housing


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The new coalition government of Labour & NZ First have put forward a policy that will prevent the purchase of existing NZ houses by overseas [foreign] buyers. Residents [permanent] will still be able to do so.

This is in response to the high rise in NZ house prices that has priced many out of the housing market, particularly in Auckland, where prices are quite frankly ridiculous. For example, a two bedroom unit had an asking price of $880,000. I’m not sure whether it sold, but just that the vendor thought he could get that price, or close to it, is an indication of just how far prices have risen.

The commuter belt to Auckland is extending further and further out. Areas that when we first came to NZ were lovely quiet rural villages are now massively expanded with residential housing everywhere.

We were just up north in Whangarei and the population growth, development, etc was really noticeable since we’d moved to Auckland six years ago.

Is there a problem and will this new policy help solve it?

Why do house prices rise?

Obviously there are a number of variables that contribute to rising prices, however they all fall into one of the following: lack or constrained supply and an increased demand.

I haven’t followed world events too closely for a while as I have been busy with other things, but, Europe is a mess and the US under Trump is probably becoming an issue. Both contribute to immigration in NZ. Both however are dwarfed by the immigration from India and most noticeably from China. So relative to the housing stock, immigration is really high.

Building consents, certainly in Auckland, are difficult and slow to get. The new district plan is improving that to an extent, with an increase in high density living, lots of new flats, but opening new land is still quite controlled. So there is still a shortage of housing stock.

Salary and wages have been pretty stagnant for at least 10 years. This though is an argument on economic growth and productivity in NZ.

Interest rates are still very low all around the world. Low interest rates equal high capitalisation rates. It is simple. We have a high deposit requirement ranging from 20% to 40% [depending on the use of the property, investment as against residential occupation] which has made it very difficult for first time buyers. This was supposed to deter investors, rather, it has enabled investors over the first time buyer.

The flip side of interest rates is that, recent purchasers are highly at risk if interest rates rise, so that capital values fall. A rise fro 5% to 6% is a 20% rise in cashflow required on a monthly basis. Most people have little to zero disposable income each month after paying housing costs, especially those that have bought recently and paid high prices. A significant rise in interest rates has the potential of creating a housing collapse and defaults across the country. This is due of course to government monetary policy.

Therefore, controlling foreign speculation may help somewhat, but I doubt it will accomplish what the politicians hope that it will.

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Auckland house prices have been rising since 2001. This is not peculiar to only Auckland, there has been a number of cities so affected.

This has been fuelled from three main drivers (a) low interest rates and (b) low housing stock relative to immigration and (c) a belief that somehow, it’s different this time.

The average salary of a two person household in Auckland, could be $100K, possibly slightly more, the average house price is now $1M. That is 10X your average salary. Given that interest rates are/have been at all time historical lows, an increase in interest rates could trigger massive losses and/or foreclosures.

It is a bubble, I’m curious as to how much further it can inflate.

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Some creative, wacky people out there.

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With interest rates low, close to all time lows, the mortgage default levels are near all-time highs? You just know something is hideously wrong with the economy.

What is it?

Residential Mortgage Delinquencies measure delinquency percentages for residential real estate loans secured by one- to four-family properties. It includes home-equity lines of credit.

Delinquent loans represent those loans that are past due 30 days or more and are still accruing interest, as well as loans in non-accrual status.

Why is it important?

We believe a higher than average mortgage delinquency rate is a key factor in the continuing housing crisis and also as it relates to the broader economy.

How do we interpret it?

Rising delinquency rates are an after-the-fact reflection of challenging economic climates.

Since mortgage payments are less discretionary than general consumer expenditures, increases in this indicator are more likely to occur during times of economic difficulty.

Typical historical range

As of December 2011, 90% of observations for the mortgage delinquency rates

fall between 1.47% to 10.30%.

I haven’t written about housing for a while. With the talk around blogoland with regard to housing bottoming – really? What drives house prices? Interest rates, specifically mortgage rates.

Now with mortgage rates here, which is more likely over time: a significant lowering of mortgage rates, or a significant rise? Obviously, rates really don’t have that much further to fall. An increase, will, however, decimate house prices. Absolutely fucking crush them.

Housing prices, and by extension, stocks associated with them, are hardly screaming bargains on a valuation basis. Sure the homebuilders have been hot recently, and trading them, hey no issues, but calling a bottom in the housing market is really, really, a bad call.

New Zealand pretty much follows Australia. Our house prices have been falling, although not as much as one might expect, especially considering how shite the wages are over here.

Apartment prices in the luxury beachside Australian town of Noosa Heads have tumbled by a fifth since 2008 as cracks emerge in a housing market that’s so far escaped the rout seen in the U.S., U.K. and Ireland.

The median apartment price in the tourism and retiree town 150 kilometers (93 miles) north of Brisbane has slumped 21 percent in three years to A$570,000 ($594,000), according to the Real Estate Institute of Queensland. Sales have more than halved across Queensland state’s Sunshine coast, home to “Crocodile Hunter” Steve Irwin’s Australia Zoo, and the Gold Coast, known for its surfing beaches and casinos.

“We have a very overvalued housing market and even a small adverse shock can be magnified by a large adverse impact on property values,” said Gerard Minack, Sydney-based global developed markets strategist at Morgan Stanley (MS), who asserts Australian home prices are as much as 40 percent overvalued. “We’re seeing that now in parts of Queensland.”

Economists and analysts at organizations including RP Data, Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. (WBC) have said the weakness in home prices along Queensland’s southeastern coast is unlikely to spread as low unemployment and a shortage of homes underpins prices.

“A lot of sellers are cutting prices and are preparing to meet the marketplace,” said John Newlands, Gold Coast spokesman for the real estate institute and principal at an LJ Hooker franchise in Surfer’s Paradise, a northern Gold Coast suburb that’s home to the world’s tallest residential tower. “In 2011, more investors will start to come back into the marketplace as prices fall.”

Only another 20yrs of housing price declines to go, if you base your analysis on the government reaction to the crisis, viz. inflation.

Having said that, Japan is a very different economy to the US, and the times were very different. Thus all and any comparisons to Japan need to be looked at carefully.

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