Westpac's economists see red hot housing market continuing well into 2021

Property

Westpac's economists think red hot housing market will continue until interest rates start to rise in 2022

5th Dec 20, 8:46am by Greg Ninness

Westpac's economists are picking annual house price inflation to peak at 16% in June next year, and then to decline slightly to 12.2% by the end of 2021.

In their latest Home Truths newsletter, the bank's economists say the currently red hot housing market is likely to continue well into next year.

"All of the usual indicator dials are now redlining, indicating ongoing rapid house price inflation for at least the coming few months," the newsletter said.

"The driver of the current increase in house prices is low interest rates.

"Physical factors like net migration and housing supply cannot be the driver right now - net migration has been zero since April and the construction sector is booming.

"Over 20 years, rents have risen 29% faster than inflation, but real house prices have risen 158%.

"Physical shortages cannot explain why the price-to-rent ratio has doubled, or why property investors are are now willing to pay 30-40 years' worth of rent to secure an investment property, whereas they used to pay only 15% to 20%.

Falling interest rates do explain the observed blowout in price-to-rent ratios - people are now willing to accept lower yields when they invest in anything from shares to property, and when interest rates fall, owner-occupiers find that the rent-or-buy decision favours buying."

However the newsletter also says the bank's economists are picking interest rates to eventually start rising again.

"We are forecasting significant increases in fixed mortgage rates from 2022 onwards," it said.

"If that is correct, then rising interest rates will eventually cool the market.

"In fact, we expect mortgage rates will rise high enough to cause a period of declining house prices around the middle of the decade."

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120 Comments

by Carlos67 | 5th Dec 20, 9:06am 1607112415

The unthinkable has happened in the New Zealand housing market with house prices going UP instead of DOWN in the middle of a worldwide Pandemic, but there you have it, adapt quickly and move on with the new normal.

by Bugger | 5th Dec 20, 10:04am 1607115898

There's only one person who controls house prices, no not Jesus, but close. It's the one and only Orracle.

by tothepoint | 5th Dec 20, 11:05am 1607119551

Rising house prices help sell newspapers.......

People love reading about the housing market - and NZers are becoming increasingly addicted to property.

Worse still, there's no cure - or vaccine.

TTP
P.S. Wespac has likely got its forecasts correct this time: the housing boom seems destined to continue into next year. But things will eventually slow down, giving people a chance to catch their breath before the market takes off again.

by Nifty1 | 5th Dec 20, 11:25am 1607120756

Is that you Orr? Do people still buy newspapers...

by tothepoint | 5th Dec 20, 11:39am 1607121550

Enjoy reading my daily (Whanganui Chronicle) over a fag and coffee each morning.

Not sure about Adrian.

TTP

by Zack Brando | 5th Dec 20, 2:37pm 1607132233

Property advertising revenue supports newspapers.

by b21 | 9th Dec 20, 9:14am 1607458467

What a joke, WP forecasts are likely right just when they support your narrative?

This is just wishful thinking and what we are seeing now will not last, the market was already showing signs of exhaustion before COVID and there is just as much as stimulus can do for a prolonged period of time.

by flyer | 5th Dec 20, 12:09pm 1607123372

A home is like food, everyone must have it, whether to rent it or own it. It'll never fall out of favour.

by Dale Smith | 6th Dec 20, 6:29am 1607189363

Doesn't mean it has to be expensive or some get to gorge themselves while others starve.

To keep the food analogy going further, if the Govt. policy limited food production so badly and people were short of food and that even fresh bread was hard to come by, then the price of even stale and moldy bread would also rise and become a sort after food item.

This is the NZ property market.

by flyer | 6th Dec 20, 9:09am 1607198971

Like I've said before we are too deep in it to go back. Too many people are in the game and to screw up property prices or regulate in any way may affect the overall economic confidence.

by Dale Smith | 6th Dec 20, 7:52pm 1607237572

The moment someone says 'let them eat cake,' then a few heads will roll. Not quite at that point, but close.

by status quo | 6th Dec 20, 9:12pm 1607242375

Too deep to go back? Not necessarily. Buying a home does not come with a guarantee that prices only go up. I bought a house whilst living in London, renovated it and lived in it for 8 years.. Due to economic conditions come time to sell it and return to NZ, It was worth less than what I paid for it. There were no bail outs- everyone just had to suck it up. Sadly many families lost their homes at this time. No country, including New Zealand, is immune to the possibility of such an event- Ireland being one of the worst hit. And when the real cost of Covid presents a little down the road people will be wondering why they didn't see it coming. This charade which is so out of whack with incomes will not last forever and some at the party won't have a seat when the music stops. Hold on to your hats folks.

by HW2 | 6th Dec 20, 9:19am 1607199540

You have 'unwittingly' put your finger on the source of the housing market's problems... "if the Govt. policy limited food production (building of houses) so badly and people were short of food (houses) and that even fresh bread (new houses) was hard to come by, then the price of even stale and moldy bread (houses) would also rise and become a sort after food item."

This is a problem which the govt can fix by cutting regulations and policies that constrict the supply of homes. These days as the population ages it's not so much single houses and urban sprawl but more intensive and more compact dwellings that suit smaller households as well as older.

by Quidgybo | 6th Dec 20, 10:19am 1607203177

That fixes the supply side for sure. But what controls the demand side?
I've actively lost out on 6 houses in central Auckland now. Each time it's the same pattern. First the FHB's and movers bid to a high but semi logical level, then the spectators start. Bid, bid, bid, mortgage advisors in tow, frantically working out how long until it will take to yield something. How much capital gains might offset the short to medium term loss on rent. Sold for bazillion dollars over what it's worth to people to live in. Sickening. Even if they don't win, their bidding hugely inflates the prices. And that is the problem.

by Independent_Observer | 6th Dec 20, 10:24am 1607203497

I think one way to fix this mess is to prevent investors from buying existing dwellings (limits demand to owner occupiers) and force them to build new houses if they want to become landlords (adds to supply). Both should help push equilibrium down and in time, prices.

by Quidgybo | 6th Dec 20, 10:32am 1607203928

Agree. I think s land tax or change rates to be solely charged on land sq meters will help too. I work with a few speculators and their attitude is buy the land for whatever it takes and hold it, doesn't matter what you pay, and lose now, you'll win big long term, and so far they're spot on.

by HW2 | 6th Dec 20, 10:33am 1607203997

Open is better than closed... dont think more regulation think how do we make life easier for those with resources (time, funds, skills) and who are motivated

by Independent_Observer | 6th Dec 20, 11:21am 1607206875

(what is your point?)

by al123 | 6th Dec 20, 11:42am 1607208124

Shouldn't we be trying to make it easier for those without lots of resources? Why focus on those who do have resources - especially funds - already? That was part of the problem with Kiwibuild - it ended up in practice as middle class welfare.

by Nifty1 | 6th Dec 20, 10:25am 1607203521

That's the RE game at the moment - seen it at auctions as you've described.

by gnx | 6th Dec 20, 5:48pm 1607230120

Quidgybo

you may want to look at this video to understand the advantage that existing investors have by being able to use equity and not pay principal....I have posted this before but maybe you didn't see it

https://fb.watch/243unN6S8D/

if treasury doesn't recommend removal of interest only loans then I would say New Zealand is going for broke with its housing market....and the country is going to have very large societal issues to deal with

by Quidgybo | 7th Dec 20, 8:11am 1607281862

I didn't know that interest only was a thing here... Worrying.
So essentially, they can borrow interest only with theoretical cap gains? Madness!

by Carlos67 | 7th Dec 20, 3:12pm 1607307122

Last time I saw stats, 24% of houses in NZ are on interest only mortgages. Reality is why wouldn't you if you can, house prices continue to double every 10 years and there is still nothing to say they will not double in the next 10 years. Now interest rates are so low its basically free money and its looking for the safest investment option in this country and thats housing.

by PocketAces | 6th Dec 20, 10:52am 1607205132

Home has a completely different meaning to a roof over your head, which is what is what more and more people have to settle for, and it is ruining our society.

by Jay Lim | 6th Dec 20, 12:56pm 1607212581

we can only guess what the price might be.

by LASSET | 5th Dec 20, 9:35am 1607114116

Since all the bank economists seem completely incapable of correctly predicting even the near future, I guess that means we see large interest rates rises next year.

by Nifty1 | 5th Dec 20, 9:41am 1607114510

I think they're saying these statements to - put pressure on Orr, put him off cutting the OCR further - they want as much margin as possible. To scare their customers to fix their home loans long term - provide them a stable loan book.

by tothepoint | 5th Dec 20, 1:52pm 1607129568

It's silly blaming bank economists for forecasting errors. Forecasts can only be based on the information available at the time. That's why they're continually updated.

In any case, economic forecasting is not a precise science. At best, it's a skilled art.

TTP

by Nifty1 | 5th Dec 20, 2:33pm 1607132017

Repost
by Nifty1 | 27th Nov 20, 8:39am

"There is no certainty in an outlook (forecast), sure, but we expect with the tools & expertise economist have to get the outlooks right most of the time. It's like a weather reporter. If they consistanty get it wrong we're better off sticking our head out the window and making our own guess."

by printer8 | 5th Dec 20, 3:10pm 1607134205

Nifty
Yes, that is exactly what those who don't think for themselves post. :)
Factors like Covid and RBNZ actions are quite unpredictable and significantly affect outlooks.
No successful investor slavishly follows what any one economist has to say as there will be considerable differences in opinions. The astute investor - one who is successful - reads the variety of commentators and forms their own opinion.
Those who can't think for themselves and expect certainty are losers.
If there was certainty in outlooks we would all be wealthy and nobody would have need to work. Well that is what you seem to be clearly believe.

Best bit of practical advice I can give you - either stop being so naïve; or save yourself the time, don't bother reading economists views . . . and if you are expecting certainty, don't even bother reading Interest.co.
Your comments regarding expectations really sounding like one of these suckers who go along to get rich "How to buy 10 houses in 10 years", follow this betting scheme, or pyramid selling and slavishly follow the directions given.
Don't scoff - your comments indicate it is a real risk for you.
Think about it and you may learn something for a change.
Cheers

by Nifty1 | 5th Dec 20, 3:11pm 1607134265

Printer8
There is an old saying that to “assume” makes an “ass out of you and me”. This sums up your comment nicely.

by itsme | 5th Dec 20, 5:46pm 1607143588

Interest rates will rise very soon and quickly.
The same economists will not see it coming.
It will cause carnage.

by flyer | 5th Dec 20, 6:38pm 1607146713

No chance, mark my words. Yes interest rates will eventually increase but it won't be as fast you as predict.

We are in it so deep that the government won't allow housing to crash dmin any way. It has been spelt out quite clearly in 2020.

by Independent_Observer | 5th Dec 20, 8:22pm 1607152945

Yea because every other government in the world has prevented their over inflated housing markets from crashing in the past (yeah nah) - see history.

by Carlos67 | 7th Dec 20, 3:24pm 1607307847

I'm going to predict that rates are going to be low for years. Essentially they have been falling for years now and we have dug the hole so deep you can no longer get out of it. Everything will be thrown at the economy to keep it going, wage subsidy, business subsidies, even lower rates if needed, you name it so any rise in the interest rate would indicate the economy is on the up in real terms, not just by the way of government propaganda telling you its improving. Increasing house prices generate a wealth effect, psychologically home owners feel rich and they then go out and spend up. Its been a downward spiral for years. The when and why that leads to carnage is not likely to be rising interest rates.

by flyer | 5th Dec 20, 9:15am 1607112918

Interest rate rises = higher rents. The party will keep raving on for investors, rightly or wrongly.

by Independent_Observer | 5th Dec 20, 9:16am 1607112986

Can you run us through your reasoning?

by mfd | 5th Dec 20, 10:47am 1607118457

You can observe the close relationship by seeing how rents have fallen alongside interest rates over recent years.

oh, wait...

by Independent_Observer | 5th Dec 20, 1:10pm 1607127033

Yeah my point is I hear this narrative used all the time and I don’t think it’s necessarily true

by flyer | 5th Dec 20, 9:25am 1607113550

If costs increase rents increase, so from an investor's perspective its not big deal if interest rates rise a bit.

by Independent_Observer | 5th Dec 20, 9:37am 1607114245

Right ok. Here’s hoping businesses can afford to raise wages in line with higher inflation while servicing their debt obligations as well (without defaulting) - or how else will we all pay the landlords demands without even more taxpayer money going to pay for landlords investments that would otherwise be losing money (in a real free market)

Everyone can win when interest rates fall AND win with a massive debt load if/when rates rise again

by Zachary Smith | 5th Dec 20, 11:09am 1607119788

It works like this in Auckland: Subtract from your wages what you need to subsist on. Give the rest to the landlord or the bank.

by flyer | 5th Dec 20, 12:00pm 1607122851

The sad reality is, I just bought a 1.2m brand new investment property. Rent for it will be between $900 to $950 per week. My mortgage repayment is around $970 per week. It's no wonder property investment is hot. It's a no brainer.

Oh wait, since I went unconditional the prices in this new subdivision has gone up 100k.

The party just continues if you are lucky enough to be in it. I do feel for FHB. However if I choose to be a good citizen and not buy property, there's thousands behind me wanting a piece of it.

by youngdumbandfullofit | 5th Dec 20, 1:26pm 1607128001

You've just described a pure speculative market.
A yield investor would look at what you just said and think madness. You are losing thousands per year for purely speculative gain. And if house price growth stops you will literally be in a worse position than the money in a stable yield investment without all the risk of negative equity.

by Independent_Observer | 5th Dec 20, 1:17pm 1607127475

As he/she says ‘as long as the party continues’.

A housing market isn’t meant to be a party. It’s supposed to a stable market where people buy homes to live and not where you load up with cheap debt and gamble that it will keep going up (which everyone appears to be doing)

by Zachary Smith | 5th Dec 20, 2:53pm 1607133213

When I first read the comment I thought that it was facetious as the mortgage cost exceeded the rent and so wasn't really a "no brainer" and it was illustrating how poor an investment it is. It is a typical negatively geared scenario requiring a bit of thought. But actually no, let's say you borrow 1.2M and get 900 a week rent, the mortgage interest on 1.2M at 2.49% is only 575 a week. This is a "no brainer" in actual fact as the tenant is paying some principal. It's quite scary and it's no wonder that the housing market is hot. 900 is a lot to pay in rent per week though.

by flyer | 5th Dec 20, 6:41pm 1607146876

Bang on, the tenant is paying not just the interest but also the principal. It is a no brainer.

People are lining up to rent, trust me, especially to stay in a warm dry home that's brand new.

by Brutus Iscariot | 5th Dec 20, 7:28pm 1607149725

Hopefully he loses his shirt.

by flyer | 5th Dec 20, 7:43pm 1607150639

Yes I'll lose my shirt so to speak because who needs to work anymore when you have property as an employee. Don't need shirts.

I think some people can't get over the envy. If you were in the same boat you'd be lapping it up like everyone else.

And note, every cent before I got into the property market I have I worked hard for. I didn't get any free money from anyone.

by Independent_Observer | 5th Dec 20, 8:20pm 1607152842

That’s a negative on the envy - to think others are envious would assume a position of moral superiority - which would be the ego speaking.

by Nzdan | 6th Dec 20, 12:03am 1607166218

Bought my first home 3 years ago, have gone from 23% equity to around 67% according to mid-range Core Logic valuation. Almost none of that equity is due to my hard work. I assume you're in a similar boat, you're not actually stumping up much "hard earned cash" instead somehow your piss poor effort (like mine) has been rewarded by the property ponzi. I understand though, at the end of the day you're looking after your family (i assume) and doing it legitimately.

by ikimpaul | 5th Dec 20, 1:23pm 1607127835

You must be very confident of rental security- because you havent left yourself a lot of fat between repayments and your rent amount. Let me give you an example - the following unit in lower hutt listed in mid Oct for $850- he has had to slash his price to $750 and its still not rented.

https://www.trademe.co.nz/a/property/residential/rent/wellington/lower-…

Assuming he has the same situation as you ie paying $870 a week in repayments - already he is $870 behind on his repayment - this time next week he is $1740 behind on is repayments and still needs to find $5200 more per annum to make up the gap thats occurred by needing to list at $100 less than what he thought. Given there are nicer or bigger properties for rent for $700- 725 in lower hutt- he probably will need to come down another $50 a week to rent it- leaving him $7500 short on his repayments - add in the 2-3 weeks lost rent and thats $10 000 (or roughly $800 a month) he needs to come up with just to service the mortgage.

Think this wont happen to you - well you need your renters to earn at least $200 000 p.a to be able to afford to rent from you - now if they are 4 young individuals this could work, but if they are a couple- given they could borrow $1 Million on a $200 000 income - they are probably in a better position to buy then rent - and many young couples are doing just this.

There is a reason banks have rushed to put 30% LVR's on investors properties and NO its not to cool the housing market- its to protect their loan books when investors start defaulting on repayments because there are too many investment properties bought at too high a price in the market and not enough fat to weather lower rents than forecasted, periods without rent and any other unexpected issues that comes with owning a rental property.

Although as you said you have made a capital gain of $100K this month - so you will be ahead that much minus reselling fees (of $20K and then the capital gains tax from the brightline of another $30K - although be sure to sell it before 1st April - otherwise that will be $39K thankyou very much).

by flyer | 5th Dec 20, 6:53pm 1607147629

People are lining up to rent at 900 pw. Don't worry, the bank is giving me 7k to get the mortgage so plenty of buffer, but somehow I know it won't be needed in Auckland.

by ikimpaul | 6th Dec 20, 12:25pm 1607210725

so you say- yet looking at rentals on trade me - of the 5000 on the market only 300 are priced between $850 and $1000 - and the majority of these are 5 and 3 luxury houses in West Harbour, Herne Bay

by status quo | 7th Dec 20, 7:34am 1607279642

You sound nervous..

by Independent_Observer | 5th Dec 20, 12:57pm 1607126255

But if we have inflation and all businesses have high debt they won’t be in a position to raise wages as their debt servicing costs rise - and the claims on a given persons weekly income rise as the general price level (of goods and services) rises - meaning that claim the landlords want to draw upon will be shrinking not growing.

The assumption that wages rise during a period of inflation isn’t always true and in the coming instance if we have inflation I think it’s more likely to be stagflation - prices rise but wages are stagnant.

So assuming that landlords will just put up rent if interest rates rise (ie the ‘I’m a property investor and therefore can never lose mentality’) could well be a false narrative.

by sadr001 | 5th Dec 20, 1:03pm 1607126612

The minimum wage has gone up about 4x the rate of inflation over the last 3 years. Businesses are already having to afford to pay more regardless if rents rise. You might as well raise rents to soak up that extra money you need to pay into the economy.

by Independent_Observer | 5th Dec 20, 9:15am 1607112942

‘Physical shortages cannot explain why the price-to-rent ratio has doubled, or why property investors are are now willing to pay 30-40 years worth of rent to secure an investment property’

It’s irrational exuberance - that’s why. Must ‘get ahead’ of others.

by donny11 | 5th Dec 20, 8:09pm 1607152161

Nope it is rational. You get get 1% now for 5 year term deposits. Inflation is at around 5%. Housing/land is safe hedge against inflation even if it is paying low yeilds. Certainly better than negative real rates on term deposits.

by Independent_Observer | 5th Dec 20, 8:18pm 1607152688

What do you use to measure inflation? (at 5%)

by donny11 | 5th Dec 20, 10:02pm 1607158960

Monetary supply. What else can you use? Some rubbish out of stats NZ

by Independent_Observer | 5th Dec 20, 10:10pm 1607159401

M3?

by stuart786786 | 5th Dec 20, 9:19am 1607113167

If Government wants and if RBNZ wants.....it is no surprise.

Houses since l9ck-downs are up on an average 20% to 50%.

by Nifty1 | 5th Dec 20, 9:42am 1607114541

I don't know about you, but I'd take any of their predicitions with a grain of salt.

Westpac economist in June:

"We forecast that New Zealand house prices would fall 7% over the final nine months of this year. New Zealand is staring down the barrel of a severe recession, and house prices always fall during recessions. The 7% number was based on past recessions – we expect house prices to decline less severely than during the Global Financial Crisis, but more severely than the early 1990s or late 1990s recessions.
It is early days yet, but there was nothing in the May Real Estate Institute data, released today, that would cause us to change our forecast."

https://www.westpac.co.nz/assets/Business/Economic-Updates/2020/Monthly…

by Independent_Observer | 5th Dec 20, 9:39am 1607114391

Bit like P8 - just chop and change their views when the wind changes direction but make out like they knew this was the most probable outcome all along

by printer8 | 5th Dec 20, 12:46pm 1607125597

IO
I presume you are referring to me.
Like to justify that decision with something specific or just baseless slagging off.

Its utter b*llocks. The only reasons why my view changes is changes in the outlook for which I have been consistently accurate on and called early.
Called the Auckland peak November 2016.
My view during the winter and September last year was I saw upside (was rubbished), when Covid hit I had the sense to say "cashed up, watching and waiting" while claims of 50% fall such as yourself abound, over the past few months I have said flattening out next year. The latest is based on need to cool the market for economic and stability reasons and that is going to depend on RBNZ actions.
As for you - as you have posted, coming up to six years now, consistently of bubble burst. Not in a position to criticise anyone.
It doesn't take much intelligence to see that changes in drivers will influence changes in the market - a point you criticise me but one your consistent bubble burst claim means that you don't seem to comprehend.
Anybody following your advice would be considerable losers as house prices have soared over the past six years - if a potential FHB I only hope you haven't followed your own view.
Cheers :)

by Independent_Observer | 5th Dec 20, 12:59pm 1607126347

Right so if something happens you’ll change your outlook again....as I say the wind changes then so does your outlook. Nothing baseless - just observing the similarities between your views and bank economists (and they’re now like used car salesman in my view - they just have something to sell)

by printer8 | 5th Dec 20, 2:19pm 1607131184

Hi IO
So nothing specific - just baseless slagging then and yet again just shooting yourself in the foot. :)
Of course I will change my outlook again as changes occur in wider environment change - really pretty basic 101 stuff.
So yes, of course I changed my view at the onset of Covid to one of uncertainty. So of course I changed my mind when RBNZ took away LVRs, cut interest rates and pumped money through QE.
One of the things I follow - amongst a range of reports, data, and anecdotal discussions - is auction data and if interpreted correctly is an early indicator of market activity. Around May/June it was showing an upswing which I commented on for which I was rubbished by some and you still calling bubble burst.
So, yes I have no problem changing my view as there is change in the wider environment . . . and I do not slavishly follow any one bank economist or recognized commentator. The only one due for criticism is one such as yourself when you have an entrenched fixed view based on poor reasoning.

As for one having an entrenched view - here is a real humourous lulu:
by Independent_Observer | 22nd Mar 20, 11:01am
"been saying this on here for about 5 years now. Our property market could well be the mother of all bubbles. It wouldn't surprised me to see a 50% (or more) fall in property prices across NZ".
IO: So how wrong for five years, and so wrong for 2020. Start looking at the changing environment rather than slavishly holding onto that entrenched view of bubble burst and start looking at the wider environment - for any FHB it would have cost them $300k+ over the past few years,
I know that you won't be happy - but for heavens sake, wear it, acknowledge you were so, so wrong and stop acting exactly like Trump. :)
Hope you have a better weekend than your comments regarding the housing market. :)

by Independent_Observer | 5th Dec 20, 8:03pm 1607151810

In reference to me being Trump - I’m not the stale pale male who invested in real estate to make his $$ and is out of touch with the younger generation ;-p That would be you P8.

by HW2 | 6th Dec 20, 9:36am 1607200612

I for one appreciate your clear and informed comments P8..

by Fritz | 5th Dec 20, 11:06am 1607119594

Ha ha
Hopeless.
But then all were.
The futility of house price predictions!

by karl seastrand | 5th Dec 20, 1:54pm 1607129692

Fritz,,,yeah but how many times do we still hear "they ALWAYS double every 10 years" and "bricks and mortar, can't lose". Most people need to experience pain personally to learn or even understand and since the last massive house price crash (-38% inflation adj) was between 1974 - 1980 very few of todays investors were burnt by it, many not even aware of it.
The main stream media's pornographic-like coverage of the property market contributes significantly to the general ignorance.

by HW2 | 6th Dec 20, 9:45am 1607201107

" since the last massive house price crash (-38% inflation adj) was between 1974 - 1980"

Very misleading... houses did not drop in price infact they went up. They failed to keep up with rampant exponential inflation. Early 90s I was in a shareclub and a well known economist (not TA) came onr night as a guest and told us how the pick up in house prices was just a temporary blip as inflation was so low that house prices would also stay low... advance 2 or 4 months to the end of year xmas party I got talking to the economist... he told me that he was investing in housing and buying property.... you can imagine how absolutely stunned I was to hear that.

by karl seastrand | 6th Dec 20, 1:47pm 1607215669

HW2...yes they did fail to keep up with inflation. In fact they fell back 38% compared with inflation. Personally I call that a massive crash. If you don't then fine. It was a very long time ago but I seem to remember TA was a renter and a DGM on house ownership up to around 1990. I think he has only become a leading spruiker since having a vested interest.

by printer8 | 5th Dec 20, 3:40pm 1607136041

Nifty
Re: "I'd take any of their predicitions with a grain of salt".
Well Nifty Westpac was a hell of a lot more accurate than the number of commentators on this site who were at the time posting a 50% or more bubble burst.
They would have been well advised to have read the Westpac report, considered them and modified their view - astute successful investors considered it.
They have rightly qualified their view "It is early days yet . . " - we don't live in a world of certainty and to expect certainty is being niave.
You really do need to stop reading bank economist outlooks and save your time not only in the reading but also making your naïve repetitive postings. You are achieving nothing other than you massaging your ego.

by Nifty1 | 5th Dec 20, 3:55pm 1607136933

Amazing how you contradict yourself in a matter of minutes...

"They would have been well advised to have read the Westpac report, considered them and modified their view - astute successful investors considered it."

However you had just said this on another comment...

"No successful investor slavishly follows what any one economist has to say as there will be considerable differences in opinions. The astute investor - one who is successful - reads the variety of commentators and forms their own opinion.
Those who can't think for themselves and expect certainty are losers."

by Nifty1 | 5th Dec 20, 4:37pm 1607139459

Printer8
Is that being astute?

by printer8 | 5th Dec 20, 5:01pm 1607140897

Nifty
You are expecting not to have to think for yourself and being spoon feed.
Not sure, but I think most people are not spoon fed from the age of two and are expected to independently think and come to conclusions by about seven.
It is seeming that you are not an experienced investor. For example share brokers also put out outlooks on particular shares which are never usually quite correct and are updated on a regular basis.
As said, alternative for you is to stop reading bank outlooks.
You remind me of the black knight in that Monty Python sketch who having had both arms and legs chopped off still defended the indefensible - his comments were both sad and amusing.
I’m outta here and not wasting time.
Cheers

by Nifty1 | 5th Dec 20, 5:01pm 1607140873

Printer8
It was a pleasure, your comments made no sense but did reek of 'ego massaging'.

by j reacher | 5th Dec 20, 10:32am 1607117546

House prices have mostly gone up over the years and doubled in price in very short terms.We built a new house in Napier in 1974, cost $22000 sold in 1976 to move to country for $42500.

by Independent_Observer | 5th Dec 20, 12:44pm 1607125499

So purchased near the highest point of interest rates (that keeps capital values down), then compared to now where we have zero interest rates. What happens if that cycle now reverses for the next 30 years.

by HW2 | 6th Dec 20, 11:24am 1607207054

Well bloddy done reacher ... that gain must have beat inflation yet people here comment as above that house prices were negative after inflation over those years. Haha to them. Those who did not do what you did and buy or build were also fighting inflation. I dont remember it but my grandparents and parents do

by karl seastrand | 6th Dec 20, 1:57pm 1607216244

HW2.. people have commented that house prices did not beat inflation because they didn't. IN FACT the average house price lost 38% to inflation between 1974 and 1980. Of course some people did better (well done to them) and some worse but the average inflation adjusted loss over a six year period was 38%. Providing details of one outlier to dispute the stats really is a little silly.

by Henry_Tull | 5th Dec 20, 10:37am 1607117840

Lets mix a few metaphor

Housing is the golden goose upon what the rail cars of pan pandemic economic trail are hitched.
- its the way its been plumbed up.
Ardern COL govt policy have acted like msm voter suppression of all other viable alternatives (thx Shaw & Co). - the rushed tax increase is the after whistle face work applied to innocences while still in the collapsed mall.

Its housing, up, up & away...

by mikekirk29 | 5th Dec 20, 10:58am 1607119109

Another day, another forecast from Westpac.
Day late and a dollar short
Listings dropping like a stone, LVRs coming back, USA double dip etc.
Westpac, unfortunately, are following, not forecasting.
The mania is dissipating as we write

by printer8 | 5th Dec 20, 1:52pm 1607129527

Mike
Despite all the analysis when are you going to make a correct call?
Do you want me to list all the erroneous calls that you have made????
Cheers

by mikekirk29 | 5th Dec 20, 2:26pm 1607131570

As I understand it the Westpac forecast is for prices to rise 16% in NZ as a whole, in 2021?
When lockdown was on they said 7% drop by Xmas.
Have you forecast either of those things?
What I have been pointing out for about 2-3 weeks now is that Auckland new listings per day have been trending downwards from a peak on Nov 5th at 256, to 176 two weeks ago, to about 113 yesterday. Also, that this down trend is premature, ie happening 2-3 weeks before the usual date for it to happen, which is about Dec 10th.
That and LVR restoration indicates mania is wearing off, and will continue to do so.
The other forecast I have made is that Summer will not be usual peak season because we have already had peak (mid Sept-mid October)
In addition, it seems to me that mania cannot continue, as otherwise it is not a mania.
So, I am not forecasting price because price will continue to rise and NO ONE knows by how much in what period.
I cannot see any more interest rate cuts and the CB additional funding to banks will not persuade them to be more generous re mortgages I feel.
In addition, the world is not only not over CV19 and with no vaccination for 80% likely for 6-9 months at least and USA heading into another, worse recession and EU up creek too, I cannot see NZ continuing to experience never-never land of financing ever more debt.
So, there you are. What ru forecasting price wise?
If you were referring to SALES I expect Auckland sales to be about 5,000 higher this year than last (ie about 27000)
But next year I expect Auckland sales to fall back to around 24,500.
What is your forecast re sales?
Price wise, as I say, I can only expect that due to shortage of good stock OTM, prices will continue to rise but not by double digits.
I reiterate again that Auckland median is currently $1m and that in March 2017 it was $900k, a rise of 11.11% in 3.58 years, or 3.1% pa.
Oct 16 to Oct 19 the rise was NIL but this is not mentioned by many.
Focusing on last 5 months and then projecting it is silly because the following period will differ in many variables, from the last 5m
Demand has been released by CB action and purchases brought forward. That pipeline has a limit and that limit is not referred to much either.
Pop of Auckland had its 40-47 year old peak in 2018 and next one is not due until 2023 (late).
So, the current boomlet has been artificially induced. Hence it is out of cycle and will not last.
In addition, as I am sure you are aware, HUGE bad debt problem is building in corporate and consumer markets of USA and EU especially.
China continues to paper over theirs, despite big talk re allowing defaults.
RU of the view that eternal increase in debt and extending rollover of it, can be used to avoid bad consequences for world credit markets and by obvious inclusion, Aussie banking system? This phase of super credit cycle has been in fresh air (ungrounded) for 12 years already. With world having negative GDP growth for min of 9 months, what do you think will happen, other than a credit crisis?

by printer8 | 5th Dec 20, 3:51pm 1607136706

Hi Mike
Mike
Despite lots of historic data, some Mikekirk29 predictions:
- September 2019 housing to fall
- That means approx April 18th for when housing market will freeze over.
- This will mean 25% drop in house price medians by end of 2021
- Expect 25% fewer sales in last 5 months of the year, than in 2019.
- Prices will fall 12-15% by end of 2020
- Real action (i.e. burst) will not be evident til wage subsidy phase 1 expires in mid June
- I expect that Auckland sales will be 35% below the equivalent month of 2017, until Xmas

Sorry, I gave up bothering believing after that.
Cheers

by hemihua | 5th Dec 20, 11:09am 1607119747

"until interest rates start to rise in 2022".
HAHAHAHAHA! Funniest thing I've heard all day.

by J.C. | 5th Dec 20, 11:45am 1607121913

The following doesn't even make any sense. Was this content produced by machine learning without a logic check before being released to the media?

Physical shortages cannot explain why the price-to-rent ratio has doubled, or why property investors are are now willing to pay 30-40 years' worth of rent to secure an investment property, whereas they used to pay only 15% to 20%.

by Flying high | 5th Dec 20, 12:24pm 1607124252

"Physical shortages cannot explain... why property investors are are now willing to pay 30-40 years' worth of rent to secure an investment property, whereas they used to pay only 15% to 20%."

Yep slight typo at the end makes a joke of their very valid point ... 30-40 years PE vs PE multiple of 15-20 previously. Although you would have to go back probably 20 or more years to have got that return on a single house in Auckland in an average suburb

by printer8 | 5th Dec 20, 12:27pm 1607124434

This is all in the hands of the RBNZ
Westpac expectations are based on current bullish attitude of RBNZ - I hope for both economic stability and affordability issue reasons that RBNZ will take appropriate actions.
Signaling the reintroduction of LVRs is an indication of appropriate action, but not targeting FLP is not. Any cut to the OCR would compound the issues.

by Pusheen | 6th Dec 20, 2:49am 1607176146

Correct, without stimulus the unemployment will be up by 20K, so clear how it works! they must continue increasing this stimulus to allow govt for longer period of flexi-subsidy, as most in this site in the past claimed that Banks is savvy enough with the LVR, as we can see the recent moves by band of Banks despite, the removal still by RBNZ, so 'signaling' to market or govt. should just stay like that, an indication. BUT in honesty? the best move by CB is to make sure: No Bank CAR, No LVR, No DTI, No TD guarantee. They must steadfast with more QEs/LSAPs, FLPs into housing provider & insurance and quickly implement the negative OCR. The OZ Banks past prudent profit savings, will flow back to NZ. Govt effort is in the supply issue, surely if you understand the FIRE economy means the stability of it, precisely what RBNZ been doing this year, what we unclear about, why it's the RBNZ job to worry about 'affordability' think about it.. 'the more stimulus' given by RBNZ, the more likelihood it will flow next(hopefully soon) into govt. actions to increase wages/salary which in turn to pay for raising rents & mortgage payment. So Yes, agreed targeting housing supply in FLP is a must, and No, OCR cut/into negative would not compound the issues but instead will actually stimulate more flowing market for seller to be sure but most importantly is for buyer too.

by printer8 | 5th Dec 20, 12:49pm 1607125744

by Squishy | 5th Dec 20, 12:58pm 1607126300

Why do they see rates riding in 2022? RBNZ have indicated they have a tolerance for a period of higher than target rates so CPI would really need to bounce. Historically we've seen that in this cycle that CPI growth is very constrained.

by Independent_Observer | 5th Dec 20, 1:08pm 1607126936

Why did interests rates become so high in the 1970’s and 1980’s? It wasn’t necessarily central bank actions that created high inflation was it? Rising prices of oil and the flow on impact of that into the general price level of all goods and services. So who is to say something like that won’t happen again this decade. War with China and a boycott of their cheap products (move away from globalisation) - resulting in more expensive locally produced products in the CPI?

by Cobolt24 | 5th Dec 20, 4:49pm 1607140159

China is moving away from low skilled manufacturing, they're aiming to be a high-tech manufacturing place. The rest will be taken up by lower cost countries in Southeast Asia. Who really knows with automation? Perhaps it will be cheaper with machines closer to the destination.

by 2 Tooth Bora | 5th Dec 20, 1:22pm 1607127725

With our main earners tourism and immigration gone since March; primary produce at reduced volumes, Govt debt deferrals etc. and Tax paid stimulus coming to an end is working its way through the economic system, one can see it on the streets. Any one taking on high debt that costs twice to pay back over many years is very vulnerable.
Things are going to get very tough in the coming quarters.
Orr made a huge blunder opening up the LVR floodgates which made the market react so irrationally.

by karl seastrand | 5th Dec 20, 1:58pm 1607129936

2 toothbora... sums it up nicely IMO

by Pusheen | 6th Dec 20, 2:17am 1607174245

Initially I though so too, until I realised how both left & right govt always ignoring their request for more toolkit or warning for years. Both left & right govt. do the same, pretending. So? if you in RBNZ shoes, with limited tools but yet powerful? what would you do? - pretend, and use that tool to the max, I think they're doing the right calls so far, probably just 'not enough' in term of 'stimulus $ commitment' still more room there.

by Uncle Bulgaria | 5th Dec 20, 2:27pm 1607131644

Seen three houses not sell in Wellington in last few weeks. Two I went to see in Karori.
Interestingly they put one back on the market at an even higher price which I thought was good ballsy psychology. Just anecdotes but maybe, just maybe, we are hitting some sort of ceiling. I mean no central heating partially insulated 2 bed houses in Wellington for offers over 1.2 seems ...

by flyer | 5th Dec 20, 2:32pm 1607131920

Don't forget the peak summer selling period is March, so plenty of time left for further lift off and FOMOs.

by mikekirk29 | 5th Dec 20, 2:49pm 1607132974

Should have said "normally"
This is not going to be a normal summer.

by flyer | 5th Dec 20, 4:14pm 1607138059

Prediction: This summer will be record breaking in terms of sale numbers and prices across Auckland. Sales figures may slightly decrease between now and Xmas which is fair enough while people head to the malls... then the gas will be turned right back up.

by nigelh | 6th Dec 20, 6:49am 1607190585

If a house doesn't sell the price is too high.

by Small Kev | 5th Dec 20, 3:04pm 1607133867

Up 30% then crash (correction) 15%. Buy now if can afford to or wait.
Too late for them to put the rates up now, rates go up “everyone” goes down.

by Pusheen | 6th Dec 20, 2:07am 1607173631

Have ever heard about, sovereign Nation's bail out?

by mikekirk29 | 5th Dec 20, 3:00pm 1607133642

Bernard Hickey explains v well how and why the deck is loaded against under 40 year olds in NZ
https://www.stuff.co.nz/business/opinion-analysis/300175287/how-past-ge…

by HW2 | 5th Dec 20, 5:15pm 1607141727

BH such a bore, has been saying same thing for last 15 years with change of date

by StuckAtHome | 5th Dec 20, 5:55pm 1607144137

I can't see sharp interest rate rises happening. NZ is now so indebted that any material increase will torpedo economic activity and CPI.

by Pusheen | 6th Dec 20, 2:11am 1607173868

Fully agreed, when the RE is excluded from CPI reporting, unemployment is up to RBNZ - what govt is now watching is the demand for increase of wages/salary as per higher dwelling cost, OR risk the rolling over of nationwide workers strike.. this time not from median-up income range.

by Jaf | 6th Dec 20, 8:30am 1607196604

If Westpac economists could not get it right when in June they forecast a 7% drop in house prices, what's it then they are going to be right this time ? Bank economists can be lumped together with astrologers, palmists, tarot card readers, numerologists & the like. They can predict almost anything. Except when the next sucker will come along to pay for their lunch.

by MLSmith1 | 5th Dec 20, 10:32pm 1607160741

Under what conditions will interest rates rise in NZ in 2022?
World economic recovery? Every nation is leveraged to the hilt! Where will demand come from?

by Nzdan | 6th Dec 20, 12:08am 1607166515

Leveraged to who?

by MLSmith1 | 6th Dec 20, 7:48am 1607194092

Each other

by Pusheen | 6th Dec 20, 2:04am 1607173478

Westpac, the first to uttering their sudden/self impose LVR prudency, then now this hot market until 2021 then blowing the gossip of increasing interest by 2022? - Self preservation, when they see how this binge will end.
1) Every of these OZ Banks, really afraid of negative OCR - so Mr Orr & team? bring it on please.
2) Blow gossip of interest up, when every institutions stated other wise. (a coded message to bank peers).
NZ RE only hot by 20% this year, still more room for 80% or more (2021-25), the coded message between RBNZ & govt the past couple weeks is? 'climate change/carbon neutral/coastal RE insurance' - so expect gradual but assurance of at least 400billions QEs in stages over 2021-25 to fund this. Again, NZ must be at forefront of this initiatives.

by nktokyo | 6th Dec 20, 7:53am 1607194427

I would like to be a bank economist too. I once worked at a KFC and can count to 7.

by Theoracle | 6th Dec 20, 9:12pm 1607242334

Mate don't stop there... why not sign up for PM!

by iconoclast | 6th Dec 20, 2:23pm 1607217821

Frogs in a simmering pot

Several things worth noting

For 3 months August-October data extracted from the weekly Barfoots auction results was posted on interest.co.nz, focusing particularly on prices being paid by developers for properties that were capable of subdivision. In that 3 month period the price per square metre exploded up from $2000 sqm to $4000 sqm. In Remuera and Greenlane they got up to $6000 sqm. It's all in the value of the land. The value of the house occupying the land doesn't change much. The replacement value can easily be determined.

Examine this article from July 2018
https://www.greaterauckland.org.nz/2018/07/16/auckland-land-values/
These are land values with houses sitting on them
Quote: "In 2011 much of the central isthmus was $700-1000 per m². Those same locations now seem to be $3,000 to 8,000 per m²."

Note the boundary confinements
The question is - what happened since 2011 to increase land values by 500-600%%

What has been happening is Auckland Council has changed zoning rules regarding the size of the land per dwelling:- has reduced by 500%. 15 years ago you could buy a residential dwelling on 1000 sqm for $1million. Now you need to pay $1 million for a dwelling on 200 sqm For that 1000 sqm property developers are now paying $4 to $5 million

by Davo3636 | 6th Dec 20, 5:40pm 1607229615

Interest rates will rise next year, we promise.