web analytics

House prices pop.

Written By: - Date published: 5:13 pm, March 25th, 2009 - 12 comments
Categories: International - Tags: , ,

The global housing market goes from bad to worse

The global housing market goes from bad to worse

First they go up, and then they come down. The Economist has an interesting table on the housing bubble.

Those figures from the US just look outright scary. The result of the sub-prime mortgage and its consequent effects.

There is also an interesting article in the Economist on the effect that increasing home ownership in the US is having on the famed labour mobility in “The road not taken

I enjoyed this statement having seen all of this type of speculative bubble popping previously.

Gone is the optimism of yesteryear. Book titles such as ‘Are You Missing the Real-Estate Boom? The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade — And How to Profit From Them’ (2005) are destined for the annals of folly, next to asset-bubble classics such as ‘Dow 36,000’.

I’m sure there are a few classic tomes from New Zealand to add to the mix.

12 comments on “House prices pop. ”

  1. RedLogix 1

    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

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

      Thanks Uncle Jim.

    • Phil 1.2

      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

    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

      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

        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

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

    • Phil 2.2

      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

    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

      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

    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

    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.

Recent Comments

Recent Posts

  • Fast-tracked Northland water project will accelerate economic recovery
    The Government has welcomed the decision to approve a new water storage reservoir in Northland, the first of a number of infrastructure projects earmarked for a speedy consenting process that aims to accelerate New Zealand’s economic recovery from Covid-19.  The Matawii Water Storage Reservoir will provide drinking water for Kaikohe, ...
    BeehiveBy beehive.govt.nz
    1 day ago
  • Tokelau Language Week reminds us to stay united and strong
    Staying strong in the face of challenges and being true to our heritage and languages are key to preserving our cultural identity and wellbeing, is the focus of the 2020 Tokelau Language Week. Minister for Pacific Peoples, Aupito William Sio, says this year’s theme, ‘Apoapo tau foe, i nā tāfea ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • NZ announces a third P-3 deployment in support of UN sanctions
    The Government has deployed a Royal New Zealand Air Force P-3K2 Orion (P-3) maritime patrol aircraft to support the implementation of United Nations Security Council (UNSC) resolutions imposing sanctions against North Korea, announced Minister of Foreign Affairs Winston Peters and Minister of Defence Ron Mark. “New Zealand has long supported ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Pacific trade and development agreement a reality
    Pacific regional trade and development agreement PACER Plus will enter into force in 60 days now that the required eight countries have ratified it. Trade and Export Growth Minister David Parker welcomed the announcement that the Cook Islands is the eighth nation to ratify this landmark agreement. “The agreement represents ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Securing a pipeline of teachers
    The Government is changing its approach to teacher recruitment as COVID-19 travel restrictions continue, by boosting a range of initiatives to get more Kiwis into teaching. “When we came into Government, we were faced with a teacher supply crisis,” Education Minister Chris Hipkins said. “Over the past three years, we ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Border exceptions for a small number of international students with visas
    The Government has established a new category that will allow 250 international PhD and postgraduate students to enter New Zealand and continue their studies, in the latest set of border exceptions. “The health, safety and wellbeing of people in New Zealand remains the Government’s top priority. Tight border restrictions remain ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • First COVID-19 vaccine purchase agreement signed
    The Government has signed an agreement to purchase 1.5 million COVID-19 vaccines – enough for 750,000 people – from Pfizer and BioNTech, subject to the vaccine successfully completing all clinical trials and passing regulatory approvals in New Zealand, say Research, Science and Innovation Minister Megan Woods and Health Minister Chris Hipkins. ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • International statement – End-to-end encryption and public safety
    We, the undersigned, support strong encryption, which plays a crucial role in protecting personal data, privacy, intellectual property, trade secrets and cyber security.  It also serves a vital purpose in repressive states to protect journalists, human rights defenders and other vulnerable people, as stated in the 2017 resolution of the ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Ministry of Defence Biodefence Assessment released
    The Ministry of Defence has today released a Defence Assessment examining Defence’s role across the spectrum of biological hazards and threats facing New Zealand. Biodefence: Preparing for a New Era of Biological Hazards and Threats looks at how the NZDF supports other agencies’ biodefence activities, and considers the context of ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020
    New Approaches to Economic Challenges: Confronting Planetary Emergencies: OECD 9 October 2020 Hon David Parker’s response following Thomas Piketty and Esther Duflo. Good morning, good afternoon, and good evening, wherever in the world you might be. I first acknowledge the excellent thought provoking speeches of Thomas Piketty and Esther ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Kaipara Moana restoration takes next step
    A Memorandum of Understanding has been signed today at Waihāua Marae between the Crown, local iwi and councils to protect, restore and enhance the mauri of Kaipara Moana in Northland. Environment Minister David Parker signed the document on behalf of the Crown along with representatives from Ngā Maunga Whakahī, Ngāti ...
    BeehiveBy beehive.govt.nz
    3 weeks ago