House prices pop.

12 comments on “House prices pop. ”

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1. RedLogix 1

   25 March 2009 at 6:32 pm

   Did anyone else spot the remarkable business news article last week (sorry I didn’t bookmark it), that reported KiwiBank wrote 66% of the New Zealand mortgage business in the March quarter. For a company with only 8% of the total mortgages, this is a stunning indicator of how deeply the Aussie banks have retrenched, and more importantly, how deeply our property market would have already collapsed without our own indigneous bank. (Maybe some credit could be due Mr Anderton?)

   Of course the CEO of KiwiBank has stated that they cannot continue to fund the market at this rate, although the bank’s owner (NZPost) does have a $200m bond issue active, but KB will not get all of this. Unless the Aussies get back into the market soon, we may well see the wobbles return with a vengence.
   • George Darroch 1.1

     25 March 2009 at 10:14 pm

     It was Bernard Hickey. It’s a good article.

     Thanks Uncle Jim.
   • Phil 1.2

     26 March 2009 at 4:21 am

     I find it very unlikely that kiwibank, in real ‘outflow’ terms, would have lent 66% of total mortgage lending.

     Not gettting too technical about it, Bernard is taking lending stock data for one point in time, and subtracting off the lending stock for the previous point in time (ie; one quarter versus the next). Implicitly within figure this you’ve got three things happening; new lending going ‘out the door’; regular repayments on existing loans; and ‘churn’ as customers pay off one loan by refinancing with a different bank.

     Remember also that the big four Australian banks have a more mature lending portfolio – which will see proportionately bigger repayments of principle.

     What this means is that if the big banks slow their new lending just a little bit, you get substantially larger swings in the change to the outstanding stock total value) of loans.
2. RedLogix 2

   25 March 2009 at 9:44 pm

   On reading the Economist article I was struck also by this:

   A decade ago Andrew Oswald of the University of Warwick in Britain argued that excessive home-ownership kills jobs. He observed that, in Europe, nations with high rates of home-ownership, such as Spain, had much higher unemployment rates than those where more people rented, such as Switzerland. He found this effect was stronger than tax rates or employment law.

   If there are few homes to rent, he argued, jobless youngsters living with their parents find it harder to move out and get work. Immobile workers become stuck in jobs for which they are ill-suited, which is inefficient: it raises prices, reduces incomes and makes some jobs uneconomic. Areas with high home-ownership often have a strong “not-in-my-backyard’ ethos, with residents objecting to new development. Homeowners commute farther than renters, which causes congestion and makes getting to work more time-consuming and costly for everyone. Mr Oswald urged governments to stop subsidising home-ownership. Few listened.

   America subsidises more than most. Owner-occupiers typically pay no tax on capital gains and can deduct mortgage interest from their income-tax bills.

   Lines up exactly with my own observations, that our average tenant stays about 12 months, and then MOVES on for any number of very good reasons such as new job, new relationship or in several cases, purchased a home of their own. Most of our tenants are people for whom home ownership would be completely innappropriate given their stage of life and circumstances. They just are not ready for it.

   Lines up too with my own experience at an earlier stage in life when I was contracting a lot. A that time owning a house, with the attendent monthly mortgage repayments would have been far too high a risk, given the extremely lumpy income I was earning. It meant too that I got valuable experience working in all manner of locations, here and overseas, that would been just not possible stuck here in my home town.

   Although I’ve always had reservations about being a landlord, being that historically in some parts of the world, land/property ownership became highly concentrated in the hands of an abusive, exploitative oligarchy… the fact is that here in NZ, the average landlord is your classic Mum/Dad who have one or two other homes they’ve worked hard for. Only a very small minority go on to own more than about 10. (I’m somewhere in between.)

   Overall there is a case for a sane, balanced provision of rental housing. It would be nice if some lefties (and others) could loose the rather aged chip off their shoulder about it.
   • George Darroch 2.1

     25 March 2009 at 10:11 pm

     Absolutely. But when house prices start to go upwards of 10x the average income, that option is out of reach of the ordinary person. Renting no longer becomes a choice. When you’re not 22 but 32, and a house is still well out of reach…

     Of course, people don’t save in the way they used to, and have higher expectations of what a house is. But house prices are still far above incomes, even so.

     There’s a reasonable balance, and private rental should be part of that. But so should ownership and state-housing.
     • pk 2.1.1

       25 March 2009 at 10:59 pm

       George – house prices are completely out of kilter and are probably still in a bubble – for the point of accuracy though they are 6 times the household income and the affordable point is 3-4 times household income – crudely speaking. I personally believe that investors tend not to set the prices as they always want the cheapest price as it’s an investment though they obviously contribute to price increases as they increase demand.

       I would be more suspicious of the lending practises of banks – easy money leads to house price increases both for private owners and investors.

       My advice would be wait a while as it should revert to the mean but that might take a couple of years.
       • George Darroch 2.1.1.1

         26 March 2009 at 11:26 am

         Median wage and salary income according to stats is $35k. Median house price is ~$330k.
   • Phil 2.2

     26 March 2009 at 4:31 am

     That’s an interesting perspective, I’ve never really considered it before.

     But, NZ has very high rates of home ownership, relative to the rest of the world, and we don’t suffer the same level of unemployment. By oblique comparison, India (where I am currently) has very low home ownership rates, and conversely very high unemployment.

     My suspicion is that this is yet another case of correlation being mistaken for causality
3. pk 3

   25 March 2009 at 10:26 pm

   I’m a self confessed right of centre voter but the proliferation of cartels in NZ is scary – cartels are one of the biggest problems capitalism need to solve – for instance kiwibank is helping improve the consequences of the Ozzie bank ownership of our banking system.

   Normally I wouldn’t even cross the road to insult Anderton but on this he was dead right. Goes to show – don’t shoot the messenger because of their political affiliation (goes both ways by the way folks) as sometimes they are right.

   redlogix on renting – I worked out early on it was much cheaper to rent a nice place than buy it and decided to hedge my rent by buying rentals – stopped that after a while because despite the vast majority of tenants being really nice (and based on the landlords I met – many of whom were mon and pop types ditto) it only took one bad tenant to cost thousands of dollars and the rules pretty much meant I had not a hope of getting my money back – so gave that up. The rules are skewed in favour of the tenant and that’s not necessarily a bad thing as most tenants are on lower incomes and there’s a big correlation between low incomes and poor understanding of rights but….. The system is also set up for the smart B****D to rip it off and there are no checks and balances to sort that out – I no longer own rentals – too hard.
   • RedLogix 3.1

     25 March 2009 at 11:06 pm

     The system is also set up for the smart B****D to rip it off and there are no checks and balances to sort that out – I no longer own rentals – too hard.

     I know, but we do our best by staying in pretty close contact, mowing the lawns ourselves, regular maintenance and so on. There are louses on both sides of the fence, but there are far more bad tenants than bad landlords, and yes it’s dammed hard to do much when they rip you off.

     Like shoplifting, or bad debtors, a tenancy gone wrong is just a cost of doing business. The important thing is not to take it personally; they were going to screw over someone, it was just your turn.
4. PK 4

   25 March 2009 at 11:23 pm

   Redlogix – I never did take it personally – I just worked out life was too short to add an extra 3-4 hours of work a week when I had better alternative savings approaches with equivalent or better returns and less risk. Especially as during this time I was probably doing 60+ hours a week.

   I agree with you on the “there are bad landlords and bad tenants comment” but such a balanced view is not in the public domain. Landlords seem to be evil scum who sell your children into slavery – not right as many are pretty ignorant 55 year old couples.
5. gingercrush 5

   26 March 2009 at 9:14 pm

   Hmm we just got the valuation of our two rentals and our own home. All 3 Units in Merivale. Two have dropped in value since the last valuation in 2006 which was when we brought our second rental. Though that second rental is up $10, 000. With a fall of $5, 000 for each of the others.

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