Real estate, post level 4

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20141 posts

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#2902439 14-Apr-2022 16:04

quickymart:

https://www.nzherald.co.nz/business/nz-housing-market-now-in-full-retreat-asb/KEZR6ZBYKO52RG6IKSACEUWTOI/ (paywalled)
Apparently housing prices are now in a full-on retreat.

My impression over watching the crazy mess over the last few years is that house prices have been tied to interest rates and 'affordability'. So when we had the record low rates, it meant that people could afford to borrow more, and this pushed up house prices to insane levels. Banks Then we had people who had cash in the bank earning no interest, who were looking at places to invest their money. But when the opposite occurs and interest rates rise, won't it then push down house prices. There are always people that need to sell their house and may have no choice to accept low offers, and they create benchmarks for pricing. It is interesting to watch this play out. But I think there are going to be people that get badly burnt, because it seems that it is a boom and bust cycle.

tdgeek

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#2902545 15-Apr-2022 06:14

mattwnz:

quickymart:

https://www.nzherald.co.nz/business/nz-housing-market-now-in-full-retreat-asb/KEZR6ZBYKO52RG6IKSACEUWTOI/ (paywalled)
Apparently housing prices are now in a full-on retreat.

My impression over watching the crazy mess over the last few years is that house prices have been tied to interest rates and 'affordability'. So when we had the record low rates, it meant that people could afford to borrow more, and this pushed up house prices to insane levels. Banks Then we had people who had cash in the bank earning no interest, who were looking at places to invest their money. But when the opposite occurs and interest rates rise, won't it then push down house prices. There are always people that need to sell their house and may have no choice to accept low offers, and they create benchmarks for pricing. It is interesting to watch this play out. But I think there are going to be people that get badly burnt, because it seems that it is a boom and bust cycle.

Yep. How much can I afford? $x Doesnt matter if the house is $300,000 or $700,000 if the interest rates are low, I will pay more cos its all about the mortgage payment. Sure, higher deposits are a big factor, but these days most have a bunch of cash in KiwiSaver, when in the open KiwiSaver days many people could not save, so were destined to never buy. If we had no KiwiSaver, then what a buyer can pay, including deposit, and interest will determine what a house is worth.

Not sure I would call it a boom and bust, although considering the artificial reasons why houses have risen in recent times, its bound to correct downwards. The high end will stay up as thats not constrained by deposits and interest, so it will remain as a supply and demand market.

quickymart

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#2903786 19-Apr-2022 12:33

https://www.stuff.co.nz/business/128392830/couple-finds-its-cheaper-to-live-in-barcelona-than-take-on-a-huge-debt-to-buy-a-house-in-nz

MikeAqua

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#2903889 19-Apr-2022 14:25

alasta:

The problem is that a lot of people these days are buying property when they are well into their 40s, which creates a risk of them still having to make mortgage repayments after they retire.

People do seem to move through life's stages more slowly with each generation.

Mike

Paul1977

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#2903920 19-Apr-2022 15:09

A lot of people will be hurting with rising interest rates. We'll have people who bought at price peak and borrowed to the max (relying on low interest rates) - and any fall in the housing market won't help them one bit.

Our repayments will noticeably increase when we refix. Fortunately we're in position where it won't leave use on the bones of our asses, but there'll be many who can't say the same.

I personally don't think they'll be a massive fall in house prices, but the market will slow. FHBs won't be any better off, they might not have as many people bidding against them but the increasing interest rates will mean they need to purchase a much cheaper home.

tdgeek

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#2903970 19-Apr-2022 17:05

Paul1977:

A lot of people will be hurting with rising interest rates. We'll have people who bought at price peak and borrowed to the max (relying on low interest rates) - and any fall in the housing market won't help them one bit.

Our repayments will noticeably increase when we refix. Fortunately we're in position where it won't leave use on the bones of our asses, but there'll be many who can't say the same.

I personally don't think they'll be a massive fall in house prices, but the market will slow. FHBs won't be any better off, they might not have as many people bidding against them but the increasing interest rates will mean they need to purchase a much cheaper home.

Agree. Although its hard to sympathise with those that bought big due to artificially low interest rates. Who expected that 2.69% is a forever thing? QE caused it globally, Covid wont last forever, neither will the support mechanisms.

mattwnz

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#2904047 19-Apr-2022 18:39

tdgeek:

Paul1977:

A lot of people will be hurting with rising interest rates. We'll have people who bought at price peak and borrowed to the max (relying on low interest rates) - and any fall in the housing market won't help them one bit.

Our repayments will noticeably increase when we refix. Fortunately we're in position where it won't leave use on the bones of our asses, but there'll be many who can't say the same.

I personally don't think they'll be a massive fall in house prices, but the market will slow. FHBs won't be any better off, they might not have as many people bidding against them but the increasing interest rates will mean they need to purchase a much cheaper home.

Agree. Although its hard to sympathise with those that bought big due to artificially low interest rates. Who expected that 2.69% is a forever thing? QE caused it globally, Covid wont last forever, neither will the support mechanisms.

I think many people expected interest rates to stay low. Partly based on history, because it is a long time since there has been this sort of interest rise. It was the biggest rise in about 30 years, and it is expected that there will be another big rise next month.

The current situation wasn't helped by the media IMO, which caused FOMO, and all these property commentators saying house prices only go up long term and the best time to buy a house is now etc. They seem to have gone very quiet recently and the media in general is far more quiet since prices have dropped back.
IMO part of the problem has been caused by Kiwisaver, because it has allowed people to accumulate large deposits which they may not have been able to save for if it wasn't accessible until retirement age. This has meant that people have been able to afford to buy more expensive houses, and the low interest rates have fueled this, as it allows people to service larger mortgages. Banks have only been stress testing people at around 6% but commentators say that interest rates could get that high soonish. Kiwisaver was always a retirement scheme, and IMO should not have been used as a mechanism for withdrawing and purchasing a new home. Back when houses were at far lower multiples of earnings, and interest rates were a lot higher, the amount needed for a deposit was a lot less relative to earnings. It was far easier to buy a house back then because the deposit need was far lower relative to earnings. In my area house prices asking prices have fallen 5-10% on ones on my watchlist, and still not selling. There is a lot of supply now. The market needs FHBs to be buying otherwise it causes the market to become clogged up. I know of someone who has sold their house but the buyers have to sell some rentals, and they are almost impossible to sell at the moment as they aren't new and too expensive for FHBs due to the crazy price rises. If they roll back to 2019 prices, then they would be able to sell them, but not at the moment due to sellers expectations and needing to buy and sell in similar priced markets.

It wasn't that long ago when the changes to the CCFA was being given as the reason why houses weren't selling, but that appears to have been relaxed since then, and it doesn't seem to have improved things with the housing market. I know of several unfinished houses being rushed onto the market int he last few weeks, and some developers appear to be panicking a bit.

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mattwnz

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#2904151 20-Apr-2022 00:10

MikeAqua:

alasta:

The problem is that a lot of people these days are buying property when they are well into their 40s, which creates a risk of them still having to make mortgage repayments after they retire.

People do seem to move through life's stages more slowly with each generation.

I think a lot of it is to do with costs of things like education and buying a house. Many people are now not having children until their mid to late 30's if not older, when decades the average was in the 20's. But not being able to buy a house and settle down, is also making a huge difference, as many people don't really want to be renting and the uncertainty that comes with that, while also having a family. IMO the housing crisis has many knock on effects. People who purchased their first home in the 90's and 90's say that they had it hard because interest rates were in the double digits. But houses were still largely priced on affordability. So if the interest rate was high, the price was a lot lower to compensate. With rising interest rates, similar situation could occur, where house prices fall back to what is affordable at the current interest rates. AT least until wages rise, but with many businesses hurting and not being able to afford pay rises, I can't see that happening in a hurry. Plus rapid wage inflation also isn't good. It seems we are heading into stagflation which IMO is bad.

GV27

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#2904159 20-Apr-2022 06:14

mattwnz:

AT least until wages rise, but with many businesses hurting and not being able to afford pay rises, I can't see that happening in a hurry. Plus rapid wage inflation also isn't good. It seems we are heading into stagflation which IMO is bad.

Wages in NZ have long, long, long fallen behind the cost of accommodation. If we don't have decent wage inflation now, then when? How much more should people accept their quality of life unwinding before decent increases in wages become reasonable?

tdgeek

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#2904168 20-Apr-2022 07:45

GV27:

Wages in NZ have long, long, long fallen behind the cost of accommodation. If we don't have decent wage inflation now, then when? How much more should people accept their quality of life unwinding before decent increases in wages become reasonable?

We are a low wage economy, businesses dont want pay rises. If we went back to 2% inflation, and 2% pay rises, that would be "ok" even though wage and salary earners would continue to slip back due to tax. We could reduce personal income tax and put that on businesses (IIRC they used to be 45% now 28%) but that would go down like 2.5 cups of cold sick. So, of the variables we have to play with, well, actually there aren't many to play with. Unless we went on an austerity period where personal income tax was slashed, and the Govt budget reduced to a zero figure or a 3 to 5 year deficit. Govt spending on infrastructure will plummet. But real wages will grow, as will spending in the economy. Mortgages can be regulated, so if you are an FHB, you get an ok rate, if you rebuilding you get a great low rate, the others will subsidise that

In short NZ is too small to let nature take its course, it has to be fiddled with if you want to support businesses and citizens, but whatever way you push it, something has to be shelved. Business, citizens, infrastructure, etc, we cannot have it all, the purse for NZ is too small.

How much more should people accept their quality of life unwinding before decent increases in wages become reasonable?

Or, how should businesses take the hit as well? Well, they have. Profits are down, they may choose to keep prices up to recover Covid in the medium term. In time the Covid effect and more recently the Ukraine effect will disappear, the economy goes back to normal. How that shortfall for NZ is shared is up too a Government.

tdgeek

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#2904169 20-Apr-2022 07:54

mattwnz:

I think many people expected interest rates to stay low. Partly based on history, because it is a long time since there has been this sort of interest rise. It was the biggest rise in about 30 years, and it is expected that there will be another big rise next month.

The current situation wasn't helped by the media IMO, which caused FOMO, and all these property commentators saying house prices only go up long term and the best time to buy a house is now etc. They seem to have gone very quiet recently and the media in general is far more quiet since prices have dropped back.
IMO part of the problem has been caused by Kiwisaver, because it has allowed people to accumulate large deposits which they may not have been able to save for if it wasn't accessible until retirement age. This has meant that people have been able to afford to buy more expensive houses, and the low interest rates have fueled this, as it allows people to service larger mortgages. Banks have only been stress testing people at around 6% but commentators say that interest rates could get that high soonish. Kiwisaver was always a retirement scheme, and IMO should not have been used as a mechanism for withdrawing and purchasing a new home. Back when houses were at far lower multiples of earnings, and interest rates were a lot higher, the amount needed for a deposit was a lot less relative to earnings. It was far easier to buy a house back then because the deposit need was far lower relative to earnings. In my area house prices asking prices have fallen 5-10% on ones on my watchlist, and still not selling. There is a lot of supply now. The market needs FHBs to be buying otherwise it causes the market to become clogged up. I know of someone who has sold their house but the buyers have to sell some rentals, and they are almost impossible to sell at the moment as they aren't new and too expensive for FHBs due to the crazy price rises. If they roll back to 2019 prices, then they would be able to sell them, but not at the moment due to sellers expectations and needing to buy and sell in similar priced markets.

It wasn't that long ago when the changes to the CCFA was being given as the reason why houses weren't selling, but that appears to have been relaxed since then, and it doesn't seem to have improved things with the housing market. I know of several unfinished houses being rushed onto the market int he last few weeks, and some developers appear to be panicking a bit.

Its a bit silly to expect rates to stay low

Kiwisaver is an issue I agree, many people who could never buy, have, more demand. No incentives to build. Immigrants, who we need, often dont build, they rent or buy, all negative impacts.

Im not sure there is a lot of supply, if there was the downturn in house prices would be massive. More likely that many want to cash up, and the other many refuse to pay those prices, now exacerbated by daily media saying prices are dropping, so buyers are holding off.

The market needs FHBs to be building not buying. Building adds to stocks, it also keeps new buyers from the market, less demand, prices ease

The annoyance right now is Covid induced global inflation and the same for local inflation, that makes houses more costly to build, and the buyers are finding the pay packet reduced, hence cannot pay the required mortgage. It may be time that is needed to allow global production to go back to satisfying global demand, goods prices ease back, inflation eases back, then incentivise builds with low interest rates, super low even. Subsidised by non build and non FHB mortgages

Geektastic

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#2904173 20-Apr-2022 08:19

GV27:
mattwnz:

AT least until wages rise, but with many businesses hurting and not being able to afford pay rises, I can't see that happening in a hurry. Plus rapid wage inflation also isn't good. It seems we are heading into stagflation which IMO is bad.

Wages in NZ have long, long, long fallen behind the cost of accommodation. If we don't have decent wage inflation now, then when? How much more should people accept their quality of life unwinding before decent increases in wages become reasonable?

You can only increase wages by either increasing productivity or increasing selling price of output from the wages.

You can’t just increase them because it sounds like a good idea.

GV27

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#2904177 20-Apr-2022 08:26

Geektastic:

You can only increase wages by either increasing productivity or increasing selling price of output from the wages.

You can’t just increase them because it sounds like a good idea.

And? You can't increase productivity if your workers are under years of financial stress and having to abandon your cities and country because they can't make ends meet.

You can't just expect people to cop huge increases in living costs while you keep importing tens of thousands of new people a year and never allowing the labour market to meet an equilibrium point.

GV27

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#2904178 20-Apr-2022 08:29

tdgeek:

The market needs FHBs to be building not buying. Building adds to stocks, it also keeps new buyers from the market, less demand, prices ease

Building is a crappy proposition where you're being asked to pay $850K for a two bedroom townhouse miles from transport and other amenities, and with building costs blowing out and sunset clauses being triggered.

At some point, it just becomes easier for young people to just leave. We are well past that point. We haven't done anything about it to get to this point so I can't imagine why we would suddenly do something about it now.

MikeAqua

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#2904188 20-Apr-2022 09:33

mattwnz:

I think a lot of it is to do with costs of things like education and buying a house. Many people are now not having children until their mid to late 30's if not older, when decades the average was in the 20's. But not being able to buy a house and settle down, is also making a huge difference, as many people don't really want to be renting and the uncertainty that comes with that, while also having a family. IMO the housing crisis has many knock on effects. People who purchased their first home in the 90's and 90's say that they had it hard because interest rates were in the double digits. But houses were still largely priced on affordability. So if the interest rate was high, the price was a lot lower to compensate. With rising interest rates, similar situation could occur, where house prices fall back to what is affordable at the current interest rates. AT least until wages rise, but with many businesses hurting and not being able to afford pay rises, I can't see that happening in a hurry. Plus rapid wage inflation also isn't good. It seems we are heading into stagflation which IMO is bad.

In my social circle the OE seemed to makes a big difference too. Some people did the OE smart - got good jobs, came back with money, partner and highly marketable professional experience. Those people and the people who didn't do OEs got on with it - good jobs, houses, families etc.

I watched some of my mates really struggle. They'd come back to NZ after several years partying abroad and desperately seek a partner because tick-tock, tick-tock. Then get married, then try and buy a house and have kids at the same time. Some of them needed IVF, which is brutally expensive. Seeing the strain of all that ... no thanks.

Mike

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