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  • 'Definite end' to housing boom

    'Definite end' to housing boom

    The housing market boom will come to a "definite end" next year and the Kiwi dollar may rise back to US81c because of higher interest rates, economists predict.

    Independent economics group Infometrics' latest forecast picks the Reserve Bank to raise official interest rates twice, to 8.75 per cent, within the next six months to hold inflation under 3 per cent.

    That would push fixed mortgage rates above 9 per cent and hit the housing market, which has already suffered a big slump in sales volumes and flat median prices in the past few months.

    Most two-year fixed rates are just above 9 per cent already, and longer-term rates recently rose to just under 9 per cent.

    Further rises would "constrain" the housing market, Infometrics says.

    Falling house prices would limit growth in household spending from next year, with real private consumption spending expected to grow just 2.3 per cent in the two years to the start of 2010, almost half the rate this year.

    In the next six months a strong labour market will keep consumer spending up.

    But after that falling house prices and weak net migration will start to drag spending down, the forecast says.

    And a new 24-year high in the Kiwi dollar is "eminently achievable" in the next year with higher interest rates and better prices for exports.

    It could move to US81c "or beyond", the forecast says.

    The Reserve Bank is likely to lift official rates twice from 8.25 per cent because it is "nervous" about the effect of the dairy price boom on domestic spending in the year to March 2009.

    The payout of $6.40 a kilogram of milksolids for dairy farmers is boosting confidence in rural areas.

    The effect will not be felt in the wider economy till the second half of next year, as dairy farmer bank balances soar, the forecast says.

    Even with monetary conditions - the mix of interest rates and the currency - their tightest in 20 years, Infometrics expects economic growth to average 3 per cent a year over the next three years.

    Though house sales and retail sales have been soft, "there is no feeling of impending doom hanging over the economy", it says.

    But the building sector faces strong evidence of a housing market downturn since May.

    Monthly house sales volumes are at their lowest since 2001.

    The pricing power of building products firms, builders and other tradespeople will diminish, removing a big contributor to domestic inflation in the past few years, the forecast says.

    With the housing market cooling down, the newest inflation threat is from food prices.

    Milk prices are up 10 per cent, butter 23 per cent, and other dairy products are rising.

    The next increases are expected in bread, up 20 per cent, eggs, up 5 per cent, and pork and bacon.

    Poor harvests are one reason for higher grain costs.

    http://www.stuff.co.nz/4246942a13.html
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    Which all goes to show, that if you predict something often enough in an historically cyclic market you may, eventually, be correct.

    30/12/2003

    http://www.propertytalk.com/forum/showthread.php?t=396

    In other words, house prices will more or less stagnate and massive capital gains, which have characterised this year's boom, will dry up.

    Infometrics principal Gareth Morgan said in a recent article that he believes there is a realistic prospect of prices falling in nominal terms.

    He points to a period in the late 1970s when house prices fell 36 per cent in real terms, although the fall was disguised by inflation to the tune of 16 per cent a year.
    30/11/04

    http://www.propertytalk.com/forum/showthread.php?t=2164

    The analysis, conducted by forecasting firm Infometrics, found that an easing of population growth in Auckland would continue to put pressure on market activity which would be subdued until the second half of next year.

    Then the good news.

    More stable population growth and falling interest rates would force a recovery by late next year.

    In three years' time, Auckland house prices will be up 13 per cent, the study predicted.

    "The outlook for house prices in Auckland is not as optimistic as it was six months ago. However, house price growth is still expected to remain positive over the forecast period, reaching a low of 2.2 per cent over the year to June 2005. This will be followed by a bounce in prices over 2005/06 as mortgage rates retreat from their peak levels and there is a moderate lift in buyer demand.

    "Above-average population growth in Auckland means that property values in the region will rise faster than the national average," said the report, predicting a 13 per cent rise in Auckland house prices in the three years to June 2007.
    24/10/2005

    http://www.propertytalk.com/forum/showthread.php?t=4877

    Infometrics senior economist Gareth Kiernan said investors would be lucky to keep getting capital gains from their properties, although those in the luxury market tended to be cushioned from price fluctuations.

    Many in the residential market who had made profits were getting out now.

    "If they have been in the market five years they are doing well," he said. "It's the ones who got in six months ago who are not necessarily going to get capital gains."
    15/11/2006
    http://www.propertytalk.com/forum/showthread.php?t=8583

    The property price boom is over, with an economic forecast that some areas such as Taranaki, Waikato and provincial Canterbury will see house prices fall in the next three years.


    In 2004 - at the peak of the five-year boom - national average house prices rose about 18 per cent.

    This year, house price gains slowed to less than 10 per cent, the slowest rate for three years.

    A report from mortgage insurance group PMI and economists Infometrics out yesterday forecast a 0.9 per cent increase in national house prices in the year to June 2007, gaining a total of 7.2 per cent by 2009, but some areas would see prices dip.
    DFTBA

    Comment


    • #3
      Lately on this site there has been a big focus on predictions and who said what 2 or 10 years ago, who was more correct etc etc.

      While it can be interesting to make our educated guesses on what may or may not happen in the future, this is not a clairvoyant crystal ball forum.

      I would find more use in discussion about peoples current experiences and their investment strategies in the current market conditions.

      What does everyone else think?

      Comment


      • #4
        I would find more use in discussion about peoples current experiences and their investment strategies in the current market conditions.
        too busy making $, don't have time to elaborate, sorry mate
        PS: buy me a lunch next time you'll be down here in chch
        Don't argue with idiots, they'll drag you down to their level and beat you with experience.

        Comment


        • #5
          I dont plan on ever being in Chch hopefully!

          Is it hard to find a date in Chch?

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          • #6
            Total agree with you there SwissKiwi about the discussions.

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            • #7
              wysiwyg .
              Don't argue with idiots, they'll drag you down to their level and beat you with experience.

              Comment


              • #8
                And a new 24-year high in the Kiwi dollar is "eminently achievable" in the next year with higher interest rates and better prices for exports.
                I may be fick, innit, but how does this work exactly. I thought it was the exporters moaning about the high NZ Dollar.

                Comment


                • #9
                  Yep

                  Yep if the exchange rate goes up they get less in $NZ for their exports. This is the exchange rate impacting the price of exports. The price of exports (in foreign currencies) can also affect the exchange rate though.

                  If they get more in say $US for their exports this can push up the exchange rate both directly (because they are buying more $NZ using $US - straight supply and demand) but also indirectly - higher prices overseas lead to higher prices in NZ (why sell in NZ for a lower price than you can sell overseas). This is inflation which means higher likelihood of higher interest rates which means more people wanting to put their money into $NZ (traders pre-empt this so even if interest rates haven't gone up yet for example they will anticipate it and the exchange rate impact is immediate).

                  Comment


                  • #10
                    Oh just keep buying and enjoy yourself. Stay away from apartments in Auckland, cashflow mortgages and never pay retail. Other than that, every boom is followed by a slump which is followed by another....

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                    • #11
                      I, I.
                      It makes me laugh how limited many peoples memories are.
                      A simple question "Knowing what you know now, are there any properties that you could of bought in the past and didn't, that you wish you had?"

                      These are the good old days.

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                      • #12
                        Originally posted by pooomba View Post
                        Oh just keep buying and enjoy yourself. Stay away from apartments in Auckland, cashflow mortgages and never pay retail. Other than that, every boom is followed by a slump which is followed by another....
                        ...and how many cycles have you been through Poooomba to give us such pertinent knowledge?

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                        • #13
                          Originally posted by Commercial Dan View Post
                          ...and how many cycles have you been through Poooomba to give us such pertinent knowledge?
                          Don't break the positive vibe, man

                          Comment


                          • #14
                            My thoughts:

                            The brilliant thing about living in the information age is that one need not have actually been through what others have been through in order to learn from their mistakes.

                            I am a new investor - my first investment was purchased last year. As such, I have not yet been through a complete cycle as an investor. Luckily, I have access to much of the information that I believe will help me avoid the mistakes that others have made.

                            Examples of such mistakes include:
                            - thinking that this boom will never end
                            - heading into a slump with a dangerously high LVR
                            - cross-collateralising all of my securities
                            - not having a good exit strategy
                            - a feeling of invincibility

                            Of course, there is no teacher like experience. However, life is to short to actually experience everything first-hand. That is why sites like this (especially like this!!!) are invaluable, so that we may learn from each others' experiences. If it weren't for the help and experience gained from this site, I would currently be living in a small house, leverage locked with one average performing investment.

                            So don't be too quick to knock those who have only been investing for this cycle. There will be many many investors with poorly performing portfolios who have been investing for two or more cycles.

                            Paul. (A "mum and dad" investor.)

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                            • #15
                              I read an article the other day (trying to find it again), it went back to the 50's or 60's and mentioned about every boom and the period afterwards since then to now. During each one there was some financial or political problem such as the financial problems we are seeing today or the high inflation and interest rates in the 80's or the sharemarket crash, or the Dot Com crash, sept 11/01 etc. Actually there was a situation back in the 60's or 70's exactly the same as today (once I find it I will put up a link). When these situations occurred everyone was saying get out of property, property is no longer a good investment and will never perform like that again, or watchout values are going to plummet and you will lose everything. Well shortly after all this it was work as usual and values shot off again. Interesting read if I can find it.

                              CD how many cycles have you invested in property?
                              Last edited by Tucker; 26-10-2007, 09:57 AM.
                              Nigel Turner

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