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Battle of boffins and buyers

Friday, August 22nd 2008, 4:37PM 12 Comments

by Philip Macalister

In previous Blogs I have commented on the Mexican stand-off between vendors and purchasers when it comes to house sales.

It’s clear both groups have had quite different ideas of what a property is worth and for a while never the twain shall meet. I’m wondering now whether there is a similar sort of stand-off between the so-called experts and the people on the ground.

The experts tend to be people like university boffins and economists who are really good at doing what I call the quantitative analysis; look at data and then make predictions and conclusions. No doubt there is a wide variance amongst these people on how much hands-on contact they have with people in the marketplace.


As a general comment these experts are the ones who get quoted in the press making, what looks like bearish predictions, that the housing market will fall by massive amounts. Naturally they get the headlines and their thoughts become common wisdom.

On the other side are the people who get down and dirty in the property market each day. These are the investors, the real estate agents, property finders and the like. It seems to me, anecdotally, that this group has a contrary view to the experts.

Sure some of the comments, particularly from real estate interests, are overly optimistic.
I’m starting to come to the view somewhere in the middle of this and sense that maybe the housing market has taken the most of its beating and will now stay “flattish” for a while.

What’s making me a little more positive than the experts? A couple of pieces of information released, such as the ASB Housing Confidence survey and the REINZ numbers help. But also some work which we have done with Landlords.co.nz asking property investors what they think has been useful in forming this opinion. Details of this work will be released next week, but it is showing that there is starting to be more interest, if not activity, from people wanting to buy rental properties.

While one commentator has been brave and suggested that the market has turned, I wouldn’t go quite that far. Rather the house price fall has moderated.

Time will tell whether the experts or those on the ground have got it right.
« You make up your mind what is happeningWhat drives the property market? »

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Comments from our readers

On 22 August 2008 at 5:37 pm chrisd said:
I think that the market still has a way to go down, as there are plenty of unrealistic vendors still around who had purchased in the hype of the market. 10-15% drop still seems very realistic at this stage or the rental property market will remains as good as dead until rental returns move dramatically upwards, unfortunately there also appears to be an oversupply of rentals due to mum and dad investors trying to get some return on properties they cant afford.
On 22 August 2008 at 8:55 pm Amanda said:
I'm buying and selling at the moment, and in an interesting position. People are kidding themselves if they believe that not buying a property is a bad thing.

Is no-one else looking at returns from the share market, the derivatives markets, KiwiSaver and other superannuation plans? Kiwis are being shortchanged on the quality of information out there. The value of a property market has always been the same - the true value of any commodity is where a buyer and seller agree on a price of what each believe the commodity is worth.

I have a "boffin" that made on offer on one of our places, conditionally, and we accepted the price (Chrisd, yes, at the we wanted - with only 1.5% growth in price over 1.5 years). Then...one hour before the offer went unconditional, he cites, "not able to get finance" (yet to show any evidence of this). Our lawyer is following up.

When the agent asked him about it, the "boffin" states, "I don't want to buy any house at the moment..." Although 1 day earlier, he was really happy about the building report etc. Funnily enough, the paper on the day of going unconditional talks about, "prices will go down...as will interest rates".

The media is fuelling this. Definitely.
On 22 August 2008 at 10:11 pm Ben Champan said:
Nope. Nothing worth buying. Real Estate agents are trying to convince us it's the right time to buy. But they're just scared of losing their jobs. If you ask em, only amateurs would buy in this market.
On 22 August 2008 at 11:27 pm Jacki said:
I totally disagree with The Landlord. I've been looking for property, but in my opinion there needs to be a significant crash before the numbers make anything worth buying. Just because prices have dropped a few percentage points, doesn't make it a good market to buy in.
On 23 August 2008 at 3:01 pm RGH said:
One of the strange things that seems to occur in the various commentaries on the NZ housing market is the "wishful thinking" syndrome. This thinking suggests that good times for real-estate sellers, and good times for investors (mutually unlikely anyway), should somehow go on for years and years, while downturns should only be brief fleeting affairs, before a full return to the good times.

This is very unrealistic, as on the other side of the equation are the rather more dominant factors of average wage levels, supply of houses for sale, supply of houses for rent, and of course all the complex factors affecting the NZ economy in general, and therefore the actions of the Reserve Bank. I also think some Bank chiefs comment far too frequently, without any more real certainty about the future than any one else.

A good rule of thumb is to be cynical about any commentaries from organisations dependent on real-estate for their livelihood (including some Banks), and do as much reading and research of your own as you can. There's plenty of wise counsel and good information out there, you've just got to look for and recognise it. The one real wild card in the pack is the politicians. They can change the rules any old time, even if they said they wouldn't.
On 23 August 2008 at 5:25 pm Darryl said:
I don't even need to go out there! I can do the numbers from the deals on TradeMe and there is nothing that I'm going to buy. I've invested my spare cash in an online savings account paying 8%. That's heaps better than anything I could buy on the property market.
On 24 August 2008 at 1:04 pm Hamish said:
Yeah cash is king right now, everything points to the market getting a lot worse, right now unless we undergo some major changes as an economy and as a world.

We have an aging population unless we turn this around by importing some people we will be in a situation about 10 - 20 years from now where the pension disappears and people have to sell their houses to survive. Till then we also have a down turn in the economy which will surely lead to less income. Less income will mean less income tax which was one of the drivers of the buying spree. Avoiding tax.
On 25 August 2008 at 11:34 pm tessa said:
The house price fall hasn’t bitten yet. We’re just at the beginning. The only people that should be buying at the moment are home owners and traders. The former because now is always the right time to buy for your own home and the latter because they need the cashflow. Buy and hold investors would be nuts to buy now. I’m certainly not. I’ll start looking around after the summer, but don’t feel that I HAVE to buy anything for a year or two. That’s when the real bargains will be. Sorry estate agents. But that’s what I think
On 26 August 2008 at 4:14 am Simone Johnston said:
I get down and dirty in the property market and I don’t have an axe to grind. It sounds like you do. Sour grapes? It sounds like you’re pushing Richmastery’s barrow.
On 26 August 2008 at 4:21 am Lee Hopkins said:
I'm an Aussie investor and there's no way I'd invest in property over here. Even though Adelaide has seen continuing purchase price rises, the numbers only stack up if you are looking to either flip or to hold for the long term. Even then I'm not sure of the future continual growth. I'm sticking with resource stocks at the moment, not property. And I'm keeping my eye out for retail stocks where the company is about to invest in major online plays -- the UK market data suggests this is a massive growth area.
On 26 August 2008 at 9:28 am admin said:
Simone, not sure where you are coming from here. Firstly I have no idea what Richmastery's barrow is, therefore would be incapable of finding it let alone pushing it.
My comments are an interpretation of what I am seeing and hearing in the market.
I think of it a little like managed funds and the sharemarket. There you have two investment approaches. One is to buy the market (ie: index funds or passive management) and take what "the market" delivers. The other is to take a more active approach and pick stocks that you identify as winners.
With residential property I put investors into the active category, as they are out there looking for deals no matter what the market is doing.
On the other hand some of the boffins - or analysts - look at the market as one big mass and talk of it all moving one way or another.
In this current, rather changed environment this leads to two quite separate camps which seem along way apart. My take on this is that reality, as it often is, is somewhere in the middle.
The Landlord.
On 27 August 2008 at 1:13 pm Jeremy said:
Bit tricky to pick exactly when the market will pick up again. But there are many positive economic forces coming up soon which may well boost prices: upcomming tax rebate/s, people who have been in Kiwisaver for one year can take a holiday, petrol prices easing, dropping interest rates etc. Also spring will be here soon and hopefully some better weather (more will go house hunting when its not rainy or dark). I think the outlook is positive. Main thing supressing the market is NZ pessimism - and parts of the media.
Commenting is closed

 

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ANZ Special - 3.65 3.59 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.54 3.99
BNZ - Mortgage One 5.90 - - -
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BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
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Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
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HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 3.99
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 3.59 3.99
Median 5.35 4.15 4.09 4.19

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