Financial Armageddon!!

[Chris W]

New Zealand at risk of a house price crash: Bloomberg

New Zealand and Canada are the two countries with the most unsustainable housing markets in the world, according to Bloomberg.
Bloomberg economist Niraj Shah's "housing bubble dashboard" showed the two countries holding the top spots.
They have the highest cost of housing compared with wages, beating Australia, the UK, Norway and Sweden - which are also vulnerable.

New Zealand has the highest house price to rent ratio in the world, and the highest house price compared to income (a ratio of 156., while Canada has the highest real house prices and the biggest percentage of credit to households, with New Zealand just behind, according to Shah.

New Zealand household credit is the equivalent of 94 per cent of gross domestic product. That compared with 100.7 per cent of GDP in Canada, 76.3 per cent in the US, and Australia's 120.3 per cent.
House prices in New Zealand's biggest city, Auckland, have softened, but low mortgage rates may head even lower, with the potential to provide a boost.

The OECD recently warned that New Zealand's housing market continued to be the biggest potential issue for the economy.
"The main domestic risk is a housing market correction, though there is no evidence of oversupply," the OECD report said. "The effects of a contraction would be magnified by the elevated household debt levels resulting from sustained house price increases."


For full article refer https://www.stuff.co.nz/business/pro...rash-bloomberg

Table

[flyernzl]

Any adjustment in the house price-to-rent ratios for what must be provided by the landlord and included in the rent?

For instance, a cooking appliance, heating, and so on.

[PC]

An Economist is predicting the house price bubble won't burst:

https://www.newsroom.co.nz/2019/07/18/686320/our-armour-plated-housing-bubble#

That's a sure sign prices will go **POP**.
That or rents need to rise 113% :-)

[eri]

^

for years bernard looked at what we all looked at

and seemed to come up with very different conclusions of what would follow

now he seems to have very diligently + methodically

worked his way round to what many of us guessed by gut

thanks for the rigorous explanation BH

[Davo36]

I'm in the camp that if Bernard says something won't happen, then it will.

[Bob Kane]

Bernard finally worked out what is going on.
He put aside what he would like to see happen and had a reality check.
There won't be any housing crash because the affected players won't let that happen.

[Perry]

"The US economy seems to be transitioning into a stagnation phase after a brief period of goldilocks on a sugar high of fiscal stimulus.

We advise investors to prepare for recession," it said.

Wall Street stocks and global bourses may keep climbing for a few more months before peaking in July.

...

It would also be a shattering blow to the eurozone, where Italy is already in recession

and Germany has stalled.

The European Central Bank's key interest rate is minus 0.4pc.

https://www.nzherald.co.nz/business/...ectid=12217765

Nearly four months on and how are the prognostications looking, folks?

[Perry]

Forced sales don't have to be advertised. Kiwis do not earn enough to carry high losses if interest rates climb much. All I have read at my intermittent PT views lately are about -CF in AK with stability in capital gains. The era of capital gains in NZ has gone for now.

Changing market and my prediction is quick Asian withdrawal at any price in the next 6 months. Lots of supply soon with no backing from banks to lend to investors unless prices drop which banks will not stomach. A standoff until banks come under pressure then all bad.

Two years later and what's the evaluation of that prediction?

[Bob Kane]

Two years later and what's the evaluation of that prediction?

A load of crap.
All these doom predictions are from people with no idea of the housing market.

[Perry]

Interesting times 21 July media item on the implications of low-to-negative OCR rates.

[OnTheMove]

Two years later and what's the evaluation of that prediction?

A load of crap.
All these doom predictions are from people with no idea of the housing market.

Some truth, but the flip side is all the good news is driven by Real Estate industry propaganda that completely ignores World Economics. And the people who have not seen a $900k to $800k slide are still in denial, like 20 somethings who have no education in Economics or any experience/idea that Auckland can and will go down just like any other city that has its personal an mortgage lending higher than what it produces economical ever year. Just because it hasnt peaked at going down yet, doesn't mean the economists are wrong in very basic economics.

The simply cold truth is, Key government printed money hand over fist to inject into our economy which is still seen today, dont kid yourself thinking our economy is naturally this good.

So people being naturally greedy and wreckless decided that due to only losin 4% instead of 40% like Ireland, USA etc it was a good idea to pump and print their own BORROWINGS hand over fist into the real estate market, which saw a massive self propelled boom. Wait, this income vs property price ratio is not a bunch of hog wash after all.

Its actually true NZ has the most expensive real estate vs income in the world along with the 2nd worst personal and mortgage lending vs national income in the world.

Oh wait, so incomes are low in comparison to housing prices, and we have a ticking time bomb lending vs GDP problem.

I can tell you one thing, the Labour government cant buy another term like National did by getting the dies and presses ready to get those $50 notes printing day and night like Nats did.

So I dont think just because the bubble hasn't burst "YET", that economists got anything wrong. People in Parnel own more Ferraris and Mclarens that is feasible only in a market of BORROWED money or, "Paper valuation" on property that is buying the #1 Audi R8s and the like. Is any of this reality? NO.

Does NZ have a real world economy to justify this many sports cars? NO. Milk and fake propaganda tourism "advertising" that Joseph Goebels woud be proud of is NOT driving our economy. Paper valuations are, and its due to all the money still propping up the real estate market.

If you pump a fair 8% (thats what we use to think was the norm, year on year) from 99 to now you end up around $650k Auck median.

We are down from $900 to about 800k in Auckland now, $650k is only another 20%.

So the plus side is, we dont have far to fall unlike some saying 40% like Ireland. I think 20% is realistic and I think its going to continue to keep sliding on a slow decline (which imo is worse for those short selling or looking to make a come back dollar).

However, yes our lending to GDP and property puts us in a volatile potential.

Bloomberg naming us #1 along with Canada as potential nose divers.

I think you always have to take those with a pinch of salt, yes its possible, yes we are in a very volatile position, but I dont think we are likely to nose dive or see another 40%, I think Aucklands median is around that $650k mark.

Just my opinion, amateur economist but also a realist.

To think there are people out there, especially 20 somethings that dont know any different, who believe its normal for property to go up 20% year on year. In 2008 they would have been too young to see holiday apartments in Whitianga drop from $600k to $150k. They listen to propaganda similar to sayings like "100% clean green NZ" rofl, from RE propaganda, Auck housing never goes down, and thats no joke, their are some people who believe that.

For me Id rather we took another 20% hit now and got over it and back to the 8-10% PA like the good old RELIABLE days when you could develop something and have buyers, not hand over fist, but realistic buyers, and sellers who were ultra motivated not because of a market crash but simply because their business failed so they are selling before mortgagee auction. Hey I will help you out with a 25% below MV price which will save you a bundle over the auction.

The good old fair days. Bring them back. Sooner rather than later. We are 1/3 of the way there

[OnTheMove]

Simply made up by thin air concepts Bob Kane, how could any of this be true? ROFL.

"New Zealand housing market at risk of crash, Bloomberg research shows"

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12249413

[Perry]

The devil is in the wording. Viz "at risk."

There's a risk driving along the road; getting out of bed in the morning; walking along the footpath - and so it goes on.

[Chris W]

The devil is in the wording. Viz "at risk."

There's a risk driving along the road; getting out of bed in the morning; walking along the footpath - and so it goes on.

Perry, you are correct.

The key point is that there are conditions which increase the risk, and other conditions that decrease the risk. There is a continuum between high risk conditions and low risk conditions. The question is, given current conditions, what is the current level of risk.

When certain conditions are present, there may be a higher risk than if those conditions were not present. In real life, risk and the probability of an event occurring is not static, it changes with underlying conditions.

For example, risk of driving along the road, and car insurance assessment.

More risk of an accident if:
1) you drive on the road a lot vs driving on the road very little
2) more risk in wet, winter conditions than dry summer conditions.
3) more risk if the driver is intoxicated vs not intoxicated
4) more risk if the driver is texting and driving vs not text and driving
5) more risk if the motor vehicle has not met minimum standards (warrant of fitness), than if it meets warrant of fitness standards
etc

All predictions of future outcomes should be based on risk levels and the probability of those outcomes occurring.

That is the same with house prices - there is a continuum of possible outcomes but the probability of each of those outcomes changes depending upon the underlying conditions.

The report is saying that there is a higher probability than previously of property prices crashing given current conditions. The report is not saying that there is a 100% chance of property prices crashing or a 0% chance of property prices crashing.

Some people comment as if there is a 100% chance of property prices crashing
Some people comment as if there is a 0% chance of property prices crashing.

In reality the probability of property prices crashing is somewhere between those two extremes.

[Chris W]

In 2008 they would have been too young to see holiday apartments in Whitianga drop from $600k to $150k.

OnTheMove,

Whitianga holiday apartments price dropped from 600k to 150k? Wow - that is a massive 75% drop.
Any other large price drops that you're aware of?