House prices back to Feb 2007 levels

[Commercial Dan]

House prices down again in Feb

By JAMES WEIR - The Dominion Post | Wednesday, 12 March 2008




House prices dipped again in February, leaving the market on the verge of moving below levels seen a year ago.

The national median price eased back from $340,000 in January to $337,500 in February.
The median price is just 0.74 per cent ahead of the February 2007 median of $335,000, according to latest Real Estate Institute figures.
Prices fell in six regions and rose in six others in February.
Northland prices are now down 8.38 per cent on levels a year ago, Auckland down 0.69 per cent and Hawke's Bay down 0.73 per cent. Wellington prices were up just 1.4 per cent in the year.
"Any further weakening of prices in March will see the market move into a negative (annual) percentage which has huge ramifications" institute president Murray Cleland said.
"If prices tip into reverse for the balance of this year that will have huge economic and political implications," he said.
House prices have fallen since late last year, as the impact of rising interest rates and falling migration hit.
Banks raised home lending rates again last month, to almost 11 per cent on floating mortgages and almost 10 per cent on fixed terms. The Reserve Bank last week indicated that official interest rates would stay up till next year.
It took an average 50 days to sell a home in February, up from 32 days in the same month last year.
Mr Cleland said one heartening aspect of the February figures was the rise in sales from 5,186 in January to 6, 356, which he said was "not too bad".
However, sales were down about 3000 on February 2007 sales of 9,357.

[exnzpat]

Dan,

This is an unrelated question. Are you the guy who did "Brooklyn Rise"?

[OllyN]

"Any further weakening of prices in March will see the market move into a negative (annual) percentage which has huge ramifications" institute president Murray Cleland said.
"If prices tip into reverse for the balance of this year that will have huge economic and political implications," he said.
House prices have fallen since late last year, as the impact of rising interest rates and falling migration hit.

From "The Day the Bubble Bursts" :
Warning Signals page 84
"median property prices dropping three months in a row"

and page 83

"Days open the market figures extending further out"

and page 83

" there's an observable pecking order in the stress and failure of finance companies: usually financiers of cheap cars get into difficulties first, followed by those lending on consumer items, and finally funders of property developers. As money tightens (or becomes more expensive) borrowers fall behind on payments
for their cars, TV's and freezers" etc

[spurner]

I have heard many stories about this place and its developers, and not just the ones printed in the newspaper.

"Brooklyn Rise"?

[67910241]

I'm reading your book right now Olly

"Any further weakening of prices in March will see the market move into a negative (annual) percentage which has huge ramifications" institute president Murray Cleland said.
"If prices tip into reverse for the balance of this year that will have huge economic and political implications," he said.
House prices have fallen since late last year, as the impact of rising interest rates and falling migration hit.

From "The Day the Bubble Bursts" :
Warning Signals page 84
"median property prices dropping three months in a row"

and page 83

"Days open the market figures extending further out"

and page 83

" there's an observable pecking order in the stress and failure of finance companies: usually financiers of cheap cars get into difficulties first, followed by those lending on consumer items, and finally funders of property developers. As money tightens (or becomes more expensive) borrowers fall behind on payments
for their cars, TV's and freezers" etc

there are heaps of events taking place just as you predicted/forewarned. I can only regret it coming out a bit too early - or did you plan to give it enough time to reach a wider audience?

[OllyN]

In reply

I would rather be accused of calling it too early then calling it too late

[McDuck]

and there is more.

Do you know what will happen when the reserve bank no longer needs to hold down inflation with the OCR tool.
The reserve bank won't need to hold down inflation that way because the banks will be doing it for their own reasons.
So do you have any idea how a Dropping ocr looks to the carry trade.
Do you have any idea what a reduced carry trade will do to money supply.
This is going to be one heck of a ride.

[Bob Da Builder]

and there is more.

Do you know what will happen when the reserve bank no longer needs to hold down inflation with the OCR tool.
The reserve bank won't need to hold down inflation that way because the banks will be doing it for their own reasons.
So do you have any idea how a Dropping ocr looks to the carry trade.
Do you have any idea what a reduced carry trade will do to money supply.
This is going to be one heck of a ride.

Not sure what you are talking about ?

[Austrokiwi]

Mc Duck is referring to a very real possibility...........As growth slows Bollard will get to a point where he needs to drop the OCR (official cash rate). When he does this the carry trade in currency's will see the NZ$ drop. Overseas banks lending to NZ banks will see NZ as a higher risk and demand higher interest( they are already doing this due to the sub prime fallout). Bollard may well find as he drops the OCR mortgage interest rates will rise independent of his actions. This means more property speculators will go to the wall ( Money will disappear from the NZ economy and prices will fall( for property). If it goes too far inflation of everyday items can then go hyper.......and then the economy is stuffed!

[Austrokiwi]

MIstake

I missed some steps out. Their are two worst case scenarios.

1. Bollard drops the OCR the dollar drops and interest rates for mortgages go up to compensate, seeing more property related failures and a deepening recession.
2. Mr. Bollard initially drops the OCR, mortgage rates go up as per 1. But oil and basic commodities go up and inflation starts to climb. Then NZrs demand higher wages to compensate. Inflation climbs even further..... Bollard then finds hes back to square 1 and starts raising interest rates: taken to its worst case; double to (absolutely worst case) triple digit inflation.

I am not saying either will happen just that they are risks Mr. Bollard really has to earn his salary this year!

[McDuck]

Well maybe not that far.

Usually you will just get a new equllibrium point with higher money costs.
(Remember NZ is still way out front, so still attractive even on the down swing).

But I bet the reserve bank will have to track things every single morning.
funny to think of them in such an active state.

Funny also, to see the Trading banks not being able to blame the Reserve for the high Mortage rates anymore.

[Tucker]

What will the floating rates be if the OCR is lowered?

[67910241]

Hey Austro

I missed some steps out. Their are two worst case scenarios.

1. Bollard drops the OCR the dollar drops and interest rates for mortgages go up to compensate, seeing more property related failures and a deepening recession.
2. Mr. Bollard initially drops the OCR, mortgage rates go up as per 1. But oil and basic commodities go up and inflation starts to climb. Then NZrs demand higher wages to compensate. Inflation climbs even further..... Bollard then finds hes back to square 1 and starts raising interest rates: taken to its worst case; double to (absolutely worst case) triple digit inflation.

I am not saying either will happen just that they are risks Mr. Bollard really has to earn his salary this year!

I think your step 1. may not eventuate. Currently, a large premium is paid for funds borrowed to finance NZ spending precisely because NZD is perceived as having a high risk of getting hammered by the other currencies rather soon. In other words, a lot of the difference between 9.5% NZ and 3.5% Euro mortgages is precisely because the investors are already betting on the NZD to generally lose ground in the next few years. Once this DOES eventuate and NZD reaches a point closer to an equlibrium, that particular risk will be greatly reduced. It's all about hedging.

Yes, I am sure there is the overseas bunny investor that has not "safeguarded" his deposit return in foreign currency, but I think the international money market as a whole is too sophisticated not to already consider the NZ$ an overpriced and potentially volatile turkey, not the least because of its considerable dependence on an artificially constrained, equally overpriced and potentially volatile RE market.

[Tucker]

Very good point 67910241

[MikeO]

Or...

I missed some steps out. Their are two worst case scenarios.

1. Bollard drops the OCR the dollar drops and interest rates for mortgages go up to compensate, seeing more property related failures and a deepening recession.
2. Mr. Bollard initially drops the OCR, mortgage rates go up as per 1. But oil and basic commodities go up and inflation starts to climb. Then NZrs demand higher wages to compensate. Inflation climbs even further..... Bollard then finds hes back to square 1 and starts raising interest rates: taken to its worst case; double to (absolutely worst case) triple digit inflation.

I am not saying either will happen just that they are risks Mr. Bollard really has to earn his salary this year!

What about:
3. Bollard drops the OCR. That may or may not have an impact on the carry trade. If it does then sure, fixed mortgages rates might go up (debatable). But at the same time FLOATING interest rates fall in line with the OCR (pretty much a given). Direct impact to the average property owner = B#gger all. You keep your low fixed rate until it expires and them maybe decide to stick with a floating rate rather than re-fixing.

Also - if the OCR falls then this could well flow through to a decrease in the $NZ (which could wipe out some carry trade speculators). But it will help exporters. Most people would probably see a drop in the $NZ as a positive for the economy overall.

Don't get me wrong though. It wouldn't surprise me if the property market drops or remains flat for quite some time but I see that happening because property is overvalued to start with.