Ron Hoy Fong - Will The Next Boom Be The Boom Of All Booms?

[Bluekiwi]

Just read that there has been a 20% increase in supply to the Auckland residential property market since July. That's going to potentially impact the property prices in Auckland.

They were down 25% on normal for the time of year, so 20% up is still 5% down.

But more listings on the way I think.
Back to 1,300 on the shore now, and was down to 880 at one stage.

[Perry]

But how much of this is nothing more than churn?

[Chris W]

But how much of this is nothing more than churn?

Perry

Can you explain what the term "churn" means?

[Perry]

Can you explain what the term "churn" means?

A slightly asinine example should suffice.

I buy my neighbour's house and she buys mine.

That would show up in the statistics, but really, nothing has changed in the housing market.

Similarly, if I agree to mow your lawns for $20 and you agree to mow mine for $20, GDP has increased by $40, but there was no associated productivity increase.

"Churn" is often using in the banking sector as people move from one bank to another. It seems like a 'new' banking customer, but one bank's gain is offset by the other bank's loss.

[Chris W]

A slightly asinine example should suffice.

I buy my neighbour's house and she buys mine.

That would show up in the statistics, but really, nothing has changed in the housing market.

Similarly, if I agree to mow your lawns for $20 and you agree to mow mine for $20, GDP has increased by $40, but there was no associated productivity increase.

"Churn" is often using in the banking sector as people move from one bank to another. It seems like a 'new' banking customer, but one bank's gain is offset by the other bank's loss.

Trying to understand churn more fully.

I can understand how churn increases property transaction volumes, but not how it increases the total number of property listings for sale.

Trying to make the connection on how churn increases the number of property listings for sale.

So in your above example,
1) when you sell your house to your neighbour, you list your house for sale beforehand (say on trademe)?
2) when your neighbour sells their house to you, your neighbour lists their house for sale beforehand (say on trademe)?

Also what would be the purpose of undertaking a churn transaction by the property buyer and seller?
1) to boost property volume transactions?
2) other?

Would a churn transaction only be undertaken by people who know each other? - so in your example, you and your neighbour.

In a transaction where the buyer and seller do not know each other, the seller would incur significant costs such as real estate agent fees, legal costs, loan financing costs, etc - these could amount to 3-4% of the value of the transaction.

[Learning]

Random stranger number one lists their house for sale and puts offer in on Random stranger number two’s property. Random stranger number two puts offer in on Random stranger number three’s house. Etc, etc up to Random stranger number (whatever you like), he, by share coincidence puts offer in on random stranger number ones house. The chain is complete and X number of houses are listed and sold.

Property stats are up and property market, on paper, looks good.

However actual movement of people into or out of property market has not changed.

Paper numbers up but actual change is zero. Equals “Churn”.

More likely the first and last people in the chain don’t buy each other’s house but instead the chain is ended by a new build or someone quitting the property ladder. Then the chain is “churn” + or - 1.

[Chris W]

These clever people who claim property can't double every 7 years look a bit silly now.
Is it a sign of immaturity or just inexperience in those who make the claim?

FYI,

Why you shouldn't bet against another property boom
8:45 AM, 29 Mar 2019

If you follow my commentary you’ll know that I’m a strong believer in something called "the property cycle". There are differing views on what form the cycle takes, but there’s a general consensus that each one lasts between 10 and 12 years and, in very broad terms, leads to a doubling in house prices over that period.

It’s a belief backed up by some fairly compelling data that tracks Kiwi property trends since the early 1980s and shows that we’ve had four "boom" cycles since that time.
Not everyone agrees. Some economists have suggested we shouldn’t expect another property boom anytime soon.
Their arguments are logical:

- Low interest rates, which have driven big increases in house prices, are unlikely to go much lower
- Historically high rates of immigration are now tracking downwards, putting less pressure on the housing market; and
- The country's housing shortage will be addressed in the next few years, also taking pressure off house prices.
Other arguments against another boom include tighter bank lending rules and Reserve Bank rationing measures and the removal of foreign property investors from the New Zealand market and are no longer influencing house prices.
Throw in the fact that the gap between median household income and median house prices has been steadily widening since the 1980s and you start to get a sense of why some might believe that the days of property booms are over.
But are they? The logical extension of the arguments above is that a unique set of circumstances led to our history of boom cycles and that the changes outlined mean that pattern will now draw to an end. It’s worth taking a closer look to see what was going on during each cycle to see whether that position carries weight.
The first doubling of house prices peaked somewhere around 1986 — capping off a decade of volatile change which was mostly dominated by the "Muldoon reforms" but finished with the even more far reaching ‘Rogernomics’ reforms initiated by the Labour Government.
Inflation was running at around 18 per cent, mortgage interest rates were up over 20 per cent and net immigration showed a negative outflow of around 17,000 people — many of them to Australia.
By around 1996 houses prices had broadly doubled again. The National Government, which had been in power since 1990 had largely continued the previous government's reforms but had also reformed the state housing market, bringing in market rentals and selling off a big portion of the state housing portfolio.
Inflation had plummeted to just 4 per cent and floating mortgage interest rates, while high by today’s standards, were down to around 12 per cent. Migration was still negative with a net 10,000 people leaving the country.
By 2006 — a year punctuating yet another decade of doubling house prices — the Clarke Labour Government had reversed the housing reforms of the previous government, abolishing market rents but retaining the "accommodation supplement", which had been introduced by National to offset the higher cost of renting.
They also presided over inflation of around 4 per cent and floating mortgage interest rates of around 10 per cent. Net migration for 2006 was now running at a gain of over 10,000 additional people.
By 2016 house prices had broadly doubled again. Under the Key National Government, floating mortgage interest rates were down to an historical low of around 5 per cent, inflation was down to an historical low of 1.6 per cent, migration was running at a net gain of over 70,000, and the debate had moved to the cost of housing and a shortage of homes purported to be over 100,000.
My point? That those looking for a common set of factors underlying each boom won’t find them. The economic environments which prevailed during the peak of each of the past four cycles couldn’t be more different — and the only thing which unites them is the cycle itself, and a doubling of house prices roughly every 10 years.
That economic change is coming is a given. That it will bring an end to the pattern of property cycles of recent decades is far from a foregone conclusion.
- Ashley Church is the former CEO of the Property Institute of New Zealand and the Auckland Property Investors Association. He has been a regular media commentator on property matters for over 20 years and now writes on behalf of OneRoof.

Source: https://www.oneroof.co.nz/news/ashle...rty-boom-36140

[Davo36]

Interesting article, thanks.

[Perry]

Some economists have suggested we shouldn’t expect another property boom any time soon. Their arguments are logical.

I have no regrets for not reading any further than that sentence.

When used in nominal conjunction, the words 'logic' and 'e-con-o-mist' are totally incompatible.

Like 'truth' and 'politician.'

[PC]

After the boom of all booms - will this be the bust of all busts?
Maybe houses will even start to make economic sense to buy again?

[Don't believe the Hype]

Nah - Wellington will catch up given the 80k additional ppl heading there while Auckland stagnates or pulls back a little. A period of equilibrium before we’re off again like a rat up a drain pipe.

it doesn’t matter either way to me... the rents are sound, vacancies low and forced improvements in housing stock by the powers that be a great justification for rental growth into the future.

[Perry]

What Sounding Names?

Ronovation of a different sort?

[donna]

^^ Yeah we put it on our facebook page earlier today!

"Some places are already a bargain," Fong said. "That's simply because the vendor's a dummy. He doesn't know what it's worth."

source

Seems even when the vendor does know what it's worth, there's a way to make a huge stash of dough in next to no time. I wonder how it was up div-ed up?

You'd think there must a loophole in there somewhere. He's been around a long time and not likely to be leaving everyone exposed to lawsuits etc.

cheers,

Donna

[Bluecoat]

I have read this thread, i dont see how Ron students get the cashflow in central Auckland , unless you are buying cheap apartments?

if you buy in leafy surburbs , its all about capital gains as he suggests, in this market, your will be stagnant not able to grow your protfolio.

[Bluekiwi]

I have read this thread, i dont see how Ron students get the cashflow in central Auckland , unless you are buying cheap apartments?

if you buy in leafy surburbs , its all about capital gains as he suggests, in this market, your will be stagnant not able to grow your protfolio.

You can make cashflow if you want it, you just have to work for it.
I just bought a property at 725k that they wanted 1,050 for it.
It rents for $820 per week, that's 5.88% and cash flow positive even if interest rates go up another 1%.

You don't ask, you don't get.
Wish I had of known that when I was 16.
Girl action or house action, same principal, who would have thought.

Wont keep as rental, will instead reno and sell for 1050.