Real estate, post level 4

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#2700609 2-May-2021 08:39

mattwnz:

Apparently FOMO is being replaced by "Fear of Paying too much".

The problem is many people could have been paying too much for some time, that is how property prices have gone up 20% in a year, which even the PM said just isn't right and can't continue.

True, but those buyers knew that, caveat emptor.

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tdgeek

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#2700610 2-May-2021 08:44

mattwnz:

When savings rates are at that level, then mum and dad savers and investors can keep their money in the bank, and it encourages saving. Now, Mum and Dad savers have been forced to take their money out of the bank due to essentially losing money and buying power, and they are now forced to invest in higher risk things. Many have therefore purchased houses, because it is the only other form of investing they know.

As a result of all this, NZ are some of the worst savers in the world. We were pretty bad before, but it is even worse now. The amount of money in term deposits has plummeted over this last year.

Im not sure that "many" Mum and Dad investors pulled money out of savings accounts to invest in houses. If they did, does that matter? Those houses are rentals, we need rentals. I also don't buy into the low housing stocks issue. People build, they always have, its the peoples choice to build or buy. The supply and demand issue now isnt really we are short of houses, we are short of sellers. If you want to buy my house and I don't want to sell, that's a supply and demand issue. You should build then.

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#2700621 2-May-2021 09:33

tdgeek:

I also don't buy into the low housing stocks issue.

i wonder why the govt is forking out 3.8 billion to increase housing stock if there is no housing stock issue

https://www.tvnz.co.nz/one-news/new-zealand/government-puts-3-8-billion-into-speeding-up-pace-and-scale-house-building

https://thediplomat.com/2021/03/can-new-zealand-fix-its-housing-crisis/

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#2700623 2-May-2021 09:37

mattwnz:

As a result of all this, NZ are some of the worst savers in the world. We were pretty bad before, but it is even worse now. The amount of money in term deposits has plummeted over this last year.

i think term deposit is giving less than 1% interest ...

meanwhile mortgage borrowing is lower than it's ever been

so people won't want to put money in term deposit, they buy house instead

GV27

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#2700632 2-May-2021 10:09

quickymart:

https://www.stuff.co.nz/business/money/300287002/bnz-withdraws-sevenyear-home-loans-because-nobody-wants-them

I had no idea interest rates were over 10% in 2008 - mind you actual prices were much more realistic back then.

10% of a smaller number can be much less than 3.5% of an absolutely stonkingly massive number. This is what people who go on about a very brief period of 22% rates (and with huge wage inflation at the same time) don't get. Yes, one number is bigger than the other, but it's not that simple. Deep down, I suspect many people know this but choose to ignore it.

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#2700660 2-May-2021 11:17

Batman:

i wonder why the govt is forking out 3.8 billion to increase housing stock if there is no housing stock issue

https://www.tvnz.co.nz/one-news/new-zealand/government-puts-3-8-billion-into-speeding-up-pace-and-scale-house-building

https://thediplomat.com/2021/03/can-new-zealand-fix-its-housing-crisis/

Because its one of many tools to alter demand. Same issue in the past but no one cared about house price inflation, now they do, so they are throwing many tools at it.

Perhaps Govts could have gradually managed demand in the past, but no one did, now, being exacerbated by Kiwisaver and low interest rates, it's biting.

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#2700814 2-May-2021 16:24

GV27:

quickymart:

https://www.stuff.co.nz/business/money/300287002/bnz-withdraws-sevenyear-home-loans-because-nobody-wants-them

I had no idea interest rates were over 10% in 2008 - mind you actual prices were much more realistic back then.

10% of a smaller number can be much less than 3.5% of an absolutely stonkingly massive number. This is what people who go on about a very brief period of 22% rates (and with huge wage inflation at the same time) don't get. Yes, one number is bigger than the other, but it's not that simple. Deep down, I suspect many people know this but choose to ignore it.

When I finished at Westpac I had some customers coming off 10% fixed mortgages, when they fixed they looked like they were going to continue to rise, but unfortunately had peaked.

I too had a Raboplus account that was earning 8% I'm sure.

And I agree, high interest on a small mortgage isn't the same as low interest on a massive one. I get tired of that being wheeled out.

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#2701213 3-May-2021 14:18

https://www.nzherald.co.nz/business/home-truths-what-needs-to-happen-now-to-cool-housing-prices-and-affordability/SIQRCAXT4W66Q35LFWFZ3NM3A4/

This was an interesting article (paywalled) but in particular this part caught my eye:

To get a sense of how affordable we think house prices should be, we need to look back at the long-term trend, says Infometrics economist Brad Olsen.

House prices were between two or three times the average household income from the 1970s through to the late 1990s.

"We still had a multiple of below four until 2001," Olsen says.

But from there it soared, and by mid-2008 it had peaked at 5.7 times income.

The Global Financial Crisis brought a brief pause but as low interest rates and high migration kicked in, it has soared from there to a multiple of about seven times household income.

To get them back to a multiple of three - the international benchmark for affordability - you'd need a 55 per cent reduction in house prices, Olsen says.

You'd need a 25 per cent fall in house prices just to get them back to a more affordable multiple like five.

We can look at it the other way (the way politicians prefer to) and assume prices stabilise and just stop rising for an extended period.

If you want to get back to a median multiple of five you'd need a 34 per cent increase in the median household income, Olsen says.

To get back to the multiple of three you'd need household incomes to go up by 120 per cent.

So if we stick to a more achievable goal of prices at five times household income we still need either a 25 per cent fall or a 34 per cent rise in incomes, or a mix of the two, spread over some time.

Kiwibank senior economist Jeremy Couchman says we have a shot - but that much more action is required on the supply side.

He sees the lack of supply being the dominant driver of the seemingly unstoppable growth in house prices.

We are actually now within striking distance of balancing supply and demand in the housing market, he says.

There was actually a surplus of 13,000 new homes built last year, he says.

Unfortunately, that still "only nibbles around the edges" of a housing deficit that has built up over many years.

Couchman estimates that we are still in the order of 67,000 houses short.

So on our current track he estimates that it will take at least three years to balance the market.

Some questions about what that Brad dude says:

- Prices apparently went up 20% since the level 4 lockdown last year...but oddly I don't recall houses being much cheaper back then

- is a mix of increasing incomes and dropping prices realistically going to happen though?

As to the latter comments; if we had 13,000 surplus houses last year, again I haven't noticed it in prices changing.

If we're only 67,000 houses short, where did that figure come from? I thought it was 100,000 - and ideally 500,000 (nationwide) would be the optimal number to aim for?

However if it's all going to balance in three years, does this mean prices will slowly rise, stabilise, or drop?

tdgeek

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#2701219 3-May-2021 14:35

I feel that the multiplier is a vague figure. The better test is average wages vs mortgage payment on an average house in the different periods. If interest rates dropped severely (which they have) a person can pay more for the same house if that house rose a lot in price, and be no worse off (same repayments). Most people don't write a cheque to buy a house, what they can afford is based on the repayments, not the house price.

What if we built more houses but few wanted to sell? I feel that's where we are now, few want to sell. The houses are there, the buyers are there, but the sellers aren't. Maybe with prices on the up, some are scared to sell in case the lag to find another house causes them to have to pay more. Maybe while prices are on the up, they will hold on to maximise their equity? Maybe with Covid providing an uncertain employment or business future, best to hold on?

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#2701234 3-May-2021 14:51

tdgeek:

I feel that the multiplier is a vague figure. The better test is average wages vs mortgage payment on an average house in the different periods. If interest rates dropped severely (which they have) a person can pay more for the same house if that house rose a lot in price, and be no worse off (same repayments). Most people don't write a cheque to buy a house, what they can afford is based on the repayments, not the house price.

What if we built more houses but few wanted to sell? I feel that's where we are now, few want to sell. The houses are there, the buyers are there, but the sellers aren't. Maybe with prices on the up, some are scared to sell in case the lag to find another house causes them to have to pay more. Maybe while prices are on the up, they will hold on to maximise their equity? Maybe with Covid providing an uncertain employment or business future, best to hold on?

If there are people holding off selling, then won't there be a potential glut of houses coming onto the market in the future,? Maybe in a few years when the borders are more open? If so it could be a true buyers market. There thing is market conditions do change, and as interest rates look like they maybe on the rise, that is going to affect some people who borrowed and paid too much. There is all this hype about getting onto the 'property ladder', and some people seem to be doing it at all costs, but haven't looked at history. We have a generation of borrowers who have never had sustained interest rate rises. The last time we had sustained interest rises was 2004-2008, so a long time ago. At least FOMO is turning a bit to FOOP, fear of over paying for a house.

In todays market, if someone wants a good house, it will likely result in a multi offer situation. So if an existing home owner wants to move, they will either need the cash or finance to buy, or had sold their existing home to buy. Making it conditional on selling a house may not fly , as other offers may not have that as a condition. Many offers these days are made without any major conditions due to the market.. So that could be causing some people not to sell. IMO these rise prices don't really benefit many people apart from banks, investors or people downsizing or cashing out of the market. But they are terrible terrible for the economy as less people are able to buy a house, without getting into huge amounts of debt, and i has knock on effects.

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#2701235 3-May-2021 15:02

mudguard:

GV27:

10% of a smaller number can be much less than 3.5% of an absolutely stonkingly massive number. This is what people who go on about a very brief period of 22% rates (and with huge wage inflation at the same time) don't get. Yes, one number is bigger than the other, but it's not that simple. Deep down, I suspect many people know this but choose to ignore it.

When I finished at Westpac I had some customers coming off 10% fixed mortgages, when they fixed they looked like they were going to continue to rise, but unfortunately had peaked.

I too had a Raboplus account that was earning 8% I'm sure.

And I agree, high interest on a small mortgage isn't the same as low interest on a massive one. I get tired of that being wheeled out.

I am sick of hearing these housing experts in the media saying they envy the low interest rates at the moment, and then say when they purchased their first home the interest rates were over 10%. It makes me cringe, because they don't mention how much cheaper and easier it was to buy back then. My parents got a double digit mortgage, but were able to pay it off quickly within 10 years I think.

In the US they are able to fix at these low rates for 30 years. Bet some of these borrowers in NZ wish they could do that. IMO future interest rate rises could be a big risk for people who have borrowed to their limit.

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#2701255 3-May-2021 15:58

mattwnz:

If there are people holding off selling, then won't there be a potential glut of houses coming onto the market in the future,? Maybe in a few years when the borders are more open? If so it could be a true buyers market. There thing is market conditions do change, and as interest rates look like they maybe on the rise, that is going to affect some people who borrowed and paid too much. There is all this hype about getting onto the 'property ladder', and some people seem to be doing it at all costs, but haven't looked at history. We have a generation of borrowers who have never had sustained interest rate rises. The last time we had sustained interest rises was 2004-2008, so a long time ago. At least FOMO is turning a bit to FOOP, fear of over paying for a house.

In todays market, if someone wants a good house, it will likely result in a multi offer situation. So if an existing home owner wants to move, they will either need the cash or finance to buy, or had sold their existing home to buy. Making it conditional on selling a house may not fly , as other offers may not have that as a condition. Many offers these days are made without any major conditions due to the market.. So that could be causing some people not to sell. IMO these rise prices don't really benefit many people apart from banks, investors or people downsizing or cashing out of the market. But they are terrible terrible for the economy as less people are able to buy a house, without getting into huge amounts of debt, and i has knock on effects.

Maybe there will be a glut. More likely plenty of buyers but also plenty of sellers, so a bit more balanced market. Interest rates rise so that reduces demand. Investors aren't keen so they sell up, less demand. FOOP, thats a help too. There are quite a few signs that will temper the market. Those that bought, that's too bad, if you buy anything in a rising market and reducing interest rates you know rates can and should rise, go back to normal.

Price rises, aka quite rises benefit the economy. Buy a boat, a trip, a reno, new car, etc. Thats why Governments don't want that lost. The main people affected are FHB's. Every owner is hedged. Those that can't save and will rent for life will continue to do so. FHB's have something no one else had, Kiwisaver. A mate on a low income saved 46k in KS, bought a tidy unit, happy. KS was his only lifeline as I imagine it is for others. If you are on an average income an 80k deposit is very doable, double that for a couple. Plus if they are saving for a house, add to that. Its very doable. Thats also demand that never existed before, which while no help for housing demand, its also a help for them.

Id like to see the average mortgage repayments per average income for 1980, 1990, 2000 and compare that to today. yes, interest rates are a prime cause for higher prices, but the repayments are the same. Say when rates were 8%, thats not high. Now less than 3%. The vast portion of repayments on a new mortgage is interest, thats probably dropped 60%, its no surprise people will pay more.

But with the points I and you mentioned, there is plenty of room to go the other way now. Prices may ease 20%, interest will rise somewhat, the house may be 20% less but the repayments probably are not a lot different.

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#2701319 3-May-2021 16:58

@tdgeek - if you have Herald Premium access, the article I posted on the last page explains how prices used to look:

https://www.nzherald.co.nz/nz/house-prices-soar-over-40-years-in-new-zealand-home-truths-timeline/QTGWH52CJYQNZDCV3EBH3GDKIY/

tdgeek

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#2701429 3-May-2021 20:29

quickymart:

@tdgeek - if you have Herald Premium access, the article I posted on the last page explains how prices used to look:

https://www.nzherald.co.nz/nz/house-prices-soar-over-40-years-in-new-zealand-home-truths-timeline/QTGWH52CJYQNZDCV3EBH3GDKIY/

Hi, I don't have Herald access

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#2701456 3-May-2021 21:50

Can someone please explain this for me?

https://homes.co.nz/address/auckland/beach-haven/2-288-rangatira-road/MgMK

What could possibly cause the price for this property to drop so much, so recently? Does demolishing the house and leaving vacant land cause this kind of drop?

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