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What will be the new equilibrium price? Tony didn't say.

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  • What will be the new equilibrium price? Tony didn't say.


    The latest from Tony Alexander

    "New investors will demand compensation for added risk. That means they will be prepared to pay less for the asset than before. There will be downward pressure on the prices of properties brought to the market which could be classified as an investment. That probably means everything below and just above the median sales price in every location."

    https://www.oneroof.co.nz/news/tony-...sell-off-39190

    "In many months for the remainder of this year prices will fall, ...."

    "Eventually we will reach a new equilibrium in the housing market – probably within 12 months. From that equilibrium prices will probably rise on average long-term by 4% to 5% per annum rather than the average 6.8% seen since 1992"

    https://www.oneroof.co.nz/news/tony-...rket-fix-39159


    1) So house prices are expected to rise 4% - 5% p.a from that equilibrium. Where is that equilibrium price relative to current house price levels? Tony didn't say what the equilibrium price level is. That would be of interest to all potential future buyers and sellers in the next few years.

    All 80% LVR buyers would want to avoid seeing a significant decline in their purchase deposit:
    - if house prices fall 5%, then that is a 25% decline in the value of the buyer's original deposit (based on a 20% deposit at purchase).
    - if house prices fall 10%, then that is a 50% decline in the value of the buyer's original deposit (based on a 20% deposit at purchase).
    - if house prices fall 15%, then that is a 75% decline in the value of the buyer's original deposit (based on a 20% deposit at purchase).
    - if house prices fall 20%, then that is a 100% decline in the value of the buyer's original deposit (based on a 20% deposit at purchase).

    Note: some simple mathematics - if house prices are expected to rise 4-5% p.a from that equilibrium, it means that at current house price levels, returns of house prices are expected to be lower than the 4-5% p.a. in the long term.

    2) Also how can house prices fall when there is a housing shortage? Tony has been talking about a housing shortage driving up demand and house prices.
    Last edited by Chris W; 01-04-2021, 02:53 AM.

  • #2
    Originally posted by Chris W View Post
    What will be the new equilibrium price?
    Well, that depends on the drivers of price.
    Of which there are many.

    Money being added to, removed from, or redirected, in the system.
    Houses being added to, removed from, or redirected, in the system.
    People being added to, removed from, or redirected, in the system.
    The size of the system.
    The efficiency of the system.
    Changes in the operating rules of the system.
    The connectivity and permeability with other systems.
    Random human reaction, irrational or rational.
    Black swan events.

    Comment


    • #3
      Tony is just plain WRONG.

      1. Hey, we think you should be able to buy a more expensive house, so here's an increase in the property price cap. Wait, why are you now looking at more expensive houses? Stop!

      2. Want to buy a new build as a first home owner? Here's $10k cash to add to your deposit. Oh and you can leverage that by a factor of 20 because we are going to allow you to use a 5% deposit. Oh, yes, I guess that does mean that you can now afford to pay $200k more for a house

      3. We have a supply and demand imbalance. Let's solve that by increasing the number of people who qualify for the first home owners grant and lower the deposit requirements. Wait! Why are so many of you wanting to buy a house now? Stop!

      4. We have a shortage of new builds. Let's give first home owners a financial incentive to buy them, and not old houses. Hell, let's also give investors a financial incentive to buy new houses, and tax the hell out of old houses. Wait! Why are you all fighting over the new builds! Why are you bidding over the top of each other! You are making the price go up! Stop!

      5. We want the wealthy to own less property. So we are going to make buying an investment property cashflow negative, so that only people in the highest tax bracket can afford to pay the shortfall.

      Comment


      • #4
        The government added IMMEDIATE demand, but DELAYED theoretical supply, that is simply impossible due to shortages of materials, tradesmen, land and infrastructure

        Comment


        • #5
          They also caused IMMEDIATE rental price increases, but DELAYED taxation. The increased rental income in the short term increases yield, thus increasing the prices of property

          Comment


          • #6
            The other thing Tony got wrong:
            "a year ago not a single person on the planet got their property forecast correct"
            False. I did. As did a few others

            Comment


            • #7
              Originally posted by crashy View Post
              They also caused IMMEDIATE rental price increases, but DELAYED taxation.
              Given the new / now once-a-year legal minimum for residential rent increases, the number of "immediates" is likely to be small.

              Comment


              • #8
                No, it isn't. The problem here is your perception of what "immediate" means. It means that rents will go up in the near future, while the tax is in the distant future

                The number of people who are:
                1. On a long term lease, and
                2. Are being charged the full market rent, and
                3. Have already had a rent hike in the last few months
                Is small.

                Most people are:
                1. changing properties often, or
                2. are in a long term rental that is below market rate, or
                3. Have not had a recent rent increase
                In which case they are likely to pay more rent BEFORE the tax kicks in

                Talk of a rent freeze is going to:
                1. Remove all existing discounts
                2. Force all existing rents to be brought up to market before the freeze
                3. Force all new rents to be at the top end of the market
                Last edited by crashy; 01-04-2021, 03:10 PM.

                Comment


                • #9
                  There are a lot of speculative presumptions in your un-supported assertions.

                  Picking one: given the paucity of residential rental options and the uncertainty of the market, what evidence do you have to suggest that, "most people are changing properties often?"

                  Further, are you referring to residential rental tenancies, rather than leases - a term usually associated with commercial rentals?

                  The twelve month rental rate change thing was a non-issue for me, as all my existing tenancy rent reviews were annual, anyway. I suspect many other PIs are the same. On very rare occasions, a change of tenant has provided a shorter rental rate review period.

                  Comment


                  • #10
                    Read it again. I did not say "most people are changing properties often"
                    I said that most people were doing one of three things, one of those things being "changing properties often"

                    Comment


                    • #11
                      It's funny how someone who frequently fails to read plain English properly, spends so much time criticising what others say

                      Comment


                      • #12
                        ^^ Perry is doing what you’re doing Crashy giving his feedback on the topic and replies to the topic.

                        cheers

                        Donna
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                        Comment


                        • #13
                          Originally posted by Perry View Post
                          : given the paucity of ....
                          And he's bringing home the obscure words too!



                          Last edited by McDuck; 02-04-2021, 07:35 AM.

                          Comment


                          • #14
                            Originally posted by crashy View Post
                            Tony is just plain WRONG.

                            1. Hey, we think you should be able to buy a more expensive house, so here's an increase in the property price cap. Wait, why are you now looking at more expensive houses? Stop!
                            Even with this new cap, the house prices are still at the extremity of the first home buyer's budget.

                            Originally posted by crashy View Post
                            2. Want to buy a new build as a first home owner? Here's $10k cash to add to your deposit. Oh and you can leverage that by a factor of 20 because we are going to allow you to use a 5% deposit. Oh, yes, I guess that does mean that you can now afford to pay $200k more for a house
                            Freeing up a rental in the process.

                            Originally posted by crashy View Post
                            3. We have a supply and demand imbalance. Let's solve that by increasing the number of people who qualify for the first home owners grant and lower the deposit requirements. Wait! Why are so many of you wanting to buy a house now? Stop!
                            Quantitative easing, Immigration, repatriation and speculation are bigger drivers of demand.

                            Originally posted by crashy View Post
                            4. We have a shortage of new builds. Let's give first home owners a financial incentive to buy them, and not old houses. Hell, let's also give investors a financial incentive to buy new houses, and tax the hell out of old houses. Wait! Why are you all fighting over the new builds! Why are you bidding over the top of each other! You are making the price go up! Stop!
                            Creating demand in the new build area is a good way to increase the supply in that area.


                            Originally posted by crashy View Post
                            5. We want the wealthy to own less property. So we are going to make buying an investment property cashflow negative, so that only people in the highest tax bracket can afford to pay the shortfall.
                            No one cares about how many dwellings the wealthy own, just as long as there is enough for everyone.

                            Think win win.
                            Last edited by McDuck; 02-04-2021, 07:49 AM.

                            Comment


                            • #15
                              Originally posted by Chris W View Post
                              Tony didn't say what the equilibrium price level is.
                              You could assign a high , medium, low value to each of the following drivers,
                              that would give you a very rough direction.

                              Don't forget , it's a living equation, so you need to pick a specific moment in time to view it, and it will shift either side of that moment.

                              1:Money being added to, removed from, or redirected, in the system.
                              2:Houses being added to, removed from, or redirected, in the system.
                              3:People being added to, removed from, or redirected, in the system.
                              4:The size of the system.
                              5:The efficiency of the system.
                              6:Changes in the operating rules of the system.
                              7:The connectivity and permeability with other systems.
                              8:Random human reaction, irrational or rational.
                              9: Black swan events.

                              Comment

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