S&P issues property warning

[essence]

Financial ratings agency Standard & Poor's says there is a significant risk of a property crash in New Zealand.

S&P, which has come in for criticism over its failures to adequately assess risk on many investments in the run-up to the global financial crisis, said its "base case scenario" was for medium-term real estate prices continuing to stabilise at current levels.

But credit analyst Nico DeLange said: "We are of the opinion that a significant risk remains of a sharp correction in property prices occurring given the uncertain short-to medium term outlook for the global economy."

Such an event would have a flow-on impact on the ratings of New Zealand's banks.

DeLange said: "This could potentially lead to a build-up of economic risks, resulting in the lowering of the economic risk score of New Zealand to '4' from '3'.

Source....

[Toasty]

Standard and Poors. Prediction experts.

http://www.stuff.co.nz/business/money/8367191/Property-market-at-risk-of-sharp-correction

If ever there was a reason to get more properties it would be when the industry that completely failed to anticipate the GFC predicts a house price crash.

[Davo36]

I agree with the buy more houses thing.

Except that you're assuming the ratings agencies failed to anticipate the GFC. Because they issued triple A ratings on everything.

I reckon they knew exactly what they were doing. They knew a lot of the investments, companies and even countries they were rating were utter crap, but they rated them highly anyway because they wanted the fees. This is why they are now being sued.

[speights boy]

.....predicts a house price crash.

?????

In a report on the New Zealand banking outlook S&P says its "base case scenario" sees real estate prices continuing to stabilise at current levels over the medium term, and such an occurrence having a stabilising effect on asset-quality ratios, especially as residential mortgage loans account for approximately 60% of the total banking sector loans.

"We believe that a scenario that may lead to such a weakening of New Zealand's macro-economic factors is a deterioration in the terms of trade or a widening in the current account deficit from its current cyclical low, which could heighten the risk of a sharp depreciation in currency and a sharp fall in property prices.

My bolding.
I guess we read reports differently Toasty.

[Toasty]

Having now re-read the article my assessment is that it is a masterful piece of fluff containing nothing of any value but with a snappy headline. I am not sure why I would expect anything different. "We think the market will continue to stabilise but it could crash."

Can something continue to stabilise? Or does it just stabilise. The ocean was calm but continued to get calmer....

[speights boy]

Ahh....
You were criticising a report from reading an article about it, not from reading the report itself.
I understand now.

[Damap]

Takes too much time to actually read the thing you are going to attack Speights. Vicarious uninformed commenting is far more efficient :-)

[Toasty]

I am extremely fit from jumping to conclusions, pushing agendas etc

[speights boy]

I am extremely fit from jumping to conclusions, pushing agendas etc

Like it; funny and applies to most of us I would think.

[Ivan McIntosh]

Personal opinion, but I just dont think that's going to happen. If we didn't have one in the worst of the gloabl recession, why would we have one now? Seems to me there are too many buyers and not enough property...is that going to change? And another global crash would, presumably, see the OCR reduced even further.

[speights boy]

"We believe that a scenario that may lead to such a weakening of New Zealand's macro-economic factors is a deterioration in the terms of trade or......

Terms of trade sink to 3-year low as dairy falls

New Zealand's terms of trade unexpectedly fell to a three-year low in the fourth quarter as prices of dairy exports extended their slide and fish export prices fell.

The terms of trade have now declined for six straight quarters and are currently 11 per cent below their peak in the second quarter of 2011, the government statistician said.
Terms of trade measures how much imports can be bought with a fixed quantity of exports.

www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10868500

[mattinvestor]

I do not think that crisis is going to happen in NZ. Of course, I am not an economist, but it just does not make any sense for it to happen now, when the world is trying to recover from the crisis.

[McDuck]

I do not think that crisis is going to happen in NZ. Of course, I am not an economist, but it just does not make any sense for it to happen now, when the world is trying to recover from the crisis.

The delicate nature of property price momentum is not widely understood.
Once it goes, it tumbles.

No one likes to admit it, but a large part of the price momentum is generated by speculative property investment. I like to think of property investors as fair weather friends. Unlike real friends, fair-weather friends are only there when they can get something from you. Times get slightly tough and they disappear.
Speculative property investors are the same. Once the possibility of decent returns goes out the door, so do they.

If prices stabilise, then normal human behaviour would be to grump but not panic.

I’m scientifically curious at what point slowly dropping prices would cause a panic reaction. At least with housing everything happens in slow motion. Whereas a stock market crash could be as fast as a day, a house panic would take a week before the data even started to show.

[lawt]

If we didn't have one in the worst of the gloabl recession, why would we have one now?

But didn't we have one? I know I'm a bit sleepy but I picked up a place late 09 for 405k which last sold in 07 for 495k. These sorts of figures seemed to me to be reasonably common place at the time.

[McDuck]

But didn't we have one? I know I'm a bit sleepy but I picked up a place late 09 for 405k which last sold in 07 for 495k. These sorts of figures seemed to me to be reasonably common place at the time.

Not really, our true impact was cushioned due to the Govt backing up the financial institutions with a guarantee….and other measures. Many schools of economics say that eventually you must bear the brunt of the true correction.