man cry.

by Fritz | 21st Mar 20, 7:34pm 1584772492

a grown man 2

by Voiceofreason | 21st Mar 20, 7:43pm 1584773002

“a great time to be buying at auction without competition and I love to help out people that want to sell!”
Another one for the archives, to pull out later.

by CN | 21st Mar 20, 8:28pm 1584775738

"When rental returns are positive why would you be selling?"

It certainly seems irrational doesn't it? Yet it does happen. Why does it happen? Financial stress elsewhere in their personal circumstances. Here is a fellow property investor in Christchurch who sold his properties.

He had sold his family home at Redcliffs and his family would be renting from the settlement date in January, he said.
According to Terranet Advance Web and Ahei Ltd, companies owned by Dan Tremewan and his brother Colin, and directed by Dan Tremewan, own seven properties in Christchurch and one in Akaroa.
Tremewan said some of the properties had since been sold and the remainder were being put on the market "to keep financiers happy".
They would be used to pay first and second mortgages and he did not expect there to be any extra money.

https://www.stuff.co.nz/business/property/116378021/ecohouse-businesses…

I can think of a number of other reasons.

by Somebloke | 21st Mar 20, 7:15pm 1584771345

If the above headline is true, it only serves to highlight how irrational Kiwi investing behaviour has become.

by CN | 21st Mar 20, 8:54pm 1584777284

There are a number of motivations for buyers:

1) belief that property prices are going to rise, or property prices will not fall by much.
2) lack of awareness of events globally and the financial linkages which will impact New Zealand economy, and real estate prices.

People are unaware that they might be able to buy houses for a cheaper price.

by Dale Smith | 21st Mar 20, 9:30pm 1584779454

I can just imagine buyers who were grateful to be able to get in a position to buy (after years of savings), being so emotionally attached to owning a house, that they wouldn't let a little thing like a worldwide recession stop them.

Also, the fear of missing out, if they wait too long, then the banks might not make the same offer again considering the changing circumstances.

by Keen Observer | 21st Mar 20, 10:23pm 1584782621

It's Armour plated remember? - so steady as, marching on - Don't let the terror/bug win, go on you day to day activity/BAU-Business As Usual, the earlier Banks prediction is actually right, the prince can only go up. Already shown of such sign, late last year to early this year - So go get it, you won't regret it.
ps. The current 'sudden' banks projection of down beat it? it's motivated by getting more hand out from the govt. it's a tactical moves - in the end? all those future foreign debt, is to maintain steady GDP numbers via RE.

by Davo36 | 21st Mar 20, 11:47pm 1584787645

Well the government, RBNZ and the banks will be pleased. They're still intent on keeping the property party going. RBNZ pumping in cash as fast as they can, banks lending as fast as they can and the government spending as fast as they can. Can. Kick. Down. Road.

by Carlos67 | 22nd Mar 20, 10:24am 1584825881

I think the road is going to have a military checkpoint in it very soon that is going to kick that can back to you.

by BraveNewWorld | 22nd Mar 20, 11:06am 1584828377

Can't believe some of the comments on here questioning whether the housing market will crash. Of course it will. Its as obvious as the nose on my face. The real question is, will Deutchbank collapse, and then woohoo dominoes, bank run. Currency reset. And looking around 12% unemployment a conservative estimate, by a long shot. I hate to quote the PM (who could have gone 'hard and early' but DIDNT.....but we indeed are in unpercedented times.

by Drofstun | 22nd Mar 20, 2:40pm 1584841237

Well we've had the bushfire crisis quickly followed by capitalism truly going viral - what happens when the next crisis merges with this one. this is an interesting site and perusing the comments has quickly become my got to for contemporary gossip but I've not really heard anyone reference the very real and visceral future problems posed by certain non economic realities....

by b21 | 22nd Mar 20, 8:33pm 1584862425

No sign of sanity nor common sense in the housing market, who would buy even less invest in a house given the hyper inflated prices and uncertainty, it is just out of anybody's minds. Best luck to everyone, just hope they won't ask for a bail out when shit hits the fan.