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Good times drawing to a close, survey shows
By JAMES WEIR - The Dominion Post | Tuesday, 11 September 2007
Rising house prices are making the typical Kiwi household richer, with net worth up $8700 in the June quarter to $375,200, but the good times are not expected to last, according to a fund manager's survey.
The latest Household Savings Indicators report from Spicers shows the average net worth rose $40,800 in the past year.
"The housing boom has boosted household net worth by around $188,000 since 2001," Arcus Investment Management chief economist Rozanna Wozniak said.
But higher interest rates, slowing migration and a spate of financecompany failures would dent consumer confidence and see the housing market cool down.
Both Spicers and Arcus are subsidiaries of fund manager Axa New Zealand.
There had already been a $5000 dip in average prices during the winter and, unlike last year, there was not expected to be a rebound in prices this spring, Ms Wozniak said.
"I think prices are going to flatten out - the difficulty is whether that is all we see. At this stage the risks are (down), but most likely it flattens out," she said.
Some areas may see house prices fall after massive gains in areas where there had been little population growth.
The national median house price fell by $5000 in two months to $345,000 in July.
These figures from the Real Estate Institute contrast with Quotable Value figures showing a continued annual rise.
Progressively smaller gains in household net worth were expected in future, Ms Wozniak said.
Since last year, interest rates and debt-servicing costs have risen sharply and house prices are even further out of line with incomes and rents. For example, average house prices are almost eight times the average income, much higher than the 4.5 times in the United States and seven times in Britain.
"Local housing is expensive relative to other parts of the world," Ms Wozniak said.
House prices have risen more than 60 per cent in the past four years and a recent Westpac Bank report suggested the market was about 20 per cent over-valued for investors.
Most households had strong balance sheets and were well placed to "weather any storm that develops", she said.
Unemployment was low and that should cushion the housing market from a "sharp downturn".
However, an increasing number of property investors and home buyers would face "financial stress" if they had jumped into the market with little or no deposit in recent years. Their ability to pay interest was stretched to the limit, leaving little buffer for the unexpected.
"As higher interest rates and higher debt levels continue to bite, there is a risk that more mortgage defaults will emerge in New Zealand," she said, though it would not be as severe as the subprime crisis experienced in the US.
Investment homebuyers in the US who bought at the top of the market were now facing falling prices, negative equity where the bank loan is greater than the value of the home, high mortgage repayments, higher vacancy rates and a glut of properties on the market.
"It is more difficult for New Zealanders to walk away from their home (than in the US), and they are less likely to do that. They will hold on while they still have a job," Ms Wozniak said.
There were few risky high loan-to-value or low documentation loans in New Zealand.
However, many Kiwis did not have a lot of cash to tide them over in bad times, with most of their wealth tied up in housing.
In New Zealand it has been the finance companies rather than the housing market that have suffered so far. Nine finance firms have failed in the past 16 months, involving about $1.1 billion of investors' money.
http://www.stuff.co.nz/4197273a13.html
By JAMES WEIR - The Dominion Post | Tuesday, 11 September 2007
Rising house prices are making the typical Kiwi household richer, with net worth up $8700 in the June quarter to $375,200, but the good times are not expected to last, according to a fund manager's survey.
The latest Household Savings Indicators report from Spicers shows the average net worth rose $40,800 in the past year.
"The housing boom has boosted household net worth by around $188,000 since 2001," Arcus Investment Management chief economist Rozanna Wozniak said.
But higher interest rates, slowing migration and a spate of financecompany failures would dent consumer confidence and see the housing market cool down.
Both Spicers and Arcus are subsidiaries of fund manager Axa New Zealand.
There had already been a $5000 dip in average prices during the winter and, unlike last year, there was not expected to be a rebound in prices this spring, Ms Wozniak said.
"I think prices are going to flatten out - the difficulty is whether that is all we see. At this stage the risks are (down), but most likely it flattens out," she said.
Some areas may see house prices fall after massive gains in areas where there had been little population growth.
The national median house price fell by $5000 in two months to $345,000 in July.
These figures from the Real Estate Institute contrast with Quotable Value figures showing a continued annual rise.
Progressively smaller gains in household net worth were expected in future, Ms Wozniak said.
Since last year, interest rates and debt-servicing costs have risen sharply and house prices are even further out of line with incomes and rents. For example, average house prices are almost eight times the average income, much higher than the 4.5 times in the United States and seven times in Britain.
"Local housing is expensive relative to other parts of the world," Ms Wozniak said.
House prices have risen more than 60 per cent in the past four years and a recent Westpac Bank report suggested the market was about 20 per cent over-valued for investors.
Most households had strong balance sheets and were well placed to "weather any storm that develops", she said.
Unemployment was low and that should cushion the housing market from a "sharp downturn".
However, an increasing number of property investors and home buyers would face "financial stress" if they had jumped into the market with little or no deposit in recent years. Their ability to pay interest was stretched to the limit, leaving little buffer for the unexpected.
"As higher interest rates and higher debt levels continue to bite, there is a risk that more mortgage defaults will emerge in New Zealand," she said, though it would not be as severe as the subprime crisis experienced in the US.
Investment homebuyers in the US who bought at the top of the market were now facing falling prices, negative equity where the bank loan is greater than the value of the home, high mortgage repayments, higher vacancy rates and a glut of properties on the market.
"It is more difficult for New Zealanders to walk away from their home (than in the US), and they are less likely to do that. They will hold on while they still have a job," Ms Wozniak said.
There were few risky high loan-to-value or low documentation loans in New Zealand.
However, many Kiwis did not have a lot of cash to tide them over in bad times, with most of their wealth tied up in housing.
In New Zealand it has been the finance companies rather than the housing market that have suffered so far. Nine finance firms have failed in the past 16 months, involving about $1.1 billion of investors' money.
http://www.stuff.co.nz/4197273a13.html
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