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Westpac says predictions of house prices falling "have been proven wrong"

Westpac says predictions of house prices falling "have been proven wrong"

Westpac has done an about face on house prices and now expects them to keep rising this year and next year.

In a Home Truths newsletter Westpac chief economist Dominick Stephens said when COVID-19 broke out, Westpac's economists predicted a 7% decline in house prices between March and December, while other major banks, Treasury and the Reserve Bank picked even greater declines.

"But our collective predictions of house price decline have been proven wrong," he said.

Between March and August house prices had actually risen 2.6%, which Stephens said was "no statistical quirk or brief period of catch up."

"Back in July we upgraded our house price forecasts," he said.

"We shifted to forecasting a fall of 2.5% over the second half of 2020 and an increase of 8% over 2021.

"We now expect an increase of 3.5% between March and December 2020 and we are sticking with an annual increase of 8% for 2021."

Stephens said there were two main reasons the housing market had performed better than expected - the overall economy had been more resilient than anticipated and lower interest rates had a bigger impact on prices than expected.

"We were stunned when we saw that, outside of activities related to international travel, the economy quickly rebounded after the first lockdown," he said.

"For example, employment fell by 34,000 people in April, but had regained the entire loss by June.

"Early data is showing that the second lockdown is following much the same trajectory as the first - a hit to activity followed by a rapid rebound."

As a result, Westpac's GDP forecasts had also been revised.

"Our original GDP forecast was that the economy would shrink 3.6% between March and December 2020," Stephens said.

"As the facts have revealed the surprising resilience of the economy, we have upgraded that to a 0.6% decline in GDP over those nine months.

"Similarly, our forecast for peak unemployment has dropped from 9.6% to 7%.

To be clear, this still amounts to a severe recession, but it is not as bad as we first feared."

And falling interest rates also appeared to have had a bigger than expected impact on house prices.

"Our original expectation for a fall in New Zealand house prices was based on the fact that prices fell during the recessions of the early 1990s, 1998 and 2009," Stephens said.

This created an association between rising unemployment and falling house prices in the data, and we expected that association to repeat.

"But all of those past recessions were preceded by a rapid increase in interest rates, whereas the current recession was not.

"This unusual feature of the current recession may be teaching us that interest rates play an even more powerful role in determining house prices than previously appreciated."

However Stephens also warned that house prices couldn't keep rising indefinitely.

"This cannot continue forever, so the big question is, when will it all end?" he said.

"The answer is when inflation rises enough to concern the Reserve Bank.

"Only at that point will the Reserve Bank see fit to increase interest rates.

"When interest rates eventually do rise, the forces that have driven New Zealand house prices ever higher over the past decade will go into reverse."

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Westpac may well have it right this time??


They are just trying to not to scare more people off the market, hi TTP!

Or is it MadMax?

No Mao, I'm MadMax. It's in fine blueprint beside the date
Confirm with
Don't go all Billy TK on us now :)

So true, once investors lose confidence , they start selling and stop buying. There goes the bubble!

Just yesterday you were complaining about DGMs being unaccountable for their incorrect predictions. Seems to me that you're not holding Westpac to that same standard. Care to explain why?


Easy, now they support his narrative, it is called double standards.

Certainly, there's scope for Westpac to do better.....

But Westpac's track-record is far superior to that of the DGM - who have been consistently wrong in their predictions (and comments) over many years.

Having continuously misled and deceived people for so long, the DGM have an appalling record - disgraceful. Westpac is much more credible - in a different league altogether - as are the other trading banks, NZIER, BERL, Infometrics, RBNZ and The Treasury.

POSTSCRIPT: Importantly, unlike the DGM, the credible forecasters named above regularly review their forecasting accuracy - and hold themselves accountable where there are deviations. Certainly, that's the ethical approach used by professionals - and so conspicuously absent across the DGM...... Trying to get accountability from the DGM is like getting blood out of a stone. They duck and dive in all directions.


The ol' DGM. The cause of the world's woes. Perhaps you could start movement towards a fatwa on Ray Dalio.

Ray Dalio isn't a DGM
He's a realist, and continually learning. Read his writings please
Kind of the opposite of a DGM, which helps explain his success as a capitalist I guess...

So the end of the debt super cycle is not DGM?

Yes, correct

Interesting. Ray Dalio is often outspoken in negative sentiment on the end of the super cycle. How does that not make him a DGM?

Your trolling is not making a lot of sense. Dalio is recently quoted as saying ZIRP is likely to be harmful. If that's not DGM, I don't know what is.


The DGM might have got predictions wrong but at least they don't break the law...

"Westpac originally predicted a 7% decline in house prices between March and December, while other major banks, Treasury and the Reserve Bank picked even greater declines."

Seems to me that neither Westpac nor RBNZ and the Treasury have a track record of accurately predicting prices. Care to share some examples of where their predictions have been accurate - surely you have some examples you can share to justify your claim that"Westpac's track-record is far superior" because as far as I can tell both the experts and the DGMs are as accurate as chimps throwing darts. Only difference is that the DGMs have the decency to not draw a salary from their bullshit.

All these predictions happened before the RBNZ would go completely bonkers with their kick-the-can-even-further policies so I'd say they were right at the time.

I always thought the RBNZ would do that, and even so I thought prices would drop 10-15%.

Yet the RBNZ still made these predictions. Seems like even they don't know what the effect of their actions will be.

"Seems to me that neither Westpac nor RBNZ and the Treasury have a track record of accurately predicting prices"
To be blunt; while you may think that your comment gives you some sort of smugness or air of superiority it actually reflects a high degree of naivety and inexperience.
For a start; if you have any experience of making personal financial plans, you will be aware of making making a number of assumptions and expected outcomes. If you do have experience of doing so, you will know that you will adjust these as time goes on and as things change, and you will find that your original expected targets not always exact being either better or worse than originally expected. That is the real world we live in.
Both RBNZ and bank economists make estimates based on a number of variables which can and often do change. How can it be an exact science when bank economists don't know some of the most important current variables - the size and timing of RBNZ actions and potential for further outbreaks of Covid.
As one who has been involved in personal planning and successful investment for many years I find Bank estimates an excellent tool. I do not rely solely on these but use them to help reassure me in my planning and decision making - that is what makes investors successful. This is common practice among the number of experienced and successful investors I know - your comment clearly suggests that you are not one of these.
You know, your comments remind me of someone who goes to the races, reads the form guide, notes one baseline prediction, doesn't use their brain, doesn't read the substainated background to the predictions ( dry tack expected but it was wet), expects the prediction to be exact, and then moan when the horse doesn't come in.

. . . and oh, and when did Westpac get it right? Well, this time last year they were suggesting that property prices could rise by 7% early 2020. They were met with wild dismissive calls on this site who were maintaining bubble bursts. In March, pre-Covid, they were on the button.

Hi printer8,

That's outstanding analysis - and very helpful advice.



"that's the ethical approach used by professional"

So, something you aren't really that familiar with..

"that's the ethical approach used by professionals"
Pot, kettle, black ! Anyway, have you pay your hefty fine?

Westpac said house price goes down, and it went up.
Westpac said house price goes up, and it will go down.
I could guess better than Westpac

What happens to NZ house prices once things go back to normal and all the returning kiwi's go back overseas - the houses they are renting or have brought go back into the pool. This combined with NZ inc. sorting the immigration strategy out will make for interesting times.....

Just been walking with my son (engineering grad now an ops manager) and basically him and most of his friends are looking to leave NZ once Covid simmers down - NZ is becoming to expensive to get ahead... What happens when our youth leave en masse?

Who cares about our youth?
Most kiwis and our government don't....
Other than in superficial ways.


Don't worry, the government du jour will welcome hundreds of thousands of desperate immigrants from the third world to immigrate here when that happens. It's the well thumbed playbook of most developed countries to keep their elites rich and the middle class compliant.


Hopefully our best and brightest can leave this over priced retirement village and live a rewarding life. The only true currency is your time, spend it wisely and somewhere where it's valued.

Well if our young are going over there, wherever that maybe, then they are obviously immigrants. So if young people come here whats the problem?

I dont disagree with his analysis but he seems to have missed the possibility that prices could be impacted by Ue and wage cuts if these affect the affordability of rents and push rents lower. (The value of an investment simplistically defined as future revenues / IR).

His observation that prices are being driven predominantly by rate cuts seems bang on the money though as there is nothing happening in the real economy which would drive prices higher (immigration, wage growth etc).

Assuming it is rates that are driving prices higher what he is really saying is expect lower mortgage rates next year.

Not sure about your comment with regards to immigration. In the year to March, immigration surged to 86,000, a record high I believe. A period of quiet due to the lockdown, and now all these people need somewhere to live.

The government has provided the fuel in the form of continued mass immigration and tax free capital gains, and Adrian Orr has lit the match.

Historically you are bang on but I think we are in a brave new world.

Two wrongs don't make a right?

How could bank economists be 'wrong' in such a short period of time? These are NZ trained and bred economists after all (NZers tend to think they know more than the rest of the world [like Mike Hosking] and that applies to almost everything).Do their models need recalibrating? Or do the models need to be replaced by an opinion poll of the collective real estate industry with their subjective wisdom?

Perahps it means Ashley Church and high priestess Bindi are indeed deities of the housing cult in NZ and Granny Herald text is indeed as powerful as to anything that Nostradamus predicted. NZ housing. Could go down as the the asset class that confounded people the world (except the collective 'I reckon' of the Newstalk ZB audience).

I think in volatile times their models are almost worthless. Their models are built for BAU.
He's far too quick to lurch to a bullish view on housing. At the very least he should be throwing caveats out around how the economy evolves in the next year...

Dominick Stephens is not on to it.

Dominick is, in fact, a very good macroeconomist and a safe pair of hands. A true gentleman too.

He's a hands-on manager with fine people skills - and respected by a range of independent forecasters...... Someone to watch.



Blimey, a glowing reference indeed. Are you his dad ?

Na, he's MadMax ("sarc on") to the bozo's

Or his father in law. A uniting of the banking and regional property industry, a dynasty to rule forever!
Bwa ha ha ha ha

But referred to as a crystal ball gazer by some on the board!

I don't see it. Also, his views on real estate tax are a worry. Dominick, Shamubeel and Marama would get on like a house on fire. He'd happily have us turned into a nation of tenants paying annual tax/rent for our own land to our government landlord.

People also seem to forget LVRs being removed... mortgage lenders are having to fight off with a stick not only FHB but Boomers looking at expanding the rental empire

Im just afraid of all the people over leveraging, banks included

I don't think boomers are affected one way or the other by loosening LVRs, they have plenty of capital and can afford lower yields. It'll be gen X and gen y looking to build their portfolios while they can who are taking advantage of current favourable LVR limits and low interest rates.

Bank Economists are like reef fish. Houses are going down! Houses are going up!

To be fair, whether house prices go up or down has nothing to do with the housing market per se. It's all about what the RBNZ and government does.

The can prop it up or watch it fall. What am I saying, they never watch it fall - they always prop it up.

Adrian Orr as King Herod.

If you have that conviction Davo, why don't you invest in property?
If you feel guilty about your wealth, and/or have a kind heart you can then donate to your favourite charities

Why do you try so hard to get people to invest into property? Not everyone is interested in investing property anyway, plus the return at the moment is not as good as before.

I don't. Why would I want the competition??

I do invest in property. And I do give money to charities.

Good on ya

We have charities because people invest o much into properties...just saying

Agreed, the question is have house prices even gone up or has money got cheaper?

Ha ha hilarious. The folly of house price predictions. And they have made the same mistake again....

Folly? House price predictions?

Is there an association here? I think you might be on to something Mr or Mrs Fritzy.

In the 2015 - 2016 Financial Year property contributed $29.8 billion to the economy, more than manufacturing at $25.2b. Meanwhile according to RBNZ C32, existing mortgage lending increased by $4b - $5b per quarter.

For $19b of additional borrowing, we're only getting ~$30b in GDP? What's worse is if you take 3% of $200b (existing lending @ 2015) there's $6b a year in Interest. Borrow $19b, pay $6b in interest on existing lending = $25b out of $30b???
But then that extra $19b is now interest bearing at $0.6b p.a.


Yep, which is why property is pretty unproductive. Sure it might give people a nice feeling, but the problem is more and more of our economy is based on it. It's only making us all poorer in the long run, minus the top 10-20% who are absolutely creaming it.

Huge borrowings, the servicing of which goes offshore, for limited economic impact. It's basically a bad investment for the country.

Imagine if that $19b went into creating businesses? Sure, half of them might fail, but that $19b get's paid back pretty quickly over the coming years from the successful ones and much of the wealth would be retained by NZ based owners.

Unfortunately property takes all the investment away from the productive sector in NZ. Which is why so many companies list overseas to get access to capital, rather than in NZ. The government is complicit in this by having a tax system heavily favouring property investment by not taxing capital gains.

Unfortunately, property investors think they are business owners and entrepreneurs. Really just following the “we are one“ mantra. Look down the street and you’ll see lots of houses looking sad and neglected. With a bit more investigating you’ll find they are either owned by retirees who haven’t spend any money on their home for 30 years, or they are rentals where the landlords do nothing but the bare minimum. Too many are in it to make a quick buck. Too few are professionals who try to do the best for their tenants and have been in the game for a long time. Friends who rent say they always try to look after house as if it were theirs, keeping it weed free, clean tidy driveway water blasted once a year and a cobweb free entryway etc...... But they are the minority. Have been through a few rental open home viewings too with them and 99% of property is not presented well - never fails to surprise me the mess both landlords, rental agents and tenants think is acceptable. Oh and most are $1000 + per week.

As i've said in the past, buying family homes and renting them out do'es nothing positive for our economy. Why governments of the past has'nt jumped on this I will never know. Then on the news this morning they are saying many landlords are planning to put up rents, greedy bastards! Considering the circumstances.

Whenever I see economists at our banks quoted it reminds me of US President's quote Lyndon B. Johnson Making a speech on economics is a lot like pissing down your leg. It seems hot to you, but it never does to anyone else.

The possible role of Covid winners on the market.
The performance of the housing market is surprising. Some of this demand is likely coming from recent NZ expat returnees, fresh from their OE earning comparatively high wages.
However, there is also likely to be significant pressure from the numbers of NZ Covid winners.
Yes, unemployment is up and is likely to increase - and we tend to focus on these however, it needs to be remembered that many of these are in low paid tourism and hospitality with many being renters rather than home owners.
It is those with secure jobs - often more highly paid - that are winners with falling interest rates; improving affordability for FHB ( reports) is a the obvious example.
Existing homeowners with job security are especially big winners - actually, very, very big winners with a double whammy. They have seen interest rates fall from 6.75 in 2014 (RBNZ) to 2.5% and likely to all further over the next year; in terms of mortgage payments, over the past six years their mortgage payments are likely to (conservatively) have fallen just over 4% - in the pocket that is about $16,000 pa or just over $600 per fortnight on a $400,000 mortgage.
The typical length of owning a home is somewhere around seven years. So those who bought in 2014 are both likely to be approaching the time to trade up and - provided they have job security - are confident with that extra $600 per fortnight in their pocket - with overseas travel off the cards it is not surprising that home renovations are up.
With job security, that extra money, considerable increase in their equity with house price rises (see note below), a likely fall in interest rates and growing consensus of house price rises it seems that the planets are lined up to trade up - or even buy that rental.
How many homeowners are we talking about?
RBNZ figures show that in the year from August 2014 (their first data) there were 20,000 FHB and 242,000 new mortgages.
Do the maths - if just 15% of these FHB and owner occupiers there are possibly 39,000 out there looking at either trading up or buying a rental. If 25% do so that is 65.000. Add to that 3,000 new FHB per month.
Putting that in perspective REINZ figures show that agents sold just over 6,000 properties in August.

Note: Since 2014, national house prices have risen by about 80%. Due to mortgage leveraging, with an initial 30% equity, ones equity in that house is now likely to be about 60% - of course we are in a position to trade up. I’ll show the maths on that if needed.

Good comment, agree.
But the big question is how does the economy and employment hold up in the next 6 months? And especially employment in white collar roles? I am hearing a few stories of some cracks appearing with redundancies.
The health of white collar roles is the key moving forward. As you say many of the job losses have been among people who don't own homes.

It will he interesting to see the results of Tourism Holdings in Oct. Its business has been torched by Covid. We were at Waitomo last weekend. Chatting with the guide they are operating with 10 guides some of whom are part time. In usual tourist season they would have 90 guides. The majority of their other businesses seem to be doing equally badly ~ camper rentals etc.

I mention this because you dont keep the same level of management "white collar" jobs with 1/8th of the staff and this is where all the housing analysis is falling down, ignoring the down the road effects of Ue and wage reductions.

The stimulus of IR cuts will come to an end pretty quickly in the next 6 months as even the ECB has drawn the line under a base rate of -50bps. As an economy trading like an emerging market (small, limited liquidity), NZ cant go that far so a couple of cuts to OCR and a bit more QE might see us with a further 25bps or so mortgage cuts (equivalent to an 8% price rise) but there is nothing left in the tank after this and importantly nothing other than fiscal policy to stimulate the economy.

Since Labour have already announced we aren't getting any tax cuts that only leaves public spending and we all know that never supports white collar jobs, its primary purpose is to maintain employment in blue collar roles because this is where the majority of folks work.

Yes, I agree. Although tourism companies don't tend to have that many white collar roles.
From what I hear professional services consultancies are a mixed bag. Some of the big engineering consultancies are going fine, with big infrastructure contracts. But some mid size firms, more exposed to the property development sector, are finding it a bit harder.
I know one or two people in recruitment consultancy and it's a bit of a struggle for them.
I have no visibility of the finance sector, and associated sectors (law etc). Presumably if the sharemarket and property sectors are doing well they are doing Ok???

I work in professional services and we’ve a) stopped filling vacant roles and b) started to review staffing for 2021 as we expect demand will be less. The cuts will be at a middle management earning $90-130k as we can utilise some of the shared services with our AU branch

Printer, that is a nuanced and common sense analysis, thanks.
My contribution on here is referring to a cycle I have been studying over the weekend.
Hope this is of interest to readers, incl yourself.
It does contain a sales forecast and a forecast re the current boomlet.
Price, not so much, although it would be nice if a few folk would engage in forecasting a real terms % increase in Auckland HPI, for the next 9 months for instance.
And another forecast for when it will go back into stagnation.
Yes, I did indeed forecast (like Mr Stephens , I do attempt forecasts) that median in Auckland would fall by 25% prior to end of 2021.
I would say that given QE and LVR removal and rate cuts, my forecast is looking unlikely to be met now.
Stagnation from mid 2021 for 3 years, more likely.
As Keynes said, when the facts change I change my mind.
Bank economists do it all the time, as you will see.
Since I made the original forecast, about 9 months ago, QE, LVR removal and rate cuts, plus CV19 have all occurred , none of which were anticipated.
I feel that much of what is likely in 2021 will also be unanticipated and number one on that ist is going to be much higher inflation than anyone prominent is currently looking for.

Every one seems to be surprised by the strength of the market and in particular the increase in price. Yes, even bank economists - and I suspect RBNZ - are revising their earlier predictions so even early sound substantiated estimates by all are having to be adjusted.
My comment is in response to questioning as to why this is.
There are a number of both positive and negative drivers likely to be affecting the market.
However, it appears not simply about falling interest rates and improved FHB affordability, and demand from Expat returnees. Nor is rising unemployment creating a negative impact. As to the economy; yes, GDP has been severley affected but the commentary on that is the economy has bounced back relatively quickly after the two lock downs.
But meanwhile the property market is going gung busters and I think that the impact of the Covid winners is both significant and over-looked.

You are on to something with the 'covid winners' angle.
I think it's nothing to do with returning expats.
If you have well paying, secure employment then why not buy, especially with mortgage rates so low (by NZ standards).

This is a great comment printer8, nice analysis with data to back it up.

Thanks for that blobbed as we often have differing views.
Following Covid with the likelihood of falling house prices and falling cash/term deposit rates I posted that I was cashed up, watching and waiting.
I am now currently looking at purchasing an investment property with my son (he can do the work) sooner rather than later.
The rationale is that the market is currently strong and because of the “Covid winners” I refer to, and the possibility of future lower mortgage rates there is likely to be continually upward pressure on the market. I think that in the short term these factors are more important than the influences of migration and supply. Bank expectations give me some confidence in this.
A lot will depend on the Covid impact on the economy (including further outbreaks) but the impacts after two lock downs is seemingly less than expected. Given the current strength of the housing market and lesser economic impact, it may seem that RBNZ has over cooked things rather than under; for this reason there is the possibility that future RBNZ actions may be less than many expected.
Sadly this is not good news in the short term for potential FHB - especially those with job and/or income security.

We will see however what the end of the wage subsidy (if it ever ends?) will bring. I think we are at an interesting point right now and for the next couple of months, the wage subsidy has finished and isn't likely to start again until potentially November/December, once the horse and pony show is over.

Deposit data has shown huge growth recently, I suspect from people saving much of the government handout, but I bet this will take a dive as people use these savings for day to day living over the next few months. This will affect bank funding as well and they may further tighten especially if unemployment takes another knock.

Auckland price fell 2016-19. That was not a recession. Not mentioned as does not fit narrative.
For him to say the bank did not appreciate how much interest rate cuts drive house prices is indeed priceless.
The Auckland market has a 56 month cycle which is not recognised.
I refer to historical trend back to mid 2007. And I refer to sales, not prices.
In that time frame, there has been no connect between price and sales, as I prev have averred and thought.
Interest rate cuts and LVR are prime driver of house price rises and sales rising and falling.
However, sales also have an elasticity to that equates to reversion to the mean.
From 2007 to 2020, the pcm average sales have varied from 1347 to 2699.
In last 5 months (excl April and May due to lockdown distortion) the average is 2417.
Compared to same 5 months of 2019, that is a rise of 32%, as 2019 pcm average was 1831.
In last 12 years there have been 5 periods when block of 8m sales have been succeeded by an 8m block where sales were 18-28% higher. The most recent prev occasion was in 2014-15, where pcm monthly sales peaked at 2699. I expect the current boomlet in sales to last til November and peak at about 2684 pcm for the 8m period up to November. From that point sales will revert to mean, over next 8m, up to July 2021. July 2021 is end of the latest 56 month cycle that started in December 2016. HPI will not rise much in this 10 month period. Interest rates are not forecast to go negative and economic news not as bad as forecast by RBNZ a few months back, so further cuts in rates will be minimal. So, sugar hit will not be replicated and after those who wanted to move up brackets (in price terms and quality of house) have moved, stagnation that existed 2016-late 2019 , will resume. Except this time no further cuts are available. When inflation arises, as it surely will, what will RBNZ do? raise rates? I would not hold my breath

*Trys not to giggle*
*Rolls eyes*

Dear DGMs, can we call the other lot something?
How about Pollyanna cheerleaders?

Definitely, and in between are the investor realists

Fair comment. But they are a little more privileged in their decision making choices.

Mainly only via self-education

More-so in their self-congratulation and good luck.

and a dose of self inflated egos

"Spruikers" works for me...

Just call them 'DGMs' as well -1) it helps to emphasize that house price rices might (shock horror!) be a bad thing, and 2) hopefully will render the stupid label so confusing that people will just have to stop using it altogether.

Boomers want their cake, boomers want it now or boomers want more?

Getting bored with this boomer thing. Nothing has changed, get over it.

"For example, employment fell by 34,000 people in April, but had regained the entire loss by June."

Oh dear


Haw Haw !! .......just arose from ones 120 yo antique leather bound buttoned sofa, here in ones holiday home (or should I saw palatial mansion ...haw haw) on 7 Mile Beach, Grand Cayman Island, to see my fine fellows at the central banks around ones world, keeping those interest rates at record lows, only to get lower... haw haw.

So to extract as much as possible, out of the proletariat of their meager net income ....whether through mortgage repayments or rental income all ends up in ones pocket ....haw haw

And a huge "tip of the top hat", to all those wonderful landlords, who do such fine work, collecting one's funds, or should I say rents, for moi and my ilk's behalf. A filthy line of work, but someone of one's eminence would not lower themselves for such a task.

Anyway, one must dash as a dip in the azure blue Caribbean Sea awaits .....followed by cocktails in the garden at 5 and of course moi's will be a Mai Tai, made with 50-year-old Appleton Estate rum ....truly a delight for one's palate.

Toodle pip for now.

Haw Haw !! .......


Love it.

So sorry CC, I pressed the report by mistake ! cheers Crazy Horse

I saw some figures that had Auss household income up by 14% in recent times - Covid payments.
Have just spoke to an AUS contractor, was 20% down on revenue due to drought, but has just received $350k he didn't need, another $150k is in the post.
Back here in little ol NZ the same thing is going on. A confetti of cash. Ask any accountant.
Finance charges, rents, leases, mortgages.... just not being paid.
But WP think house prices are going up.
Maybe they will.
It's magic.

Funny Munny

The alchemy of the 21st century

Mr Orr has almost certainly issued window guidance orders to the banks. In return for QE bond swap they must meet huge lending for mortgage targets each month.

Why would the central bank put commercial banks in such a position.

"And falling interest rates also appeared to have had a bigger than expected impact on house prices."
That's a crucial line.
I think the expected part, that increased 'affordability' simply pushes up asking prices, could/should have been expected. What was perhaps underestimated is how those same lower rates make other investments undesirable, pushing investors into housing... and how the expectation of inflation via those low rates does the same... it's not one mechanism but several.
The question I have is, are there any countervailing forces? Rents (in AKL at least) aren't raising in line with purchase prices, so already-thin yield gets thinner. When financial investments are returning so poorly though, 2% yield after costs doesn't look so bad, and the (perceived) risk is lower. I suspect a lot of landlords would rather bleed through a period of negative yield than sell up and put their money... where?

I've said before that yield may not matter much at all, anymore (if it ever really did).
When there is no return in TD's, and the sharemarket can be volatile, then 2-3% yield is OK, especially when you are expecting (with some justification) un-taxed capital gain.
So here'a a question - when yield doesn't matter any more, and it's all about capital gain, might a CGT have more impact on investor behaviour than it might otherwise do?

I can see why it might be more effective when yields are low, yeah.
I'm in favour of a CGT, but at this point I don't know that it would be super effective. The bias towards property as an investment is so ingrained, I don't think it can break unless it *really* breaks. Much as I'd like the gov't to *try* and correct this, there's only so much they can do against the power of habit, and comfort, and lack of alternatives.

Yeah I am not sure about effectiveness of a CGT, we should still have it on a principles basis though.
The problem with CGT is that the tax is a minority of the gain. If it was 50% then it would have an impact but I don't know any country that is anywhere near that punitive?

I wouldn't cry about a 50% CGT on property, but I doubt it's politically feasible.
If property is now more attractive because it still offers potential capital gains and other 'safe' asset classes are not delivering, I wonder at what point the expectation of future capital gain would stop? In this 'untethered' atmosphere, it's really all about sentiment and expectation rather than anything tangible. Bit like the sharemarket, I guess.

I wouldn't cry about a 50% CGT on property, but I doubt it's politically feasible.
If property is now more attractive because it still offers potential capital gains and other 'safe' asset classes are not delivering, I wonder at what point the expectation of future capital gain would stop? In this 'untethered' atmosphere, it's really all about sentiment and expectation rather than anything tangible. Bit like the sharemarket, I guess.

Back 2005 people did “catch up buying” because the predicted correction didn’t happen and back then the interest rate was way higher..

Isn't the underlying cause of high house prices the fact that most of the big city councils in New Zealand have not released ANY LAND for 40 years... As a result land prices have been rising, (not construction costs) and now constitute 60% of purchase price - versus 20% in the 1970's. For example, Auckland City has had a "Rural Urban Boundary" since the 1980's.

In my opinion, if the boundaries are retained, our children will all be serfs and paying 70% of their wages in rent.

Two headlines in direct contrast to each other at the same time :

CAUTION : very large GDP fall approaching and Westpac expect house price to rise in 2020 and 2021.

Surreal time...surreal economy

Not to forget that net migration turns negative for the first time in seven year which has been one of the main pillar of NZ economy growth and also wage subsidy coming to an end so will it have an affect on unemployement.

I disagree its all yet to hit the fan. Personally I don't look at the NZ market, I'm focused 100% on whats happening in the USA because if they crash it all goes down like a house of cards. With all that said I'm still probably going to buy a house very shortly because you simply dont want everything you have in the bank right now either.