PROPERTY CRASH - YES/NO

[George]

Reading Olly Newland's book (2003) about the coming crash. He stated that some of the signs were:
More for rent signs and ads
More properties with prices rather than Tender or Auction
More incentives such as cars, trips etc. when signing up for a new house
More ads by get rich quick promoters
Unexpected interest rate rise
Serious political crisis
Median property prices falling 3 months in a row
A sharemarket break or major company collapse
Tax changes that tax speculation

The bottom is close when:
Several medium-large companies collapse
Many mortgagee sales in middle-upper class areas
Increase in offers of vendor finance, interest free loans etc.
Horror stories about those who've lost life savings

At our local supermarket in West Auckland there were a couple of guys in black promoting no-commission property sales, two different guys (again in black) were there several weeks ago - is that another sign?

My girlfriend wants to buy a house at Xmas (about $80,000 down on a 250-300 grand property) but I'm concerned that we will be buying at the top and if there is to be a downturn, a wait of 2 or 3 years would be more profitable. Also, at 50 plus, we can't afford a mistake.

Do any posters here observe any of the above signs occurring at the moment or have other comments.
Cheers
George

[George]

Perhaps the lack of interest in the property forum is another sign!!!

[Halebop]

Maybe nobody wants to start an argument

The economy looks to have peaked although a cold winter might mask a retail soft spot. Petrol is still the wild card for me and may yet go higher. While activity in Auckland's property market has been soft I think we haven't seen anything we can emphatically call falls yet*. Rising wage claims on a softer economy spells falling productivity, which was the precurser to the property slumps in the late 80s and mid 90s. Productivity is an under reported barometer in this country but is key to both sides of the economic divide: wealth creation and the tax base.

Olly Newland might know a bit about the property market but his insights into other areas of the economy can be "interesting". I think he carries a bit too much baggage from Landmark Corporation.

* ...but don't trust the REINZ numbers, they report what is selling, not what average property values are. What is "selling" could just as easily be a subset of rising value, "in demand" real estate in an otherwise generally falling market. It's a w@nky measure and I'm not sure why it occupies so much head-space.

[George]

Re Newlands "the bottom is close when there are many mortgagee sales in mid-upper class areas".
The latest Listener on page 18 says "The evidence is there in the rise in mortgagee sales, ads for which have recently been filling whole pages of the Heralds property pullout. Paul Humphries of Barfoot and Thompson confirms that it's happening more at the top end of the market too - the only good news is increased immigration of nearly 11,000 in the past year has held prices up so far".
How can a bottom be close when we haven't had any noticeable fall yet???
The Listener piece was related to "a retail addiction that is just crippling people, especially those on middle incomes and above". The article "Desperate Homeowners" was about how the increases in petrol, energy, rates etc. are squeezing many people and may influence them re any property purchases.
Today in the Herald the cost of water also is to rise.

[Cooper]

So when it comes to property crashes, you're curious, george?

See what I did there? Eh?

It's a good question but hard to answer. Newlands draws from past experience but to some extent the current level of property prices may or may not be reliant upon the amount of excess liquidity floating around. Add to that the exciting battle of inflation vs reserve banks worldwide and it gets harder to answer.

I know the Economist has been arguing that there are bubbles in the property market on the basis of property values being reliant on 1) An individual's income (to purchase the property and finance debt) and 2) Yields, which are reliant to some extent on an individual's income. By those measures (affordability and real income), there should be a plateau or a drop in values. The argument is logical.

But at the same time there may have been a shift in the perceived value of property. Such a change in perceived value might provide a strong basis for continued relative strength in the property market as people's willingness to pay for a set unit of property increases. If everyone thinks that property is going to remain at a similar relative level, then it will, and affordability can go hang.

But even if there is a property value correction it may be realised through a number of different avenues. Sharp correction or long plateau in a relatively high inflation environment? Don't know.

[Cooper]

Also, it should be noted that there appears to be greater demand for "entry level" housing than there does for higher cost houses. As household affordability decreases, lower-end property values get driven up. As Halebop mentions, the figures may be misleading in regards to the state of the market. There may actually be more than one market: Low priced houses and other houses, with the lower priced ones bid above their long term relative value.

My fiance and I are looking to upgrade to a larger house, so we're having a look around at the moment as well George. I've given it some thought and I honestly can't say whether my decision to buy would be affected by current market conditions or not, but as we'd be simultaneously selling into the same market conditions (actually into different market conditions, possibly, if paragraph one is correct) we are "hedged" to a certain extent.

I wrote a long, convoluted email to a friend after they asked me whether I thought they should buy, and if you compare current rent prices to interest payments on a strictly monetary basis then renting currently seems to me the best option. I guess it depends on how much value you or your girlfriend would place on home ownership. I advised he wait until he had more of a deposit and because of market uncertainty, but that was advise from a friend to a friend (he can always give me a belt if I get it wrong). Good luck for whatever you decide, regardless.

[corwen]

All I know is that the usual cycle is around 8 years.
Thus, must be close to peaking. The US market is dropping,
we usually follow yhem. Take your pick.
I wouldn't want to buy at present prices in some areas.

[da player]

a different point of view.or 2

i have just come back from overseas and can definately say that from a global perspective NZ is CHEAP.....

however i am a homeowner here 75% equity in an average North Shore home and i am considering selling...working overseas - bankking the money in the possiblbe event of a 20% drop in prices....

my house is not a home it is an investment---any thoughts on doing that???

[trackers]

quote:Originally posted by cantab

NO

Well said.

[trackers]

quote:Originally posted by da player

a different point of view.or 2

i have just come back from overseas and can definately say that from a global perspective NZ is CHEAP.....

however i am a homeowner here 75% equity in an average North Shore home and i am considering selling...working overseas - bankking the money in the possiblbe event of a 20% drop in prices....

my house is not a home it is an investment---any thoughts on doing that???

Hmm.. I don't think prices are going to go down, I think the very low (even taking into account that they've pushed the bar back on this) unemployment should push up wages to the point where the earnings multiple to buy a house isnt so bad; I do believe we're in for 1/2 years of stagnation until wages move higher and/or interest rates drop to a more encouraging level. I could more see the validity of your idea if you said bank the money in the case that house prices go down significantly and/or interest rates go down significantly - but hey thats just me