Economist picks land price correction

[muppet]

Economist picks land price correction



Dargaville News Last updated 13:13 15/01/2010

A leading economist believes New Zealand has an over-abundance of land and says prices will have to come down in the near future.
ANZ chief economist Cameron Bagrie warned "prices are going to have to adjust and this will be the story of 2010."
Bagrie says there is an over-abundance of land and prices are over inflated.
Currently the value of properties was concentrated in the land and there is no shortage of it in most regions, except for the big centres like Auckland, he said.
Bagrie pointed out Northland as an example of somewhere that could be hard hit given "there is a real surplus in that region."
"If you look at house prices compared to incomes in New Zealand, I would suggest they are overvalued."
Data collected from Quotable Values Property IQ division show house sales in some areas of Northland have been on a downward spiral for some time.
Whangarei house volumes sales have fallen by 55% since 2005, Dargaville house volumes sales have fallen a staggering 66%.
Despite this, property prices in Whangarei have only slipped by 12.7% and in Dargaville 6%.
Europe-based economist Georgina Zervudachi says this would indicate a drop in property prices yet to come.
"Price is set by a willing seller and a willing buyer," she says.
She says the seller may be right to wait as extremely low interest rates like what we are experiencing now have tended to support the housing market.
Massey University Lecturer Bob Hargreaves says the reason why property prices haven't come down that much comes down two key factors.
"It's a psychological thing, people that brought their properties at the height of the property boom don't really want to sell at a loss, so you've got people just sitting there holding onto their properties.
He also points out that another reason for property prices staying relatively stable are the low interest rates which make it more attractive to buy now.
But warns, "interest rates will go up before they'll go down again."

http://www.stuff.co.nz/business/industries/3233378/Economist-picks-land-price-correction

[Viking]

Too much sun over Xmas.

The problem really is that wages are too low. But never let the facts get in the way of a good story eh!

[eri]

The problem really is that wages are too low. But never let the facts get in the way of a good story eh!


that's like saying you're not too fat, just too short for your weight

it doesn't really matter which is which, the fact is people couldn't afford to buy these places under the old rules of 20% deposit

then the banks decided deposits were no longer necessary as their financial engineers had created new products that eliminated the risk

but it turns out the engineers didn't fully understand the stresses that could be placed on them and they started falling over

they would have all gone over, and taken the economy with it, but the gov. created money out of thin air to prop them up

that's a trick you can't do too often or govs. start to fall over

so it's back to the old rules of proper deposits

and if people can't afford a 20% deposit the bank can't afford to lend money to them

it's not a Q of wages if people spend more than they earn

wages might slowly rise but it's hard to believe that prices don't need to revert to historical norms at the same time

[Perry]

Well, the year's nearly over. How
accurate was Cameron Bagrie?
.

[Bob Kane]

About as wrong as Khoon Goh.
They both made bold predictions that house prices would fall and vendors would have to accept it.
Only problem was vendors didn't subscribe to that view.

[Davo36]

Well he was right about section prices in Northland. They've dropped heaps.

Other than that though, he was wrong.

[Perry]

So can we say that yet another economic
soothsayer has bit the dust - mostly?

They never seem to learn, do they?
.

[eri]

he said

"prices are going to have to adjust and this will be the story of 2010."

i guess they've adjusted a little

so from here they could

a) continue their slow downward adjustment in 2011 or

b) drift around in the +/-5% range while inflation nibbles at them or

c) start rising

for the next year at least i'd say "b"

[Dean@Massiveaction]

I've found a good one who tells the truth :-) Rodneys stuff is phenomenal
http://www.sra.co.nz

[WGN ex-property manager]

he said

"prices are going to have to adjust and this will be the story of 2010."

i guess they've adjusted a little

so from here they could

a) continue their slow downward adjustment in 2011 or

b) drift around in the +/-5% range while inflation nibbles at them or

c) start rising

for the next year at least i'd say "b"

I second the vote for "B"

[Ivan McIntosh]

Me too, but I think we'll see a little bit more activity.

Blimin' hope so, anyway!

[Xav]

I've found a good one who tells the truth :-) Rodneys stuff is phenomenal
http://www.sra.co.nz

No one is perfect but I find Rodney's stuff useful as well.

I was moderately surprised no one had linked to this yet. Some snippets:

But a law of economics is that market players can control prices or volumes, but not both. This gets to the heart of why communist-style economies ultimately fail (i.e. because the dictators try to control both prices and volumes), but that is a completely different story. In the current context what matters is that by effectively withholding supply in an attempt to stop prices falling as much as should occur based on the deterioration in the underlying demand-supply balance, prices do not fall dramatically, which at face value suggests the vendors achieved their objective. But the consequence is that only a small to moderate number of vendors are able to experience the achieved prices because the number of sales tumbles.

In the long-term the situation comes back to the real or inflation-adjusted prices discussed in Chapter One. If the would-be vendors wait 10 years, during which time prices in general will increase around 30% and incomes by something more than this, they will achieve something in the ballpark of their current asking prices. But the dollars they get in 10 years time will buy 30% less goods and services than they would buy today because of the increase in general prices, so they will end up just delaying the inevitable (i.e. death by a 1,000 cuts rather than by decapitation).

To borrow Rodney's metaphor, there are people out there getting decapitated. Ultimately however, whether someone chooses decapitation or death by a thousand cuts may well be irrelevant depending on house price inflation vs general inflation over the coming years. Just how bad this current slump is (in terms of real prices, which is what you should all be considering) may well not be determinable for years.

[Ivan McIntosh]

Ah , but there are a small number of winners....those that held out and formed the small number of sucessful sellers.

Human nature means everyone (oh ok, almost everyone) thinks they'll sell and keep most of their value if they.....just......hold....out.....a.....little... ..longer.....

[Xav]

Of course, but basing any kind of expectation on outliers would be foolish to say the least.

Your comments regarding human nature are spot on in my experience, largely those who choose to sell at a loss are the ones who have little to no choice in the matter.

[Ivan McIntosh]

Sure...it's like taking over Harvey Norman and insisting that everything stay on the shelves until it sells at asking price. Just like our property market, it screws turnover.

You make much more as an economy if your vendors suck up the loss and keep turnover moving.