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  • Houses 'way above value'

    Houses 'way above value'
    By ROELAND VAN DEN BERGH - The Dominion Post | Wednesday, 14 February 2007

    House prices have ballooned to a record 42 per cent above what they should be worth, New Zealand's biggest money manager says.

    Real house prices, adjusted for inflation, have increased on average about 2 per cent a year since 1960, AMP Capital Investors head of investment strategy Leo Krippner said yesterday.

    But prices had gone up 75 per cent since 2001, taking them to more than 40 per cent above their long-term average their "natural" level. "That is unprecedented ... they are massively overvalued," he said.

    The last house price-bubble happened in the early 1970s, when strong immigration pushed prices 39 per cent above their fair value by 1974.

    Prices slid nearly 40 per cent in the next six years.

    Homeowners at the time did not feel the impact in sale prices because inflation running as high as 18 per cent masked falling prices, Mr Krippner said.

    However, in today's relatively low inflation environment, a fall in real house prices (adjusting for inflation) toward the long-term trend would hit homeowners through low sale prices.

    But he did not expect house values to fall 40 plus per cent.

    Demand for housing from first-home buyers would probably limit price falls to about 10 per cent during the next few years.

    It was also possible that house prices had found a new level and that a downward adjustment to the previous long-term trend was not needed.

    "But history generally shows that when (prices) get this stretched there is some degree of pull-back."

    Property investors would be better off buying commercial property, rather than sinking more money into housing.

    Bank of New Zealand chief economist Tony Alexander said house prices were likely to keep climbing at above 10 per cent a year "for a while yet".

    Real Estate Institute figures showed house prices gained nearly 12 per cent in the year to December, taking the national median price to $330,000, compared with $295,000 in December 2005.

    A strong jump in December house sales, coupled with short sell times, suggested price inflation would persist, Mr Alexander said. A similarly strong tone was likely in January's Real Estate Institute data, due out soon.

    Institute president Murray Cleland said the impact of a small increase in mortgage interest rates would be offset by continued strong migration, which would drive demand.

    http://www.stuff.co.nz/3960872a13.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
    So in summary he is saying
    1. House prices may fall by 40%
    2. House prices may fall by less then 40%
    3. House prices may not fall at all
    4. House prices may increase slightly
    5. House prices may increase significantly.

    He should become a politician

    Comment


    • #3
      well I read this and took on board what the guy said, but I do recon hes missing some points.

      Mainly hes comparing the growth in recent years that has caused prices to shoot up, with the growth in previous years. I think factors influencing price where a bit different then to what they are now. Off the top of my head

      - More $ coming in to NZ, from expat kiwi's working overseas, to foreign money coming in a result of greater international awerness of what NZ has to offer (LOTR's..)
      - The basics cost less these days. Foods proportionatly cheaper than it was back then, so is clothing, etc. People can choose to spend a bigger part of their income in their house.
      - are we richer these days than we where back then?

      Just my thoughts..

      Comment


      • #4
        Money managers make money through fees when you invest in their funds. It doesn't matter what the housing market is doing, people like this are always going to talk real estate down, in a lame attempt to get people to invest elsewhere (through them).

        I think somebody needs to ask them why if property is such a poor investment, are they currently the largest property investor in New Zealand? And if prices are so high and the investment is so poor why are they increasing their $1,000,000,000+ portfolio, rather than divesting?

        Classic case of paying attention to what successful people do, and not what they say!

        Comment


        • #5
          Originally posted by stacrafty View Post
          - are we richer these days than we where back then?
          Umm no we're not richer - supposedly we are poorer! We are getting the same $$ in (salaries), borrowing more, saving less, inheriting less. People on the PropertyTalk.com forum are excluded ...as we're all leveraging our $$ for more investments not liabilities.



          Cheers,

          Donna
          Last edited by donna; 14-02-2007, 06:34 PM.
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          Comment


          • #6
            Although there was a great documentreay series last year that showed statistically that in fact things haven't changed much. We are generally better off and that with the exception of housing things were generally much more affordable. And even housing had not changed that much in terms of ratios.

            Just goes to prove that there are lies, damn lies and statistics!!

            Comment


            • #7
              Hang on a minute!

              are we richer these days than we where back then?

              Umm no we're not richer - supposedly we are poorer! We are getting the same $$ in (salaries), borrowing more, saving less, inheriting less. People on the PropertyTalk.com forum are excluded ...as we're all leveraging our $$ for more investments not liabilities.
              Sure we're not much poorer?
              Today we need 2 income families to pay the mortgage & even that's a stretch!
              40 years ago 2 incomes was almost unheard of
              Mind you so was 2 cars, 2 phones, 2 TV's...

              Comment


              • #8
                40 years ago 2 incomes was almost unheard of
                The second income would be disallowed in a banks servicing calculations if the recipient of that income had any chance of becoming pregnant ie female.
                Today we need 2 income families to pay the mortgage & even that's a stretch!
                40 years ago you may haveto wait upto 6 months for the bank to approve funds for your home loan, there was a waiting list! Max LVR was typically ~66%.

                A colour TV was a status symbol in 1974.

                In 1975 my 3rd form accounting teacher announced that "the young people of today will never be able to own their own home if the government lifts mortgage rates from 7% to 10%". Of course house prices were considered very expensive at that time as NZ had just gone through the 1973-1974 boom where prices had lifted by 140%.

                I believe a lot of the human rational on economic well being is linked to the fact that the average human beings memory is no longer than one economic cycle ie 7 -10 years. Everything gets repeated pretty much like Ground Hog Day!

                Comment


                • #9
                  Originally posted by spurner View Post
                  Money managers make money through fees when you invest in their funds. It doesn't matter what the housing market is doing, people like this are always going to talk real estate down, in a lame attempt to get people to invest elsewhere (through them).
                  In fact, he appears not to be suggesting that people don't invest in property but that they invest in commercial property instead of retail, which may or may not be a perfectly reasonable proposition.

                  Comment


                  • #10
                    Times have changed, there are more demands for everyones $, eg. credit being thrown round willy nilly to buy cars, tvs, furniture? Back in the old days if you couldn't afford it you would do without.

                    A great example of this was my old flatmate, he hp'd a 17k car as he simply wanted a new one, on 17k, he ends up paying nearly 27k over 4 years. If he kept his old car that would go a long way for a deposit on a mortgage. Now of course I have to listen to him complain about how he has no $.

                    It's always been a struggle for a family to buy a house hasn't it?
                    Need a website or anything to do with online marketing? Visit Christchurch Web Design.

                    Comment


                    • #11
                      even though the average house is 6x the average wage (when it might have been less at various times in the past), it annoys me when people say oh the poor first home buyers will never be able to afford a house.

                      We also have the highest consumer debt ratios ever, most early 20's ect have alot of toys, sterios, tvs, ipods, decent cars, and a generally consumption filled lifestyle.
                      With my first job out of uni my spending was only just above what it was as a student. 6 years later its a bi more (ofc) but no where what someone would assume I would spend given my income.

                      Comment


                      • #12
                        40 years ago you may have to wait upto 6 months
                        for the bank to approve funds for your home loan, there
                        was a waiting list! Max LVR was typically ~66%.
                        Errrr, how much mortgage lending did banks do, back
                        then? Not much, as I recall.

                        Comment


                        • #13
                          I'm sure he'd be happy for people to invest in any type of business, so long as his organisation was getting a cut out of it!

                          Originally posted by Skeptic View Post
                          In fact, he appears not to be suggesting that people don't invest in property but that they invest in commercial property instead of retail, which may or may not be a perfectly reasonable proposition.

                          Comment


                          • #14
                            Please, please get all those investors out there to start looking for commercial property, I for one am more than willing to help out the home owners who want to sell.
                            Maybe we need to publish a story of our own on how the planets and my aching left toe are favouring commercial at present.

                            Comment

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