Kieran Trass has made a press release calling a property crash of up 25% in some suburbs.
Property Crash Now Inevitable
Whilst it saddens me to be the bearer of bad news... the following press release has been issued today.
Property Crash Now Inevitable
The biggest property boom in New Zealand in 20 years is now set to end in a crash of a magnitude similar to the early 1990's, when property values fell by as much as 25%, according to property market analyst Kieran Trass of the property market research company SuburbWatch.
The soft landing for property formerly expected is now "not even a remote possibility" according to the latest trend analysis SuburbWatch released today. "Many suburbs in the main cities of New Zealand have already evidenced value declines of as much as 10% in the final quarter of 2007. The falls were the result of an exceptionally weak market and the progression of the property cycle into the slump phase of the property cycle based on the combination of economic 'Key Drivers' of the property market. The negative trends became evident in July 2007 but we were hoping the market would show some signs of strength in the usually buoyant spring and summer seasons. That strength failed to materialise and indeed the market has continued to weaken even more rapidly since then. Dark clouds have gathered over the property market and unfortunately now we have the conditions which lead to a 'perfect storm' in our property markets."
This year property values are expected to fall by 10% or more in some suburbs based on the statistical analysis models used by SuburbWatch. These models include the use of measuring each suburbs historic value growth rates throughout the last three property cycles, projected property value growth rates based on measuring moving average trends, the 'Elliot Wave Principle' as well as methods outlined in the book by Trass "Grow Rich With the Property Cycle".
"We are heading into the worst property slump we have experienced in nearly 20 years. This slump will eclipse the soft slump of the late 1990's by far and will be more like the early 1990's slump when property values fell by as much as 25%".
Trass has an impressive history of 'calling the market' fairly accurately and states his calls are "based on research and analysis of the best quality data available". He became frustrated in the 1990s at the lack of quality localised property price data and subsequently created the only property price Index for suburbs in Auckland, Wellington and Christchurch (the SuburbWatch Index) which was based on 15 years of historic property sales data. In January 2002 Trass was "a voice in the wilderness" when he made a press release citing the many reasons we were racing into the "first property market boom of the 21stCentury". Then in 2004, when there was talk of a coming property crash, Trass issued another press release outlining "the so-called coming crash was called for the wrong reasons and the arguments for the crash lacked substantive fact and figures." Property values have risen by over 50% since then adding further weight to the validity of his research methods. He believes property values now may well retreat by up to 25% in some suburbs during this property slump, which is back to the price levels seen in 2006 "but our models do not imply values will fall back to the levels seen in 2004".
In light of current property market trends and analysis of the current state of the markets key drivers he states "We now have an overwhelming amount of hard evidence that the market will suffer for quite some time. There's no light in sight at the end of this tunnel. The only good news that may be underpinning the market to a small degree is that employment levels remain very strong in light of the current labour shortage and we may be in for some minor tax cuts. However even strong employment levels are restricting the ability of our economy to grow as businesses cannot typically expand without employing more people and any tax cuts are expected to be inadequate to arrest the crash. With the current low level of net migration into New Zealand there is no-one to fill new jobs so businesses cannot easily expand".
When asked the inevitable question of whether he has any vested interest in talking the market down by calling a crash for his own benefit he points out "my own property portfolio is not immune to suffering from the negative effects of a property crash, therefore like many other property investors I'm unlikely to have the resources to immediately cash in on the soft conditions. It's a hard call to make but certainly now one that is well justified. I've made it my job as a property market analyst to call the market as it is whether that be good, bad or as the case appears now, ugly, even if at times that has a negative effect on my own wealth creation through property investment". Trass, a property investor himself, has already experienced the soft market conditions first hand when selling properties recently. One property he took to auction late in 2007 was passed in after a top bid of 25% less than the properties registered valuation and a second property was recently sold for 10% less than its registered valuation.
The most disturbing trends identified in Auckland, Wellington and Christchurch include;
More than 50% of all suburbs evidenced value falls in the final quarter of 2007, some by as much as 10%.
All suburbs are expected to evidence value falls in 2008, some by more than 10%.
Property sales volumes remain 40% less than a year ago and up to 70% lower in some suburbs.
Auction clearance rates remain very low.
The number of days it takes to sell a property has risen from 29 days on average in December 2006 to 36 days in December 2007.
Net migration has slowed to a crawl of just 5,000 people per year on the back of the large amount of New Zealanders moving to Australia typically for higher incomes achievable there. That's the highest rate of migration to Australia in 20 years but typically we don't reach the peak of population exodus, to Australia from New Zealand, until we have an economic downturn which is expected to occur later in 2008 or maybe even in 2009.
32% of all fixed mortgage borrowings expire in 2008, representing $41 Billion of mortgages. Currently these borrowers are paying 8.1% interest on average but they will be paying closer to 9.8% when they renew their fixed interest rates. That represents an extra $141 in interest per month on average or $1,700 per year for every $100,000 borrowed.
Property is now less affordable that it has been for nearly 20 years.
Inflation is strong impacting further on affordability and expected to remain strong in the first half of 2008 at least. Inflation does not automatically translate into property value rises.
The number of people per household is now increasing for the first time in 5 years, indicating rents are becoming unaffordable for many renters, so for property investors, any rent rises look set to be potentially limited.
Based on the latest trends - the Buy, Hold or Sell recommendations given by SuburbWatch are now to either Sell or Hold in every single suburb in Auckland, Wellington and Christchurch. (Each specific suburbs data is available to paid subscribers to SuburbWatch).
The wealth effect from housing is over, which will quickly flow on to slowing overall economic growth.
Property Investors Beware
The coming property crash called today by property market analyst Kieran Trass of SuburbWatch will affect all property investors according to Trass.
"The coming property market crash means property investors need to focus on reducing debt as quickly as possible and strengthening their cash flows so they can weather this storm." In his personal experience Trass reflects on the property crash of the early 1990's when he got a second job "pumping gas" so he could afford to ride out the slump. Defaulting on mortgages was not a palatable option for me so generating extra cash flow was critical to my ability to retain my portfolio. His property portfolios value declined by 25% at that time resulting in a negative equity position for several years before rebounding in value by 100% as a result of the property boom of the mid 1990's."
His advice for investors to make sure they can ride out the property slump includes;
· Increasing cash flow.
· Reducing living expenses.
· Avoiding what he calls "the one bank trap" by spreading their lending across several banks
· Making sure they are charging current market rents for their properties as "many investors fall into the trap of under renting their properties".
· Adding value to rental properties "wisely" to increase rental income.
Trass also stated "The good news for investors is that if they take a long term view we will definitely evidence another property boom in time. The property cycle does exist and surely as night follows day the market will eventually recover into another boom. Now is the time in the cycle for consolidation and patience by property investors". Trass wrote the best selling book "Grow Rich with the Property Cycle".
Silver Lining in Property Crash
for First Home Buyers
The coming property crash called today by property market analyst Kieran Trass of SuburbWatch has a twist for first home buyers according to Trass.
"Ironically the dark clouds gathering over the property market will have a particularly silver lining for first home buyers because they will be spoilt for choice when buying property. Keen vendors will be plentiful as over-extended borrowers compete to sell in the softening market."
"Those wanting to get on the property ladder will finally get their opportunity during this slump because property will become much more affordable than it has been for many years."
Trass also stated "The prospect of property values falling after first home buyers buy a property is often of little concern because their primary purpose for buying is usually to achieve long term security and a 'stake' in the property market rather than generating wealth or seeing their property value increase in the short term. First home buyers often just want to get off the 'rent trap' and have a place to call their own home."
However he also issued this warning to tread very carefully. "When considering that first home purchase make sure you have adequate cash flow to comfortably service the mortgage repayments and ownership costs of owning the property because you don't want to get in a position where you cant meet the mortgage repayments. That could mean you are forced to sell the property for less than you paid for it and may result in you going bankrupt."
Property Crash Now Inevitable
Whilst it saddens me to be the bearer of bad news... the following press release has been issued today.
Property Crash Now Inevitable
The biggest property boom in New Zealand in 20 years is now set to end in a crash of a magnitude similar to the early 1990's, when property values fell by as much as 25%, according to property market analyst Kieran Trass of the property market research company SuburbWatch.
The soft landing for property formerly expected is now "not even a remote possibility" according to the latest trend analysis SuburbWatch released today. "Many suburbs in the main cities of New Zealand have already evidenced value declines of as much as 10% in the final quarter of 2007. The falls were the result of an exceptionally weak market and the progression of the property cycle into the slump phase of the property cycle based on the combination of economic 'Key Drivers' of the property market. The negative trends became evident in July 2007 but we were hoping the market would show some signs of strength in the usually buoyant spring and summer seasons. That strength failed to materialise and indeed the market has continued to weaken even more rapidly since then. Dark clouds have gathered over the property market and unfortunately now we have the conditions which lead to a 'perfect storm' in our property markets."
This year property values are expected to fall by 10% or more in some suburbs based on the statistical analysis models used by SuburbWatch. These models include the use of measuring each suburbs historic value growth rates throughout the last three property cycles, projected property value growth rates based on measuring moving average trends, the 'Elliot Wave Principle' as well as methods outlined in the book by Trass "Grow Rich With the Property Cycle".
"We are heading into the worst property slump we have experienced in nearly 20 years. This slump will eclipse the soft slump of the late 1990's by far and will be more like the early 1990's slump when property values fell by as much as 25%".
Trass has an impressive history of 'calling the market' fairly accurately and states his calls are "based on research and analysis of the best quality data available". He became frustrated in the 1990s at the lack of quality localised property price data and subsequently created the only property price Index for suburbs in Auckland, Wellington and Christchurch (the SuburbWatch Index) which was based on 15 years of historic property sales data. In January 2002 Trass was "a voice in the wilderness" when he made a press release citing the many reasons we were racing into the "first property market boom of the 21stCentury". Then in 2004, when there was talk of a coming property crash, Trass issued another press release outlining "the so-called coming crash was called for the wrong reasons and the arguments for the crash lacked substantive fact and figures." Property values have risen by over 50% since then adding further weight to the validity of his research methods. He believes property values now may well retreat by up to 25% in some suburbs during this property slump, which is back to the price levels seen in 2006 "but our models do not imply values will fall back to the levels seen in 2004".
In light of current property market trends and analysis of the current state of the markets key drivers he states "We now have an overwhelming amount of hard evidence that the market will suffer for quite some time. There's no light in sight at the end of this tunnel. The only good news that may be underpinning the market to a small degree is that employment levels remain very strong in light of the current labour shortage and we may be in for some minor tax cuts. However even strong employment levels are restricting the ability of our economy to grow as businesses cannot typically expand without employing more people and any tax cuts are expected to be inadequate to arrest the crash. With the current low level of net migration into New Zealand there is no-one to fill new jobs so businesses cannot easily expand".
When asked the inevitable question of whether he has any vested interest in talking the market down by calling a crash for his own benefit he points out "my own property portfolio is not immune to suffering from the negative effects of a property crash, therefore like many other property investors I'm unlikely to have the resources to immediately cash in on the soft conditions. It's a hard call to make but certainly now one that is well justified. I've made it my job as a property market analyst to call the market as it is whether that be good, bad or as the case appears now, ugly, even if at times that has a negative effect on my own wealth creation through property investment". Trass, a property investor himself, has already experienced the soft market conditions first hand when selling properties recently. One property he took to auction late in 2007 was passed in after a top bid of 25% less than the properties registered valuation and a second property was recently sold for 10% less than its registered valuation.
The most disturbing trends identified in Auckland, Wellington and Christchurch include;
More than 50% of all suburbs evidenced value falls in the final quarter of 2007, some by as much as 10%.
All suburbs are expected to evidence value falls in 2008, some by more than 10%.
Property sales volumes remain 40% less than a year ago and up to 70% lower in some suburbs.
Auction clearance rates remain very low.
The number of days it takes to sell a property has risen from 29 days on average in December 2006 to 36 days in December 2007.
Net migration has slowed to a crawl of just 5,000 people per year on the back of the large amount of New Zealanders moving to Australia typically for higher incomes achievable there. That's the highest rate of migration to Australia in 20 years but typically we don't reach the peak of population exodus, to Australia from New Zealand, until we have an economic downturn which is expected to occur later in 2008 or maybe even in 2009.
32% of all fixed mortgage borrowings expire in 2008, representing $41 Billion of mortgages. Currently these borrowers are paying 8.1% interest on average but they will be paying closer to 9.8% when they renew their fixed interest rates. That represents an extra $141 in interest per month on average or $1,700 per year for every $100,000 borrowed.
Property is now less affordable that it has been for nearly 20 years.
Inflation is strong impacting further on affordability and expected to remain strong in the first half of 2008 at least. Inflation does not automatically translate into property value rises.
The number of people per household is now increasing for the first time in 5 years, indicating rents are becoming unaffordable for many renters, so for property investors, any rent rises look set to be potentially limited.
Based on the latest trends - the Buy, Hold or Sell recommendations given by SuburbWatch are now to either Sell or Hold in every single suburb in Auckland, Wellington and Christchurch. (Each specific suburbs data is available to paid subscribers to SuburbWatch).
The wealth effect from housing is over, which will quickly flow on to slowing overall economic growth.
Property Investors Beware
The coming property crash called today by property market analyst Kieran Trass of SuburbWatch will affect all property investors according to Trass.
"The coming property market crash means property investors need to focus on reducing debt as quickly as possible and strengthening their cash flows so they can weather this storm." In his personal experience Trass reflects on the property crash of the early 1990's when he got a second job "pumping gas" so he could afford to ride out the slump. Defaulting on mortgages was not a palatable option for me so generating extra cash flow was critical to my ability to retain my portfolio. His property portfolios value declined by 25% at that time resulting in a negative equity position for several years before rebounding in value by 100% as a result of the property boom of the mid 1990's."
His advice for investors to make sure they can ride out the property slump includes;
· Increasing cash flow.
· Reducing living expenses.
· Avoiding what he calls "the one bank trap" by spreading their lending across several banks
· Making sure they are charging current market rents for their properties as "many investors fall into the trap of under renting their properties".
· Adding value to rental properties "wisely" to increase rental income.
Trass also stated "The good news for investors is that if they take a long term view we will definitely evidence another property boom in time. The property cycle does exist and surely as night follows day the market will eventually recover into another boom. Now is the time in the cycle for consolidation and patience by property investors". Trass wrote the best selling book "Grow Rich with the Property Cycle".
Silver Lining in Property Crash
for First Home Buyers
The coming property crash called today by property market analyst Kieran Trass of SuburbWatch has a twist for first home buyers according to Trass.
"Ironically the dark clouds gathering over the property market will have a particularly silver lining for first home buyers because they will be spoilt for choice when buying property. Keen vendors will be plentiful as over-extended borrowers compete to sell in the softening market."
"Those wanting to get on the property ladder will finally get their opportunity during this slump because property will become much more affordable than it has been for many years."
Trass also stated "The prospect of property values falling after first home buyers buy a property is often of little concern because their primary purpose for buying is usually to achieve long term security and a 'stake' in the property market rather than generating wealth or seeing their property value increase in the short term. First home buyers often just want to get off the 'rent trap' and have a place to call their own home."
However he also issued this warning to tread very carefully. "When considering that first home purchase make sure you have adequate cash flow to comfortably service the mortgage repayments and ownership costs of owning the property because you don't want to get in a position where you cant meet the mortgage repayments. That could mean you are forced to sell the property for less than you paid for it and may result in you going bankrupt."
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