It's not the banks with the housing stockpile
Tuesday, November 2nd 2010, 6:58AM 
6 Comments
I first heard the story that banks were stock-piling mortgagee properties earlier this year and sent one of my team out to investigate it.
It sounded pretty interesting as the premise was that banks were holding properties back from the market, therefore giving house prices some artificial floor.
I see the story appeared again in the Sunday Star Times. http://www.stuff.co.nz/business/4291388/Banks-drip-feed-mortgagee-sales-to-prop-security
Well, unfortunately it isn’t 100% correct. In New Zealand banks don’t actually take ownership of properties when a borrower defaults – like they do in the United States.
In New Zealand banks manage a sale process to recover their money and during that time the owner could actually sell the property (with the bank’s approval).
Banks have also told us that when borrowers get into difficulty their first step is to try and manage the process and find a solution with a mortgagee sale being the last option.
So this theory banks are propping up the market sounds good, but actually looks different.
If you want more on what banks do when a borrower defaults have a read of this story http://www.landlords.co.nz/read-article.php?article_id=3657
Instead it is purchasers who are keeping downward pressure on house market – especially in the lower end of the market. The more people at the coal face of real estate I talk to the more this message comes through.
One active property investor actually made the comment recently investors aren’t responsible for driving house prices up – as is commonly thought. Rather it is their duty to drive prices down so they can get better deals. (While at the same time pushing rents up!)
We will soon get into another round of house price reporting and everyone is looking for a spring bounce. I’m not sure we will see one – however feedback it that the middle end of the market is doing well. Good prices, reasonably quick sales, but a lack of stock.
It’s the lower end that is struggling. Two factors which will make a difference are some more certainty around tax rule changes which were first announced in the Budget. The second is bank’s willingness – or should that be unwillingness – to lend.
There are tentative signs funding is getting ever so slightly easier. But it is still hard.
Once a bit more money is made available expect to see a lift in house prices.
Considering we are, apparently, through the worst of the global financial crisis, and that banks are making some of their best ever margins on home loan lending at the moment, there is reason to be hopeful around the question of finance.
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Comments from our readers
On 2 November 2010 at 11:35 am Jerry said:
Keep trying to talk it up haha, your day of reckoning is getting ever closer. On 2 November 2010 at 5:12 pm Rodney said:
Hi. You have confused the process with the behaviour. Yes, the process is different here than in the US, but it doesnt mean banks can't and aren't being slower at putting the heat on people to sell than in the past. The article you referred to didnt say that banks were stocking mortgagee properties, but that they were "stockpiling properties earmarked for mortgagee sale", which they clearly can do by being slower to put the heat on destressed home owners/investors. It is an emperical question whether banks are being slower to put the heat on destressed borrowers and you didnt seem to even try and address this issue. If, as David Whitburn suggests, banks are being slower at putting the heat on then this will be having an, albeit probably modest impact on house prices. Regards, Rodney On 3 November 2010 at 9:20 am Arty said:
It is clear banks do hold a degree of power over prices. Is it fair, likely not, but banks need to manage risk. Kiwis generally manage debt poorly and there are many many examples of what happens to lenders if the risk is not managed prudently.
I think prices are out of kilter with the ability to repay (incomes). If you have adult children as I have looking for a home to start families you will understand the high debt they take on compared to incomes.
Other factors are, many many leaky homes , traders (many foreigners can’t get jobs here, but have access to cheap money especially from Korea and China and end up trading in property) adjustments due to culture or nationality, transport to workplaces to name a few.
All the work put in place to educate my children into higher paid jobs is wasted and those with trades as I had, or warehouse type jobs as my parents had, are even worse off when it comes to trying to set up house at present.
Is it better to import people and fresh money as seems the Governments answer – I think not.
Was the answer to have taken the pain of a significant hit in 08/09 and rebalance over time within our earning capacity?.
On 3 November 2010 at 10:47 am Christopher said:
Good grief - the item was only published in the hope that it would attract readers - it wasn't published because there was factual backing or reasoned research behind the assertion. Banks do not manipulate or stockpile mortgagee sales. They happen as the defaults occur,the other processes have not been successful, and the resources are available to see the sales through.Hi Rodney - there have been days when i would like to be "destressed" and Arty, if we continue to tax our qualified people at high rates then then they will continue to leave and be replaced by others who by and large are not as heavily taxed. However i think your work to educate your children into higher paid jobs is commendable and certainly not wasted. On 4 November 2010 at 12:52 pm Graham said:
"....Well, unfortunately it isn’t 100% correct...."
No surprises there. When was the last time anyone read a newspaper or web article that was 100% correct? You need only read an article on a subject that you are familiar with to observe how inaccurate and mistake laden newspaper articles are. Or maybe newspaper articles only make mistakes when covering the topics I know about and get everything else correct.
Yeah Right!!
On 6 November 2010 at 11:50 pm Jay said:
I seriously get the feeling that this site wants market prices to take off again and doesn't like publishing articles that suggest house prices might fall? I don't agree that the articles were about banks holding off on mortgagee sales to be saying that banks OWNED the properties. We all need to get real. Our house prices are overblown. We have made money on houses by profiteering, and now our kids can't buy homes, certainly not on one income, and certainly not without taking on substantial (read huge) debt. Good investors don't count on capital gain, and all the financial advisors I have spoken to described capital gain as a "bonus", and not a major consideration when investing at all. A lot of people are going to lose a lot of money because they over-leveraged, it's just a matter of when not if. We have no one to blame but ourselves for being so greedy. Commenting is closed
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