House sales volumes drop 7% month-on-month

Property

The REINZ says median house prices kept rising in August but the number of sales is in decline

12th Sep 14, 11:54am by Greg Ninness

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

The national median dwelling price increased by $4,000 to $420,000 in August compared to July while the number of homes sold fell by 7%, according to the Real Estate Institute of New Zealand (REINZ).

The REINZ said 5,481 homes were sold in August, down 7% compared with July and down 16.3% compared with August last year.

August's national median price of $420,000 was up $4,000, or 1%, from July and up $30,000, or 7.7%, from August last year. The median days to sell dropped by one day to 38 days compared to July, and was down four days from August 2013.

REINZ chief executive Helen O'Sullivan said the market appeared to be idling as both buyers and sellers awaited the outcome of the election.

However that wasn't only factor involved, because sales volumes had been below the same level they were a year ago for 10 consecutive months, she said.

"While (Reserve Bank) LVR restrictions are still cited as being a significant factor, lack of listings continues to be an issue in most parts of the country, with low stock levels restricting buyer choice," she said.

In the Auckland region, the median selling price increased to $614,050 in August from $610,000 in July, with median prices in Manukau, Central Auckland and the North Shore all up strongly.

But the median price in Waitakere dropped to $515,000 in August from $550,000 in July.

In the Wellington region the median rose to $397,500 from $380,000 in July and in Christchurch the median increased to $421,500 from $407,250 in July.

Across Canterbury sales volumes were down 12% compared with July and down 11% compared with August last year.

Here's REINZ's full press release and here's its regional data.

House price index

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Source: REINZ

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110 Comments

by gordon | 12th Sep 14, 12:13pm 1410480810

The Reserve Bank came out this weak and said a bit of fire was coming out of the property market in New Zealand. These figures seem to be confirming that. The election is certainly not helping things and that also is the situation for retail which is very lack lustre in NZ at present. As someone who has had an interest in retail since 2004 current trading is the worst it has been in ten years. And this store sells large products one would not attempt to buy online as a rule so it is not online retailing that is affecting the store. I live in a large provincial capital that is supposedly prosperous. One only has to drive down the main street and see the empty shops and empty car parks. Roll on the election and then better times as we do not want to lay off any staff. Notwithstanding the above I was in Europe in July and on return I immediately said to myself and others that we live in a fantastic country.

by rjf | 12th Sep 14, 12:21pm 1410481281

Nobody has any money! We spent it all on the mortgage.

by Chairman Moa | 12th Sep 14, 12:29pm 1410481757

Plus the (massive)Rates, rubbish collection levy etc.. if you are in Auckland

by rjf | 12th Sep 14, 12:43pm 1410482630

Being a pom the rates seem relatively tame to me, but the general cost of living is pretty insane!

by Chairman Moa | 12th Sep 14, 12:58pm 1410483491

Being an ex-Aucklander, now living in Australia. Auckland rates is a rip-off! only if the laws allow you to take on the council for fair-trading.

by Jamin | 13th Sep 14, 1:06am 1410527183

For me I choose to shop in NZ as little as possible becasue it's so expensive. I bought a pair of shoes in Centeral London for 35 pounds ( $70 NZ dollars ) and on return saw the same pair in New Zealand for $165. Does anyone know why the shops are so expensive in NZ? It can't be rent as things seem way cheaper downtown London?

by steven | 13th Sep 14, 7:52am 1410551520

Hi, I was gob smacked at how expensive things are in NZ when I arrived (1995) also. In 1998 I went back to move arrange to move permanently. I bought 2 pairs of adidas trainers in Tesco for 25 sterling each (so $60NZ) and a pair of Catepiller boots for 40 sterling. The same ones here were $80NZ and $250NZ respectivel, I'd looked up the prices and asked my parents before I flew back.

My dad wanted replacement taps last year, $60NZ+ each here for new internals, in B&Q 12 sterling for a NEW pair.

Batteries, in Bunnings in OZ my dad picks up superpacks (30 or 40) of batteries for abour $6 OZ I think he said, they are that in NZ for 4 here.

Things like scale play a part and lack of competition also, and a lot of it is monopolistic pricing by wholsalers IMHO, just look at the iphone price differences today let alone anything else.

I am buying more and more from overseas, typical savings are in the order of 50~60% and its exactly what I want ie latest model, highest spec.

Actually from what I have read shop rent in NZ is also amongst the most expensive per Sq m apparantly. Happy to be corrected if this isnt the case.

Given how many empty shops Im seeing tehse days having money in commercial property seems to be a no no.

regards

by David Chaston | 13th Sep 14, 8:09am 1410552588

Given that rents for those empty shops will be cheap, and that you can buy that stuff apparently so inexpensively overseas, and that there are people here (like you?) who don't want to pay as much as they do from existing retailers, you would think there would be an easy commercial opportunity to get into the importing business yourself. Can't miss, right?

But when was the last time you saw that succeed? Perhaps online undermines the "opportunity"? Perhaps TradeMe is where people source stuff less expensively?

There is no regulatory or importing imediment to starting up. And starting a company in NZ is cheap and easy. Can you find anyone selling goods in NZ retail at overseas prices that is prospering? Why not?

You could make your fortune ... then set up a Foundation to give all the profits from your unique idea away. Do it Steven. I'll buy from you.

by cowboy | 13th Sep 14, 10:06am 1410559582

David Chaston, please point out where you _know_ shop rental space (ie commercial) to be cheap.

When you've made enquires, speak to the agents and find out why.

Also several people I knew, and several I remain in occasonal FB touch with paid for their NZ university education by purchasing "personal items" while home in their countries, then selling the lot off when they got back for term. One US friend (Sefton) was telling me he thought it was just an urban myth but when he started term and people were offering him $2-500 for his authentic US sneakers he couldn't refuse. His authentic US College t-shirts and gear he could buy for $4 and get great US expectation quality gear, sell them in NZ for over $100. He said customs was an issue because they wanted to seize most of the money as was taxes, but because it was "his personal clothing" they couldn't charge him.

Setting up in business, you can't afford to fight the low quality imports, and they sell cheap so the duties etc are so much lower and licensing is a pain. also getting quality gear out of many countries is a major hassle and expensive, things tend to get lost/held up unless you've got container loads. Then there's all the local costs rates, petrol, wages, repairs when you can get them. what's profitable on the suitcase size often isn't competitive on the shop size due to NZ's overheads.

Just checkout the price of an averge lawnmower in the UK vs NZ.

by David Chaston | 13th Sep 14, 10:26am 1410560786

If they are vacant for a while, any landlord would be happy for any rent I would have thought.

Here are some candidates in an area you may know:

http://www.primecommercial.co.nz/1624103

http://www.primecommercial.co.nz/2321030

Good on those FB friends, an entrepreneurial thing to do. Why didn't they keep doing it if there is so much money to be made? (Those Customs taxes were just prepaid GST - which if was in business he could reclaim on his GST return when he sold the items.) What you seem to be saying is that the black economy can undercut the legitimate economy. Fair enough. I believe that. Many local retailers may believe that too (such as those who used to occupy the premises listed above).

Companies have been set up to do it legitimately (like this one) but the cheap barbeque discussion about local price ripoffs can't seem to be turned into any arbitrage action in a meaningful way. I think that is instructive.

by cowboy | 13th Sep 14, 10:39am 1410561543

You have thought wrong. TALK to the agents to find out why. If I say it, it'll just create arguments (again). Some of my family are in commercial property.

My friends got their degrees and went and worked in foreign places with better wages. they had experience and degrees and foreign cultre experience, why would they get stuck around in this poor waged mud hole?

And nah, it's the legimate economy fight for productivity and price advantage drives out decent goods and services. As usually a small number of wealthy individuals (whise parents or themselves have high incomes) can afford high prices for premium items. It's a narrow and shallow market. And yes, many were using TradeMe BUT the legimate trash importers got wind of it, so "personal items" that are advertised on professional sites (ie TradeMe) are very likely to result in customs penalties including imprisonment and confiscation - this is important to preserve NZ's ability to be stuck with the lowest quality overpriced garbage. (the cheaper it is to get, the better the chance to undercut).

With the arbitrage, it's NZ tax and government systems which are empowering the push to trash. A $0.25 t-shirt sold for $14.95+gst in NZ attracts a modest amount of surcharges. A $5.00 t-shirt solf for $80+gst will attract much more taxes and penalties; and at government level many totalitarian & socialists will consider that $80+gst is "too much" for common NZers to pay, and will actively find ways to hinder the business, as the $14.95+gst (especially if lots of specials are promised) are considered to be much better for NZers. That's why I keep pushing for financial education - that 14.95 doesn't allow for much quality or wages. the 80 actually encourages better care, lasts longer, and produces a wage that does more than pay the lowest wage possible. (sure for younger kids, the disposable option is fine; but for over half the personal item use, longer lasting goods and services are financially better, for us and the country

by cowboy | 13th Sep 14, 12:20pm 1410567653

there are duties for importing items that have similar items already available in NZ.

Also there are inspection and account costs.

For small orders and personal use items these aren't applicable and GST doesn't apply for secondhand goods esp. personal items.

so a few items, got for "friends" or someone in the pub who offers you $200 bucks for your shoes is no problem.

importing, not-declaring, not being inspected, not paying duties, on items for supply is known as "smuggling" and is taken evry seriously. My friend Sefton almost got 10yr prison but the customs decided he was just a kid selling his own clothing rather than a deliberate mule, so in return for a promise not to do so again, they let him go with a warning - also he wasn't hauling anything too expensive or nasty (tech, fruit, "medicines", specials) or too much volume.

by steven | 13th Sep 14, 2:43pm 1410576183

Please explain the price difference between an Iphone purchased in NZ (off apple.co.nz) yet shipped from Eire and one bought in a US retailer.

So there is ample evidence of wholesale monopolistic pricing. Is it pervasive? I dont know.

Take another example I wanted a specialist book some years back, it was revision 4 on Amazon, but only revision 3 here and 3 times the price in Whitcouls as a special order. With a 2 week wait for the revision 3 (and they wouldnt order 4), guess which one I bought.

Tools is another area that see's a huge price differential. I can buy standard Irwin chisels here $120 for 5 or for $90 import a set of 6 far higher quality ones.

Then GIB?

The list goes on and on.

regards

by cowboy | 13th Sep 14, 6:11pm 1410588715

Same differences in a Dell gaming laptop - check out the difference between a US Dell and a NZ Dell

by steven | 13th Sep 14, 1:48pm 1410572899

I think to an extent you are on the wrong foot here. Ive abviously pulled a sensitive string.

a) I buy good quality NZ goods where I can, OZ second. I go overseas because I often dont have a choice or the $s to spend in NZ. Ever tried buying large shoes in NZ? cant be done, unless hand made.

b) Malls cheap rental? really? um no, not yet, see f).

c) Enough chinese immigrants already in the business of importing and yes selling on TM and since they know the ppl in china get goods at the bets price. I know this because part of my extended family already do exactly this (I even know aht their annual salary is more or less, see g).

d) Choice, there simply isnt the choice here compared to say the USA. If I want something from say Brownells I import it directly as its far far cheaper than using a shop who will add 200%.

e) Scale, we lack it, hence prices in some cases will obviosuly be higher because the turnover is smaller. However I suggest there is considerable monopolistic pricing at the wholesale level, eg want a makita drill preety much pay the RRP no matter where you go.

f) Consumerism is dead, we wont have the energy to run a retail industry that is 50% of the economy. In the future it, more like 20%, hence being in retail is simply a future disaster. After that commercial property is also in for a nasty correction.

g) I earn more as a specialist in what I do working less hours (though yes anti-social ones quite a bit) than I would running a import business and a chain of shops, see c).

h) Things change, so really when its time to move on, move on. Paying premium prices when the Internet is often cheaper and has a bigger choice makes no sense.

regards

by sadr001 | 13th Sep 14, 8:59pm 1410598774

Please compare the UK based http://www.nzgameshop.com/ with the NZ based http://www.mightyape.co.nz/ 

Mighty Ape has a price match request facility but they will actively refuse to match nzgameshop prices because nzgameshop is not NZ based.

I'm oten extremely tempted to purchase the PC hardware that I use from the US, the only thing that tends to deter me is the cost of Shipping. When ever I fly over seas I tend to do it with a half empty suit case and bring it back full.

by gordon | 12th Sep 14, 2:12pm 1410487940

Why do people have such big mortgages these days. Why don't they do what we used to do and that is start off with a modest house in an average location then move up the ladder as the mortgage is getting under control and the family is getting bigger and a bigger house is needed.

by TimfromTaupo | 12th Sep 14, 2:37pm 1410489467

Why are old people so oblivious these days? It’s like they think the younger generation are a bunch of whingers that don’t want to work hard and expect a hand out. I always thought of old people as wise and intelligent… Clearly I am mistaken if people like Gordon can’t research basic things such as, income to average house price while bearing in mind the average house hold income is now joint not sole.

by rjf | 12th Sep 14, 3:17pm 1410491847

Gordon - a modest house in an average location in Auckland will still set you back $500k (if you're lucky). With an average household income of around $80k, that's a pretty challenging multiple.

by steven | 13th Sep 14, 7:54am 1410551689

I think you are totally out of touch. Here a house is pretty much $400k, there is no option on cheaper unless you want to spend an hour+ commuting and $240+ in fares, you might as well spend the $240 on a mortgage.

regards

by gordon | 13th Sep 14, 9:13am 1410556402

I guarantee a high percentage of the people who knock me on this site have had the expensive overseas trips/OE, cafe lifestyle, concerts,iPhones and alike. I know as I have kids. One common factor. Want it now, get and do it now. No commitment to totally save a house deposit over a period of time. A sense of expectancy. And many will not vote. Why would you as you don't get paid to do it.

by cowboy | 13th Sep 14, 9:49am 1410558583

on this site maybe. But to overcome sample bias you have to actively step outside your comfort/personal circle.

Just had a friend visit from Aus. He's a ultrasound operator, thinking of moving back to NZ since his kids are grown.

He's telling me that medicine is great field because people _ALWAYS_ without exception will find money to pay their medical needs (like ultrasound).

I pointed out to him, he's talking to me, a person who isn't able to afford the medical care for his hand or feet problems, who hasn't been able to afford the dentist to pull the half tooth, because of sacrifices I'm having to make.

but he has almost finished his mortgage, has regular safe job and so does his wife, he's on about 120k AUD with plenty of time off and weekend breaks.

Even with me sitting in front of him (I had to sit because feet too sore) telling him, one of my best friends since 12yrs old. He just couldn't get past his own financial security level.

Because all the people he sees _are_ the ones who can pay. Those who cant, (and there are many of them) just aren't in his world. Same thing we get with Auckland and rest of NZ. (also something to keep in mind when setting up your next ad campaign).

Oh - and the phones - on the never never through telecom package deals. Splat buys them bulk cheaply, gets all the supply kick backs, then sews up customer service deals with people who normally couldn't afford the hardware cost of entry....far easier for such people to pay extra $0.10 cents for calls* ($1 day) than save $200 p.a. towards phone. splat gets the call volume to justify the "productivity level" of their service, uses high end deals (&leases) to pay for infrastructure, service use is high enough to ensure critical volume for market penetration/viability & the added visibility offsets the cost of primary advertsing (which is what a lot of social media rely on too). sign up for push ads will be next.

So you can hardly identify that as a modern sign of wealth - it's more a sign of poverty, that such techniques must be used - It's like saying I'm wealthy because I receive several items of junk mail and "free" newspapers/mags everyday and that didn't used to happen.

* that $0.10 is spread over everybodies calls so is hidden cost to most people, so few even understand what they're really paying.

by steven | 13th Sep 14, 5:24pm 1410585866

Agree.

regards

by steven | 13th Sep 14, 5:20pm 1410585652

So your circle of ppl seems to be spoilt and expect the world on a plate, oh boy is this lot in for a shock in the next few years.

For my circle I know more than a few who have been saving hard for 5+ years with no OE and no honeymoon either. Cell phone? I have a $29 one and pre-pay. Im off to DIYing now having been fault finding all day.

Sure a small % of NZers and indeed other tope few %s have had a great run, most however have not.

Then you obviously dont see this and are too shallow to even think how others may well struggle to get by.

regards

by gordon | 13th Sep 14, 6:08pm 1410588480

How many couples today with two incomes save at least one over a large period of time for their house deposit? How many go without cars, new appliances, holidays and alike to make a concerted push for that initial deposit? Hardly any in my experience as a professional advisor. They all raided their kiwisaver accounts which are meant to be for retirement as they had no other money saved. All spent , all enjoyed. It was refreshing to met the odd couple who had saved a considerable amount. In my day which is not that long ago couples made a concerted effort to save hard over a period of time. This involved discipline and sacrifice. You don't see much of that nowadays. I have to admit there is much more out there these days tempting us all to spend such as smart phones, better cars, easy access to overseas travel, hire purchase and credit cards. The thing is if you save hard when you are young and build up that initial deposit for the first home it actually sets you up for life. The trick is to always live within your means and continue to invest even when you have the first home. And here I am not talking about rentals as I believe there are much better ways to set yourself up for an early retirement.

by blue meanie | 13th Sep 14, 7:57pm 1410595049

You are NO financial advisor! If you were you'd know that no-one can raid their kiwisaver money unless they're buying their first home, retiring at 65 or are in dire financial circumstances... And this dire situation is examined very closely! Get real gordon... Do just a little bit of research... And just for starters, a median priced house in Auckland requires an almost TWO HUNDRED THOUSAND deposit! How long will a family with a median income of 80 thousand take to save that when their rent alone (in a middle class suburb) is more than half their take home salary!?Then there is electricity and that little matter of wholesome food for the kids!

Incase I haven't said this, you have no bloody idea, no bloody idea at all! Try doing a bit of research before trying to impart your 'wisdom!' I hope you don't charge for your 'advice.'

by cowboy | 14th Sep 14, 7:04am 1410635063

The issue with that arrangement (200k dep, 80k income, rent more than half income ...which if building requires a 200k deposit, 40k per annum rent doesn't seem too far fetched)

Then we have to ask if they should be financially making the decision to live in that area/auckland.

although the 200k dep sounds a little high, LVR-wise, but on 80k income the lender might be more concerned about debt servicing.

A farmily doing the above should look at equity-partnership if they have strategic reason to be in that location.

Or, at what point, does someone say "this location is too expensive for my income"

I do know of one farming couple finally "made it" so she built a two million dollar dream house, and sunk the business, and they had to sell up and restart....

by blue meanie | 14th Sep 14, 1:15pm 1410657353

Cowboy... am sorry I can't even muster the energy to reply to your absurd comment!

by cowboy | 14th Sep 14, 2:03pm 1410660209

which part? that 200k deposit might be too expensive for couple on 80k?

that people should probably not live in places well outside their income level?

or that deposit of 200k sounds high for an area (auckland) which was recently quoted as having median sale price off 450k (ish).

by gordon | 14th Sep 14, 8:52am 1410641533

Never said I was a financial advisor BM. I am only talking about FHBuyers.

by blue meanie | 14th Sep 14, 1:13pm 1410657197

Gordon, this what you wrote "...in my experience as a professional advisor..."

You are incorrect in pretty much everything you wrote... so here is a suggestion... STOP! TAKE A DEEP BREATH! Ok? Now look and see what NZ has become... Put yourself in the shoes of a hardworking Kiwi earning +90K and is still unable to afford to buy a home in a middle income suburb! How can this person working two jobs with a family to support ever hope to get into a housing market that is being bought up wholesale by overseas investors?

This isn't 1980 when an average house cost three times a salary, this is a place where a median priced house in a middle, middle class suburb (not an elite or even an upper middle-class suburb) of Auckland costs 800k... NINE times the above fellows salary! Yes NINE times... Now again, STOP! THINK! Yes there are houses in South Auckland for 450k, but dude, is this what it becomes? Where a hardworking professional on almost a 6 figure income can only afford to buy a home in gangsters paradise!? Where the 'inch, inch' music is played at full blast 24 hours a day by people who are sponsored by hardworking people NOT TO WORK! Oh and in order to buy that 450k house, the above FHB has to cough up a NINETY THOUSAND DOLLAR deposit.

Sigh!! You have no idea, none whatsoever!

by cowboy | 14th Sep 14, 2:09pm 1410660575

Actually he said he owns retail companies.

If he is a professional advisor, then perhaps he is a professional advisor, but not of "finance".

which if he sells insurance or houses that would be the case. Or even if he owned budgeting services, which are often professional advisors, but not qualified financial advisors.

Now ask yourself blue - what social structures have changed in the 3x to 9x duration.

There are two factors. getting both will reveal the magic behind the curtain (about why, yes, a hardworking professional can't afford to make such a purchase any more).

(and folks, please stop thinking of houses as just a place to live - that is consumer/employee thinking - and truly inappropriate for a forum such as this) ..it's like buying collectable old cars for commuter driving...

by gordon | 14th Sep 14, 2:33pm 1410661990

You are onto it Cowboy. I was not involved in selling houses , insurance or budget advice. Give me credit. I do have university qualifications.

by cowboy | 14th Sep 14, 3:41pm 1410666062

Idea was to look beyond finance, and into something with retail.

still could be architecture, quantity surveying. could even be bs including project management engineering and that's just professional degrees, a BSci or even BA is still uni quals - for all we know you could be a professional land developer your "retail" could be entire subdvisions, and quals ould be related to land management (heck even eco degree these days, if you can get the right backing team.)

Just so important to throw the mind wide! As I mentioned my mistake was listening to experts, I had no width, I didn't ask the right questions. They didn't know better and were doing their jobs. To me they were experts and supposed to know, to themselves they were experts so thought they knew all. Both parties trapped inside their borders, no opportunities to be found.

by gordon | 14th Sep 14, 4:40pm 1410669615

Retail is just part of the retirement plan but for the last 5 to 6 years has been the weakest part of it. Own half of the shares and only supposed to be the silent partner but hard times dictate the need to have a watching brief and daily. I should have put the same money into Auckland rentals but that kind of investing has never interested me.

by cowboy | 14th Sep 14, 5:10pm 1410671446

passive income never is.

As you know the tough part is finding and holding clever and motivated staff.

If I could get someone who liked farming and could handle the minutae, I wouldn't mind making this farm an estate style holding - but I can't ask others to fill in what I'm not prepared to do so I'm stuck with buying the farm.

And one of the lessons I was taught, I wasn't trying to be rude - at the end of the day we're all in retail - it is the consumer purchase that justifies the product or service. There is nothing in business beyond that.

by alioop | 13th Sep 14, 8:16am 1410552984

How do you move up the ladder with low wage inflation and high house price inflation.

by cowboy | 13th Sep 14, 9:53am 1410558813

work in the government (or medicine)

by steven | 13th Sep 14, 5:22pm 1410585745

Get good skills, hence promotions and move companies also.

regards

by cowboy | 13th Sep 14, 6:10pm 1410588656

spread info, ask questions. Don't not just listen to the experts (that's the mistake I made when I was younger) experts are usually there to sell a product (theirs or their employers) they are seldom actually there to help you or guide you...and the more they claim they are there to help you then usually it's more of the former ("trust me, buy my product") than the latter.

by steven | 14th Sep 14, 10:00am 1410645624

LOL, very true.

regards

by steven | 14th Sep 14, 11:35am 1410651359

So palm costs and risk no to them?

very nice....

by cowboy | 14th Sep 14, 12:11pm 1410653506

they want 5 - 7%, require security. "You know we have to pay interest on anything we loan to you you know, and you have other siblings that might want money too"

by cowboy | 13th Sep 14, 10:10am 1410559829

The capital gain is much higher on high prices houses (location).

The cost of entry is often similar 20k vs 25k.

throw on leverage, that 140k house (which probably needs a fair bit of licensed repairs) might eventually sell for 170k. But that 550k house if the location is still in demand will fetch 750k in teh same timeframe. AND the 550k will probably need less work on it, will be have better access for public services, and be easier to sell in the future.

so 30k and a tough sell,

or 200k and a relatively easy sell.

What was the question?

by gordon | 12th Sep 14, 2:38pm 1410489493

It is at multi decade lows because many of the FHBuyers are not willing to go without. They want to go to the top straight away and not live in the average or below average suburbs. They want the cars, appliances, big boys toys and holidays now. I am 59 today and retired. How did I do that. Because I started saving for retirement the day I started working and before you think it I only own my home and a townhouse in a university city that my kids use. My first trip overseas was when I was 42. I put my head down for 30 years and minimised my personal debt when buying the home to live in. That enabled me to invest in things to retire on. How many of the younger generations are willing to do that. Go without and set yourself up for easier life when it counts. Persoanlly I do not see much of it.

by frazz | 12th Sep 14, 2:57pm 1410490678

Gordon, you refuse to talk about Student loan debt? Why not...embarressed your double degree was paid for by the state? All my friends have their head down since University and spend most of the income on mortages and COST OF LIVING....having a family is on hold.

by The Bear | 12th Sep 14, 5:21pm 1410499316

Gordon, reality is that your wealth and that of most retired is from selling your house and downsizing. And why did this make you wealthy? Because that cash came from today's workers mortgaging themselves to the eyeballs to transfer their future wealth and spending to you in the so called "property ladder". What we have seen in the past 10 or so years is a massive wealth transfer to retirees. Think about it. You got rich on property, the rest of NZ got $200 billion of debt to finance your wealth and lifestyle. That is why we are a poor nation. Because we have borrowed so much that the working Joe's spend all their money on servicing offshore debt so you can have a new BMW. Oh, and the workers also pay your pension each week.
Enjoy your retirement. Goodness knows I have worked hard for it, and still am.

by Triple | 12th Sep 14, 7:18pm 1410506308

Bear, i also think a lot of demand has been due to immigrants (new NZ citizens) and foreign buyers.

Some people may believe that only a small percentage of buyers are immigrants or foreign buyers but for those who regularly attend auctions - we know that Asian buyers are very abundant and active buyers. The market would tank without them.

Each generation has pro's and con's - before the baby boomers they dealt with war. I'm glad I haven't had to deal with that.

by gordon | 12th Sep 14, 8:22pm 1410510127

Sorry the Bear I am still living in the same house I have had for 18 years. As said in an earlier comment only 59 so the pension is some years away. I think the age of entitlement will be raised in due course. I can't eat my house that I live in. In reality it is just a cost with rates , insurance and maintenance rising in cost annually.

by Triple | 12th Sep 14, 8:42pm 1410511372

Baby boomers are not responsible for our countries debt.

Property buyers have been sucked in and manipulated by the media, bank economists, politcians, and others with vested interests whom benefit from our debt.

As the saying goes, follow the money. I doubt we'll find all the money in retirement homes.

I think the bankers and their close associates have most of the money.

The bankers must be laughing at all the slaves they've created to debt.

To me, world debt is by far the biggest scam in history!

by Grant A | 12th Sep 14, 9:00pm 1410512407

So Triple, property buyers and silly little lambs ripe for the slaughter because they can't think for themselves ?

by Triple | 12th Sep 14, 9:41pm 1410514888

I believe some fit that description Grant.

Most of them are easily manipulated. Look at the way they believed the housing shortage yet rents barely went up.

I've read enough of your posts to know that you are clever enough, informed, and definitely aware of what i am referring too.

Debt is the name of the game and suckers are galore.

by Grant A | 12th Sep 14, 10:11pm 1410516707

Yeah I know but it depresses me though Triple...it will be a case at some time in the future of looking back and saying how obvious it was...it happened elsewhere but plenty of us thought it couldnt happen here..."what is unsustainable will stop !"

by cowboy | 13th Sep 14, 10:13am 1410560000

you say housing shortage and poo-poo the others.

Government is announcing more housing....

Anyone in property knows you don't buy houses you buy locations. It's a _location_ shortage and no one has announce more premium _locations_ yet :)

If you're going to poke fun at others at least get your own nest in order.

by blue meanie | 13th Sep 14, 8:10pm 1410595845

Read my previous response to your ridiculous comment! You be 'ignant' as Chris Rock would say!

by sadr001 | 13th Sep 14, 9:12pm 1410599527

You do realise that simply by drawing the maximum alloweable student loan and working part time while at university you can make enough for a house deposit by the time you graduate?

I know this to be a fact because I bought my first house in Auckland 2 years ago when I was 21 with a 20% deposit. Courtesy of capital gains and a faster than required rate of repayment I now have about 65% equity and plan to sell to buy a nicer house. I've never had an OE that I've had to pay for. Work has sent me to a few overseas destinations over the last couple of years.

I think Gordon's position is quite accurate.

by cowboy | 14th Sep 14, 7:09am 1410635386

Your pay must of been way higher than me... the only part time gigs I could get barely covered rent & food & power & fuel. Didn't stretch cover vehicle repair and clothing expenses.

Went I went to Polytech, I couldn't get part-time jobs in my industry, so not only didn't it stretch to cover the bills, I couldn't complete course requirements.

Do you consider that your job and pay rate to be typical, and what kind of rate were you paying in rent during the year?

-

No one is disputing the gordon's path is possible, just that it's very far from typical. The majority of people will not be able to follow his example (and could end up in difficulty trying, and also many things have change to make it even more unlikely to succeed now.)

by gordon | 14th Sep 14, 11:02am 1410649346

Over the years while my children were at university all I heard was so and so are going to Asia or Australia for a holiday. Whatever happened to the scenario where you worked hard and saved hard over the summer break to earn funds for the next year at university. The word " expectancy" comes to mind.

by Kakapo | 14th Sep 14, 11:45am 1410651913

Oh good grief, do you still think that your vague narrowly-focused anecdotal maunderings somehow refute years of hard statistical data? Your head must be so far up your behind that you've turned completely inside-out.

by gordon | 14th Sep 14, 12:20pm 1410654035

Touched a raw nerve by the looks of it.

by Kakapo | 14th Sep 14, 12:29pm 1410654548

Well, if you'd rather wallow in complacent ignorance than address facts and think, I suppose there's no reasoning with you.

by gordon | 14th Sep 14, 12:38pm 1410655088

Only 30 years of assisting and advising thousands of mainly FHBUYERS into their homes. I know nothing about how saving trends have changed over the years. Or rather how saving levels have dropped .

by Kakapo | 14th Sep 14, 12:43pm 1410655417

Incomplete and selective dataset which ignores bigger picture data and trends.

Reject and/or ignore anything that doesn't support your already-flawed preconceived notions.

Conclusions based on flawed premises.

Too lazy to consider anything outside your own narrow experience and aforementioned small and incomplete dataset.

by cowboy | 14th Sep 14, 1:02pm 1410656561

What happened with those old Fletcher deal where the New Builder-buyer would contract for a property, and put a set amount (usually 1000-1500 a month) towards the deposit, which the company used to leverage purchase of the raw land, then at set payment point when "deposit level" had been reached the company started building the house.

I know Fletchers got done for the con (they cheated and used valuations for properties in the most expensive areas to sell their deals to poorer areas) but I notice no-one else has picked up simliar programs.

by cowboy | 14th Sep 14, 12:59pm 1410656342

Unlike the "statistical data" the "vague narrowly-focused anecdotal maunderings" actually have factual basis.

the only issue is (again) sample bias.

Gordon, many of the people who have children doing well at university have significant funds and/or well paying careers behind them. Those that don't often take the backpacker option, counting on unversity degree style income related jobs on their return. You hear those things because you/your people are still moving in the highest two quartiles of income.

by Kakapo | 14th Sep 14, 1:14pm 1410657244

Yeah, I don't doubt that that's what Gordon's seen. The problem comes with applying extreme confirmation bias, ignoring everything else, extrapolating personal experience to everybody, then being wilfully ignorant and pretending that anything to the contrary doesn't exist. My personal experience is narrow too. As an affluent white professional it'd be pretty daft of me to pooh-pooh a 50-year-old Maori freezing worker's experience of trying to find a job in a small town after redundancy and announce that I've never experienced racism, so what the hell's his problem? Everybody's experience is narrow, and bounded by their own circumstances. The important thing is to make the effort to see past your own nose, ditch the one-eyed complacency, accept your own limitations of perception, and have the honesty to acknowledge that there's a big picture and long-term trends that one person can't see. Not without statistical data, anyway.

by cowboy | 14th Sep 14, 1:50pm 1410659439

The statistical data is wildly inaccurate unfortunately, where personal experience is often moderately accurate to where a person still finds themselves. It's often only melting pots such as internet forums where a wilder collection of experiences meet, and even then there is a self-selection bias, of only those with a connected interest in the topic/foum will select themselves to read, and of that only few will take the time and risk to speak.

One area of difficulty with the statistical approach is the people building the model are also limited by their experiences, and the philosophies behind what they have been taught. What's more they are often so caught up in the "authoritarian model" of belief structures that it is difficult for them to admit to the weakness of their system (statistics).

We could see that recently when people talk of China growing 7% p.a. Which parts? GDP? dairy demand? debt? economy? age groups? population? housing? southern housing? sourthern housing for professionals between ages of 18 and 27? registered couples?

Without a relevant purpose then it is hard to identify relevant factors and characteristics, and without knowing the relevance it's also hard to reject irrelevant data/questions/people.

eg Housing median prices still rising 15% ... but dropping 7% each month.

But If I don't have a house in Auckland, then we're looking at 8%... unless I'm in Palmerston North, which is 0%.... but Woodville has lifted about 50% in last two years. Indeed last month in Palmerston North, one suburb saw over 100% growth in sales (yes, they sold two houses that month).

If I'm going to apply statistics, how do I know I'm choosing the right ones...I have to fall back on experience. When you were at tertiary education, how many people had overseas travel planned? So is Gordon's statistic inaccurate? (For the record, all but one person I knew of at tertiary level had some sort of overseas travel planned, and that one was me).

In the case of my aunt, a primary teacher at a school in Hamilton. she was the only person in the class who had never been to Disneyland. The pupil population (statistically speaking) of her class, would not believe her - everyone went to Disneyland. It was a fact, all children had to meet Mickey Mouse, Donald and Goofy, it was a given....and for that statistical group, 100% accurate over the population.

by Kakapo | 14th Sep 14, 2:02pm 1410660143

That's just the flip-side of the same coin.

Personal experience can't be extrapolated to the wider population.

Statistical data isn't accurate when applied at individual level.

BUT - statistical data shows long-term trends and the big picture when like is compared to like over time. Like scientific method, the whole point is to eliminate all the human bias and prejudice that would otherwise screw up the conclusions. Assuming correct methodology, honest interpretation, etc etc blah blah blah.

Pretty simple, really. You'd think.

by cowboy | 14th Sep 14, 2:44pm 1410662661

(1)As you said earlier, people view data through their own experiences.

(2)Personal experience has to be extrapoloated to wider popuation - statistics is just one tool for doing that - using the statistics properly requires expansion and self examination of personal experience, because (1) all information and tools are filtered through personal experience.

statistical data does not do those things.

Which scientific method? there are two. The one I use, is I formalise an idea and approach, checking for relevancy and irrelevancy, I do the approach, then I observe the outcomes. I then compare those outcomes against initial projections, looking for causal factors.

Other people quote other research papers, and quote statisitics. Unfortunately they have turned science into a doctrinal religion ... noticable when they start believing that biases and cultural leanings are eliminated through their process - where normally the baises are actually enhanced! See the changes in sociology and psychology in the cutting edge in the last 8-ish yrs... the move away from trying to assume an onjective observer role, and to remove cultural bais, in recognition that the observer role itself is one of dominance and the neutral cultural position is actually a cultural nuance! Even in those soft fields they have finally realised it is more important to declare what bias you have on your tests, than it is to foolishly assume that the biases can be removed.

He's not allowing for wider population, but that's only human, he can improve.

Statisics... well lies are more accurate, and at least can be examined for bias. for statistics ...remember Jarod for the subway ads? yes, it is possible to lose a huge amount of weight eating takeaways, there is statistical proof. real life experience will teach you to look at people in the store and in the line...

by muntijaqi | 12th Sep 14, 2:39pm 1410489573

Overpriced mortgages are hurting the REAL economy, the productive economy. People have less spare money to keep businesses alive and the worse part is that they think that at least they have a house that will be more expensive in the future..

Whenever I read comments here I get the feeling that people are convinced house prices never fall.

Comments like "start off with a modest house in an average location then move up the ladder as the mortgage is getting under control.."

Not getting into a mortgage that could get out of control is certainly important. But why to get into a mortgage at all?

When economists are advising to get "short" in investments due to the instability of global markets and the dark future for the overall economy, why people get into the longest term "investment" for a common person: mortgage ?

I don't own any home. I would like to one day own my house, but not at any price! When NZ house prices are one of the most overpriced in the world (not only in the big cities!) why to encourage people take any "ladder" to housing at all?

The concept of ladder means that there are consecutive steps to reach the top. It's implicitly saying that things are progressive, that house prices never fall, etc. That's the mistake. It's not a ladder.

Median prices may go up a bit, but demand is certainly falling. Now, if demand is falling despite the highest net migration and despite a relatively good economy so far.. imagine what will happen when things get worse next year.

by cowboy | 12th Sep 14, 9:12pm 1410513156

If you are still at this stage in thinking then the following probablywon't make sense to you, but this is how it goes.

You have to buy your equity.

Sooner or later if you want a nest egg you are going to have to make financial sacrifices and start stowng away that equity.

When you start your first mortgage the odds are against you, but you have to start something, and you can usually only start at the beginning. Andif you don't start at the beginning you probably won't understand the way things work, and then you'll miss some of the transition points.

In the beginning (first 50% of annual gross income) you'll be looking at having to pay 2 to 4 dollars for each dollar you stow away.

Once you have done that for a few years (about 60% equity ownership) then things change because -you- now own a significant part of the asset. You only now have choices. you can stow away more equity "under the mattress". You could "take a risk" and invest in something higher risk by borrowing separately.

Or you could undo some or all you effort and tidy up or upgrade your asset. I'm thinking that probably gordons big jump was here - that he didn't tidy up, he'd already started a higher return business and self-improvement - so rather that stow equity or spend his sacrifice, he continued to snowball, reducing his costs while simulataneously strategically improving his position.... that is the second stage. In the beginning your cost of equity is too high, and you don't have the funds (or asset) to do this.

Once you've completed the second stage, you'll notice that your life expenses will have changed. Many of the big demands earlier on will have sorted themselves if you've learnt prudence. You'll have a nice car for your needs, you won't have space for the latest toys so you probably just won't bother, you'll know what drinks you like, what company you feel like spending time with, restaraunts you routinely visit for a treat - instad of rushing about. Also if you have behaved reasonably well, your base career costs should be lower - the business startup costs should be gone (other things come but the startup stuff is done), your student loan will no longer be a millstone, you might be updating skills but they'll be speciality skills not just "everything to qualify" type upgrades. You'll find you have reasonable earning capacity, and no so much commitments - although health starts creeping up, and you won't be eating 2 minute noodles any more. This point gives you a lot of flexibility in financial decisions. Also hopefully at this point your children won't be too burdensome financially speaking. So if you choose to build business, invest in property, then time is shorter, but funds are more available.

However if you are stuck on the first transition, you might find you have a huge asset, a ton of equity, from rolling things forward, but hard to realise parts of it, as the second transition is about "preparing income stream/sources" as opposed to the "stowing nest egg equity" of the first transition.

IMO, anyway.

by muntijaqi | 12th Sep 14, 9:36pm 1410514599

..or I could keep the freedom to live in different houses, change job without drama, change city, live in the best part of the city, or 5 minutes walking to work wherever the work is, or not to worry about house maintenance, and keep saving money while enjoying the day by day.

We discuss investment. I don't doubt your scenario could pay off after many years if house prices keep rising, jobs are still well paid and abundant,..
But what if not?

I am convinced house prices will go down and unemployment will grow driving salaries down. So it's cautious not to enter an overheated market without any long term guarantees. This is not the 70's anymore where "there were" no limits to economic growth.

It's a huge risk for first time buyers I cannot face. Do you really believe prices can grow 2 digit percentages for much longer before the big adjustment?

by cowboy | 12th Sep 14, 10:13pm 1410516784

Yes, I've looked at the rental deal, and it's a nice option especially those who require mobility. Ones first few properties need to be be where an eye can be kept on them, and the property managers chased up.

My scenairo pays off better in the evironment that I grew up in (workwise), the 1980's and early 1990's. constant threat of redundancy, only a couple of ads in the papers, wages really low to keep companies from going bust and keep prices competitive. In my environment, you went cheap, you went without, moving about was expensive, let alone chasing public transport for work and shopping or other locations. you went for the property you could afford, and you knew that someone else in 3 - 5yrs would probably be looking for the same cheap escpae from rent or for cheap rent.

Whereas the rental life was for those who could afford to take holidays, could have the luxury of picking and choosing between employers, didn't have to guarantee personal transport.

House prices will not drop. There is no pressure for owners to make a loss.

Unemployment will grow...people will need rentals, perfect opportunity to pick up a couple of investment houses for extra income. Those who can and do enter the overheated end, and do so having one their homework, will be the ones scoring the rentals and deals you're waiting for...and they will only sell to you on their terms.

Many places properties aren't growing 2 digits percentages - and in the one place they are, there's very valid reason for it... and I certain believe that it's here to stay (until OIO or equivilent close the door on foreign finance...and that isn't likely to happen.)

Now the thing to consider - mobility aside - do you think you'll pay more or less rent than the mortgage repayments on a 40% of equity mortgage on a home with 5 yrs environmental (ie "capital" growth) at Nz's pay-down fast philosophy (12-17yr home loan). "capital growth" at 2% over interest rate.

by steven | 13th Sep 14, 7:39am 1410550787

a) Prices always correct in bubbles and ours is x2.

b) If you are in and prices drop you lose your own capital, if you are not in, you lose a windfall gain, there isa difference.

c) We are looking at a very tough decade if not three hence IMHO a poppsed bubble and losses are a real and substantial risk.

regards

by sadr001 | 13th Sep 14, 9:41pm 1410601278

Steven I believe that you are looking at a rather short term picture. Being a property owner myself I can safely say that there is no pressure for me to sell at a loss, unless some natural disaster destroyes the value of having a location close to Auckland. Over the extended term increases in population and better technology that enables fewer people to maintain more agricultural land will cause city populations to rise and with it the demand for land close to those cities.

By investing in a residential property to live in my worst case scenario is that I have a place to stay while paying a mortgage rate that I agreed with my bank. If the value of my peoperty on paper goes down I'll simply continue to live in it, if the value goes up I'll leverage the increased equity to purchase a rental (or a new place to live in while I rent this one out).

Cowboy your insights into these fields are exactly the type of material that I visit this site to learn.

by steven | 14th Sep 14, 8:11am 1410639106

I said tough decade or 3. What I should have expanded on is I dont see a recovery after that either.

Check out the energy input and specifically fossil energy into our [global] economy and then consider its gone by 2050 and availability declines from about now. Then consider what that does to ppls ability to pay (service a mortage) for over-priced property.

Your home's value is moot, you have to live somewhere.

regards

by steven | 14th Sep 14, 8:19am 1410639566

Nope....

Just why when I look at math, thermodynamics etc you think that is a crystal ball is somewhat surprising, no wait par for the course for many such as yourself who think BAU/growth is forever on a finite planet.

by steven | 14th Sep 14, 8:24am 1410639845

Here you go, an example

http://www.stuff.co.nz/national/health/10492638/Accelerating-prices-hit…

and it hasnt even started to really bite yet.

by cowboy | 14th Sep 14, 12:37pm 1410655036

careful not to over invest in your asset.

maintain but try not to improve too much - future buyers will want to emotional connect wwith their prospective purchase - the best way of doing this is through what they could do if it was theirs. If the area does improve enough, then you might get a premium for "prefect property everything done" but the later and closer to sale date that you can do that the less dated your fitout will be.

try not to be the person that buys a house a full market, spends money on kitchen and bathroom, and then wonders why the "capital gain" does cover their spend.

Keep an eye on similar properties in your area when your equity is higher, you might find that your property value is near what the "perfect palace" will sell for - if your "ok" property can fetch about 95% of the perfect maximum price, chances are that's the best offer you'll get _in_a_flat_market_. you could hold out for capital gain, but if you've got good personal income (outside the properties), then chances are it might be worth realising the equity in this property and doubling down - or do the maths - redrawing and going hunting for another deal.

Find a few niches that you know you can work for profitable areas. I have a certain type of house I know I can improve quickly. Find yours and go with your strengths. don't get caught with "projects" - When I got fired from the Power Board my ex-boss gave me some of the best advice I have every received in my entire life - "don't mix your hobbies with your job (business)". Thanks Bill. We didn't see eye to eye on a lot of things, but your help has been tremendous throughout the years. I dedicate the above notes to his help.

by cowboy | 13th Sep 14, 10:17am 1410560270

actually the real basic principle, and if you ever consider investment never forget this.

It's all about location. property is just a depreciating asset at a location. land is just a equity sink for council to tax at a location. location is what people want, it's what they pay for. They might like a view, a climate, access to work or services, or just a place to keep their sh..stuff.

good location will always be in demand. and thats what creates the limit, not the area. there is still plenty of "areas" but obviously not ones that have the service requirements the people want.

by steven | 14th Sep 14, 8:15am 1410639305

That is still location.

regards

by cowboy | 14th Sep 14, 1:20pm 1410657612

similar to what steven has said, that IS location.

that was the location that you were buying for when your seller spotted you coming. And you hope to convert that location to something of higher value for the next buyer.

The characteristics of the location dictate the likely interests of the prospective buyers.

Probably I couldn't sell you (0 demand) near-bare land in North Wairarapa, yet to my old neighbour looking for a runoff (95% demand) after a equity partnership bust-up, the place across the road was perfect location.

To a professional center city, with social life for their partner might be hottest thing, but for a starting out graduate student their location is going to cost less - for a large family they might chooce a location with less future capital gain in order to meet their nut.

by muntijaqi | 14th Sep 14, 11:32am 1410651128

I don't agree it's location what currently drives the price but simply offer and demand (plus cheap credit and the existence of central banks and its distortions). I think it's irrationality and the fear to not being able to catch a fast moving train.

If it were about location people wouldn't spend more than half a million on a house 20 kms from their workplace like it happens in Auckland where people buy in Pakuranga, Manukau, etc. when they work in CBD (and I know many of these).

If it were about location people would support growing upwards (apartments) instead spreading around endless inefficient cities.

What drives prices up in NZ is simply fear and greed (plus some cultural aspects and irrational needs of owning rather than paying for a service). That's why I support increasing interest rates to stop the irrational fear and greed, always boosted by cheap credit, before it's too late and it hits the whole economic system.

You said before that prices won't go down. Why do you think New Zealand is special in that way? Have a look at Ireland, some parts of UK, USA, Spain, Greece, the Baltics, Romania, Italy, South Africa, (and soon China)..

I am from Spain. In Spain prices are still going down and in average the correction is already 50-60% from its peak in 2008. Yes, location is important hence in some areas of Barcelona and Madrid prices did not go down so sharply, but correction continues despite the massive money injections and corruption to keep the real estate sector alive and the constant lies such as "now it's a good moment to buy".

But what's location and why location is an important variable in the price equation? Location means mainly having jobs around that guarantees being able to face mortgage and being an attractive area to live (attractive because it's nice, speculation aside).

So if we have a look at Auckland, why prices in Manukau, Pakuranga, One Tree Hill, Waitakere, Henderson, etc. increase so much? Is it because it's an attractive place to live in? I doubt it. It's because there are jobs around OR the cost to get to work is not as big to even consider it.

So here we have another important variable: cost of transport to get to work

Does anybody believe cost of transport will remain the same in 5-10 years? Because that would be a big surprise. When cost of transport (oil prices) rises again, the "location" factor of many houses will collapse hence prices will go down.

When house prices in one area fall, some people become unable to face mortgages, banks get scared and cut credit, demand falls mostly everywhere. There you go, house prices will go down everywhere.

Dairy prices going down, log prices going down, hence land prices becoming less attractive. And when land prices go down, house prices go down. It's a matter of time.

Why is there such a dogma that "house prices never go down"? It's really dangerous to be convinced of such a thing, it may lead people to do something crazy like buying something already overpriced with bank's money (renting the money, essentially).

by cowboy | 14th Sep 14, 12:09pm 1410653349

you are wrong.

Oh yes, house prices do go down. I bought a regional house for 45k, a major employer amalgamated and close some factories, my still 29k loan was then on a 25k house.

I sold it few years back for 80k.

perhaps you need to take your _theories_ to somewhere where the rubber isn't meeting the road.

by muntijaqi | 14th Sep 14, 1:00pm 1410656410

I don't know why no more investors then forget about the real productive economy forever and become housing promotors. With profits of 10% a year it is certainly more attractive than MOST of the average businesses.

After all it's not necessary to own the money, just the "house", right? We all assume the future payment of the loan as granted. It's as if house prices wouldn't have to be within the real economy constraints. They can keep growing forever (despite some light falls on a specific time) as long as people believe so and money keeps being created out of nowhere.

Even if unemployment hits lowering salaries, even if salaries go down and there is deflation due to an increasing lack of demand.

Wow..

You are giving me an example of the last years and assuming it's an example of the real world. But it's not. It's just that, an example of the last years where if you were lucky things went ok because things were simply different. But have a look at the real world, if growth continues is purely debt-based thanks to the historically cheapest credit ever. And despite that it struggles to keep pace and sometimes we need some destruction (like Chch earthquake) to have its rebuild boost the economy. Even China is becoming incapable of growing more than 7% a year. What's left after that?

If you want an example of the real world to better forecast have a look at the historical ratio household income / house prices and tell me if that's sustainable and for how long can the gap increase. And then have a look at the same graph but considering only the "after taxes" household income. In USA a subprime was considered anybody whose loan was 4 times greater than their income..

It's not sustainable, but it will last as long as the irrationality lasts and as long as credit is cheap and encouraged even by the government and parties in opposition (who promote home ownership and to compensate the high inaccessible prices for first home buyers they decide to make all taxpayers help these first home buyers ..AND BANKS).

But I guess neither of us will know until 20 years in the future.

by cowboy | 14th Sep 14, 1:34pm 1410658462

The real productivity economy is consumer driven and produces many small incomes from trade of "time" for "labour". Many of those people do not understand or have enough capital to enter into investments, their family or holidays or new cars are more important to them - and if they have money available many buy into the sales pitch of "experts", and buy stocks, mutal funds, index funds or unit funds - preferring to keep away from the financial risk, and trusting that "experts" know what they're doing - one has to remember many people with these incomes have had rather narrow career paths and life experiences, it has take many years of specialisation to get significant salaries.

you don't need to own the money. OPM. or even the house, equity deals. Just the rights.

And you're right you're talking just like my old man used to, and his father, Two Hundred dollars a hectare? what a rip off, you can get ten cows for two hundred dollars! same land is recently sold in last 12 months for 36,000 a hectare. yes that's 180 times the price. And you know what the weird thing is - same land use ! - productivity 30% higher - many more times the bureaucratic red tape on usage.

China was never going to grow at 7% per year. People who believed that are the same ones that think they're going to win the big ticket prize at sharks alley in carnivals.

income/house ratio isn't relevant for CFD products.

If you think it's not sustainable then you just don't understand what the drivers are - and for that you're best to check out who the _buyers_ actually are rather than bury your head in the technical theories. In the meantime, you will be like my grandfather, clutching his $200 wondering why all the mistaken people have got wealthy and why no opportunities show up.

by Colin Riden | 12th Sep 14, 3:23pm 1410492209

The REINZ says median house prices kept rising in August

REINZ Median House Prices:

March $440,000

April $433,000

May $430,000

June $428,000

July $416,000

August $420,000

August's median house price is higher (and not greatly) than only one of the previous five months medians. That is not something I would attempt to claim as 'kept rising in August'.

by dtcarter | 12th Sep 14, 4:43pm 1410497014

Yes, 'stopped dropping' would certainly seem more acurate.

by Colin Riden | 14th Sep 14, 5:19pm 1410671980

Adjusted for changes in the distribution of sales across strata the median house price has been near enough flat for the last 6 months.

by Colin Riden | 14th Sep 14, 9:27pm 1410686829

Ostrich, I am not disputing your falling sales but that the REINZ median sale is an accurate reflection of the value of NZ's median house.

The REINZ median sale is a very poor indicator of the value of the median house unless sales are reasonably balanced across strata The last time that reasonable balance existed was back in 2006 and 2007.

Since 2008 between $20,000 and $40,000 of the approaching $100,000 gains in the median house price has been an artifact of higher sales in the upper strata. Decile 10 sales can be greater than 13% of total sales with Decile 1 sometimes below 7%.

Most of the fall in median house prices since March has been due to a reduction in that distortion. March to August - minus a little noise - the true value of the median NZ house price has been sitting between $401,000 and $404,000 i.e flat for six months and now close to $20,000 below the REINZ median. Though obviously less than the $30,000 - $40,000 below back in March and April.

I will also add that the CPI adjusted median house price is still below its peak in 2007 and retreating.

by cowboy | 14th Sep 14, 11:00pm 1410692408

Apologies for the random placement Ostrich,

Is this worth commenting on:

http://www.dailyfx.com/forex/fundamental/forecast/weekly/usd/2014/09/13…

by Champagne Charlie | 12th Sep 14, 3:24pm 1410492275

Haw haw haw .....as long as prices are increasing in Central Aucks ...who cares about sith of the Boombays, say what ol' boy !

C'mon chaps and chapesses we can do it ...we can hit the million average ....Nee How and all that gooble-de-gook.... haw haw

by Gareth Vaughan | 12th Sep 14, 5:15pm 1410498952

And here's Realestate.co.nz's Friday afternoon announcement;

The usual surge in new home listings on the market in August is noticeably weaker this year compared to the past, with just 9,482 new listings, according to figures released by Realestate.co.nz, the website with New Zealand’s largest number of homes for sale.

New residential property listings are 11.5% down on the same time last year. This fall affected most regions around the country, with only Northland, the Coromandel and Central North Island bucking the trend.

“Realestate.co.nz represents 96% of all property listings by real estate agents in New Zealand, so we get a very representative overview of the market,” says the company’s Marketing Manager, Paul McKenzie.

“Every August, we start to see strong lifts in new home listings after the quieter winter months. The expected lift did come this year, but it’s not nearly as dramatic as in the past. For instance, we have seen an increase of 3.5% from July to August this year, compared to the same time last year, where we saw a significant lift of 8.7%. However, we still expect an upsurge before the end of the year, as new listings usually peak in October and November.”

Asking prices have also eased compared to July, but remain at near record levels. Nationally, the average asking price is up 4.5% on the same time last year, with 12 of the 19 regions in New Zealand recording higher average asking prices than a year ago. In Auckland, for instance, the average asking price rose from $650,114 a year ago to $698,494 this August, after breaching the $700,000 mark in June and July. In Wellington, the average asking price in August 2014 was $457,145 (up from $445,531 the year before) and in Canterbury $449,995 (up from $422,043 the year before).

The prices properties fetch may be affected by a shortage of supply. The total inventory of homes available for sale at the end of August – only 36,694 – sits close to the record low levels seen in August last year.

by cowboy | 12th Sep 14, 9:59pm 1410515966

People still investing in property, and still will be as long as population keeps breeding and immigrating.. the interest rate and uncertainly over rules is slowing things for a bit - several commercial & industrial owners are suffering financial setbacks from having to upgrade parts of their buildings that were never designed to be upgradable (for earthquake rules). Given the delays in quote and workers, it's a slow and expensive task, cost recovery is going to take a several years, so takes a bit of heat out of the big markets.

by The Bear | 13th Sep 14, 9:04am 1410555890

My point above was not to slam retirees for their financial choices, as they merely benefitting from poor policy settings and lack of financial literacy amongst working NZers. In their place i would do the same. The real problem is that they are a large voting block that believes that the way they generated wealth can be replicated today by first time buyers, and some commentators claim housing problems are just a case of FHBs being lazy or too aspirational to make sacrifices. This is massively incorrect. The wage growth and interest rate falls that encouraged a generation of kiwis into massive debt since 1997 won't be replicated and have in fact put NZ into a precarious financial position. We have borrowed heavily against our future income and spending in order to allow one generation to cash out wealthy and there isn't the capacity for our kids to do the same for us (given how slowly we grow and how poor and unproductive we really are as a nation relative to the rest of the OECD).

As at June 2014 we as households owe $193 billion in mortgage loans and a further $25 billion in other debts. This amounts to 154% of our household disposable income and very close to 100% of our GDP. At the current record low interest rates this takes up nearly 10% of our disposable income to service.

Now ask yourself what capacity is there for historic price rises to replicate themselves? Can our kids double up on our nation's debt to fund the same sort of wealth expansion our parents have enjoyed at our expense? On the above numbers the answer is surely no-we are already on borrowed time and there is no way on earth our kids can take debt further. Sure, they could aspire to Ireland's 170% of GDP in 2007 but we know how that ended.

Debt cannot keep rising, particularly with interest rates going up to normal levels next year (just watch the Fed over the next 6 months). In fact debt has to fall as it is about to become unserviceable as US rates rise and the NzD falls.

Remember, the US caused the global financial crisis when their household debt got to 128% of disposable income and 93% of GDP. It wasn't an issue with their government debt, but solely their mortgage borrowing. We have blown through these levels. US debt service was around 14% of disposable income when their housing market imploded and our artificially low interest rates are the only thing preventing us being above this too (we were at 14% in 2007 before rates were cut). When interest rates get back to normal, there is likely to be an awful day of reckoning for Nz households.

by cowboy | 13th Sep 14, 10:21am 1410560481

beg your pardon.

You're slamming modern debt and NZ's borrowings in '97?

when muldoon took power the country was effectively bankrupt.

debt in the late 60's and 70's was effectively higher than it is now

by sadr001 | 13th Sep 14, 9:46pm 1410601571

Interesting point about interest rates rising. Apart from exchange rate risk, is there any particular reason why we don't borrow in Singapore at 2% to service mortgages here?

As i've stated above I do enjoy learning from those who have more experience :)

by The Bear | 13th Sep 14, 11:19am 1410563968

I'm slamming HOUSEHOLD debt SINCE 1997. We have gone from around 80% of disposable income (incidentally where the US has now delevered to) to 154% today.
All based on a housing ponzi scheme, ie feed the myth of returns but in reality it's a zero sum game as nothing is being created so the only people getting wealthy are those cashing out of the pyramid.
You appear above to be referring to government debt not household debt (I'm focused on the latter).
Our policy settings have effectively swapped government borrowing for private borrowing over the past 20 years or so. This would have been great if the private borrowing had gone into productive investment. But it didn't, it went into the housing ponzi ladder. And now we're in a situation where government debt has been on the rise and will be difficult to reduce as households are so stretched they can't contribute as much to gdp to help it shrink. And given the lack of productive investment it has left us beholden to raw commodity exports, and we now face quite a bit of pain from a commodity slump.
Our main problem here in NZ is a short electoral cycle and all parties too beholden to minority interest groups to do what is best for the country in the long term.
I wish there was a party that would just be sensible:
- forget CGT, put in an annual land tax (at higher rates for offshore owners and for vacant residential land)
- reduce company and personal tax rates
- cap mortgage borrowing at 70% of property value and force banks to hold more capital against real estate lending
- raise the retirement age
- mandatory kiwisaver with no ability to take cash out for property
- reduce the size of government
That package alone would do a lot to reposition NZ incentives towards hard work and productive investment. The rest then takes care of itself.

by cowboy | 13th Sep 14, 12:41pm 1410568875

You think land tax will make it easier for households to get out of debt??

Any form of mandatory retirement scheme is just more taxation! How can households or government grow economy or paydown debt or even stimulate economy by increasing taxation. And worse if you're scheme does poorly or fails, everyone is worse off!

Raising the retirement age? What - for the people who you just strongarmed more retirement money from?

Or you don't want to tax the retirement money, you want to just steal it outright.

Well at least reducing government (and quango) size would help.

I don't expect that subsistance farming on our own sections to pay for our third world style masters as you are proposing is going to help anyone, certain not household debt issues!

If you really want to address household debt, address the main driver...government wants people to be in debt, it keeps them working, it keeps others busy, and it keeps them quiet.

And your loan capping will play perfectly into the hands of landbarons (the only ones with enough property to buy) and foreigners (who have other sources of borrowing and income).

You cannot tax the system into prosperity - that's like building a building by giving the top layer of bricks to the neighbour and only using the bottom row

by The Bear | 13th Sep 14, 1:28pm 1410571732

Sorry, i'm struggling to follow any of your logic chain there.

The point of a land tax is to more broadly tax the capital base in the economy, without the complexity and distortions of a CGT. Levying it universally forces people to think "is it really worth me locking up so much of my wealth in property, or should i diversify into better investments?".

Applying a differential rate to non-tax residents recognises they need to contribute and most probably dont even file a tax return or else rely on double tax exemptions. It will also serve to dampen demand from offshore.

Applying a differential rate to vacant land provides a disincentive to landbanking, bringing more suppy to market.

Forcing people to save in a balanced, diversified manner is not only good economics but good financial sense. It will maximise their wealth in retirement at lower risk. It is proven everywhere else and the "free lunch" of diversification is the first thing you learn in finance. We need to get rid of our "housing is the only asset you need" myopia.

Dont get me wrong, these measures plus more restrictive debt availability are intended to flatten house price and therefore household debt growth. But rather this than a 30% correction and massive unemployment like we saw in the US and UK.

The benefit of a broader tax base is also that you can reduce income and company taxes which is pro growth, the productive kind. Taxes are best when simple and broadly applied, like GST. And they should create the right incentives, in this case work harder as you keep more of the rewards, invest smarter, and use less debt.

Raising the retirement age (i never said anything about mandatory retirement) is about national super entitlements and reflects reality. People live healthier for longer today, it is just science. Our grandparents died in their 60s; parents will die in their 80s. My kids are likely to live to 100. The entire rest of the world has woken up to this and has raised the retirement age for super schemes as you cant afford to pay someone a pension for half their natural life. If you believe we can afford to keep paying national super at the current rate and age eligibility without raising taxes then you use a different form of maths than i was taught at school. And you know what? Those in their mid 60s today are normally happy to work a couple more years, at least the ones i have met.

No one is stealing retirement money either. Retirees sell up their properties and downsize, so any land tax they would pay is much smaller in retirement. Sure, maybe they get less for their house than if the current economically ridiculous housing ponzi scheme continues, but that's actually a good thing. Because it means less debt and tax for the working class so the economy grows more strongly and guess what? The government can afford to keep paying super to the retirees!

Make no mistake, our current path on housing will lead to a massive bust and then we will be talking about higher taxes to fund bank bailouts, and cuts to pensions. Think im wrong? Look what the UK just lived through over the past 6 years.

by cowboy | 13th Sep 14, 2:09pm 1410574164

Sorry, I'm really tired and I just don't have the patience to teach the absolute basics of real cashflow work to you.

Taxing - you know like they do with alcohol and cigarettes to slow consumption.... If applied across the whole market just becomes a cost-of-doing business. As long as the price can be passed on then it only works to hurt the consumers...and unlike fags & booze people can't just quit living places.

applying it to focus areas just creates incentives for repurposing. liek what accountants and lawyers do. And you'll find there needs to be loopholes for charities, and for sensitive areas, also you'll find trusts need some protection.

you're not forcing people to save. that's the problem.

Do you know what "saving" is? I mean really.

Where are they going to put the resources which they do not consume? how is that going to holdup against risk and inflation? most bank based "savings" are actually low rate loands made by public to banks, and then re-lent for interest & profit...but if you take away the re-lending where is the savings profit coming from? So you're actually reducing the value of the peoples "savings" through inflation.

I wasn't referring to mandatory retirement either - I'm referring to people taking other peoples resources and only allowing those who reach a cecrtain goal age to have a portion of it back. Which portion? Well retirement schemes "invest" money, often by loands via cash loans (eg to banks or insurance payouts), bond purchase and buying shares. If you are reducing debt... where does the income for the retirement schemes come from?

"Stealing" is where you take something that you haven't earnt and without the owner permission. When you don't intend to give it back (because many of them will die before the time) then the ponzi scheme you're running is "stealing"

What current path on housing? price here are same as 2006 level, plenty of sale stock, plenty of rentals...

by The Bear | 13th Sep 14, 3:10pm 1410577839

Agree that people shouldn't just stick money in the bank, suggest you re read my post about diversification. And if you measure long term risk premia and correlations across different asset classes, and adjust for your personal risk and liquidity preferences, you will undoubtedly find a mix of assets that provide a very nice diversified savings mix; for the young this should be high proportion equities and alternatives (private equity etc) and they will average in over their lifetime tonspectacular wealth; as you get older then less risky higher yielding assets. You will also find much better inflation protection from this. Suggest you talk to an AFA about investment strategy. Better than taking all your wealth, levering it 400% and putting it in one illiquid, highly volatile asset and hoping for the best!

Kiwisaver is a great scheme and has proven to be highly effective in countries like Australia as well. I would prefer the managers to offer a greater range of product choices but they face a critical mass issue currently and an unfortunate level of financial illiteracy here in NZ that means people stay in poor default schemes. Because most people, like you apparently from your post, mistakenly believe there are only 2 ways to save-in a cash account or in a house. This is fundamentally why we are getting increasingly poorer as a country, it is largely an education (or lack thereof) issue.

Taxes are also a part of life unfortunately, so long as you choose to be art of a society that believes in the public provision of certain things like police, defense, courts etc. The key is to design a system that minimises tax, reduces compliance costs (ie broad based and simple with few exclusions), and incentivises the right behaviour. We do not currently have such system but my suggestions would get us a long way there.

I also suspect not much of a land tax would get passed on. As you pointed out above, "plenty of sale stock, plenty of rentals..." Couldn't agree more. Data is pretty conclusive that there is not a housing shortage in NZ or Auckland and never has been (just look at latest census data,and at the likes of Barfoot rental reports where rents have been falling). The house bubble is entirely debt driven as I have already pointed out (and hence my point that this is a destructive ponzi scheme that should be de-incentivised) and therefore a landlord with a vacant house can pass through as much cost as they like, but it won't get their house rented. It is called the law of demand and supply, and it is how prices get set in a free market.

by cowboy | 14th Sep 14, 12:27pm 1410654422

You ignorance is breathtaking, and David that's not a jydgement call on the person that on his information he's spreading, both about finance and about me personally.

Seriously dude, get informed, you are so far off base that it's just incredible.

"2 types of savings".... yeah that's why I have houses, several part degrees, equity interests in other peoples property, run 2 businesses (1 in ag, 1 in film), and support several other peoples businesses, a closed three startups. I'd like to pick up a couple of patents too, but I need to get a few skills up to speed that I haven't got yet.

And while, yes it -is- an education issue, it's a vast one. One that (for example) will have the same people that complain about not taxing the rich enough, will vote for a government that promises them handouts. It's an education issue that has certified AFA style "experts" pushing products based on the "education package" they've been sold, rather than actually being able to do the maths themselves.

Taxes are part of life - but more than that they are payment for social services provided by government. If you have got a good enough education, you'll be able to do the linear equations and realise that cost-benefit of such operation peaks about 10% of resources. Home environment, for example (safe shelter and storage, place to send stuff, keep family) peaks around 17%.

there is no housing bubble. The demand is solid, there is no "pop", but you need to be able to understand where the price pressures are coming from to be able to apply supply and demand properly. And having bought and sold several residential properties, and been involved in residential, industrial and commercial property decisions - as well as involved in marketing and managing retail stores (and one, a franchise) I am very aware of the driver, which if you lose sight of for a moment then you're not in the market - and that's the only thing counting, location. You can rip down and rebuild. you can put on a shed, or a bulk retail or expand a factory site, but there's one thing that is almost impossible to change: location.

by cowboy | 13th Sep 14, 2:24pm 1410575047

The first thing I learned in finance was not to mix your own wealth with your business' funds.

I think the second was TANSTAAFL

Third would probably stick to what you're good at, excel at your strengths because no-one can be good at everything - and even if they could they be even better with some specialisation...specialisation I think is mentioned somewhere in Wealth of Nations...around chapter one I believe.

by The Bear | 13th Sep 14, 3:36pm 1410579401

Last point. You make some excellent observations here.

1. Don't mix wealth with business funds. Assuming you are not talking about embezzling (which is of course wrong!) then this is all about diversification-don't put all your wealth in one basket. For your retirement, don't just bet on your house.

3. Definitely stick to what you are good at. So if you aren't a financial advisor or investor, then use one to help you invest! Someone like a kiwisaver manager! How wealthy has Warren Buffet made his investors over time?

Unfortunately you are wrong on 2 above but we did pretty well getting you over the line on 2/3. There is a free lunch and it is called diversification. It arises because no 2 assets are perfectly correlated, so by building a diversified portfolio you effectively get rid of some asset specific risk and get higher return for the same risk invested. And in fact this free lunch is the foundation stone for the entire global financial system. Might be worth re reading the textbook?

by cowboy | 13th Sep 14, 5:58pm 1410587897

1) no it means don't spend the business profits as if it were your own personal income. And don't make business/financial decisions as if all your customers were you.

3) Warren Buffet isn't a Kiwisaver manager, he made money by taking people like kiwisaver managers to the cleaners. If you aren't a financial advisor or investor then how are you going to know how to rate what one is telling you? A plate full of second class asset based derivatives bit look nice to someone who doesn't know what to look for, and bucket shops are staffed by experts.

2) No free lunch. diversification requires additional capital, by diversifing you reduce your chance of losing your shirt...all at once. But in exchange because TANSTAAFL if either leg of the diversification does well, your whole portfolio will do less well, and as I absolutely know at the moment from personal experience, true diversification costs your most valuable assets, mood and mental energy to follow and understand twice as many variables, and TIME - time I spend working on one leg is time I can't be monitoring the other.

In my case I can chase grass and feedpads and feed difficult calves, OR I can check fundamentals in US & EUR & NZ, and track for sentimental divergence and use technical tools to predict where things might sit - but I can't do both - TANSTAAFL.

And yes I might pick up the textbook when I get the staff and debt issues sorted, since I got A+ on the courses I did do.

And while you might lose asset specific risk, you still have risk - you could even consider you have deliberately lost to that risk already...a return of 50% might now only return max 40%...so you've already started losing.

What's more - if you've got a large company with real product flows, you might find yourself having to play to government rules - eg having to have significant ownership in the whole process chain - from paddock/collection to infant formula packing. Then you might have a solid holding in that infant processing diversion and find that instead of improving your own business base (production of quality WMP processing and returns to improve raw material produiction, that suddenly your "diversification" into foreign companies requires a top up...from funds which you had already allocated. Because diversification requires spreading out.

spreading out having two accounts in FX, and working EUR/USD and NZD/USD, and having problems working out exposure in each account because the summary pools all the 10k units. And only just today finding out how to bring up the individual detail tabs for each account... but having to put backup funds in the diversificaton account because it's more exposed than the main account, despite the main account having 10 times the downside risk. Diversification is anything but free lunch.

Although on an up note, Sweetmakers found they did really well when looking for a way to reduce the transport cost of their product to Australia. So they found a return product, stationery, but to their suprise they actually made more profit shipping out of selling other peoples' stationery than they had margin in their own (commodity) product. Which goes to show a good deal is a good deal, and a bad deal always sucks, all the money is the same flavour.

by steven | 14th Sep 14, 11:38am 1410651535

The point is a land tax cannot be avoided. Now provided PAYE, bubiness tax etc are all dropped to be neutral it broadens the tax base.

It probably also catches foreign investors a bit better.

regards

by cowboy | 14th Sep 14, 12:06pm 1410653168

can't be avoided but it will be passed on.

by Simon | 13th Sep 14, 5:18pm 1410585532

Warren Buffett — 'Keep all your eggs in one basket, but watch that basket closely. '

by Simon | 13th Sep 14, 5:20pm 1410585634

Id rather invest in a few companies/sectors that I understand very well than in many that I don't understand at all.