A slow gradual climb
Wednesday, March 25th 2009, 8:50PM 
9 Comments
A report in the NZ Herald earlier this week quoted Westpac economist Doug Steel suggesting house prices had reached fair value. The piece is memorable as many of the economists out there, and some wannabe economists, have been incredibly bearish on the housing market and expect prices to continue their downward slide.
Here are four reasons why I don’t buy into the pessimistic view.
- Mortgage rates are low and the shorter-term ones are destined to go lower. The Reserve Bank will cut its OCR again (by how much is another question). It will cut as the economy is in a recession and there are no signs of it emerging and the dollar is heading in the wrong direction, undoing previous cuts. Added to that, banks haven’t passed on all of the recent OCR cuts.
- House Sales are stabilising. While it is always risky reading into data and trying to pick early trends, it seems that on a seasonally-adjusted basis sales have stabilised. There is clearly a lot more activity in the market and that is likely to help stabilise prices, not push them lower.
- Supply and demand. House construction statistics show there is nowhere near enough construction going on to increase the housing stock, especially when population growth through immigration is thrown in. This can only be a plus for property investors.
- Falling cost of living. There is a view that people are stretched to meet their home loan repayments. Sure some are, but others and particularly those who have job security, should be okay. Interest rates are coming down, so to is the cost of other living expenses including petrol (compared to last year). On the other side of the balance sheet there are tax cuts. I suspect for the majority of people the squeeze, while there, isn’t as bad as some suggest.
While these are four factors which tend to support the market, there are also plenty of risks out there too. It is important to put these factors into perspective, which on balance seem to me to indicate that we are somewhere near the bottom, but there won’t be a massive uptick either. Rather we are talking about a slow, gradual climb out of the market trough.
| « Getting a handle on mortgagee sales | A new worry for the market » |
Special Offers
Comments from our readers
On 27 March 2009 at 12:35 pm cam price said:
yea i reckonwhen the market recovers it will go off in a boom,we have never seen this much money been printed before,inflation is going to be at its highest ever.Long term interest rates are already climbing,im picking 12-15% in 3 to 4 years time.Better get in and fix quick.Rental returns are getting up there especially in southland 7-10 % .Take advantage of the last of the positive cashflow we will see for some time.Still believe the market has 6 months to correct.Overseas investors may wain with the climbing dollar but the new laws may help.THe government needs to give a first home owner grant to stimulate the economy for jobs for new houses only On 27 March 2009 at 12:57 pm managemyproperty.co.nz said:
I drive around Wellington city and surrounds every day, and I'm seeing plenty of SOLD signs on all types of property. As a property manager I also know several real investors who are becoming active in buying, and new people are also coming into the market.
The current circumstances are ripe for picking great investment deals. However, the overseas investors have already picked the eyes out of the NZ market, and when you hear stories of bus loads of women investors coming over here from Australia and buying up stock, you know it's time to stop listening to the nay sayers and doom peddlers and get on with what the market is actually doing.
Property prices are much more affordable, many people are desperate to sell (for example the clowns who bought investments on 100% or more finance...!?) and interest rates are very low. If you've pulled your money out of the stock market and want to do something with it, you really should be looking at fronting up some cash or equity deposits and shopping around for some properties, because they are all out there waiting to be bought.
On 27 March 2009 at 2:39 pm James Sheridan said:
Guys, If property does bounce after a decline of 10%, then we are going to have expensive property relative to USA and UK where values are a least 20% down. This does not make sense as NZ had relativly expensive housing to income levels before all this On 27 March 2009 at 9:12 pm Ropati said:
James, spot on. There is no need for unnecessary scaremongering, but saying everything is good and the next boom is already in its making is mad. Sure there will be a housing boom again one day - but that will have to wait for a few years.
I think the rose-tainted positive comments might be in the writers own interest?
On 2 April 2009 at 1:02 pm A said:
Hi All,
Just one question, how long the interest rate will be under 7% ? 6 months or 12 months. What about if it increases to 10% again. Its stupid to say buy home if interest rate is low.
On 3 April 2009 at 12:00 pm Blog: The Landlord says… » Blog Archive » A new worry for the market said:
[...] Blog: The Landlord says... « A slow gradual climb [...] On 7 April 2009 at 1:00 pm Realist said:
James is exactly right, NZ property is VERY over priced compared to overseas... Especially in the main cities.
Sure, sales volumes (not prices) have picked up slightly now that vendors are starting to except slightly more realistic prices and a few middle aged Australian women have bought dirt cheap properties in small town NZ (the only place to get a bragin right now).. Does it really makes sense that property in Auckland is more expensive than similar sized cities in the US or UK?!?!? I work in the finance industry and speak with brokers, property investors and estate agents on a regular basis all of whom have been trying to tell me that "NOW is the time to buy" for the past 18 months!! But I don't beleive it is...
On 15 April 2009 at 8:34 am Sam D said:
I have been told the same for the past few months now by real estate agents. "Now is the time to buy, its picking up". However talking to everyday people at work etc people are very concerned about the economy and job security and i know some people who have been contracting (IT) for years and are now scrambling to take low paid secure work.
Al this leads me to believe that house prices are going to drop pretty significantly soon - families are struggling to make ends meet and ive seen more mortgagee sales in the past month than in the previous 3 years.
A house is worth what you're prepared to pay for it - unfortunately ive seen a lot where the sellers think theyre in the same market as a year ago and are charging $100k+ over the RV/CV. Notably these houses are still on the market several months later.
I think property brokers and real estate agents have caused a lot of the current overpricing and are in for a shock soon. I expect to see similar to whats happening in the UK right now with estate agents and realtors going bust and a thinning out of the market happening. I think its a good thing personally, theres too much fat around at the minute and the ones left will be the good ones that are realistic and work for their clients etc.
Saying that I think the property market in NZ will rebound sooner here than in the uk/us - because of demand/supply - but expect that to be years in the offing with a few blips every few months.
On 14 October 2009 at 5:00 pm Estate Agents Christchurch said:
I must agree that the real estate industry is back on its feet. What would happen in 6mos, who knows. As of right now it's much better. Commenting is closed
|
|
Printable version |
|
Email to a friend |
