A profound inflection point?

[Arbitrage]

Don't disagree about the greedies Doc. I just worry about the businesses that drive this countries economy.

The ASB has just cut interest rates:
http://www.nzherald.co.nz/section/3/...ectid=10509172

[Dr_Who]

Business is the same principle. I have invested in VC and start ups. I find that it is amazing that some founders of ideas/concpets wants to spend all the money in their new venture before seeing a revenue stream. You can spot the spenders miles away and know their concept will fail before they even start.

I had this guy who wanted me to invest in his business concept. I asked a simple question. What are you gonna do with the cash once is in the bank. His reply was, he wanted to get a flash office, lots of staff, nice cars..etc... LOL.. I mean WTF?? There is a fail business concept looking at me straight in the face.

Good business and good management will do well in the good times and the bad times. Take a look at CDI and you will see that the company is cashed up and ready to purchase cheap land during the bad times while most of the property firms are falling like flies and/or needing cash injections.

[Arbitrage]

Not sure whether i agree with the doing ok thru good times and bad. There are always shocks that can tip over a risk. Anyway, the good news is the reduced interest rates. This will help reduce some business risk.

[tim23]

Arbitrage - you sound like a residential property spruker - tried blue chip?

[Arbitrage]

Good one T-23. Sorry mate gold medallions and brylcreem don't sit well with me.

I am just a small businessman trying to keep ahead of the game in these turbulent times. Now off to call my asb bank manager to reset my loan rate.

[tim23]

Quite - they reduced them on Friday I think so good timing!

[Dimebag]

Well, coming up to six months since this thread begun, I can't say that anything I've read, seen, or heard has done anything other than reinforce my conviction that we are beginning to see the unwind of prehaps the biggest speculative residential housing bubble NZ has ever seen.

The official QV statistics now show house prices have fallen 7% from their peak, which, for any property investor using say 75% leverage, would have wiped our 28% of the relevant investor's equity. Furthermore, anecdotal evidence seems to suggest conditions are much worse than the official statistics would suggest - particularly in areas where speculative activity has been most concentrated (such has holiday homes in Queenstown and beach-homes in places such as the Coromandel), where some prices have reportedly fallen more than 50%.

Even in central suburbs in Auckland, I have heard of asking prices being cut up to 30% from last year's asking prices, and these homes are still struggling to attract buyers. My feeling is that the lack of transactional activity (i.e. sellers holding out for yesterday's prices) has resulted in the official statistics still understating the full extent of the price adjustment that has already occurred, and is ongoing.

I continue to confront a lot of resistance when I argue that prices in NZ will ultimately fall ~30%, perhaps more, and that this will be rapid rather than protracted. All manner of arguments are put forward, which are all based on the "fundamentals" (falling interest rates, increasing population, NZers desire to own property, etc etc). I continue to believe these arguments fundamentally underestimate the level of speculative activity that has taken place in NZ's residential property sector, facilitated by what in hindsight will be clearly be seen to be irresponsible levels of debt, and continue to place too little weight on the fact that prices are, by any unbiased fundamental metric (rental yields, affordability metrics etc), still massively overvalued.

History has shown that the popping of a speculative bubble is usually spectacular and painful, and also largely unexpected by most participants. The fact that people are still resisting the idea that we have had a bubble in property shows just how much further we still have to fall. A speuclative bubble develops when people rush in in the expectation of easy profits. The bubble begins to fissle when economic realities result in market participants experiencing disappointing results. When this begins to occur, people stop rushing to buy and some people sell, and then a self-reinforcing process on the downside is triggered. Prices begin to fall, and as more and more speculative buyers have their lofty expectations disappointed (property prices always rise, and will go up 10% a year...), they will exit. This process is well advanced in the US, and is now well underway in the UK, Ireland, Spain, and a number of other Western European countries.

This process has now been triggered, and it will continue until ALL the speculative money that came in looking for a quick buck exits. This will require many years of falling prices, and a dramatic reassessment by the majority of property "investors" about the real risk and returns involved in buying property.

My felling is that we have a long, long way to go. Rental yields are still ridiculously low, at about 5%, when they should be 7-8%, and prices could overshoot on the downside. This is especially the case in NZ, where a lot of our economic prosperity has been dependent on the property boom. We have a very undiversified economy, and the economic fallout from the popping of the property bubble could be severe. A deep recession, rising unemployment, bank loan losses and tighter credit, and a collapse in the NZD and a rise in market-driven interest rates could all see property prices plunge a long way indeed.

I could be being too bearish here, but I continue to see the risks of owning property as staggeringly high, and the prospective returns unbelievably low (5% rental yields) in comparison. Very interested in comments or observations/anecdotes any contributors have to share about their present experiences in the property market.

Regards,
Dimebag

[lakedaemonian]

Well, coming up to six months since this thread begun, I can't say that anything I've read, seen, or heard has done anything other than reinforce my conviction that we are beginning to see the unwind of prehaps the biggest speculative residential housing bubble NZ has ever seen.

The official QV statistics now show house prices have fallen 7% from their peak, which, for any property investor using say 75% leverage, would have wiped our 28% of the relevant investor's equity. Furthermore, anecdotal evidence seems to suggest conditions are much worse than the official statistics would suggest - particularly in areas where speculative activity has been most concentrated (such has holiday homes in Queenstown and beach-homes in places such as the Coromandel), where some prices have reportedly fallen more than 50%.

Even in central suburbs in Auckland, I have heard of asking prices being cut up to 30% from last year's asking prices, and these homes are still struggling to attract buyers. My feeling is that the lack of transactional activity (i.e. sellers holding out for yesterday's prices) has resulted in the official statistics still understating the full extent of the price adjustment that has already occurred, and is ongoing.

I continue to confront a lot of resistance when I argue that prices in NZ will ultimately fall ~30%, perhaps more, and that this will be rapid rather than protracted. All manner of arguments are put forward, which are all based on the "fundamentals" (falling interest rates, increasing population, NZers desire to own property, etc etc). I continue to believe these arguments fundamentally underestimate the level of speculative activity that has taken place in NZ's residential property sector, facilitated by what in hindsight will be clearly be seen to be irresponsible levels of debt, and continue to place too little weight on the fact that prices are, by any unbiased fundamental metric (rental yields, affordability metrics etc), still massively overvalued.

History has shown that the popping of a speculative bubble is usually spectacular and painful, and also largely unexpected by most participants. The fact that people are still resisting the idea that we have had a bubble in property shows just how much further we still have to fall. A speuclative bubble develops when people rush in in the expectation of easy profits. The bubble begins to fissle when economic realities result in market participants experiencing disappointing results. When this begins to occur, people stop rushing to buy and some people sell, and then a self-reinforcing process on the downside is triggered. Prices begin to fall, and as more and more speculative buyers have their lofty expectations disappointed (property prices always rise, and will go up 10% a year...), they will exit. This process is well advanced in the US, and is now well underway in the UK, Ireland, Spain, and a number of other Western European countries.

This process has now been triggered, and it will continue until ALL the speculative money that came in looking for a quick buck exits. This will require many years of falling prices, and a dramatic reassessment by the majority of property "investors" about the real risk and returns involved in buying property.

My felling is that we have a long, long way to go. Rental yields are still ridiculously low, at about 5%, when they should be 7-8%, and prices could overshoot on the downside. This is especially the case in NZ, where a lot of our economic prosperity has been dependent on the property boom. We have a very undiversified economy, and the economic fallout from the popping of the property bubble could be severe. A deep recession, rising unemployment, bank loan losses and tighter credit, and a collapse in the NZD and a rise in market-driven interest rates could all see property prices plunge a long way indeed.

I could be being too bearish here, but I continue to see the risks of owning property as staggeringly high, and the prospective returns unbelievably low (5% rental yields) in comparison. Very interested in comments or observations/anecdotes any contributors have to share about their present experiences in the property market.

Regards,
Dimebag

I'm in complete agreement.

We have a home we moved out of on the market......we priced it VERY favourably for both the local suburb and the current market......I'm thinking we will need to display further flexibility as I believe further news will continue to be negative.

Fortunately we are in a very favourable situation where our old family home consists of low single digit % of total tangible net worth.

Anecdotally, a few of our old neighbours in a cul de sac with no other listings are somewhat upset at the pricepoint we have chosen...thinking we have undervalued our home and that we are potentially hurting their property values.

Our new home, we got a hell of a deal on it....but I told my wife at the time of the purchase I expect the home to drop a good bit in value below where we purchased in the short-to-medium term.

On a positive note, our last remaining commercial property is seeing an explosion of interest in recent weeks, immediately following the very successful National Bank Commercial Property auction.....the yields realised were incredibly low.

I've been fielding calls for our last property approx. 1 every other day for the past fortnight...with prospective buyer tours every single day.......indicative yield is 7% for extremely high quality retail.

So I'm perceiving a possible "flight to quality" or it could just be a one-off fluke.

[LKSteve]

The driver of the property boom was easy credit. Lending in the US, Ireland, the UK etc has all but dried up - thus the collapse of their housing bubbles. Could the same be about to happen here?
http://www.nzherald.co.nz/personal-f...ectid=10534400

[miner]

We lost our footing at the top of the property mountain a few years back,since then we have been slowly slipping down on the loose gravel on the other side desperately trying not to fall off the cliff just meters below our last foot hold.

Our grip is fading on that last weak rock and we are about to fall off the cliff,and once we do it will be nothing but fresh air to stop us,not a lot of resistance,and it's a very big cliff.

Cheers
Miner