New house sale listings are falling with sale inventory levels in Auckland at a four year low as the spring buying season approaches, realestate.co.nz says.
In it latest monthly property report, realestate.co.nz CEO Alistair Helm said the property asking price, number of new listings and level of inventory all fell in July from June during the middle of the traditionally slow winter period.
The nationwide asking price for new listings fell 3% to NZ$403,474 in July from June, despite the market appearing to favour sellers over buyers, Helm said.
Meanwhile there were 8,966 new listings on the website during July, down 2% from June and down 15% from July 2010.
Realestate.co.nz's measure of inventory of unsold houses on the market showed it would take 38.5 weeks of equivalent sales to clear the market, down 8% from June and 18% from a year ago.
"Auckland remains the epicenter of this trend and now sees a situation where available inventory of property for sale is the lowest seen since this recent property malaise began back in 2007," Helm said.
"Auckland currently has just over 5½ months of available inventory based on the recent rate of sale, not since September 2007 has the region seen this level – the highest level of inventory was recorded in June 2008 at just over 13 months," he said.
See Helm's comments below:
The property market is edging toward the Spring period – a time traditionally when more buyer activity appears at open homes and new properties appear on the market. This year unlike the past couple sees a challenging set of circumstances. New listings are in short supply, not just in the major cities but now right around the country. Matched to this and as a function of this and the upturn in sales the level of inventory of unsold property on the market is edging down – nationally below the long-term average.
This low level of supply, if not met by a rise in supply in the short term could result in either or both price pressure upwards or disillusioned buyers exiting the market.
This trend of falling inventory off the back of rising sales and shortages of new listings began a couple of months ago in Auckland and then spread out through the major metropolitan areas into provincial NZ.
Auckland remains the epicenter of this trend and now sees a situation where available inventory of property for sale is the lowest seen since this recent property malaise began back in 2007. Auckland currently has just over 5½ months of available inventory based on the recent rate of sale, not since September 2007 has the region seen this level – the highest level of inventory was recorded in June 2008 at just over 13 months.
Whilst shortage of supply matched to low inventory and rising sales usually sees pressure on prices, the asking price for July showed what is a traditional fall – seasonally adjusted it was down 1.6% indicating that sellers new to the market are not being wildly optimistic in their expectations – potentially keener to sell quickly than inflate expectations.
Asking Price
The truncated mean asking price for all new listings in July fell significantly from $415,053 in June to $403,474. On a seasonally adjusted basis the asking price fell 1.6% in the month indicating a continued degree of caution amongst sellers.
The overall trend of the past 2 years continues to show a slow but steady strength in asking price expectation.
New Listings
The level of new listings coming onto the market in July fell again to 8,966. This represented a 15% year-on-year decline but a marginal 1% seasonally adjusted rise from June.
On a 12 month moving basis the number of new listings in the past year totals 124,228 as compared 145,733 for the same period a year ago – a fall of 15%.
Inventory
The level of unsold houses on the market at the end of July continued to fall from prior months. July reported 45,674 down from 47,738 in June and 48,352 in May. The current inventory is now well below the long term average. The winter season traditionally sees a reduction in new listings, this when seen against a strengthening of sale over the past 3 months is likely to see inventory levels continue to fall as Spring approaches.
Housing inventory
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129 Comments
More and more pople imprisoned by their houses, and sitting on the sidelines. What choice do they have? Frightened to sell, in case 'this is the bottom' ( it isn't!); buy before they sell , and risk having one more house than they want, in case prices fall; or just unable to sell, as the price they would get would eat away their equity. The inventory is there all right! But you just can't see it.....as long as owners can service their mortgages. If/when that isn't possible any longer, watch the "For Sale' signs mushroom.
Actually. No, bob. It has little do do with inventory, but all to do with debt...or the ability to service it. And as a result of that I accept that people often refuse to sell an asset, whether it's a property or a share, for less than they paid for it, and will remain 'prisoner' of that asset until either (1) they can't afford to hold it any longer or (2) it shows a nominal 'profit', even if that has been erroded by real price increases elswehere. The more people 'have' to hold, the less there will be for sale, the lower prices will g, as many buyers are actually sellers in waiting..
@ Vera Fayed: Pop into Trelisse Cooper's store in Newmarket, and have a look at the 'supply'. She's closing the store down. Not because there is 'no supply', but because whatever demand for those kids products is, it's not what the customer wants/or can pay. It doesn't matter if she has 1 or 1000 clothing items "For Sale", if the market won't or can't pay the price, does it? Oh, and that 'dripping' sound you can hear? It must be the sound of the debts this country has to service on the invisibles account, draining the life-blood out of the country.
This is explained in 3 easy points . 1) You will note this refers to Auckland only . The rest of NZ is still in oversupply 2) Most people cant sell because there is now negative equity in thier home in relation to what they will get for their houses 3) The seriously indebted are being kept alive on Dr Bollard's life support system.
Could you pleae clarify point 2?
June 2006 Auckland house average was $445k. June 2011 Auckland average is $461k. So you are saying that "most" people in Auckland had 100% finance in 2006 and have since somehow increased their finance to well over 100% (to be in negative equity)?
I find that very very hard to find even slightly plausable.
Your comment is nonsensical.
Carpetbagger stated that " Most people [in Auckland] cant sell because there is now negative equity in thier home" even though the average sale price is now higher than it was in 2007.
I am asking how "most" people in Auckland can go into negative equity when house price has increased. You really think that "most" people in Auckland have been to the bank over the last 4 years and got approval to borrow more than 100% of their properties value?
If average sale price is not the 'average value' then what is - what you think it's worth?
To truly record value you would have to look at the sale price of the same house being sold over time, any other method is nonsensical but would not suit property spruikers.
As has been stated here many times before, what happens when the sale of houses in an upper price bracket increase in quantity, but lowers in value, it renders the statistics meaningless. It then even distorts the brackets. If the trend lasts over 10 years then you could draw some inferences, but to do so from one years is worthless.
Not much going uphill here http://www.rbnz.govt.nz/keygraphs/Fig4.html in fact the trend looks pretty sad for any mug tied up in property.
Hardly surprising to see more evidence that there is just not enough housing stock available, even before the 'quakes rendered thousands of units uninhabitable. We are about to see that the mindless cries of "houses are useless unproductive things and anyone found investing money in their construction or ownership must be vilified and punished" have consequences. The shortage of labour to get stock levels back to where they need to be to soften prices will be chronic once the Christchurch rebuild is fully underway. 10,000 city centre buildings to be replaced over ten years means finishing a building on average every 3 days. Yet still on this site we will hear the nutters screaming that to make homes affordable we must hike interest rates and impose land taxes to make houses really expensive to own forcing everyone to sell them thus making them cheap.
Bubbles don't deflate until you have excess supply as happened in the USA and Spain. The only voice I have consistently heard calling for address to the lack of stock is Hugh Pavelatitch. Until the supply side is addressed we are stuck with bubble prices and all the unfortunate consequences. It is unfortunate that boards like this become dominated by folk that seem blinded by their bitterness toward anyone who benefitted from rising prices even if such person played no part in the silly game that inflated prices.
So the drop has been 15% in 3years? therfore there must be an over-supply. US etc, indeed massive over-supply, so what HP wants is again a massive over-supply....so maybe sensibly onthis level at least HP should be ignored (plus others) or we could cause a burst..
Bitterness is I think your imagination....mostly I see ppl trying to warn that the prices are in a serious bubble and that bubble could burst quickly and badly (looks like OZ is going that way)...the retort is they are bitter! that frankly is illogical.
regards
Steven. Stand up. Reach for the computers off switch. Press it. Turn around. See that rectangular thing. It's the door. Go through it. Out there is a place called the real world. There's sun and birds and people who communicate without keyboards. Now go find this oversupply of property; all these empty unsold houses of which you speak. There's a good lad. Google can get by without you for a few hours, (but can you get by without it?)
I agree with Vera - There are a number of contributors in this blog site that are having difficulty with reality or in denial!
Check trademe, there are hardly any quality homes for sale within 8-10km of Auckland CBD. (I am not a PI but have been thinking about selling our home in Auckland and buy one here in Aus.. and yes with I would make a nice profit even with my 2006-07 purchase price!)
And I reckon, Chairman M, that you'll put it on the market in...spring...(if indeed you do!); not winter! Who could be bothered tramping around open homes into the teeth of winter. Or having muddy boots through their shiny offering? Till then you, and all the other vendors, will keep your show homes nice and tidy, and off the market, until 'selling season'...
Why do people keep referring to the US when they go on about house price drops. The system they had there, prior to the crash, was the most ridiculous ever seen, where a buyer could take on a mortgage they coundn't possibly afford then just hand back the keys to the bank and walk away from the debt. That happens no where else in the developed world - thank god.
At the same time it ensures that the bank had done due diligence on the borrower to ensure they can pay its known as preditory lending. Personally I think we should have the same here....so I see nothing wrong with "jingle mail". Oh and its only certian states.
regards
The level of the Christchurch rebuild will depend on how the seismic activity patterns out, just as it has in every sizeable city affected by a major quake in my lifetime. It is just a balance of probabilities, but looking at Kobe, San Francisco, Los Angeles, Santiago to name but a few, it will emerge bigger and better,more capable of shrugging of the next event. The issue pertaining to this thread is the effect on the supply of housing units over the whole market.
I genuinely feel sorry for you Nicholas. In a long life (still going strong if a bit slower) I have seen many people speculate the property market by selling their only house and waiting hopefully for lower prices. It has usually ended badly, sometimes disastrously. Never seen logic as fuzzy as yours.
I said that to HP a while back I think he laughed. Then of course if Im right his excuse for extending Chch boundaries disappears, I'll stick by it. Ppl can move quickly and never come back, Chch will never recover IMHO and these escalating costs are just one last nail in the coffin.
NB So far the building quote I have is 33% higher overall from last year and the insurance ppl said that costs didnt factor in the latest Eq so it would be going up by at least that much, again. That means the EQ proportion must be several hundred % higher....and will double again.
If indeed the re-insurers withdraw from AP due to thier losses and that has to be considered a real risk, then yes the Govn will have a nasty choice, a) to step in via the EQ commission (I assume) and do a ACC and cover insurance losses, or b) If it doesnt NZ will become unviable for many small businesses.
Oh and how do you (either a owner or a PI) get a mortgage if you cant get house insurnace? You cannot, so NZ becomes unviable for families as well.
This is an example or risk amangement by the way....the only viable solution is, the Govn has to carry the whole risk of an earthquake, which means a big surcharge on us the tax payer.
regards
I agree the Govt will have to get involved with the reinsurance scenario, but there are various ways of doing it. I have written about this on Bernard's stabilisation thread, because generally real estate discussions bore me.
There is no overwhelming reason why the Govt should buy reinsurance from the traditional suppliers, rather we could fund it ourselves in ways which would not be a direct burden on taxpayers.
We certainly odnt have to fund it via re-insurance....
The only viable option I can see is to self-fund via a huge levy to cover a possible cost.
Otherwise, what other ways are there? with no Direct burden?
If that involves some sort of can kick, if that involves some sort of oops, ah well future generations can pay for it, uh no, i have a huge moral problem with that.
Im all ears...
regards
Yes I agree, a levy is definitely a contender. Or a straightforward Govt guarantee, with the implication of QE if we had a real major. Other possibilties would include the issue of bonds with a Govt guarantee, or bonds with a 'social good' tag. If the bond market dries up, they can be purchased by RBNZ, providing QE.
I don't regard QE as a total can kick. Talking to those who were young in 1930 one becomes convinced, like Ben B, that QE would have been the best thing to do then.
Cheers
Not many tyre-kickers, not many speculators, not many investors. But for well built, well located homes in desirable areas, plenty of cashed up buyers looking for a home to live in. Multiple offer situations are the norm now in coastal North Shore and other sort after areas. Plenty of places being settled above the origional asking price.
This is one view.....some ppl such as myself see deflation and a long Depression, in which case housing looks a big loss (50%+ maybe 90%). So cash will be king....4% in a deposit account and a 10% annual drop of deflation means a 14% gain for savers per year. The great thing then of course is you are only paying 33% tax on that 4%, 10% is in your hand tax free.
Oh in the last three years housing has dropped 15%? and gold gained how much? So if this continues your income stream has to pay the costs of the property, pay you for 5% per annum loss and give you an income.....hmm great idea that.
regards
50% to 90% house price drops?!!!!! And I thought Bernards original 30% call was hilarious!....
At least when Bernard made his prediction all the indicators were actually pointing to price decreases, just not of that magnitude. Currently all the indicators are pointing to price rises, and you're talking of huge falls?
Steven, you need to turn the computer off for a while and get out and explore the real world....
At the end of the mid 90s boom the median house price was around $170k and the minimum wage was $6 - $7. We didn't have blog sites full of depressed hermits, but there were still plenty of people predicting 50% house price drops and an end to inflation. Why? Apparently house prices couldn't rise further because people simply couldn't afford it, we already had too much debt, we were set for a period of deflation and wages couldn't possibly rise to support any further increases in house prices, rents or living costs.
What actually happened over the next decade? House prices doubled to $350k. The minimum wage doubled to $13. Ditto for rents, food, petrol, electricity & practically everything else.
I'm not saying inflation is a good thing, but burying your head in the sand about it (aka staring all day at a computer screen while the price of everything around you increases) is not a good idea!
Oh dear...some ppl seem to conclude looking at a screen is bad....its known as research.......you live and die by information.....you then process it. Try it....take off the blinkers, you are going with gut feelings and obsolete information....I'll trust my own eyese and brian thanks.
My reasoning,
1) 50% based on the 3 to 1 ratio....and an overshoot is possible.
2) Nicole Foss lays out the possibility that in a credit event, which is where we are or will be soon, credit is effectively unavailable. This is what happened in the Great Depression, so this is real world, actual happenings. So 90% drop is based on what the saver has as a deposit ie a 10 or 20% deposit. This then gives a lower bound of possibilities.
3) BH, has to maybe be circumspect in his predictions as he publishes to the right of the economy / political spectrum and he's more right wing biased than I am, which might colour also. I dont have to be circumspect , Im just 1 voter reading all I can read and making my own mind up.
4) Read Steve Keen's work. http://www.debtdeflation.com/blogs/
5) Im out in the real world every day, I talk to ppl single sole traders when I can, or farmers (or actually their wives) I read a huge amount and I sit back and do DIY and sleep on it.....I make my own mind up.
6) Study core inflation and not CPI, core reflects the economy and where it is headed, CPI reflects the weekly shopping trolley. It reflects how consumers feel....that feeling may well not be logical or justifable.
7) Study peak oil, this is a paradigm shift in our entire global economy. We go from cheap and plentiful fossil fuels to expensive and scarce and at times un-available or rationed fossil fuel....
8) BBs retiring, a lot has been said on this...
9) Massive debt, study the Great Depression for that outcome this is related to 2)
10) Everything increases, not so.....many things are not, some retail stuff in particular....constant discounts at Briscoes, shoe shops...clothing shops, k-mart, Farmers, 30 to 50% discounts seem common.
Take power tools,
I bought
A makita 2704 table saw with gas strut trolley, $1448, reduced from $1800 with a RRP of around $2400.
Dewalt heavy duty jigsaw reduced from $315 to $263.
Bosche multi-tool, $178 to $117.
Im looking at a makita weekender circular saw, list price $178, on "special" for $129, but the dewalt has been reduced to $255 from $300..might get that.
Briscoes, Im buying linen and 50% off is now usual.
Laptop, 15% off an Apple, any discount unheard on of Apple's kit a couple of years back.
Bamboo flooring, now free delivery, effectively a 25% discount...
4wd Alternator, under $700 from over $900....
11) To get inflation we need supply constraints from vendors/manufacterers, they it seems all have over-capacity that has no sign of being used up for some years.
12) Jobs, high un-employemnt and its getting higher by the day.
Inflation, there are clearly two camps on this, those who see inflation and those who see deflation. From what I can read the inflationists are stuck in the past and stuck with the broken neo-classical economics model that it seems they barely understand and ignore soe of the fundiimentals Ive listed above. The deflationists are looking at different models and real world events and the fundimentals Ive listed above.
head in sand, no, my eyes are open to information and data, I then draw my own conclusions.
Me depressed? no, worried, yes.
Sit back and watch, we are both in the same experimental test tube....
Simple Ive made my financial decisions Im sticking with them. BTW sold my shares last year, made a tidy profit and shares prices are 15% down on what I had.....very happy, thanks.
regards
My coins aren't copper coloured I can assure you, but that comment seems completely at odds with that above.
What is going to happen to prices when 98.5% of the money disappears(electronic $) and we are left with the hard stuff. Maybe that copper coin won't be so bad.
And how exactly is that money going to disappear, scarfie? Once it's been created it eventually gets used for everything from property loans to paying staff wages - hard to take it back again.
The US is flat out with QE (printing money), and many countries (including NZ) are effectively creating money by selling bonds created out of thin air (what I call QE by stealth!).
$12 billion of created money is about to pour in to Canterbury for rebuilding efforts, paying wages and buying materials from suppliers who then use it to pay their own bills and buy food from the supermarket etc - or do you see that money disappearing somehow?
Do you see a day when the RBNZ will re-introduce the 1c & 2c coins that were actually made out of copper?!!
I think your view of 98.5% of the money supply somehow disappearing and stevens view of 90% house price drops are.... extreme... ...to say the least!
Yes but while they print the velocity is dropping, something almost universally overlooked.
All that digital money is debt and relies on the ability to repay. When it isn't, because it can't be, then the electronic money disappears forever. We are then down to cash, currently 1.5% of the total supply. Look for the facts on that, it is all available from here or RBNZ.
Steven might be extreme, but he has good reason to be concerned as these are extreme times. Combine the 1930's depression (35% unemployment in NZ) with peak resources.
Check out all the key minerals here http://www.usgs.gov/science/science.php?term=745 , only 20 years left for most. How many thousands of years has man been on this planet, yet now we are down to less than a generation of resources left. What future do you see for your kids?
Money disappear, its digital, you highlight it and press delete key
;]
Seriosuly that money has not made it out into the real world and probably never will, its hiding huge debt and insolvency in the big US banks.....hence there isnt general inflation.
90% is I hope an extreme limit, yes, is it that likely? I dont know, but this isnt me saying it but Nicole Foss, who I hold in good regard. Others have also said very large losses are possible. I certianly think 50% is probable myself. I consider we are heading into a second Long Depression and its a credit event similar to the Great Depression, so you can look at that period for an indication of what might happen now....hence very large losses could happen.
Could we see 1c and 2c coins again? I suppose its possible we have past peak oil, just what happens is fairly unknown....
regards
Murray - good first name but there it ends.
Money doesn't exist just because it was loaned into existence and then became part of the merry-go-round. That process just happened temporarily atop another - somewhat like a game of cards on the Titanic. Trouble is; most folk thing the game is real and will continue forever, on the apparent basis that it has so far.
Sorry, but money is nobbut a proxy. Something to be exchanged for goods and/or services. No more.
If the supply of goods and/or services is curtailed, it becomes a game of musical chairs with dollar notes - has to cause price inflation, but that's irrelevant, because from the get-go, measuring by 'price' is measuring with a secondary variable.
Fiat lending was always going to run into trouble on a finite planet - and sooner than all the blind linear-thinkers expected. It was always going to be ahead of the underwrite at that point, and by more than it had ever been before. That's exponential math. Not arguable.
It happened - predicted by some of us many years out - that the plateauing of energy cut the chance of recovery off at the knees. Not enough ability to do work. We are interestingly wobbling along the top of the graph now - grow and oil price ramps, we demand/destruct, and attempt to ramp again.
Fascinating times - but not ones I'd be leveraged in.
There is more $-to-$ transacting on the planet, by severalfold, than there is trading in goods and services. That can only end badly.
PDK - you always compliment my name and then follow it up with an insult ! ;)
"Money doesn't exist just because it was loaned into existence and then became part of the merry-go-round"
Are you sure? Fractional reserve banking enables banks to lend out much more than what they actually have as deposits. That money then gets spent on anything from houses to boats to businesses to holidays overseas. It was, exactly as you said it wasn't, "loaned into existence and then became part of the merry-go-round" !!
Money was originally a promissory note for gold, because gold was too heavy to carry around everywhere. The gold was constantly being melted down and mixed with less precious metals to make even more gold coins (debasing the currency). More gold coins available to pay for the same goods and services resulted in price inflation.
The same thing is going on today, only money is no longer tied to the gold standard and can now be created electronically - making it all too easy to create endless amounts which will lead to even greater inflation. Political talk of 'debt ceilings' and 'repaying debt' is just that - political talk - it's governments trying to appear responsible while at the same time they create trillions more dollars out of thin air.
"If the supply of goods and/or services is curtailed" - you sound like Bernard! Are we all going to stop eating? stop buying clothes? cars? stop renting houses, or buying them, or building them? stop using lawyers, accountants, doctors etc etc? !! No, we won't. But if there is more money supply chasing the same number of goods & services, we will just be paying a lot more for those things.
"making it all too easy to create endless amounts which will lead to even greater inflation."
Hence in simple terms why that isnt generally done. In more complex terms more money causes more inflation if,
a) Its in circulation with consumers, its not with consumers its in the banks, so its not inflationary. Where we see inflation is where the banks are speculating with essentially free money, thats shares and commodities plus the effects of Peak Oil driving prices up.
b) Its spent, its not being spent and consumerism is 70% of an economy, result big black hole, hence WE1 and 2 had almsot no effect, 800billion into a several trillion dollar hole does not fill it, let alone overflow it..
c) We have capacity constriants, we dont, we have excess capacity and high(ish) unemployment, these alone are deflationary.
Like I said earlier none of these really apply, so an investor should be considering the risk/opportunity of both inflation and deflation IMHO. Im in the deflationary camp so Ive minimised debt, and maxed cash potential. If Im wrong,and Im 99% sure not, I can get credit and buy....
regards
Murray - better, but think it through.
No, we are not going to stop eating, or drinking, of attempting to find shelter. But - that is done by every species, our own until recently included, without money.
Yes 'we will be paying a lot more for them'. That includes the tenants. But that's just numbers. Weimar Germany is the one to look to, for how that pans out - political potential included.
The combination of demand exceeding supply (of life essentials) and too many 'dollars' floating round, says rampant inflation yes?
The reduction of work do-able, says a reduction in usury, fiat creasion and profit, yes?
At a point on the way down, they pass through zero - a global reverse annuity, as it were.
We will of course, always trade and barter. My point is that the De Medici - to - Goldman Sachs era, where the 'new' money 'created' could be guaranteed to be exchanged for something tangible, has (as it always had to) overshot the limits of the planet to underwrite.
Actually, on a seriously sustainable basis, we probably went through that point around 1965.... We just ran a system which ignored real inputs and outputs (indeed, which funds spin-doctors to ensure that the process is continued).
"Murray - better, but think it through"
Gee thanks, PDK, I'm glad I'm almost up to your standard ;)
I followed you up to the point where you said "The reduction of work do-able" and then you lost me. How is "work do-able" reducing? As the population expands there is more and more demand, more work to be done, more goods and services to provide.
Call me a simpleton, but the way I see it is if growth of money supply exceeds growth of goods & services then you have inflation (more money to pay for the same g&s). If demand for goods & services grew faster than the money supply you would see deflation (the same amount of money to pay for more g&s)
I think the notion that the new money doesn't make it out in to the real world is crap. Every dollar people earn as wages, or take out as loans, or have in their wallet or bank account, was originally created exactly the same way - either physically printed or electronically added to an account.
Actually Murray you are horribly wrong about money making into the real world, you are overlooking the velocity of money. I mentioned this above but you have ignored it. I suggest you pull out your encyclopedia and look up the theory of money, M.V=P.Q is one form, but the others all inclute V or Tt.
The second error in your thinking is that growth happens without resources.
The worlds population reached a limit at around 2 Billion until they discovered nitrogen, and consequently its effects on plant growth. Not withstanding the health effects of artificially fertilised food, the quantiy of food relies very much on the fossil fuel derived nitrogen.
It is actually a close contest between whether we run out of oil or water first. Many countries unwittlingly import water in their food supply, ie the middle east. They would not have sufficient otherwise.
I hope that points you in the right directing to do some of your own research.
Yes, PDK is right, you dont get it, lets try it this way.
Physics 101 work or watts is joules/second or energy to move something in a time.
"How is "work do-able" reducing?"
Energy....how much petrol does it take to drive a SUV 1 mile? how long at 60mph? ans - about a minute.
How many ppl would it take to push that SUV 1 mile? and how long would it take them?
Work is underwritten by energy, you dont do work if you dont have the energy. If its costs to much in energy to get the work.you get no or an inadequate return on the energy you invested, you would be nuts to do it.
More people cause more demand for energy in two ways, there are more people and each person wants more done, a double whammy. More goods....where does the energy come from to make, transport to point of sale and use come from? What happens when the cost of energy increases? and/or if its in short supply? It no longer makes economic sense to do the work, so the economy contracts.
"Call me a simpleton, but the way I see it is if growth of money supply exceeds growth of goods & services then you have inflation."
You get inflation if the DEMAND for goods and services exceeds supply and IF there excess money to pay for them. If demand does not exceed supply and the money is not spent/exchanged then you do not get inflation. This is where we are at.
If demand for goods & services grew faster than the money supply you would see deflation (the same amount of money to pay for more g&s)
As above....you have missed demand, if you look at core inflation you find it is flat or decreasing or in danger of doing so, hence deflation is in our future.
This is sometimes the problem with very simply economics models , they are simplified to the point they are meaningless so mislead.
The new money isnt making it out its being held by the banks. If it was outside the banks ppl would have more money and would spend it, they are not. If there was more money the un-employment rate would be very low and maybe dropping still, neither is true. Instead un-employment is high, when you are unemployed you have no money to spend....when you are fearful of job loss you dont go out and lend, indeed you save.
regards
steven, scarfie, you guys speak in such riddles that I don't think you even understand yourselves ;)
Time will tell if we have inflation or deflation over the next decade or two, but given that governments the world over specifically aim for inflation, not deflation, and given that they will do whatever is necessary to achieve it - I think the odds are in favour of inflation.
Apart from stevens beloved power tools & computer, where have prices been going on food, energy, wages, rents etc over the last few years? Up, not down. Sure, property prices have been stagnant, but that was entirely expected after a 5 year boom in which they increased over 100%. When will your predicted deflation begin? (and please don't quote me computers and I-phones - it makes me suspect you are bored unemployed teenagers).
Even more Hahaha, come on Murray you are taking a half baked approach. How the hell can you leave out one part of the equation? It is like saying 2x3=6, but then leaving out the 3 so it become 2x+6. I just is just useless and doesn't make sense.
You are half way to understanding inflation when you say: " but the way I see it is if growth of money supply exceeds growth of goods & services then you have inflation" which would be correct is you said "if it is the growth of the money supply then it is inflation". That is exactly what inflation is.
But a critical factor in that growth is volicty. What happens if the money supply increases by 10% and all of that increase goes toward everyone getting a 10% pay rise, but they all stick it under the mattress. No inflation there buddy. Don't over complicate it.
What about if they put another 5% of their income under the mattress as well, then you will have delfation despite the increase in actual money.
Velocity of money can be measured...well enough to find a trend at the very least.
I can see PDK's comment on you ability to understand or even want to understand is ringing true.
These are valid tools that help you understand what is going on in terms of investing and risk taking...hence if you are ignring it its not surprising we differ in the inflation v deflation discusion.
regards
Oh I understand where I am at, perfectly in this case I believe.
"given that governments the world over specifically aim for inflation, not deflation, and given that they will do whatever is necessary to achieve it"
Indeed, totally agree, deflation is one thing to be petrified of....and Govn's are indeed petrified, often they wont even mention it and are trying very hard to avoid it."
"I think the odds are in favour of inflation."
Very much not, just becasue Govn's dont want it doesnt mean it wont happen, it will, debt ensures it and they are simply pilling that on....
When will deflation occur? Honestly I do not know but its short term. Some of the best ppl I read said a year ago, 1 maybe 2 years of yet more can kicking.....well we are half way there. In this last year things have just gotten worse, not better...
Throw this back when do you expect hyper-inflation? in three years Ive seen none....best we can do is a CPI of 3.3% (after GST is removed)....no where near hyper.
I guess that right now the Govn's are doing a balancing act and we have stag-flation. As long as they continue to balance we will continue to see this situation I suspect. What's interesting is the expected oil supply problems looming inside 5 very probably 2 years, 2012 sems a favourite but before 2015 seem the best estimate.
regards
I never said I expect hyper-inflation. That would require a lot more money printing. I expect governments will by and large succeed in their target of low inflation.
Stagflation? That was the catch phrase during the 2000s recession when everyone was making the same predictions you are making now... I'm not saying you can't possibly be right, just that it's often been wrongly predicted....
"governments the world over specifically aim for inflation, not deflation, and given that they will do whatever is necessary to achieve it - I think the odds are in favour of inflation."
maybe note this comment then,
"I really don’t know how this is going to play out; Italy and Spain are too big for extend and pretend, and they’re also too big to save. But this is huge, and just as worrying in its own way as the US crisis of governance."
http://krugman.blogs.nytimes.com/2011/08/02/what-about-europe/
and look a bit more directly, Italy's rate is 6.6%.....
"Europe's money markets are undoubtedly starting to freeze up," said Marc Ostwald from Monument Securites.
"It's not as dramatic as pre-Lehamn but it is alarming and shows the pervasive degree of fear in the markets. People are again refusing to lend except on a secured basis."
"Swissinvest says large clients have been telling asset managers to eliminate Sourthern European risk. "They have kissed peripheral Europe good-bye," he said."
http://www.telegraph.co.uk/finance/financialcrisis/8677989/Europes-mone…
Like I said, I dont think they can stop it....they really want to without a doubt, its just it maybe impossible to do so.
regards
Murray - OK - the reduction of work do-able.
Energy is required for work to be done. No wriggle-room there.
We used to be just us, energy-wise. Then we started cooking - which released the carbon-bond energy in the firewood, which partly processed the food, saving us the energy of doing so. The only species to cook, the only one to save the energy of raw digestion.
Then we used animal labour, which gave us more 'free time without needing to work-to-survive.
Then we used coal - still cracking stored carbon-bonds.
Then Oil - still cracking carbon bonds.
Sure, your expanding number of people extracting more and more gave economies of scale - but the underlying physics doesn't alter one jot
No energy, no work.
So - if the energy graph looks like this:
What if there was say, twice the amount?
http://www.hubbertpeak.com/bartlett/hubbert.htm
So you's only spin peak energy out to 2030 - via oil. Coal looks like peaking in 2027. There are no alternatives (too long a debate for here) as compact/transportable.
So - we are looking at a reduction in the work we can do.
Yes?
It gets worse because we cherry-picked the best, first, and because there more folk than ever wanting some, and because the internal use by exporters leaves less and less exported.
I agree that in a high inflation environment that you want an investment that makes a reasonable (CPI adjusted) rate of return. The problem with property is that the rental stream is usually insufficient, which is also a pretty good indicator of over-inflated capital value.
Property prices are also notoriously sticky, many people have a pyschological barrier against selling at a price lower than what they paid for it. Real declines in property prices can occur in high inflation environments as people are happy that they at least got the price that they bought something for, conveniently forgetting about inflation and the time value of money.
Steven,Martin Hawes wrote a pretty well balanced column in yesterdays Star times which may be time for you to consider while sitting outside your door smelling the roses in your garden.sometimes in life with a family etc its pretty cool to be a homeowner in the eyes of self esteem and respect, is some of the tradeoff we may have to consider in our lives is my take on the article.
Good luck in the future.
There are cheap enough properties out there. We purchased our first home in Papatoetoe in 2004. 3 beddie on 400sqm for $265K. 5 mins to motorway and walking distance to the train station - cheap easy living. We had paid it off after 4 years and we were still in our 20's. You could probably still buy a similar property for less then $350K.
Our income did go up by about that amount. We went 22 and 23 on $35K and $45K (total of $80) to 27 and 28 on $50K and $70K (total $120K). Our incomes are now and 31 and 32 $50K (part time) and $110K (total $160K).
Probably should add $60K we made on a rental property and $75K we brought back from the UK and over $40K in rent we collected on it when we were away helped as well.
You miss the point. That same 'you' at 22/23 would have to have a net income of $87k ( gross +$110k?), today, not the $66k ( about your combined startingr $80k gross) you started with.In the mean time, the CPI has probably eaten up a substantial amount of whatever wages increases have occurred.
Not many 22/23 year olds buy houses. It is the 27/28 year olds on $110K gross that are moaning about house prices that should be looking to buy a $350K property in areas like Papatoetoe. Buy that stage they should have the best part of $100K in the bank so mortgage of only $250K.
@shorts. The thing is, 22/23 regulaly used to buy houses, and still be able to start a family, if they wished! They could afford to, and it's not all that long ago. As recently as 2000, a Christchurch property on the edge of town, say, St. Albans, cost $125k. Just before the earthquake those same house were asking $350k. That pushed the price away from 22/23 to 27/28, because wages, the indication of our national productive power, just haven't kept up.
Nicholas Arrand | 01 Aug 11, 3:14pm - See! We tenants are nice guys, after all. Saves you the R/E fees ( unless there's "that" nasty little clause in the rental management agreement!) and your tenants get something that they are familiar with. Sounds like a win.... for you.
Yep, it's taking two to tango! Remember only few landlords are scumbags. Unlike some contributors in this website think they all are... I guess they need to go outside (or let out) a bit more!
Or they could be Greens supporters - then they need to spend more time in mother Russia (Siberia)
It's the same old story though. As Akl has the greatest population, all rises and declines will start there. If there is a genuine shortage of properties and a 'glut' of buyers, of course prices will go up, however much the gloom sayers keep harping on. Price to wage ratio is irrelevant, if the buyers find a way to buy, they will buy. A buoyant property market is good for all, if you get your priorities right. Anyone who owns a home had to start somewhere and make a commitment. A buoyant property market benefits, businesses, banks, real estate, lawyers, accountants etc and YES the man in the street, who after all is the person leading the surge.
Keep harping on about wanting the property market to collapse to help teenagers who one day might want to buy a house for a cheap price is ridiculous. Look at other countries that are developed and see how good their housing market is. Unfortunately the voiciferous minority are praying for a collapse - would you guys step in then and buy???
Price to wage ratio is everything, once it gets much over 4 x people will be unable to pay their mortgage off ever.
When you are talking about housing markets in developed countries I assume you are taking about the USA, Great Britian, Ireland, Denmark, Iceland, Spain, and Italy?
Well Simon, if you know how other countries have got around the price to wage ratio, you will understand how it can be done here. 25 years is no longer the maximum term for paying back a mortgage. And thank you for picking out all the countries that are on the news on a daily basis, saying how badly they are fairing - you seemed to neglect to mention France, Germany, Austria, Switzerland plus most of the former Eastern Block countries that have the fatest growth in Europe and Canada. Then there are the BRICS countries that seem to be doing quite well.
As for GB, we have many clients who are moving over to NZ in spite of the atrocious exchange rate at the moment. The feedback we are getting from them is that property prices haven't collapsed as much as we hear on the news and once again it is just negative propaganda from the property doom sayers.
At the right time, yes I would buy, provided I was happy the market had bottomed and the income off it was self-supporting and profitable and it was the best thing to do with my money....However today is not that day....I wouldnt buy now until ive seen a 50% drop or more....I suspect that could be 5 years away, or indeed it may never occur. In which case I will never invest in housing, the risk is to large, I will go back into shares, until then its something short term that is a cash equiv.
regards
At the right time, yes I would buy, provided I was happy the market had bottomed and the income off it was self-supporting and profitable and it was the best thing to do with my money....However today is not that day....I wouldnt buy now until ive seen a 50% drop or more....I suspect that could be 5 years away, or indeed it may never occur. In which case I will never invest in housing, the risk is to large, I will go back into shares, until then its something short term that is a cash equiv.
regards
I think Steven's point is that when you invest in shares you are investing in the productive sector of the economy where things become more efficient and grow and expand and result in new technologies which further improve GDP and our way of life.
In the long-run, shouldn't that be safer than buying physically depreciating bricks and mortar?
OK, that argument is perhaps flawed as the land may appreciate in real terms as population increases.
Since you don't like that argument lets try this one:
If you invest in property you are highly leveraged so you can easily end up with negative equity. Look at all of those home owners in the US.
If you invest in shares you will never end up with less than you started unless you borrowed to invest. This is a really stupid thing to do as you are gambling that you know better than the market.
Yes....generally.
Mind you you can lose on shares and you can borrow to get them (apparantly). One of the great things about shares is you can sell them very quickly at little cost...selling a house is way more painful, expensive....and has upkeep costs. One of the biggest thing for me though is flexibility in the future, the ability to buy and sell quickly with little effort is a key driver in times of volitility. Dis-advantage is the share market is stitched up or being stitched up by the NZX and its "premium" customers, and we are heading for a depression and deflation, hence I sold.
regards
Argument #3: If you look at the Case-Schiller index of rentals to property values then the NZ housing market is 15% over-valued and the Australian market is 50% over-valued. The rational investor should therefore rent and invest elsewhere with a diversified portfolio.
“If you invest in property you are highly leveraged…”
“If you invest in shares you will never end up with less than you started…”
“NZ housing market is 15% over-valued…”
“The rational investor should therefore rent and invest elsewhere…”
Sorry mate, but I don’t have enough time to fill you in on a lot of basics that you appear to be lacking the understanding of. I can only advise you to get somebody more knowledgeable and experienced to assist you with your investing decisions (this is if you do intend to invest, although something tells me that you are not yet in a position to invest). Good luck anyway.
Correction: I meant to say that if you invest in shares you won't end up with negative equity.
The least risky investment is a diversified portfolio across multiple asset classes rather than have all your money tied up in a very small number of properties.
Criticising the person rather than the idea suggests that there is not much wrong with the reasoning.
Tidy little comment from Macrobusiness:
'All of a sudden houses in the burbs are now displaying the same depreciative behaviours as new cars!!
Which is how suburban house prices should be valued, as they are a consumption item, providing basic shelter, whose overall material value depreciates with time, and whose total stock can be added to very quickly and responsively, if allowed to by regulation, and can be built cheaply and quickly (if not gamed by developers to build McMansions on tiny blocks).
They are more like mid-level Commodores and Falcons than people realise, yet they are priced like Porsches.
As I’ve long said – we have an affordability crisis in Australia, its just that we all want to afford Porsches, when we need Commodores."
OK....LOL
;]
I like to read stuff thats apolitical thats all. I want economics not politics....I find sites that have a political axe to grind are poor at laying out the case for thier opinion of the subject and it seems they are getting more and more polarised. So for me, few sites like Macrobusiness are worth reading, as I want to make the decision on the info not have them do it for me. Ad Paul Krugman said those that followed the WSJ's advice during the GFC probably lost a lot of money.....and he has blind spots too, Peak oil being one of the main ones.
regards
Anyone else noticed the Trademe To Let advertisements for houses in Auckland have fallen, nearly 13%, since the beginning of July? Very unusual to see falls in winter.
So houses to rent are decreasing in supply, along with houses to buy.
Seems a few years of less-than-normal construction is starting to catch up with the market.
The rental squeeze of last summer is coming back again. Looks like a great time to lease out property.
Totally expected, Your Landlord! People are just 'staying put'. Those that can't/don't want to/don't have to sell are not moving ( less of either rentals back to the pool, or to the sales market) and tenants are doing likewise....again...no return of inventory to the pool. Who wants to move into the teeth of winter, anyway! Inventory of anything - rentals or sale-stock- means very little if either is not what the purchaser can/wants to pay. And with the household purse string being drawn even tighter...expect more of the same...and lower prices, of course :)
Still trying to convince yourself, Nick ?!
Lowest construction levels in decades, practically zero new investment in rentals, steadily growing population, 5%+ inflation, $12 billion in overseas insurance pouring in, the US still to print more, prices of building materials and just about everything else going up - but yep, she'll be right, house prices and rents will get cheaper real soon!
How's that money in the bank going after tax and inflation, by the way?!! Backwards? surely not!!
Honestly, I'm sick of pro property people saying that EVERY way the market goes is good for people who own property. its ridiculous. Listings are at a 4 year low because people know that if they sell they will get less than they bought for. This is putting no constraint on the market and is not pushing the prices up. Prices will always be high for chumps because as soon as a crafty property p*&^k sees that he/she can make a buck off a sucker then they will, by saying crap like "only the VERY astute investor would look at buying this". Its a croc, once you admit the game is up then we can move on to better long term economic prosperity. But still, you'll hold on to your property dreams until the cows come home, and it will be everyones undoing. Its selfish, have some social responsibility. Rant over lol
" Listings are at a 4 year low because people know that if they sell they will get less than they bought for."
Is the site offering a chocolate fish for the dumbest statement of the day? This howler is going to be hard to beat. I'll take anyones bet that over 90% of property sold last month got more than it's previous sale price. Further, anything with more than a decade since it's previous sale would be going for double or triple. Head back in the sand MK.
It seems that people are staying put and paying down debt, and only those that have to move or sell are selling. There are always going to be people upsizing, downsizing, or relationship breakups etc.
Probably what will happen is that once sellers become convinced it's a sellers market, the listings will increase and the increased listings along with higher interest rates will bring prices down again.
To get a fundamentally driven upswing we need some serious wage growth... which we clearly don't have yet, right now it's something like 1.9% per year.
Most pro property people are pro property because they are experienced in property investment. All of history points to the facts that if you are in for the long term, you will make a tidy sum. If you want to make a quick buck, well you can do that too, but your timing has to be exceptional - buy right to sell right, as in all businesses. The problem is that most anti property people don't really point to long term facts, just what they hear through left wing media, who often have an agenda, just as some entities have an opposite agenda, to knock the market. Their agenda is their readership. I remember a few weeks ago the Herald listed fors and against for a Capital Gains Tax. For it was the IMF, the World Bank, Nelson Mandela, God and oh yes that's right the NZ Labour Party. Against it was NZ National Party, the National Party, John Key, Adolf Hitler and Attila the Hun and the National Party. People have to read and watch media to learn things, but for crying out, don't believe everything as gospel.
I would like to see facts - those people who bought houses 10 - 15 years ago in NZ, what did they pay for them and what are they worth now. Come on you doubters, what are you men or mice? Squeak up!
Yes I agree, a levy is definitely a contender. Or a straightforward Govt guarantee, with the implication of QE if we had a real major. Other possibilties would include the issue of bonds with a Govt guarantee, or bonds with a 'social good' tag. If the bond market dries up, they can be purchased by RBNZ, providing QE.
I don't regard QE as a total can kick. Talking to those who were young in 1930 one becomes convinced, like Ben B, that QE would have been the best thing to do then.
Cheers
QE/stmulus was tried in the form of the new deal....I agree, it started to work but then the US govn caught a cold, stopped and it fell back. The biggest of all thet got the us out of the depression was armament ramp up for ww2.....the q is now how do we do that in a resource constrained world and no uh global war on the horizon... nasty frankly.
regards
Steven, I thought you were a serious contributor until I read this and what a ridiculous comment about being able to walk away from a mortgage debt scot free. Unfortunately comments like the one above and previous kind of screws up all your credibility. The point I was making before about the housing market in the US being different to elswhere had nothing to do with banks persuing due diligence - that system was seriously flawed and hence we are fortunate that nowhere else has it - an extremely left wing view you have on things that cannot be taken seriously
an extremely left wing view you have on things that cannot be taken seriously - Bullseye !!
and you seem to be a new contributor so heres some interesting info on " Enviromentalism Refuted "- steven and powerdownkiwi seem to have a little problem with it...
Mises Daily:Friday, April 20, 2001 by George Reisman
God you are dragging that piece of literary trash up again. If you can take that seriously with all its flawed arguments you are a fool. You would have to me brain dead to even make it to the end. But I have pointed that out to you before so I guess it says it all that you bring it up again.
gonzo - no, we don't have trouble with it, any more than we have trouble with Bishop Tamaki. We regard both as being purveyors of belief.
Some of us go instead for facts, and truths. Your society - all economic activity included - requires an EROEI of about what we had in 2000 - 4, to maintain itself.
It's about to get into deep-water oil, tar sands, shale, and here, lignite. They return less energy per energy investment (not $ investment) and thus you get less work out of 'em.
You may be ignorant enough not to see the connection between energy and work, but believe you me, by the time we're down to lignite, no tenant has the income to pay the rent to pay off the mortgage that lives in the house of cards that the eager PI 'bought'.
http://www.parliament.nz/en-NZ/ParlSupport/ResearchPapers/4/6/a/00PLEco10041-The-next-oil-shock.htm
I dont care (and I'm not surprised) that you're not interested in the EROEI of lignite - but if I had mortgage obligations that went out beyond 2015, I would be getting learned fast. I did so I don't have.
"beyond 2015" bummer....but nothing I can do.....done the best I can......however Im not sure just how severe and just how quick its going to be. If its gets to my wee mortgage being sold, frankly most others will have gone long before me so my house will be worthless. Ggoing to be interesting watching those around me with 300k mortgages and state of the banks who they owe.......that will be about 2015 +/- 3....
regards
No, Im just me, I really dont care what you think of my ramblings. Im looking at the States that have it and those that dont...its arguable that its better to have jingle mail, on balance maybe.
Extreme left wing, no a bit left of centre, yes....the above idea/comment has nothing obvious to me to do with left or right wing.
"Seriously" like I said I dont care. Im happy for ppl to look and go off and read the links I provide that I comment on, and let them make their own minds up on the info/data.
regards
I agree that real estate is due for a massive correction. 85 homebuilders went toes up in the last month ALONE in Aussie. We have Aussie banks http://www.smartcompany.com.au/construction-and-engineering/20110804-ei…
Steven, while I agree with many of your comments, I caution you to become a complete follower of Bob Pretcher. He has quite a following, almost a religion. His major flaw is that he fails to take into account the power of the printing press. While I agree that demand will drop dramitically, central banks will print money and force people to spend while their money still has any purchasing power. Someone metioned velocity, and I totally agree. If people, on the whole, decide that their money had better be spent while it is still worth something, then they WILL spend it. That will increase the velocity, or speed, of money changing hands. If the central banks print a LOT of money, then you will see a lot of people wiping their behinds with the money, as they did recently in Zimbabwe. Bob Precther totally misses this completely relevant point. This is also why gold and silver are your only realistic security, though few people understand why. I just gave you the reason- you want to protect your purchasing power.
What good is it to make $100K profit on a rental property if $100K buys you a loaf of bread? No joke. This has happened before in other countries.
I agree that real estate is due for a massive correction. 85 homebuilders went toes up in the last month ALONE in Aussie. We have Aussie banks http://www.smartcompany.com.au/construction-and-engineering/20110804-ei…
Steven, while I agree with many of your comments, I caution you to become a complete follower of Bob Pretcher. He has quite a following, almost a religion. His major flaw is that he fails to take into account the power of the printing press. While I agree that demand will drop dramitically, central banks will print money and force people to spend while their money still has any purchasing power. Someone metioned velocity, and I totally agree. If people, on the whole, decide that their money had better be spent while it is still worth something, then they WILL spend it. That will increase the velocity, or speed, of money changing hands. If the central banks print a LOT of money, then you will see a lot of people wiping their behinds with the money, as they did recently in Zimbabwe. Bob Precther totally misses this completely relevant point. This is also why gold and silver are your only realistic security, though few people understand why. I just gave you the reason- you want to protect your purchasing power.
What good is it to make $100K profit on a rental property if $100K buys you a loaf of bread? No joke. This has happened before in other countries.
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