Real estate, post level 4

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#2720140 7-Jun-2021 12:22

I love it how the "young couple" stereotype is still being thrown around. Plenty of older single people are locked out of the market!

mattwnz

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#2720291 7-Jun-2021 16:40

tdgeek:

mattwnz:

We had low rates before Covid, not quite as low, but the trend was still downwards since the GFC, and other countries were already down to what NZ is now. It is very easy to drop them, far more difficult to then move them up. We could risk going negative if we have another long lockdown. NZ is also largely hamstrung by what the rest of the world does. If we move them up when other countries aren't moving them up, it potentially could push the dollar up and exporters earn less money. Infact we have a whole generation of borrowers who have never had mortgage rates increase. I am hoping they won't be shocked by the extra amounts they have to pay on their mortgages

This is a timely article on this topic today https://www.interest.co.nz/opinion/110725/bnzs-stephen-toplis-says-house-price-inflation-must-fall-and-house-prices-could-too

What were interest rates before covid? 5.5%? Now they are 2.3% Not much but as we all know, mortgage payments are mainly interest

We can easily play with rates without affecting exports and the dollar. Banks can operate a revenue neutral adjustment to mortgage rates. Add interest onto existing house purchases, use that to subsidise interest on new builds. Easy to operate. The extra interest goes into the Balance Sheet, the subsidised interest also goes to the Balance Sheet. You just adjust the rates annually to match the asset and the liability balance sheet items. Builds increase, existing homes ease in price.

No the mortgage interest rates were a lot lower than that precovid. The one year rate was about 3.4%. The current specials are down to 2.19% . So it is not a huge drop, about 1.2%. The graphs are on this page https://www.interest.co.nz/charts/interest-rates/mortgage-rates

I think they wanted house prices to increase because it has the wealth effect and makes people more willing to spend in the economy . First home buyers or people wanting to upsize are just collateral damage. But markets can change and the RB expects house price growth to go to zero, which few people seem to agree with, and they have been wrong before when they removed the LVRs and took ages to reinstate them. We don't know what the global economy is going to do. But inflation does seem to be a big part of it.

tdgeek

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#2720306 7-Jun-2021 17:29

mattwnz:

No the mortgage interest rates were a lot lower than that precovid. The one year rate was about 3.4%. The current specials are down to 2.19% . So it is not a huge drop, about 1.2%. The graphs are on this page https://www.interest.co.nz/charts/interest-rates/mortgage-rates

I think they wanted house prices to increase because it has the wealth effect and makes people more willing to spend in the economy . First home buyers or people wanting to upsize are just collateral damage. But markets can change and the RB expects house price growth to go to zero, which few people seem to agree with, and they have been wrong before when they removed the LVRs and took ages to reinstate them. We don't know what the global economy is going to do. But inflation does seem to be a big part of it.

Are you sure?

Ore covid rate was "The one year rate was about 3.4%. " In the case low interest rates have nothing to do current prices rises, so we can forget that as a solution.

So, no one knows what to do, use prices are up everywhere, and inflation has something to do with it. So, on that, there is no solution, its normal, its how the global economy has evolved, to the detriment of new home owners. If thats the case it unfortunate, but its life. And the issue now is not home ownership as that ship has sailed its about rent control.

quickymart

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#2730395 17-Jun-2021 20:42

https://thespinoff.co.nz/business/17-06-2021/ten-places-where-you-can-still-buy-a-house-for-under-300k/

There are some fairly cheap properties in Christchurch (below $400k) too.

sbiddle

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#2730452 18-Jun-2021 07:39

tdgeek:

And the issue now is not home ownership as that ship has sailed its about rent control.

And the whole irony of this is that significant rent rises were what many experts warned would happen when the govt restricted negative gearing. Maybe those experts were correct. Increased property prices by itself doesn't need to automatically result in higher rents.

I just wonder what drastic measures the govt will take if prices still keep going up for the rest of the year which is something that's still a totally realistic proposition.

Until supply issues are fixed nothing is going to change, but the real risk now is the govt are creating a lot of uncertainly in the market which drastic changes that are often sudden announcements, so some large scale residential developers are starting to talk about getting cold feet due to increased risk of large scale development due to all the uncertainty. Right now that's the worst thing that could happen if it slows building work.

quickymart

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#2732039 21-Jun-2021 13:24

https://thespinoff.co.nz/business/18-06-2021/bernard-hickey-our-empires-of-cold-and-mould/

Two things:

$350,000 in 2005?? I really missed the boat there.

Also even though homes were cold/damp/leaky back then, landlords (due to an excess of housing) had a bit more of an incentive to fix it. Now tenants outstrip the number of available properties, so a number of landlords can essentially do nothing and not care.

wellygary

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#2732061 21-Jun-2021 13:46

quickymart:

https://thespinoff.co.nz/business/18-06-2021/bernard-hickey-our-empires-of-cold-and-mould/

Two things:

$350,000 in 2005?? I really missed the boat there.

Also even though homes were cold/damp/leaky back then, landlords (due to an excess of housing) had a bit more of an incentive to fix it. Now tenants outstrip the number of available properties, so a number of landlords can essentially do nothing and not care.

I pretty much glaze over when Bernard Hickey starts editorialising on the price of Auckland houses,

Given his 2010 predictions of a 20% fall in house prices

" Once the inflation surge of late 2010 and early 2011 is taken into account, real house prices are likely to be down almost 20 per cent by the end of next year. That may shake the faith of the ever faithful who have sworn by housing for years and who mocked the doomsayers like me."
https://www.nzherald.co.nz/business/ibernard-hickey-i-why-house-prices-will-fall-15-per-cent/SWSN4UHS4IWLT5OVKFKVZXYSFI/

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quickymart

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#2732097 21-Jun-2021 15:22

Same for me and Ashley Church, preaching (pardon the pun) that house prices rising endlessly are a good thing [for him, anyway].

mudguard

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#2732101 21-Jun-2021 15:38

wellygary:

I pretty much glaze over when Bernard Hickey starts editorialising on the price of Auckland houses,

Given his 2010 predictions of a 20% fall in house prices

I'm pretty sure he's recanted that view now. His podcasts are quite good.

mattwnz

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#2732106 21-Jun-2021 15:47

sbiddle:

I just wonder what drastic measures the govt will take if prices still keep going up for the rest of the year which is something that's still a totally realistic proposition.

Probably very little, as they have said they are waiting to see what effects the changes will make and it takes time. So they have brought themselves time. The RB has also said the only thing driving house prices up at the moment is FOMO. But it is also the cheap money and lack of supply. Normally supply is double what it is at this time of the year. There are about 15k houses on the market atm, when over a decade ago there were about 60k house on the market. Even though there are more homes in NZ today than there were a decade ago. People are holding off selling, so does that mean there will be a glut of houses come on the market at some point in the future? The property market does tend to run in cycles.

Handle9

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#2732113 21-Jun-2021 16:11

sbiddle:
And the whole irony of this is that significant rent rises were what many experts warned would happen when the govt restricted negative gearing. Maybe those experts were correct. Increased property prices by itself doesn't need to automatically result in higher rents.

Changed costs for landlords doesn't necessarily lead to rents changing either. We didn't see rents drop when interest rates drop, quite the opposite.

mattwnz

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#2732200 21-Jun-2021 18:06

Handle9:
sbiddle:

And the whole irony of this is that significant rent rises were what many experts warned would happen when the govt restricted negative gearing. Maybe those experts were correct. Increased property prices by itself doesn't need to automatically result in higher rents.

Changed costs for landlords doesn't necessarily lead to rents changing either. We didn't see rents drop when interest rates drop, quite the opposite.

Isn't that because interest rates rose, causing house prices to rise. So investors needed a higher rate of return on the houses value, as it increases over time? Speaking to an investor, they told me they expect to get $100 per week rent, for each $100k a house is worth. So if a house is worth 800k, they would expect around $800 a week in rent.

Rents rose 10% in just a year. Not sure what the most recent stats are, but investors have already warned that rents will rise due to the changes.

mattwnz

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#2732203 21-Jun-2021 18:09

quickymart:

https://thespinoff.co.nz/business/18-06-2021/bernard-hickey-our-empires-of-cold-and-mould/

Two things:

$350,000 in 2005?? I really missed the boat there.

Also even though homes were cold/damp/leaky back then, landlords (due to an excess of housing) had a bit more of an incentive to fix it. Now tenants outstrip the number of available properties, so a number of landlords can essentially do nothing and not care.

The big difference is what the interest rates were back then, and compared to what interest mum and dad could get by just having their money in a bank account. I remember some online saver accounts were nearly up to 10% interest. NZ seems to price houses based on mortgage servicing costs. I do wonder what happens to house prices if interest rate go back to 5-6%, and wages don't increase substantially. The vaue is also largely based on the land value, which is why so many dumps end up selling for big money. It isn't the house but the value in the land, but it creaks FOMO for buyers.

Handle9

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#2732206 21-Jun-2021 18:15

mattwnz:
Handle9:

Changed costs for landlords doesn't necessarily lead to rents changing either. We didn't see rents drop when interest rates drop, quite the opposite.

Isn't that because interest rates rose, causing house prices to rise. So investors needed a higher rate of return on the houses value, as it increases over time? Speaking to an investor, they told me they expect to get $100 per week rent, for each $100k a house is worth. So if a house is worth 800k, they would expect around $800 a week in rent.

Rents rose 10% in just a year. Not sure what the most recent stats are, but investors have already warned that rents will rise due to the changes.

No and that formula is really quite funny, in Auckland at least.

Rents are based on what people will pay, not on the underlying value of the property or the mortgage. There is some correlation as if rents get too high it becomes more attractive to buy a property but generally it's what the market will bear.

quickymart

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#2732545 22-Jun-2021 09:50

https://www.newshub.co.nz/home/money/2021/06/economist-cameron-bagrie-predicts-when-the-auckland-housing-market-will-turn.html

I read (and posted) earlier that they were expecting a housing surplus by 2028, not this year.

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