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The New Zealand Property thread - Cyclical Position


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Great charts Steve. Do you expect the nominal fall to accelerate or slowly drift down?

 

It's odd isn't it, I've predicted a relatively small drop in house prices in NZ$ terms :unsure:

Since I keep saying that NZ is about 3 months behind the UK, you'd expect house prices to start dropping faster. Given that things are getting worse here, that would make sense. Of course our winter/summers are backwards, which affects the seasonality. Nov is a really hot time, as you can see from the above chart on numbers sold :lol: :lol: :lol:

 

I did originally draw a much sharper drop, followed by a gradual move up along the "inflation line". Like this:

 

NZ_Prediction_080404.gif

 

I suspect my prediction is wildly too positive, but the best case for anyone who owns is still quite a large drop by 2012 in real terms.

 

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  • 2 weeks later...
It's odd isn't it, I've predicted a relatively small drop in house prices in NZ$ terms :unsure:

Since I keep saying that NZ is about 3 months behind the UK, you'd expect house prices to start dropping faster. Given that things are getting worse here, that would make sense. Of course our winter/summers are backwards, which affects the seasonality. Nov is a really hot time, as you can see from the above chart on numbers sold :lol: :lol: :lol:

 

I did originally draw a much sharper drop, followed by a gradual move up along the "inflation line". Like this:

 

NZ_Prediction_080404.gif

 

I suspect my prediction is wildly too positive, but the best case for anyone who owns is still quite a large drop by 2012 in real terms.

 

Steve,

I'm going to be bold and say that sometime over the next 3 to 6 months unemployment is going to hit NZ hard. Enough anecdotal / overheard information about businesses shrinking for me to be willing to go out on a limb and say that the real nominal drops in house price will really kick in sometime after unemployment starts to crank up. My pick is that sometime in the next 3 to 6 months unemployment is going to climb in a major way. May end up with a red face about this. My feeling on this has been growing stronger through December / January.

 

For IT contractors I know that have been laid off in November (approx 40), many have:

a) gone overseas - these were the ones hired in from overseas who left as soon as they were let go.

B) taken a cut in contract rate. A Substantial Cut.

c) still looking for work

 

With other businesses I am aware that they are shrinking via attrition and some are looking very hard at either:

a) cutting hours/pay

B) cutting staff

 

 

 

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Gibber,

I think you are right.

My level of complacency has just about peaked, so I think it's just about time for me to be smacked hard in the chops just as I don't expect it !

I am beginning to get that uneasy feeling again though.

What are you feeling complacent about?

 

Your gold holdings?

Your Yen holdings?

Your job?

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I'm currently not thinking about:

 

1. The currency collapsing

2. Shops shutting

3. Bank holidays

3a. One or more NZ banks collapsing

4. The place turning into a mad max film

 

or I wasn't :blink:

 

I think it's the same a other scares like bird flu. When it first breaks out you react, then when nothing happens you relax and get on with life.

That doesn't mean the risk has gone away. Just that you're likely to be caught napping.

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I'm currently not thinking about:

 

1. The currency collapsing

2. Shops shutting

3. Bank holidays

3a. One or more NZ banks collapsing

4. The place turning into a mad max film

 

or I wasn't :blink:

 

I think it's the same a other scares like bird flu. When it first breaks out you react, then when nothing happens you relax and get on with life.

That doesn't mean the risk has gone away. Just that you're likely to be caught napping.

 

Ok - any banks that would seem more likely than others or is that more of a general uneasy feeling than a specific bank causing you to wonder?

 

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  • 4 weeks later...

(in case or NZ based members havent seen this):

 

Experts pick further house price decline, greater downside for sections

 

Jazial Crossley | Monday February 16 2009

This year will be a buyers' market, as industry experts predict the price of homes and sections in New Zealand will sink lower still before the year is out.

 

Real Estate Institute figures show the average price of a section has dropped from $190,000 in January 2008, when 498 sections sold nationwide, to $180,000 with 240 sections sold in January 2009.

 

Institute figures for residential home sales show that the average price has dropped from $340,000 with 5186 homes sold nationwide in January 2008. In January 2009, only 3706 homes sold with an average price of $325,000.

 

Interest.co.nz managing editor Bernard Hickey thinks housing prices will continue to drop to become more affordable by the end of the year. This is great news for buyers but worrying for existing home owners.

 

“House prices are sliding, interest rates have fallen fast, taxes are set to be cut again and incomes are rising. These have all combined to reduce the proportion of after tax income needed to service the mortgage on a median home,” Mr Hickey says.

 

“Housing affordability fell to 54.1% [of average income] in January from 59.8% in December,” says Mr Hickey, who considers housing “affordable” when it hits 40%. “This is sharply better than the 82.9% record worst level recorded in November 2007 when house prices peaked.”

 

Mr Hickey predicts that current home owners who have to sell will “simply have to accept the best they can get – and it may be 30% below what they’d like to get.”

 

“Those who don’t have to sell but want to sell, should know it will take another decade at least for prices to get back to where they were at the end of 2007. If they’re not prepared to wait or they have a lifestyle type reason, their best bet is to sell quickly before prices fall too much more,” Mr Hickey says.

 

“The one big silver lining of the credit crunch is this rapid improvement in housing affordability,” Mr Hickey says.

 

Strategic Risk Analysis managing director and chief research officer Rodney Dickens sees house prices falling until mid 2009, with section prices stabilising toward the end of the year.

 

Mr Dickens says falling contruction costs are also a factor. “Section prices have increased more than construction costs because of the pressure from population growth, while existing property prices increase more than construction costs because implicit in an existing property is the price of a section.”

 

Banks’ toughening lending criteria up to 50% has contributed to the falling number of section sales compared to home sales, according to Mr Dickens. “This implies greater ultimate downside risk for section prices than for existing house prices especially because the section market is more oversupplied than the existing housing market.”

 

Mr Dickens says the price of existing dwellings will also be affected by changes to section prices. “The prices of existing properties increase less than section prices because existing properties are made up of appreciating sections and depreciating capital assets (he house or dwelling).”

 

“Some people are clearly responding to the current economic incentive to buy existing houses rather than build but this response will in turn drive section prices down relative to existing house prices and in so doing restore the competitiveness of new housing,” says Mr Dickens.

 

/see: http://www.nbr.co.nz/article/experts-pick-...-sections-53388

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Interesting read on kiwis doing it tough... and paying massive breakage fees in order to get their weekly payments down.

 

http://www.nzherald.co.nz/business/news/ar...jectid=10561706

All the brokers offer tips on how to lessen the pain of mortgage melt-down. "The buzz word is de-leveraging," says Lyons.

 

"When we look at people's past three months' transactions, they say 'I didn't know we were spending so much'."

 

He says it's vital to get overall debt under control. "But it's not a crash diet. You don't want to go into it for a month and then it all falls apart."

 

Bolton agrees that wasteful spending puts pressure on people struggling with mortgage payments.

 

"The amount of money people are pissing out the door is absolutely scary."

 

Once spending is under control, the most effective way to tame a rampaging mortgage is to cut interest payments. This involves not only a change in mindset, but facing up to punitive break fees charged by banks.

 

"On a mortgage of $500,000 it can be $50,000, up to 10 per cent of the loan amount," says Jurgeleit.

 

"I would encourage people to do the calculations

 

I've yet to see a bank waive a break cost; they don't want to open the floodgates.

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Brian Gaynor: Time to think outside the housing box

 

http://www.nzherald.co.nz/business/news/ar...jectid=10561595

New Zealand's ongoing obsession with residential property is bizarre, particularly when the main cause of the international economic crisis is a massive over-investment in housing.

 

Newspapers, television and radio are fuelling interest in the topic with hopeful stories about housing affordability, plunging mortgage interest rates and rising buyer interest. They are cheerleading and cajoling the banks into reducing mortgage interest rates yet there is almost no sympathy for retirees who have experienced serious erosions of income because of lower interest rates.

 

Amidst all this media attention there are strong arguments that the New Zealand economy would be in a much better position if we treated houses as a place to live rather than the country's main wealth creator.

 

The worldwide housing bubble of the 2000s was caused by a surge in credit rather than a shortage of land or population pressures.

 

Prices rose dramatically in most countries, particularly in the 2003-07 period, with the median New Zealand sale price surging 113 per cent from $165,000 in June 1998 to a peak of $352,000 in November 2007.

...

In other words, almost 50 per cent of bank funding growth since June 1998 has been sourced from overseas.

 

The figures are even more frightening when it is noted that the current level of bank overseas funding is equal to 78 per cent of New Zealand's GDP compared with just 31 per cent of GDP in mid-1998.

 

A higher percentage of these overseas borrowings were channelled into the housing market with total bank residential mortgages leaping from $51.4 billion in June 1998 to $156.3 billion at the end of January 2009.

 

The clear impact of this on house prices can be seen when we break the figures into two five-year periods;

 

In the June 1998 to June 2003 period, total residential mortgage lending increased by $28.3 billion and house prices by 27 per cent.

 

Between June 2003 and June 2008, mortgage lending surged by $72.3 billion and house prices by 62 per cent.

....

The key to the property market over the next year or two is the level of funding available to prospective buyers and the pressure on existing homeowners and investors to sell because they are experiencing financial difficulties.

...

This shouldn't be viewed as a negative development because we need to generate far more wealth from productive, foreign exchange-earning activities and reduce our dependence on residential housing, which is mainly fuelled by unsustainable overseas borrowings.

 

Hmmm.... $165,000 is starting to look like a good benchmark figure.

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