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Why brake had to go on housing
17 December 2005
By ADRIAN BATHGATE
"Fascinating" is how Conor English describes the past five years in the property market.
The terror attacks in 2001 were the catalyst for kicking off a bull run, the outgoing chief executive of the Property Institute said.
"There was quite a trend to go into hard assets, and property was something people knew."
But that New Zealanders had yet to wean themselves off property - especially residential - despite the warnings of the Reserve Bank, meant a hard landing was in store.
Mr English has taken a job as commercial director of consultancy the Property Group.
He said the launching pad for the boom was September 11, 2001, which coincided with a low ebb for equities markets.
"It's been supported by record low unemployment, strong immigration, low interest rates and generally people feeling pretty secure."
The 75-basis-point fall in interest rates during 2003 was just the burst the market needed to get going.
Now, however, the supply-demand equation was tilting back, with lower migration and building consents and rising interest rates set to put a brake on the market.
"I think we're going to see mortgage rates over 10 per cent."
The genie was out of the bottle, and price falls were expected.
"For the market, people are still confident, the banks are still lending money and unemployment is still low."
Matters would be brought to a head when high interest rates began to turn housing into a bad investment.
"Until you can get into a taxi, and the second thing the driver says is the Reserve Bank governor's name, then Alan Bollard's going to have a problem. And he's got a long way to go."
Mr English thought the official cash rate should have been increased by 50 basis points last week, as much for the psychological impact on consumers as for the financial pinch.
As it is, he described the imminent slowdown as at the harder end of the spectrum.
Dr Bollard had to put the brakes on - "and hard". Otherwise, consumers would continue to invest in housing.
Two other big factors had changed the housing market in New Zealand, Mr English said.
One was the emergence of a national market, spurred by property investment seminars being held throughout the country.
People in Wellington, for instance, had been buying properties in the rural South Island.
"It remains to be seen whether the flattening out between metropolitan and regional New Zealand is justified.
"And I can't help but wonder whether people who were buying houses in Tokoroa on yield have priced in enough risk."
This flattening out had also happened within cities, with values across Wellington more equal than previously.
The other dynamic was the amount of money Australians were investing in commercial and residential property here. "That will continue to put pressure on the sector while rents are still good."
But an economic slowdown may take the edge off rental increases, and in turn cool Australian interest.
Market sentiment was all important, Mr English said, and it would be interesting to see if the present steadily rising values were matched by an equivalent fall.
It came back to the quarter-acre dream, and the view of property as an essential investment in the New Zealand psyche. "It's an easy asset class for us to invest in, because every Kiwi is an expert in property."
http://www.stuff.co.nz/stuff/0,2106,3514292a13,00.html
17 December 2005
By ADRIAN BATHGATE
"Fascinating" is how Conor English describes the past five years in the property market.
The terror attacks in 2001 were the catalyst for kicking off a bull run, the outgoing chief executive of the Property Institute said.
"There was quite a trend to go into hard assets, and property was something people knew."
But that New Zealanders had yet to wean themselves off property - especially residential - despite the warnings of the Reserve Bank, meant a hard landing was in store.
Mr English has taken a job as commercial director of consultancy the Property Group.
He said the launching pad for the boom was September 11, 2001, which coincided with a low ebb for equities markets.
"It's been supported by record low unemployment, strong immigration, low interest rates and generally people feeling pretty secure."
The 75-basis-point fall in interest rates during 2003 was just the burst the market needed to get going.
Now, however, the supply-demand equation was tilting back, with lower migration and building consents and rising interest rates set to put a brake on the market.
"I think we're going to see mortgage rates over 10 per cent."
The genie was out of the bottle, and price falls were expected.
"For the market, people are still confident, the banks are still lending money and unemployment is still low."
Matters would be brought to a head when high interest rates began to turn housing into a bad investment.
"Until you can get into a taxi, and the second thing the driver says is the Reserve Bank governor's name, then Alan Bollard's going to have a problem. And he's got a long way to go."
Mr English thought the official cash rate should have been increased by 50 basis points last week, as much for the psychological impact on consumers as for the financial pinch.
As it is, he described the imminent slowdown as at the harder end of the spectrum.
Dr Bollard had to put the brakes on - "and hard". Otherwise, consumers would continue to invest in housing.
Two other big factors had changed the housing market in New Zealand, Mr English said.
One was the emergence of a national market, spurred by property investment seminars being held throughout the country.
People in Wellington, for instance, had been buying properties in the rural South Island.
"It remains to be seen whether the flattening out between metropolitan and regional New Zealand is justified.
"And I can't help but wonder whether people who were buying houses in Tokoroa on yield have priced in enough risk."
This flattening out had also happened within cities, with values across Wellington more equal than previously.
The other dynamic was the amount of money Australians were investing in commercial and residential property here. "That will continue to put pressure on the sector while rents are still good."
But an economic slowdown may take the edge off rental increases, and in turn cool Australian interest.
Market sentiment was all important, Mr English said, and it would be interesting to see if the present steadily rising values were matched by an equivalent fall.
It came back to the quarter-acre dream, and the view of property as an essential investment in the New Zealand psyche. "It's an easy asset class for us to invest in, because every Kiwi is an expert in property."
http://www.stuff.co.nz/stuff/0,2106,3514292a13,00.html