BNZ picks 12% drop in house prices

Property

BNZ's economists are forecasting a 12% drop in house prices and an even bigger decline in the construction of new homes

12th May 20, 10:39am by Greg Ninness

BNZ's economists are picking house prices to decline by about 12% and construction of both residential and commercial properties to decline.

In the bank's latest Economy Watch report, which focuses on the construction sector, its economists say that construction may not remain as strong as many people are hoping.

Residential construction in particular, could be adversely affected by lower population growth, heightened unemployment, Airbnb properties being converted to residential rentals and weaker house prices.

"The rising unemployment rate is the biggest downside risk to both residential construction and house prices," the newsletter says.

"We have noted many times before, the changing cost of finance (namely interest rates) only tends to affect the marginal buyers.

"In contrast, a rising unemployment rate is lethal for the housing market.

The supply of housing could also be increased as tourist accommodation is converted to residential use.

However, lower population growth, from reduced immigration, is likely to have the biggest impact on housing construction, the report said.

That could see the number of new dwelling consents issued fall to 20,000 to 25,000 a year, compared to 37,606 in the 12 months to March this year.

"All of the above will likely result in a drop in house prices. A decline of around 12% is our best pick currently," the report said.

It also said that non-residential construction work is also likely to take a hit, but not as severely as residential construction.

"As the existing work reaches completion, it's hard to see where new demand might come form in the next year or so," the report said.

Construction of tourism-related properties such as hotels would be hardest hit, but shops and restaurants will also be affected.

"The shops and restaurants sector will be afflicted by the drop off in tourists but in addition, overall spending growth will be hampered by rising unemployment, falling house prices, reduced residential construction, and near term, a drop in wages.

"This is likely to impact discretionary spending much more than non-discretionary," the report said.

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240 Comments

by ShoreThing | 12th May 20, 10:50am 1589237405

This is just the start. Read the headlines from the bank economists in Ireland from 2007 onwards to see how it plays out.

https://quotesfromthebubble.blogspot.com/

by Pragmatist | 12th May 20, 10:45am 1589237141

And if the bank is publicly saying 12%, you know behind closed doors they are thinking 20% is a real possibility

by ShoreThing | 12th May 20, 10:48am 1589237318

Totally. And with Adrian Orr and the Big 4 CEOs reminding us how solvent the banks are every time they get in front of the press, you do start to wonder.

by Squishy | 12th May 20, 11:04am 1589238291

Are they solvent? They have a lot of liquidity on hand but it would be an error to confuse liquidity with solvency.

by ShoreThing | 12th May 20, 11:14am 1589238870

Solvency is an issue if they have to write down the value of their assets (house prices fall). Liquidity is an issue if borrowers aren't repaying their debts (unemployment rises). Both will be of concern to the banks right now.

by shawking | 12th May 20, 3:58pm 1589255883

Especially with the bail in rules for depositors

by J.C. | 12th May 20, 11:07am 1589238470

And if the bank is publicly saying 12%, you know behind closed doors they are thinking 20% is a real possibility

Running a bank is like operating continuous propaganda campaign. With today's sentiment measurement analysis tools, you can measure the optimal response, say from any proprtion from -12% to -50%. Naturally, -12 sounds better than your -20. And of course, -50 would never happen (in a bank media release anyway). Fortunately, the probability works in their favor by stating -12 compared to -20. If the data a few months down the track supports their forecast, more people believe in them.

by tothepoint - d… | 12th May 20, 9:20pm 1589275212

House prices might well fall by an average of 12 percent (or more/less) on the back of Covid-19 - but that would pale into insignificance compared with the price gains of the last decade.

The real surprise will come with the strength of the recovery - the underlying motivation to own the roof over one's head remains unchanged.

Those with a long-term perspective on the housing market, such as the majority of investors, will be unfazed. They simply ride out recessions, thankful that with their property assets they remain relatively secure.

TTP

by RickStrauss | 12th May 20, 11:51am 1589241064

We understand, Tim. You lived in a charmed time and made money off centrally-supported house price rises. Congrats.

Edit: correction.

by bw | 12th May 20, 11:57am 1589241464

Only for those that bought in the last decade. What's the average holding time for a property there days? It used to be 7 years. I suspect it has been less than that until now. So MANY people won't be able to ride out any fall of significance if their financial circumstances have varied.
After all, you'd know, the market prices for property are determined by yesterday's sales, not those 10 years ago.
So reflection on days gone by is not going to insulate a lot of New Zealanders. Some. yes. But not most.
Oh, and what's the chances Negative Gearing and other housing incentives get the chop with the amount of new debt we're dealing with? Pretty good I reckon!

by Fritz | 12th May 20, 12:47pm 1589244440

'Only for those that bought in the last decade. '

You nailed it. If I was being fussy, I would add 'but not in the last 3 years'.

Many have obviously done very well out of property. TTP, Houseworks, Yvil.
But that's a historical thing.

Looking forward, buying property TODAY does not look a good investment, unless you can manage to get an exceptional bargain.

by Averageman | 12th May 20, 1:03pm 1589245385

If you have a good safe business, you are what the banks want - badly. As such now actually is time to save hard and buy your own asset and free yourself from the never ending rent increases. In ten -fifteen years you will own it.

by Fritz | 12th May 20, 1:23pm 1589246586

Yep.
I'm not at all saying it's a bad time to buy. It's a very good time for FHB's if they have secure jobs.
I'm talking about property as an investment beyond the 'family home'.

by Pragmatist | 12th May 20, 2:03pm 1589249030

Ten-Fifteen years? For most FHB 20-25years. Income growth has been low for a while, I don't expect it to suddenly surge forward in the midst of a recession.

by gingerninja | 12th May 20, 2:27pm 1589250466

Yeah, and when house price increases are bandied about, there's rarely an inflation adjusted figure spake let alone an opportunity cost consideration.

by Nzdan | 12th May 20, 3:30pm 1589254228

Yes it's not the 70's or 80's where you swallowed some high interest rates for the first couple of years but then wage inflation did its magic and halved the debt burden in the space of 5 years.

by CN | 12th May 20, 1:38pm 1589247539

"House prices might well fall by an average of 12 percent (or more/less) on the back of Covid-19 - but that would pale into insignificance compared with the price gains of the last decade."

TTP,

There are different readers here in vastly different financial circumstances:

1) owner occupier with zero or low leverage / zero or low debt service ratios - due to having benefited from rising prices
2) owner occupier with high leverage / high debt service ratios - those who may not have benefited from rising prices and may lose a large unrealised chunk of their initial equity deposit, and are potentially financially vulnerable to a downturn in prices
3) potential owner occupier buyer - those who have not benefited from rising prices and may lose a large unrealised chunk of their initial equity deposit if they buy at today's prices.

It looks like your comments are really meant for those in category 1. This is likely the category that you are in (as well as your vested financial interest as a real estate agent benefiting from transactional activity).
There are many readers here in category 2, and category 3, where your comments may be very unsuitable.
Many other commenters on here are speaking to people in categories 2 and 3, not category 1.

If your financial circumstances were similar to those in in category 2 or category 3, then your perspective and outlook might be very different.

by CN | 12th May 20, 12:33pm 1589243586

A reminder for all potential owner occupier buyers - choose your scenario and act accordingly.

Which will the owner occupier regret most:
1) missing out on future potential gains in equity?
2) potential loss of their savings invested as the initial deposit for purchase of the house or even potential negative equity?

For owner occupiers, a reminder of the impact of leverage (it amplifies property price changes both on the up and down):
Scenarios of financial impact of leverage on equity, assuming an 80% LVR for owner occupier, for a recent $1,000,000 property purchase, $200,000 initial deposit, mortgage $800,000. (simple round numbers used for illustration purposes)

A) Scenario - property price rise:
1) property price rises 5% to $1,050,000, mortgage $800,000, equity $250,000, so 25% gain in equity value from $200,000.
2) property price rises 10% to $1,100,000, mortgage $800,000, equity $300,000, so 50% gain in equity value from $200,000.
3) property price rises 15% to $1,150,000, mortgage $800,000, equity $350,000, so 75% gain in equity value from $200,000.
4) property price rises 20% to $1,200,000, mortgage $800,000, equity $400,000, so 100% gain in equity value from $200,000.
5) property price rises 25% to $1,250,000, mortgage $800,000, equity $450,000, so 125% gain in equity value from $200,000.
6) property price rises 30% to $1,300,000, mortgage $800,000, equity $500,000, so 150% gain in equity value from $200,000.
7) property price rises 35% to $1,350,000, mortgage $800,000, equity $550,000, so 175% gain in equity value from $200,000.
8) property price rises 40% to $1,400,000, mortgage $800,000, equity $600,000, so 200% gain in equity value from $200,000.
9) property price rises 50% to $1,500,000, mortgage $800,000, equity $700,000, so 250% gain in equity value from $200,000.
10) property price rises 100% to $2,000,000, mortgage $800,000, equity $1,200,000, so 500% gain in equity value from $200,000. (i.e if they believe that the property price doubles every 10 years)

Remember, the owner occupier must be able to hold on under ALL economic environments (including any potential significant reduction in household income).

B) Scenario - property price falls:
1) property price falls 5% to $950,000, mortgage $800,000, equity $150,000, so 25% loss in equity value from $200,000.
2) property price falls 10% to $900,000, mortgage $800,000, equity $100,000, so 50% loss in equity value from $200,000.
3) property price falls 15% to $850,000, mortgage $800,000, equity $50,000, so 75% loss in equity value from $200,000.
4) property price falls 20% to $800,000, mortgage $800,000, equity is ZERO, so 100% loss in equity value from $200,000.
5) property price falls 25% to $750,000, mortgage $800,000, equity is NEGATIVE $50,000, so 125% loss in equity value from $200,000.
6) property price falls 30% to $700,000, mortgage $800,000, equity is NEGATIVE $100,000, so 150% loss in equity value from $200,000.
7) property price falls 35% to $650,000, mortgage $800,000, equity is NEGATIVE $150,000, so 175% loss in equity value from $200,000.
8) property price falls 40% to $600,000, mortgage $800,000, equity is NEGATIVE $200,000, so 200% loss in equity value from $200,000.

by Averageman | 13th May 20, 7:37am 1589312254

Very good post in the double side of leverage. Most interest only debt stackers have no insite about negative equity, and how quickly a low deposit can...evaporate.

If you end up "underwater", dont loose your job or tenant.

by Nzdan | 12th May 20, 6:23pm 1589264636

It's actually scary. Imagine using unrealized gains to further extend ones liabilities via deposit recycling, only to discover that while housing itself is not a commodity, house prices through monetary and central/local Government policy (or lack of) are behaving like commodities.

No shortage of tenants I guess?

by GordonC | 13th May 20, 9:52am 1589320357

In the early 90's I worked for an insurance company in London. There had been a negative equity property situation, mortgagee sales etc. Banks sold loans with "mortgage" insurance, but this insured the bank not the borrower. Insurance company I worked for paid out the bank (who didn't care what value they got at mortgagee sale as they were insured against loss) and then proceeded to reclaim their loss against any other assets the borrowers had. Negative equity losses don't necessarily stop at the equity amount.

by theglc | 12th May 20, 12:47pm 1589244452

Welcome back Tim!

What your view this week on landlords giving rent relief?

My landlord proactively gave me a 20% discount for the next 6 months :)

by tothepoint - d… | 12th May 20, 1:11pm 1589245878

Hi thegic,

We're in the same boat.....

My landlord has given me a rental discount too.

I'm going to put the saving towards buying my own home. (My landlord says that's very sensible.)

TTP (Tim)

by gingerninja | 12th May 20, 1:20pm 1589246407

*pulls_herself_away_from_screen_briefly_to_get_popcorn*

by Chairman Moa | 12th May 20, 1:21pm 1589246470

Hey Tim,
Is that what you are saving for? Not bad for Palmy North.. a bit Gold Coast wannabe IMO
https://www.trademe.co.nz/a/property/residential/sale/listing/243741020…

by ShoreThing | 12th May 20, 1:30pm 1589247052

Oh? What about your properties in Picton and Palmerston North?

by CourtJester | 12th May 20, 1:23pm 1589246627

Your landlord is a very kind fictional character

by ShoreThing | 12th May 20, 1:29pm 1589246953

I've heard people jokingly refer to their wives as the Chief Financial Officer, perhaps this a similar joke in the REA profession?

by cmat | 12th May 20, 3:44pm 1589255068

His "landlord" is a euphemism for his Bank.... i.e. the ultimate owner of his assets.

by theglc | 12th May 20, 1:31pm 1589247067

I think you should give it back given you and your firm are so opposed to the idea

https://www.scoop.co.nz/stories/BU2003/S00556/property-brokers-responds…

by Somebloke | 12th May 20, 3:19pm 1589253559

I paid my full office rent for the first half of the lockdown. When they noticed what I was doing, my landlord reduced it by 50% for the remainder of the lockdown. Turns out we're both decent people.

by pdemp | 12th May 20, 12:54pm 1589244883

With the OCR near 0%, what’s going to drive up house prices over the next 10 years?

by Independent_Observer | 12th May 20, 12:59pm 1589245175

That is exactly the point - the only thing left would be increased wages. But everyone is taking paycuts or losing income completely. We are also at risk of higher taxation to pay for the debt burden the government is creating.

If house prices do end up going higher, it is simply creating a disaster worse.

by Fritz | 12th May 20, 1:01pm 1589245293

That's a very very important point. Unlike the past, there isn't much if any room to cut the OCR in the future.

by oreo | 12th May 20, 1:58pm 1589248707

Maybe Labour will cave in and change the rules on Overseas investors. Worked like a charm for National for 9 years. After saying no to CGT, that would be an another hit to the people and generations labour was suppose to help I wouldn't be surprised if they are relaxing the rules. I hope not. Mom and Pops have had their chance

by Averageman | 12th May 20, 3:14pm 1589253248

That would be the worst outcome for Kiwis working and paying tax in NZ. It is a major policy differentiation to Nats and Ximon. Debt ponzi in NZ needs reducing, just get on with the reset and let all the speculators and bank profits experience negative leverage.

Keep NZ for tax paying kiwis, and promote elimination of debt enslavement. if Lab champion that they will hose in.

by RickStrauss | 12th May 20, 3:22pm 1589253731

Maybe the better tack is to invest in education, affordable housing, and supporting productive enterprise rather than having pretend economic policy that depends entirely on pumping house prices, encouraging money laundering and dragging feet on AML, and importing nominal GDP.

by Speechless | 12th May 20, 4:09pm 1589256559

HOPE

by Rubb3rduck3y | 13th May 20, 8:45am 1589316355

immigration of course. rich people who want out of places.

by Pragmatist | 12th May 20, 9:55pm 1589277357

Fourth edit for the day was it TTP?

by Mr Ed | 12th May 20, 10:55pm 1589280916

Warning . Self Interest posting . I smell an investor or agent

by Sluggy | 13th May 20, 6:27am 1589308074

Relatively secure albeit totally illiquid in this economy. Hope they dont need cash anytime soon

by fortunr | 12th May 20, 11:34am 1589240073

100% correct, Pragmatist. I am no expert, but a 20% decrease in house prices is what I have been saying all along since this pandemics started. The estimate by BNZ, while more realistic than the ridiculously optimistic forecasts of 5% to 10% drop advanced by commentators with vested interests in real estate, is still off the mark - and BNZ knows it.
I think it is going to be 20% decrease this year, and another 10% in the first part of 2021. All together, we are talking about house prices being a third less than current values in 12 to 18 month's time. And I think I am being moderately optimistic, as risks are more on the downside.
Not difficult to predict, considering the many over-leveraged house owners who bought into this housing Ponzi scheme, the currently ridiculously inflated house prices, and the high level of unemployment that is going to hit us. The music has stopped. If there was an easy way to "short" the housing market, I would do that with both hands. There are more than a few friends and colleagues of mine who have almost reached panic mode and are thinking of selling.

by Smalltown | 12th May 20, 12:11pm 1589242305

F what do you think of the very precise / prob very inaccurate -5.49% that came out last week.

If the people that published that figure to 2 decimal places have any influence on anything in finance we are stuffed.

by fortunr | 12th May 20, 12:46pm 1589244406

LOL very true, sadly.

by gingerninja | 12th May 20, 12:39pm 1589243962

If you are a property investor, the way to short the market is to sell now and buy in again later.

If you are an REA, they way to short the market is to retrain in another profession.

If you are a potential FHB, it's to wait.

If you are a home owner and can be bothered, you can sell, rent for a bit and then buy back in.

You could short property related stocks but it's tricky business.

by CN | 12th May 20, 12:47pm 1589244465

Also if you are a owner occupier:

1) who will be using the equity in the house as the main source of retirement funds, and
2) expecting to downsize in the next 5 years, (or before house prices are expected to fully recover to current levels)

then some may wish to review their situation, in order to maximise their retirement fund for the future.

by tothepoint - d… | 12th May 20, 2:28pm 1589250538

Hi Ginger (my favourite ninja),

So, I take it you'll be selling up in Wellington, despite the very long time it took you to find a suitable property there.

How about you contact me directly (since you've found out who I am)........

We can then negotiate a price together and then you can avoid oily REA's - and their huge commissions.

We'll both be winners!

Tim (TTP)

by gingerninja | 12th May 20, 8:20pm 1589271658

Hi "Tim",
I can't claim those bragging rights alas! It was someone who goes by the handle "Sam Roma" on youtube who claimed to know you. But they did also seem to know one of my online identities too, so have been somewhat exposed myself. Internet high jinx eh?

And yes, as you accurately state, I spent ages finding the right home. I have since put blood, sweat and tears into the project (its not even finished yet) and the only way I am parting with it, is in death or destitution! But then, I didn't need to take on a whopping debt to buy it, so have the luxury of not having to worry too much about property prices or shorting a market, right now.

I must confess that I am not entirely sure you really are Tim and that you are not just messing with us ;-)

by thinktank | 12th May 20, 7:26pm 1589268393

The comments section has turned into speed dating.

by gingerninja | 12th May 20, 8:11pm 1589271063

bahahha

by Mr Ed | 12th May 20, 11:13pm 1589282006

For morons

by tothepoint - d… | 12th May 20, 9:17pm 1589275042

Hi Ginger (my favourite ninja),

Good response. May you exist a long time on Planet Earth!

I gather quite a few people know each other's identities here - and assumed you knew mine??

Anyway, it's the quality of the contribution that should count most for readers - not the identity of the contributor.

Nonetheless, privacy is likely very important to many readers here - and this site clearly takes very seriously its responsibility to safeguard privacy. That, in turn, gives contributors the confidence to contribute.

Tim (TTP)

by Foreign buyer | 12th May 20, 11:51am 1589241103

Lots of houses have gone up 100% in the past few years but if you suggest they could drop by 50% (back to normal) due to a global pandemic people think you are nuts?

by Panther | 12th May 20, 12:11pm 1589242278

Say it with me: "house prices always go up"

Now repeat until you believe it or at least get a job writing for the Herald...

by RickStrauss | 12th May 20, 12:22pm 1589242971

Is it a sacred cow or a fatted calf?

by Somebloke | 12th May 20, 3:23pm 1589253793

House prices are a fat sacred white elephant.

by Ralph | 12th May 20, 3:42pm 1589254947

Perhaps the link with politics is the real issue.

Along the lines of, 'Destroy the value of my most valuable asset and I vote you out."

by Independent_Observer | 12th May 20, 4:49pm 1589258993

Absolutely Ralph.

Does anyone know if workers at RBNZ have to put assets into blind trusts to work there?

I mean if you know interest rates are going to fall or rise, or there is new policy coming up/out, and you buy/sell a house, is that considered insider trading?

by Brock Landers | 12th May 20, 6:22pm 1589264544

How much property do you reckon Adrian Orr is sitting on?

by RickStrauss | 12th May 20, 6:33pm 1589265210

That being why the younger generations don't take National's crocodile tears re "mortgaging our children and grandchildren's future" seriously.

by Pietro | 12th May 20, 3:33pm 1589254432

They do always go up, if you track long term trend lines. So do equities. Envy is no substitute for reason.

by Jim | 19th May 20, 7:25pm 1589873152

It's also worth calling out the backwards maxim in NZ that promoting more expensive shelter relative to wages is bizarrely linked to an 'optimistic mindset' and a 'strong market'.
However wishing for shelter to get more affordable relative to wages is somehow seen as a 'pessimistic' or 'doom and gloom' mindset.
It's amazing how effective messaging from the banks, real-estate agents and the NZ herald has been on the sheeple.

by Kezza R | 12th May 20, 12:18pm 1589242728

I'm guessing 30% to 50%.
30% most areas, tourist towns 50%.

by Ahuhyeah | 12th May 20, 7:37pm 1589269043

Always been fascinated with percentages and cumulative effects.

Make sure you use some absolute figures too.

$300,000 up 100% to $600,000
$600,000 down 50% to $300,000.
Notice how the % differs.

Try $500,000 house up 20% to $600,000
$600,000 falls 15% to $510,000.

At 12% decline from a high has a greater absolute change than a 12% increase from a low.

by Speechless | 12th May 20, 4:24pm 1589257449

Exactly. NAB even came out and said 30% in Aus but tried to say it was a less-than-10% probability scenario (as if they know that). For them to put that number out there, you know internally everyone is running for the lifeboats.

by Houseworks | 13th May 20, 6:50am 1589309412

Complete garbage, if that were true they would not be doing anything above 60 percent LVR

by Houseworks | 13th May 20, 6:50am 1589309430

Not necessarily Pragmatist, banks are inherently conservative, which means they will overstate the downside.

by Pietro | 12th May 20, 3:31pm 1589254291

Million dollar mortgage around $600 a week interest only. $500k $300 a week. I think the average FHB mortgage is $400k, and the average new mortgage around $250k, so the vast majority of households will be able to cope over the short to medium term. And when interest rates do rise, it will be in response to inflation, which will eat away at the principal. I suspect a lot of the property haters on this site are motivated by envy of those who’ve made a fortune over the past decade. Prices will fall, we all know that, then most likely stagnate for a while, and there will be young people with negative equity for a period. But time will right that ship.

by Averageman | 12th May 20, 3:14pm 1589253281

Burnt toast.

by CourtJester | 12th May 20, 3:15pm 1589253356

Envy? Yeah, I wish I had negative equity in an environment where anyone could lose their job overnight. LOL try harder spruiker.

by Somebloke | 12th May 20, 3:27pm 1589254049

I made a fortune in real estate, and on sound analysis I dumped the lot 5 years ago. The proceeds have been invested in much more productive assets since (with a 100%+ p.a asset value growth rate). No, nothing speculative, just a regular business that looks after its clients, services a need, works hard to grow and produces a fair risk return on capital and equity.

by Chairman Moa | 12th May 20, 11:00am 1589238051

Hold on tight to your dream. The housing nighmare is waking up!

by Avocado | 12th May 20, 11:05am 1589238303

I sold literally hours before lockdown announcement....
I definitely am not buying until years end at least. Will keep looking to get a feel in my area in Silverdale but wont be buying till at least years end and anyone who has their head screwed on will be holding off and waiting the market out too.

by bw | 12th May 20, 11:24am 1589239490

Has Settlement happened yet?
Some, who thought they'd Sold! may find come time to swap the cash for a title, it doesn't happen - for one of many reasons ( joblessness; bank reluctance; values don't measure up etc )
"You haven't sold anything, until the cleared cash is in the bank!"

by Avocado | 12th May 20, 11:26am 1589239618

Then ill be up 100k when i keep the deposit haha

by bw | 12th May 20, 11:36am 1589240177

Let's hope that's enough to compensate for the '12%' deterioration that's expected in prices!
A Million dollar house that drops 12% has already gobbled that insurance policy up ( NB: you might want to check the fine print on what 'outs' the buyers' have in case of default. Force Majeure ( Unforeseeable Circumstances) sometimes allows the deposit to be refunded)
Trying to enforce a Reluctant Buyer to fulfil the contract can be harder in practice than it seems on paper.

by Avocado | 12th May 20, 4:00pm 1589256029

BW, ill let you know in one of the 90 seconds at 9 week after next how settlement goes haha. Fingers crossed.

by Whatwillhappen | 12th May 20, 11:28am 1589239697

Just sold last Thursday, which means I locked in my purchase based on an offer I made in early March. The offer I received sat in the middle of my expectations price range for my sale in February. Not worried about market movement, as I plan to be there for 20 years+. I have a place to live and have a small (by today's standards) mortgage, and so long as my employment holds up (which it probably will) I won't be thinking about property values for a very long time. Timing the market is a mug's game. Even the Oracle of Omaha doesn't do it well.

by bw | 12th May 20, 11:34am 1589240069

So...you've signed up for a new place and haven't settled on the last one you sold yet? Brave! ( see mine right above)

by Whatwillhappen | 12th May 20, 2:34pm 1589250856

The purchaser works for a bank, so I'm not too worried.

by mealsonmeals | 12th May 20, 12:06pm 1589242014

The Oracle of Omaha is currently holding half his portfolio in cash right now. So.......

by house hunter | 12th May 20, 4:36pm 1589258213

Congrats

by Squishy | 12th May 20, 11:31am 1589239902

Most of the issues with residential lending will be pushed out by 6 month loan holidays and many of the loans that will be distressed won't be know until businessess have reopened (i.e. no more subsidies) and had time to guage their new staffing requirements. I'm seeing lots of large, well established businesses shed the first 10-20% of their employees as an interim precautionary measure and I expect smaller businesses will be harder hit.

by fortunr | 12th May 20, 11:38am 1589240316

Very clever move. Selling just before lockdown, at the apex of the housing bubble, was a very financially smart move.
If you have not finalised everything legal yet, do it as soon as you can.

by Solve_it | 12th May 20, 11:55am 1589241327

I got lucky too and sold in Nov, settled mid Jan. It really is such a relief, particularly so with the whirlwind we find ourselves in now.
I really do feel sorry for FHBs that have purchased in the last 6-12 months, they may end up suffering badly from a problem that was not their creation.

by GV 27 | 12th May 20, 12:10pm 1589242247

Sorry Solve_it and Mods - I accidentally clicked reported this and then the 'don't report' button disappeared. Stupidity on my part.

But to the point, I'm a recentish FHB and not super thrilled about the prospect of negative equity - we have a plan for the next few years that involves staying where we are, so we'll likely look to refix low in a year's time and ride it out for the foreseeable. It's all we can do really, bar direct relief. But given society at large expected us to pay stupid amounts for a three bedder starter home as well as student loans etc, I'm fairly resigned to being collateral damage.

What will bust my grits is when the inheritance I'll be even more reliant on now to help right the ship gets subjected to taxes because my family members had the sheer audacity to, you know, die. It does make you feel like doing the right thing (holding off on start families, buying a small home and taking on a responsible mortgage) is ultimately a mug's game.

by Theoracle | 12th May 20, 12:57pm 1589245059

Doing the right thing is a mugs game. Did you only just realize that!

by Whatwillhappen | 12th May 20, 2:37pm 1589251060

My wife and I discussed selling the house cheap, as we didn't agree with prices being so high. Then we realised a $60k discount was a $60k reduction from the inheritance of our children, who also need to buy a house one day. And so the wheel keeps on turnin'.

by Solve_it | 12th May 20, 8:57pm 1589273858

I'm really sorry GV. That seriously sucks

by fortunr | 12th May 20, 12:51pm 1589244686

Very, very true. Many of them are young, productive families starting a new life. I do hope that most of them will cope. Their only fault was to believe in the too many self-serving commentators peddling the housing Ponzi scheme.

by Independent_Observer | 12th May 20, 3:26pm 1589253989

If nothing else they will learn a very long lasting lesson. Similar to people from other countries who have lived through housing bubbles, yet many are in denial to here. As I have said before, I lived through the GFC in America and it has left a lasting impression that was missed by the average NZ given our behaviour the last 10 years.

by Rubb3rduck3y | 13th May 20, 8:59am 1589317148

yeah it seemed to have a long impression on those americans too, they now have more debt than ever before.

by alittle | 12th May 20, 11:06am 1589238380

From 6% to 12%. Happy Realization.

If BNZ economist says (Have to say) 12% can understand how bad it will go.

Next update from 12% to..... should be announced in July/August.

by Market Interest | 12th May 20, 11:08am 1589238531

"A decline of around 12% is our best pick currently"

Says it all, really. There are many commenters here that have better figures and reasoning to explain their conclusions than the so-called experts.

by Fritz | 12th May 20, 11:11am 1589238662

Interesting to speculate what the message might have been if T. Alexander was still economics commander in chief at the BNZ...

by Doris | 12th May 20, 11:13am 1589238789

Minor slow down for 6 moths, then BOOM.

by J.C. | 12th May 20, 11:18am 1589239125

Interesting to speculate what the message might have been if T. Alexander was still economics commander in chief at the BNZ

He recently was talking about a boom in consumer spending last week, particularly for home renovation materials. It was based on a survey that he ran among respondents recruited from those who subscribe to his own newsletter. And this is a publically recognized economist.

by Toppertee | 12th May 20, 11:55am 1589241328

Having seen him perform on stage to his followers, I always thought he’d make a great ‘Shylock’ - perhaps when the theatres reopen someone will offer him the gig.

by Fritz | 12th May 20, 1:04pm 1589245447

he could become a stand up comedian, riffing off the whole housing crash

Don't think he's got much sense of humour, though

by Mr Ed | 12th May 20, 11:28pm 1589282920

What colour had he dyed his hair when you saw him ?

by Fegus Woodward | 12th May 20, 10:03pm 1589277805

Listening to him on ZB with Simon Barnett going on about how much the people love listening to him aint positive. He tells (desperate) people what they want to hear while claiming to be an independent economist. Looking at his employment history shows he is not independent.

by sharetrader | 12th May 20, 11:23am 1589239393

how dare they, dont they know the NZ housing market is different from the rest of the world.
or so i have been told so many times since 2009

by Davo36 | 12th May 20, 12:13pm 1589242418

And they have been right since 2009.

by Yvil | 12th May 20, 12:26pm 1589243168

Actually for much, much longer than that, more than 30 years actually, but they say "this time is different"

by Independent_Observer | 12th May 20, 12:37pm 1589243825

What have interest rates done in that period Yvil? And have you ever looked at the full history of interest rates? (i.e. hundreds of years).

by Yvil | 12th May 20, 3:58pm 1589255917

IO, Interest rates have gone up during the biggest rise of house values from 2002-2008 and interest rates have gone down during the next biggest rise in house prices in 2012-2017

by Independent_Observer | 12th May 20, 5:38pm 1589261906

Ok I said look full history and you went straight back to the last 30 years so you could continue to drown (or gleefully stare in the mirror) in/of your own confirmation bias.

by mikekirk29 | 13th May 20, 10:48am 1589323739

2 points on that: there is little further to cut and unemployment is far more influential in depressing buyer interest than affordability of interest rate

by theglc | 12th May 20, 12:58pm 1589245081

Whats your prediction Yvil? 1 year from now?

by Yvil | 12th May 20, 4:01pm 1589256083

As I commented before, I think times are just too uncertain to make an accurate prediction and I'm not interested in making a guess. It will be a tug-o-war between business closing down + people losing their jobs VS lower interest rates, money printing, no LVR's, mortgage holidays

by Ocelot | 13th May 20, 7:24am 1589311495

You forgot to mention the stalled immigration for the next couple of years.

by JimmyJames | 12th May 20, 1:41pm 1589247681

30 years is a relatively short period of time. When you look at the anomalies that occurred prior to that period with the global reserve currency going off the gold standard in the 70s ( I.e the birth of modern day alchemy) and ever decreasing interest rates for the last 40 years. People talk about the low interest rates now but as we know low interest rates have never been good enough, they need to always go lower which is indicative of an unproductive, unsustainable, pyramid scheme.

by sharetrader | 12th May 20, 3:18pm 1589253514

it has changed due to the issue of debt changing from thirty years ago, its much easier now than it was thirty years ago, i remember dressing up to meet the bank manager and him going over my finances with a fine tooth comb, and as for going to a bank you didnt have an account at forget it
so i dont expect house prices to fall far maybe 10% then it will recover.
we may have more unemployment , lower wages and spending for a awhile, but debt creation will carry on and banks chasing debt clients is the main game now

by Independent_Observer | 12th May 20, 3:24pm 1589253848

End of a long debt cycle - Dalio thinks people start using leverage like a gambler. Banks become casinos. NZ and Aus property markets the last 10 years - everyone loading up with debt assuming prices will keep rising.

by Speechless | 12th May 20, 4:12pm 1589256736

Wow you could not possibly have a more inverted understanding of what's happening.

by northman46 | 12th May 20, 11:26am 1589239590

Hold up. Hold up. I just heard on the radio that Wellington prices are actually going up! So BNZ must be wrong. /sarcasm

by refactornz | 12th May 20, 11:40am 1589240455

Presumably that 12% estimate is a nationwide average. So if Auckland, Queenstown and some other tourist/bach spots drop 20% then Wellington, Hamilton, etc., might get away with less than 10% drop.

by Fritz | 12th May 20, 12:59pm 1589245152

Yeah I assume that is a nationwide average too.
Even in Auckland there will be great variety. My picks:

- Auckland CBD: Down 20%+
- Auckland $1.4 - $2 million market - down 15-20%
- Auckland $900K - $1.4 mill market - down 15%
- Auckland 700K - 900K market - down 10%

So overall I'd say about 15% down in Auckland

Wellington won't drop much if at all.

Hamilton - 8-10% drop

Tauranga - 15% drop

ChCh - 8-10% drop

Queenstown / Wanaka - At least 25% drop

All of the above assumes the OCR does not go negative
If it goes negative I would halve these forecast falls.

by northman46 | 12th May 20, 12:59pm 1589245160

Wouldn't that bring Auckland and Wellington prices almost inline? Hard to imagine

by Fritz | 12th May 20, 1:05pm 1589245556

'Hard to imagine'. Don't know about that. Wellington has got a huge public service, remember, on very good wages with excellent job security.
And it's pretty much built out.

by Advisor | 12th May 20, 2:38pm 1589251137

Add to the list, the ongoing housing shortage in Wellington caused by years of supply woes, further worsened by the city's inefficient council and the Kaikoura earthquake.
A recession alone is unlikely to relieve the city of its accommodation shortage since department and agencies won't be laying off its well-paid staff and the large majority of Wellingtonians are permanent residents or citizens of NZ.

by GV 27 | 12th May 20, 2:59pm 1589252376

Yep. You'll struggle to pay your mortgage long before they struggle to pay theirs.

by gingerninja | 12th May 20, 1:35pm 1589247305

Not for me! I have never been able to fathom why anyone would live in Auckland let alone pay all that money to live there.

Sorry Aucklanders. i'm only teasing. Just engaging in the great Kiwi Welly vs Jafa tradition ;-)

The next move is for a Jafa to say something about a big earthquake. To which Wellingtonians counter about our superior hipness, to which Jafa's will mention the weather to which Wellingtonians mention how you guys spend 2 hours commuting per day whereas we can walk to work.

PS Wellington is way cooler though and you know it

by Fritz | 12th May 20, 1:26pm 1589246809

ha ha nice.
I'm a bit conflicted.
Deep down a Wellingtonian (4th generation and all that), but more superficially a 'JAFA'.

by gingerninja | 12th May 20, 1:39pm 1589247571

I've been in Welly nearly 4 years now, you think it would wear off, but every morning I watch the sunrise over Wellington harbour (i'm always up at dawn) and fall in love with the city all over again. I've lived all over, I have travelled all over but Welly has my heart.

by Fritz | 12th May 20, 2:27pm 1589250437

I think it's got more 'soul' than Auckland, that is for sure.
But I much prefer Auckland's size / population. Even then Auckland is pretty small.

Auckland's weather is far nicer too. I also think Auckland's hinterland is amazing, offering much more than Wellington's.

by Whatwillhappen | 12th May 20, 2:40pm 1589251225

I'm moving away - too many pretentious people who think a play and some wine makes up for 80% rubbish weather.

by gingerninja | 12th May 20, 8:13pm 1589271231

Whatwillhappen..and this is why I am probably well suited to Wellington, I love the weather here.

by Fritz | 12th May 20, 10:20pm 1589278819

Wow! The wind is infuriating, especially in summer near the beach.
Each to their own!

by Ralph | 12th May 20, 2:58pm 1589252296

My old dad loved Wellington.

by Brock Landers | 12th May 20, 3:28pm 1589254127

To be honest I've never even visited Wellington. There has never been a reason.

by Pietro | 12th May 20, 3:57pm 1589255858

Lovely city. I’ve been there four times on business (from Auckland). Horribly cold and unbelievably windy on three occasions, then as humid as Hong Kong the fourth time. Must have been unlucky. When the motorway finally gets there, Whangarei will be the place to live. Superb location, no fault lines or volcanoes and a nice climate without extremes.

by refactornz | 12th May 20, 1:57pm 1589248672

It's not hard to imagine, given better job security at the moment.
Also, compare Auckland central/city fringe areas like Remuera/Ponsonby with land values at $2500-$4000/m2, against comparable Wellington areas like Karori/Kelburn at $1600-$2500/m2. Auckland could drop 20% and still be higher priced than Wellington m2 prices. Auckland sections tend to be bigger too.

by gingerninja | 12th May 20, 7:08pm 1589267295

Just to clarify, i was just being facetious about the rivalry between Welly and Auckland. All of NZ is beautiful. I was just making a joke about the historical squabble between the two places.

by Solve_it | 12th May 20, 11:57am 1589241466

I've been reading in the comments on this site that Christchurch is about to go up too. So the average decrease across the rest of the country must be like 30-40% when you factor that in....

by Chairman Moa | 12th May 20, 12:46pm 1589244401

TM2 will give you a big hug for that comment..

by stuart786786 | 12th May 20, 11:45am 1589240744

The Image / photo above in the article sums it up.

House on top of the cliff at the edge waiting to be touched to fall of the cliff.

House crash (more than 20%) percentage has increase from fall (Less than 20%).

by CourtJester | 12th May 20, 11:50am 1589241016

I feel sorry for FHB's who jumped in at the wrong time and are about to be crushed... This is the point where mainstream media and the RE "industry" should be held accountable for their sins. I know it's never going to happen, but there should be some sort of punishment for pushing false information ("house prices are never going to fall") in order to lure more people into the Ponzi scheme.

by ShoreThing | 12th May 20, 12:02pm 1589241723

If we put some of them in stocks in the local square, I know I'd come along with the limp lettuce and soggy tomatoes in my vege drawer.

by Pragmatist | 12th May 20, 2:14pm 1589249689

There are several reddit common taters that would be freezing the tomatoes. There is plenty of real hatred out there for the property spruikers.

by Brock Landers | 12th May 20, 3:31pm 1589254275

If we are going old fashioned then swinging from the end of the rope would be a more fitting punishment.

by Serfdom | 12th May 20, 12:05pm 1589241951

We heard that line during a meeting at the bank 12 months ago. "Don't worry if you bid 40k higher than you needed to, you'll make it back in capital gains within the year".

by CourtJester | 12th May 20, 12:42pm 1589244127

Whenever you hear something like that, just ask them if they can guarantee that claim. And enjoy the awkward silence that ensues. The G-word shuts them up real quick.

by GV 27 | 12th May 20, 12:12pm 1589242373

Eh, some of us needed stable homes and you can't put off things like families forever. It's been obvious for years that the gains people made on RE now was a way for the state to avoid paying livable super when the music stopped, so they've allowed it and we just happen to be collateral damage...again.

by theglc | 12th May 20, 1:24pm 1589246697

Our whole economy is based on credit expansion and population growth through immigration.

The OCR cut last year was to increase consumption by increasing house values and the wealth effect.

So now when the music stops what else have we got to fall back on, innovation... no, technology....no, automation and efficiency ... no, environmental gains ... nope

Neither Labour or National has any new ideas just the same old Ponzi scheme, which has been begging to crash as our GDP per capita keeps dropping. We were pretty much in a recession before this recession.

by Ralph | 12th May 20, 2:57pm 1589252253

"Our whole economy is based on credit expansion and population growth through immigration."

Except that is not true. It certainly doesn't describe milk exports for example.

by Speechless | 12th May 20, 4:31pm 1589257906

Our whole economy is based on credit expansion and population growth through immigration and milk exports.

Happy?

by Ralph | 13th May 20, 11:58am 1589327894

Happier, I always think accuracy is so important.

But it also doesn't explain the logging industry as another example. And the list goes on.

Simply put - the facts don't support that premise.

by Advisor | 12th May 20, 3:00pm 1589252444

Right. There won't be a quick, painless way out of this mess while still being able to call ourselves a high-income, developed nation since we have exhausted all possible "get rich quick" schemes for the sake of GDP growth over the last few decades.

by Solve_it | 12th May 20, 9:02pm 1589274130

Don't get me started on the pension....

by Farce Majeure | 12th May 20, 12:38pm 1589243919

On the other hand, maybe they’re performing an unintentional service by teaching skepticism and the need to seek out alternate sources of information. I’ve been waiting to buy for 2 1/2 years but held out because my own research suggested that house prices had been increasing at an unsustainable rate, and that a correction was coming, one way or another.

by GV 27 | 12th May 20, 3:07pm 1589252828

Perhaps so, but there was always going to be crossfire in the form people who for various reasons (body clocks, etc) had to get on with things and couldn't wait longer for a great reset that ultimately took a decade to arrive after it should have.

by Brock Landers | 12th May 20, 3:33pm 1589254436

You don't have to buy a house to have children.

by GV 27 | 12th May 20, 4:46pm 1589258774

Maybe you should tell that to my friends, some of whom have not spent more than 12 months in one place since Uni as various landlords have sold up from underneath them. I'm talking highly qualified white collar professionals.

Doing that with newborns or school aged children, more than once a year, with less than one full time income or paying full-time daycare costs? No thanks.

by Brock Landers | 12th May 20, 6:43pm 1589265811

I'm a highly qualified white collar professional. I have a young child. I don't own a house, out of choice (or disgust at the current bloated prices which have been just asking for a pin).

Kids might be the reason you would want to burden yourself with an overpriced house but you need to have them first for that to be the case.

I also now understand the disregard a small child has for the good condition of a house. Glad it's not mine. Wait until they are a bit older before you think about having nice things.

by GV 27 | 13th May 20, 8:06am 1589313974

Yes, benefit of hindsight, I guess. I suppose it's a case of making it work for us given the situation we're in now - hunker down and save money as if we're trying to get a deposit. I suppose there won't ever be a good time for this kind of thing.

by Pragmatist | 12th May 20, 5:43pm 1589262206

Unfortunately you've just described the population segment that makes landlording so attractive..

by Solve_it | 12th May 20, 9:08pm 1589274513

As a woman I can state that the desire to have a safe appropriate space to raise a child has felt like a basic biological need to me personally. What GV states makes perfect sense to me. I would feel anxiety / insecurity knowing that the house we were living in could be sold out from underneath me, stuff that. Being a new mum is hard enough without adding more stresses.

by mikekirk29 | 13th May 20, 10:32am 1589322734

Hello Jester. Hope you see that I don’t promote such tripe!

by Ben72 | 12th May 20, 12:35pm 1589243742

If Auckland drop by 20% means Wellington sure to fall by 12-15% mostly high priced properties.
Countdown just started!!!!!!
Watch the game in 6 months time.

by Bananafishbones | 12th May 20, 12:22pm 1589242961

My tea leaves are telling me a double digit drop starting with a 3 but my fortune teller advises me to think in terms of one starting with a 4.

by bw | 12th May 20, 12:25pm 1589243159

"New Restrictive Policy?"Coming here as well as the parent bank?

From 17 May Westpac will cease accepting loan applications from a swathe of potential borrowers, including small business owners and independent tradespeople who want to fund 80 per cent or more of a residential property purchase through credit. The new restrictive policy will also apply to all loan assessments for borrowers who generate income from a mix of independent business activity

https://www.bankingday.com/westpac-squeezes-out-tradies

by ShoreThing | 12th May 20, 12:35pm 1589243736

How much of the workforce does that encompass? Probably not as much as 20 years ago, but still a sizeable amount surely.

by bw | 12th May 20, 12:46pm 1589244372

Quite right. But Westpac appears to have 'started somewhere' with the crackdown on lending. It's just a matter of which other segments of the borrowing community it extends to.
A Credit Squeeze is upon us.

by sharetrader | 12th May 20, 3:27pm 1589254041

same thing happened in 2009, if you were leveraged they called it in

by dictator | 12th May 20, 12:48pm 1589244487

Expect more of this type of news.

by Independent_Observer | 12th May 20, 12:37pm 1589243869

Bunnings to close stores - jobs to go....

More people who won't be able to pay rent/mortgages.

by gingerninja | 12th May 20, 1:05pm 1589245555

So much for Tony Alexanders prediction about more DIY spending then!? I must admit I am really shocked by this one. The weekend before level 4 many places sold out of paint!!! So much DIY was done during the lockdown. How unsustainable must Bunnings business model have been if they are struggling already?

https://www.stuff.co.nz/business/121484712/bunnings-proposing-closure-o…

by Fritz | 12th May 20, 1:09pm 1589245797

Interesting. It's more of a consolidation though really, than anything too profound.
I guess in the Waikato people will just need to drive a bit further ie. to Hamilton.

by realterms | 12th May 20, 1:25pm 1589246718

7 stores but only 145 employees? Must be some tiny bunnings I've never seen.

by Snow | 12th May 20, 3:37pm 1589254646

Could be redeploying some into other stores.

by Ralph | 12th May 20, 2:56pm 1589252197

"How unsustainable must Bunnings business model have been"

This is a nonsense statement that could be levelled at ANY business closing for ANY reason at ANY time.

Among the unspoken assumptions is; that all businesses must have, at all times, enough cash to work with zero income for an unknown period of time on 48 hours notice and without the rules of such a situation being communicated beforehand.

P.S., if you get a virus it's obviously because your body is unsustainable, clearly your own fault.

by sharetrader | 12th May 20, 3:29pm 1589254168

they work off turnover, so i suspect these stores are smaller ones in smaller towns, its unlikely to be any big city ones

by gingerninja | 12th May 20, 8:19pm 1589271569

I don't get the analogy Ralph. We all account for the fact that illness can and does happen to our bodies, which is why we have a health care service, make savings, pay for income insurance, pay staff sickness and pay for health insurance. It's why we take steps to boost our immune system, why we eat kale and exercise. Why we fund research to understand the body and health issues. It's all part of preparing for and mitigating the weaknesses of the body.

Bunnings is not ANY business. They are not aviation, hospo or tourism.

I think we are about to discover that a great many businesses were flying close to the wind. We might be about to learn that the entire system was unsustainable. Indebted, speculative, over extended. We created an economy with some serious vulnerabilities, all the pandemic has done is expose that, but I think we all know that it had been unsustainable, for some time. There are businesses who don't overstretch themselves and expand to the point of vulnerability, there are businesses that build up cash buffers. A large experienced, business in a thriving industry, such a Bunnings I would not have expected to be in trouble so soon. They were open to tradies from level 3 and there were queues round the block at all DIY stories before lockdown, they were closed for 4 weeks and would have been able to access wage subsidies etc. They would also have spent plenty opening those stores and it will cost to close them too.

by Ralph | 13th May 20, 12:09pm 1589328554

The premise rested on blaming the impact of all external events on your own lack of planning. Further, the premise allowed zero context, it does not matter that you were never warned, have no prior details of the disaster or the scale of it. Irrelevant (apparently).

So the link is; if you get sick, you should have planned for that. It's just another unknown, unplanned, external event nobody told you about. If the premise is true, then it's your own fault that you didn't build a stronger immune system. You were obviously 'flying close to the wind' with your health and should get no health care.

But of course, the premise is not true and the existence of a health system is proof we know it's not true and have planned for it not to be true.

by PocketAces | 12th May 20, 1:40pm 1589247618

I doubt they were able to pay either on Bunnings wages

by Camel's back | 12th May 20, 1:09pm 1589245760

So all governments needed to do to cool house prices, was reduce immigration.. Who would have thought.

by Averageman | 12th May 20, 1:47pm 1589248044

Haha...ha. exactly.

by Independent_Observer | 12th May 20, 3:21pm 1589253685

I'd imagine successive governments have been given the regular Treasury projections of the super burden on the horizon with boomers leaving the work force and realising how expensive it is going to get. How do we fix that? Immigration and lots of it. Deal with the issues that creates further down the track (like now) and have a double whammy.

by sharetrader | 12th May 20, 2:01pm 1589248901

paul goldsmith would not answer that question last night when jack tame asked him if he would open the borders again if they got in power, it took three attempts to get an answer out of him then it was a hmm haaa answer, that is nationals growth policy there high immigration and house price rises to make those that own wealthy

by RickStrauss | 12th May 20, 3:28pm 1589254121

Well. So they have no other policy to offer than high immigration and pushing house prices up?

And they were pretending the other day to be concerned about mortgaging our children and grandchildren's future? Sounds like a bit of fake concern, in that case, hiding every intent to go back to mortgaging the kids' future to enrich folk now.

by Nzdan | 12th May 20, 1:11pm 1589245914

: Popcorn :

by Ralph | 12th May 20, 1:26pm 1589246793

If houses prices did fall 12% could that mean the the value of a new house is less than the build cost?

What do you think?

by Averageman | 12th May 20, 1:46pm 1589248005

Surely old leaky, or poorly insulated houses be less than that new construction? Of course they should.

by Ralph | 12th May 20, 2:44pm 1589251444

Of course, but a could a new house build cost be higher than the resale price it could be sold for once completed?

by ShoreThing | 12th May 20, 3:22pm 1589253777

I doubt it. Why do you think new builds cost so much? If I was in the business of selling tulip bulbs, and then I found out that the guys I had been selling them to grew them into tulips and sold them for 3x or 4x, guess what - my price is going up 3x or 4x. I think you'll find that costs in the building process are inflated because everyone wants a piece of the pie.

by Ralph | 12th May 20, 3:38pm 1589254727

"Why do you think new builds cost so much"

I don't, I'm asking. Some industries work on 15% gross margins, so 12% would leave only 3% profit. But I have no idea about housing industry costs or margins.

If build costs were to exceed resale values that might have a paralysing effect on the building industry.

by Brock Landers | 12th May 20, 3:37pm 1589254633

Much of the overvalued price of houses is in the land.

by Dale Smith | 12th May 20, 7:14pm 1589267673

Land prices are overvalued by approx. 50%, in that, once you take out monopolistic land banking, infrastructure, and consent costs, then the true development costs plus margin could be 50% less than present.

by Foreign buyer | 12th May 20, 1:27pm 1589246831

RBNZ rule up to now for securing house price growth:

House prices look to dip,
Lower interest rate.... all good
House prices look to dip,
Lower interest rate.... all good.
House prices look to dip,
Lower interest rate.... all good.
House prices look to dip,
Lower interest rate.... all good.
House prices look to dip,
Oops...Interest rate = zero
House prices look to dip,
Oops...Interest rate = zero
House prices look to drop 10%
Oops...Interest rate = zero
House prices look to drop 20%
Oops...Interest rate = zero
House prices look to drop 40%
Oops...Orr retires....Game over!!!

by Ben72 | 12th May 20, 1:34pm 1589247258

https://i.stuff.co.nz/business/300010401/bnz-plans-to-close-city-branch…

by PocketAces | 12th May 20, 1:38pm 1589247507

The immigration ponzi is over IMHO, with travel becoming pretty expensive and the hindrance of having to quarantine, probably at both ends, it will be nigh on impossible for people to afford to travel backwards and forwards to visit relatives, which will cause people to think twice about leaving them in the first place.

by Chairman Moa | 12th May 20, 1:38pm 1589247512

This short video is summing up the Housing market in NZ...
Tim, Yvil, and few others are in charge of the control office and our favourite TM2 is the one behind the microphone.
https://www.youtube.com/watch?v=VSdxqIBfEAw

by CN | 12th May 20, 2:04pm 1589249081

LOL.

by Doggog | 12th May 20, 1:43pm 1589247827

The level of money printing currently in progress is truly bizarre. Is this a 20% dropped in nominal values on top the NZ dollar being smoked by QE? Those financial geniuses can't understand why the stock market has recovered so well. The buyers of stocks and other assets don't want to hold fiat currencies that are hot of the press!

Printing a one-dollar US bill costs 5.4 cents while printing a $100 bill costs 15.4 cents.

by printer8 | 12th May 20, 2:10pm 1589249406

Ah, what short memories.
Again the all-knowing keyboard warriors slagging off at bank estimates. Irrelevant that the banks have experience and expertise, have modelling tools (albeit not quite having experience of the unique specific current situation), considerable current data, information gained from numerous contacts, and most importantly a thing that will have significant influence on the market, the knowledge of their proposed lending criteria.
Yes, there is a high degree of uncertainty due to the extremely sudden onset of this change in the market and a lack of current data, but hey the keyboard warriors know best and for banks to acknowledge that there is some degree of uncertainty well - that just goes to show banks know jack sh*t.
Yes, all last year these all-knowing key board warriors slagged-off and rubbished Dominic Stephens/Westpac 7% increase in property prices. Only thing wrong was prior to the unknown Covid factor, house prices rose by 7% and Westpac were right.
But nah, nah, the keyboard warriors know best so listen up.
Me, if I was waiting and watching looking to purchase, I know what comments and expectations I would be noting.

by J.C. | 12th May 20, 2:44pm 1589251445

Again the all-knowing keyboard warriors slagging off at bank estimates. Irrelevant that the banks have experience and expertise, have modelling tools (albeit not quite having experience of the unique specific current situation), considerable current data, information gained from numerous contacts, and most importantly a thing that will have significant influence on the market, the knowledge of their proposed lending criteria.

That they do. Regardless, banks worldwide have a habit of understating forecasts for the obvious reason that their business relies on asset price appreciation, particularly in NZ and Australia. And to make a claim of "house prices will fall 12%" in a media press release without disclosing methodology or precise scenario parameters should be treated accordingly by the reader. Having worked with banks on consumer insights data, I can tell you that their leading people are not that skilled or clever with how they measure their own customer's behavior. And if you cannot quantify customer behavior, how accurate do you think house price forecasts are going to be? In my experience, bank leaders pay more attention to NPS scores if it is weighted towards their bonuses.

by printer8 | 12th May 20, 2:56pm 1589252217

JC
Yes, economic forecasting is not an exact science. It is simply factoring in the knowns and being guided by that.
Does one slavishly follow banks estimates - anyone who wants to make a sound investment, listens to comments, appraises these and other information and factors and makes a decision on that.
Personally, in terms of listening I wouldn’t be putting any weight on the unsubstantiated claims and slagging thrown about by some here.

by J.C. | 12th May 20, 3:13pm 1589253211

Yes, economic forecasting is not an exact science

Right so best focus on communications strategy. It's far better to "expect a fall of 12%", rather than "could fall up to 20% or 50%" if you don't want to frighten the flock or upset your core business.

by Independent_Observer | 12th May 20, 3:20pm 1589253659

Think I had a heated comment thread with someone here about a week ago - can't remember if it was P8 or Houseworks (or another property bull) about statistics.

I'd said I thought housing could fall 30-60% and for whatever reason they got completely fixated with the 60% but no other data point - i.e. the most extreme point of the range provided - you're down in the less than 1% probability if you look at the range over a distribution of possible outcomes.

Like above...best to just follow the 12% but then you start to question all of the variables, each with standard deviations of possible outcomes, to then conclude with a fixed number. How do we know we won't have a big earthquake in Wellington this year or the South Island...how do we know that we won't get into a nasty deflationary cycle this year....how do we know that we won't have 30% unemployment or a fall of incomes of 30% across households this year.....how would that 12% look then?

by J.C. | 12th May 20, 3:51pm 1589255464

System 1 thinking (fast, instinctive, and emotional). It's prevalent with things such as house prices as it taps into hopes, desires, fears, and concerns. I completely understand why this happens when they see 60%.

by Independent_Observer | 12th May 20, 4:44pm 1589258679

Yes read Thinking Fast and Slow by Kahneman a while back (system 1 and 2 thinking, biases, loss aversion etc).

People shouldn't get me wrong - if we see a house price correction (30% or more), then markets open up again, tourism comes back again. I'll be bullish towards housing. Just at the moment, its like 1929 in the housing market.

by printer8 | 12th May 20, 4:08pm 1589256497

IO
All of those scenarios are possible just like Covid has been.
However, we can’t be transfixed in a state of fear. Like crossing the road there is always the chance of being hit by the red bus, but we are prudent and cross the road.
Decision making - economic or otherwise - is about listening to advice from those who have some knowledge, considering all the factors Including risk factors, being prudent and making a judgement on that basis.
Simply slagging off and making baseless guesses which are often made on this site need to called out for what they are.
I recall both FB and you calling 50% falls in property prices without substantive reason. I call that out as a wild baseless guess as there was no basis, many are concerned about their personal situation and it was nothing but scaremongering.
I haven’t made a call as I have uncertainty about the significance of a number of factors.
However, I see consistency with two banks and an independent economist who I respect making calls around the 10, 12, and possibly up to 15%.
Those who simply slag-off the banks view (make their egos feel good) and then make a unsubstantial claim of 20 to 30% need to be called out.

by printer8 | 12th May 20, 4:22pm 1589257343

IO
Today:
"by Kezza R | 12th May 20, 12:18pmup
I'm guessing 30% to 50%."

So IO, are you going to defend that as a substantiated comment of worth?
I am too old to worry about being popular, but an unsubstantiated comment like that gets 15 up ticks!!!!! Come on.

by Independent_Observer | 12th May 20, 4:44pm 1589258653

If you understand the macroeconomic factors and behavioural finance concepts behind that outcome then yes its is a substantiated comment of worth.

I'm certainly bearish on property and have been for a while. But if things change over time (pricing and macro influences), I'll buy and I'll be bullish, but its like 1929 in the property market at the moment (it could even be worse).

by Independent_Observer | 12th May 20, 4:38pm 1589258294

I can only laugh P8..I'm sorry. All the best.

by Independent_Observer | 12th May 20, 3:15pm 1589253358

Did you work for a bank or something P8? Trying to get my head around your utter faith in what they have to say (remember they're sales people, just like any other company...the need to keep selling their mortgage product).

by printer8 | 12th May 20, 4:31pm 1589257868

IO
No, if you care to follow my comments I do not have utter faith in any one call - whether it be a bank or other commentator. However I never read Ashley Church / One Roof due to seeming bias.

I chuckle that you question the credibility of the banks' estimates, but as you say you have been calling a bubble burst for five years. Will be interesting to see if even an unforeseeable 1 in 100 year event in this time frame proves you correct.
However, rather than the banks, "me thinks its your credibility at risk here".

by Independent_Observer | 12th May 20, 4:33pm 1589258020

Ok good stuff P8

by printer8 | 12th May 20, 4:42pm 1589258536

IO
Cheers mate. Nothing like a little debate - it sharpens up one thinking and decision making.
Keep safe.

by Independent_Observer | 12th May 20, 4:46pm 1589258808

Or attempts to beat you to the ground with stupidity and I don't know which one of us that is yet - time will tell!

by Speechless | 12th May 20, 4:57pm 1589259446

Don't bother with the maths illiterates mate it's a lost cause

by Doggog | 13th May 20, 8:55am 1589316914

In the past when fixing my mortgage rate, I have done the opposite to what these bank geniuses suggest. They are herders of the masses and will steer you to take a rate that benefits their employer. They are experts on economic theory and I got sick of them saying rates won't be going any lower. Sitting in my armchair, I wondered with so much debt in the world how that would be possible. These banks experts are talking as if the system is sound and working as per their theoretical assumptions. The banks risk being made redundant under negative interest rates. Logically we only need one bank controlled by the money printers giving out these loans. The latest herding - 2.99% for 2 years. Sitting in my armchair I wonder how much lower are these rates going and if being locked at 2.99% next year might look expensive.
Negative interest rates - ready, steady, go!

https://www.rbnz.govt.nz/-/media/reservebank/files/monetary%20policy/um…

by estateagent | 12th May 20, 2:55pm 1589252124

But Mike Hosking and Ashley Church of OneRoof says there wont be much of an impact on house prices!

by Avocado | 12th May 20, 4:23pm 1589257394

im Sooo sick of the garbage OneRoof has been pushing lately its out of control

by realterms | 12th May 20, 8:52pm 1589273544

One of the agent newsletters I get is normally quite balanced (IMO) but has recently taken a rather desperate turn. Can't be too surprised that those who were always imbalanced have become even moreso.

by Chairman Moa | 12th May 20, 5:03pm 1589259797

Don't worry Alan Jones resigned today. 2GB Sydney will be on the prowl for some ultra-right shock jock.. Mike might be qualified for that.

by sharetrader | 12th May 20, 3:36pm 1589254589

National retailer Bunnings is proposing to close stores in Ashburton, Hornby, Hastings, Cambridge, Rangiora, Te Awamutu and Putaruru with 145 staff affected.
this does surprise me that they would close both Cambridge and te awamutu.
i had family that lived 1/2 between those two cities so back in the day if you wanted maccas you went one way if you wanted KFC you went to the other, its only a 10-15 minute drive down the motorway between the two cities.
i guess with the new motorway from Cambridge to Hamilton its just as quick now

by Glitzy | 12th May 20, 4:04pm 1589256260

If BNZ are announcing a 12% general price decline then their mortgage lending guys will be conservative and reduce home valuations by around 20%.

This isn't just BNZ, its every bank so what this means is pretty much every FHB who bought with under 20% down payment is now borderline negative equity. And this is just the start.

by Nzdan | 12th May 20, 6:51pm 1589266274

Starts with a price signal. Pied piper.

by Fritz | 12th May 20, 6:30pm 1589265032

Auckland rental listings on TradeMe are now nearly 4900.
Interesting, CBD properties seem to have plateaued / slightly fallen.
More suburban places are starting to get listed, and seem to be slow to shift.

by Solve_it | 12th May 20, 9:44pm 1589276665

Was it about 3000 when you started checking a month ago Fritz? If you don't mind indulging my laziness in not needing to go back and find your older comments

by Fritz | 12th May 20, 10:16pm 1589278613

Can't really recall, I think maybe it was about 4000?

by p0s31d0n | 13th May 20, 9:58am 1589320707

Funny thing is TradeMe removed listings count from page since yesterday.

by Welly-FHB | 13th May 20, 10:08am 1589321302

"Tick" the box to enable the map view. That will reveal the count.

by p0s31d0n | 13th May 20, 11:35am 1589326549

Thanks Welly-FHB :)

by Ahuhyeah | 12th May 20, 8:00pm 1589270449

How about a poll of our collective genius David?

Give us 10% increments from + 20% to -60%, a time frame (1 year?) and vote.

The most popular estimate is the official interest.co.nz readers "forecast" and we come back in a year to see if our herd intelligence was any good.

by b21 | 12th May 20, 8:56pm 1589273766

I guess that means they would not be giving mortgages over 88% LVR? Let's wait and see but we are all just picking arbitrary numbers, nobody really knows what will happen no matter how much they pretend to have a crystal ball. I could say 50% right now and be as close to the real number as the 12% from BNZ, just picking a number...

by PKchew | 12th May 20, 10:57pm 1589281032

I dont agree with this forecast of a 12% drop certainly not in Auckland anyway. Interest rates are low, a lot of money is swilling around the economy with the government spending big time, and the demand for houses in Auckland is greater than supply. I just cant see it dropping, but if it does it will be short term. The money zapping around the economy will settle on property at some stage.

by Mike1 | 13th May 20, 3:40pm 1589341249

I've yet to meet a NZer with money. Borrowing from your property doesn't count.

by THE MAN 2 | 14th May 20, 2:06pm 1589421982

So if you have many millions of equity in property, It means you don’t have money?
So that if you are on welfare and no job, you have money if you have $20 in your wallet?
I know which one I prefer!

by Doggog | 13th May 20, 8:59am 1589317173

https://www.rbnz.govt.nz/-/media/reservebank/files/monetary%20policy/um…

by S21 | 13th May 20, 9:04am 1589317495

As a recent FHB, unfortunately we may have had the worst market timing ever, bought in Jan and settled during lockdown. We do have a large mortgage (in my opinion) but it is only 2.7x our salaries in very safe jobs and we paid a 20% deposit with $40k cash spare just in case something happens. We have our repayments set to pay it off over 15 years as I’m not that comfortable with the mortgage size. We didn’t buy it as an investment, it’s a family home for us. I guess my question is, I don’t really know if I should be worried or not? Obviously a value drop will suck but we are repaying it back quickly to build our equity as quick as we can.

by Zachary Smith | 13th May 20, 10:46am 1589323568

You will be fine. I'm guessing a mortgage of around 500K. Interest repayments will be less than rent anyway. The low interest rates will ensure prices don't drop too much and it sounds like you are planning long term. Rest assured that a lot of people are working behind the scenes to ensure that people like you will be okay.

by mikekirk29 | 13th May 20, 10:58am 1589324301

Try again sorry?
Over supply = price falls
Lack of buyer confidence means more inventory and fewer sales
Unemployment doubles
Little immigration for 6 months
Etc

by Solve_it | 14th May 20, 8:40am 1589402449

Sounds to me like you will be ok too. 15 year mortgage term sounds like you had your head screwed on right from the start and didn't buy into all the hype that's been thrown around for the last 15 years. You'll be grateful for your pragmatic decisions / prudence in purchasing in about a year's time I reckon.

by mikekirk29 | 13th May 20, 10:27am 1589322432

Mostly spot on reasoning
However? 12% by when?
By Xmas in my view and more after

by mikekirk29 | 13th May 20, 10:30am 1589322647

For succinct summary of my view on prices and sales in Auckland please see my column on LinkedIn recently

by Adele Etheridge | 13th May 20, 1:57pm 1589335060

no one should listen to economists they are seldom right and are doom merchants at best.
Our market cannot be compared to anywhere else as it is quite different.
I am predicting a boom in residential construction started by the government.
I am also predicting Labour led coalition voted in September as anyone who thinks the nats,are worth backing don't get they will let the borders open and covid back in
I am predicting unemployment to drop after a short rise. I am predicting that lots of people will learn to grow food and,bake bread ...