• June 2018 Newsletter

  • The Great Meth Myth and its Victims

heads roll

There is an old saying      ‘ When everyone is thinking  alike …. No one is thinking!  “  .

This is very true in real estate and we have just had a classic example of this with the current Meth’s test debacle.  This matter makes my blood boil. Its not like the latest finding by the Governments Chief Science Advisor, Sir Peter Gluckman, is new. This matter was first raised by Dr Nick Kim, Massey University’s Chief Chemist about three years ago. His comments were broadly dispersed through the media with several television programmes outlining his views.  He was adamant that the Ministry of Health had it all wrong.

To make matters worse this man was on the Government advisory board that set the standard measurements in the first place. Dr Kim was clear that: – “the way the test was being used to measure second hand Meth’s residue in houses was wrong.”  The tests were designed to measure a marker in Meth’s labs, where the chemicals used to create the product were a lot more harmful than the end product.

He said he would be happy to have his kids in a house with levels over 12 mgu and that it was no worse that cigarette smoke. I wrote and widely disseminated an article headed “The Great Meth’s Myth “, predicting that with this new information, things would change . And they did a tiny bit. The same people who had misunderstood how the test should be applied in the first place raised the level of measuring from 0.5 mgu to 1.5 mgu,  showing once again, that they had no understanding of what the test was about and continued to  apply the right to test to the wrong situation. The children’s story of “The Emperor Who had no Clothes “ has some alarming parallels with this story.

At that time Dr Kim was saying the residual fly spray on your walls was a lot more harmful to you than second hand Meth’s smoke and that if you open your windows the harmless residue smoke would clear itself.

This new research has totally validated Dr Kim’s own findings and shows just  how stupid some people can be. Especially the people who apply these types of rules to the public.

Unfortunately, there are numerous innocent victims of this stupidity. The insurance companies that have paid out fortunes to have houses de-contaminated that didn’t require it. The house owners who have paid cleaning companies thousands of dollars to clean houses that didn’t require it. Landlords who have had regular tests done when tenants have gone into or out of houses which wasn’t required.

And it doesn’t stop there. The cost to home buyers who have had lawyers and banks insist that a Meth’s test, costing around $400, be a standard clause in any sale and purchase agreement, or the home owners who have negotiated thousands of dollars off the value of their properties to buyers because of low level contamination. (Just 1 hour and 30 minutes before the new information hit the media we had negotiated and signed off $75,000 from the sale price because of a low level of contamination).  My heart goes out to the owners as victims of blind bureaucratic stupidity.

This whole scenario is just so wrong and undermines the publics confidence in the people who make these standards. Its not the scientist like Dr Kim, who created the measures, nor in this case the media who widely promoted Dr Kim’s findings,  but  the hidden nameless individuals and committees who hide in the bureaucratic halls of government departments, who didn’t understand what they were doing,  and continued to apply the right test to the wrong situation. How many other examples do we have where this is currently happening.  Ian Wishart’s book “Show me the Money  Honey “ suggests quite a few in the medical field alone.

Sadly, it again reminds me that there is a lot of money to be made from alligator skins so not everyone is thinking of draining the swamp.

I do hope some heads roll but I bet they don’t.

Link to earlier article  Earlier article

  • WDC Population Figures Widely out of Whack

population

Most countries have difficulty accurately measuring population growth. This is because it is based on the Census figures that come out every 5 years. It is estimated that about 8.7% of the population don’t fill in the census so the figures given are already 8.7% behind the actual figure. The  Whangarei District Council use the census figures, as you would expect, and have reached the following conclusions about our population growth:-

The WDC predictions for the future are:-

Over the next 30 years, the population of the Whangarei District is expected to increase at an average annual growth rate of around 0.9%. The population of the Whangarei District is estimated to reach 110,000 people by 2043, an increase of around 26,000 people from 2013 or approximately 870 people per year.”

However, individuals in the WDC who are monitoring historical growth figures are already noting that the population is growing quicker than planned.

Mrs Seutter said the recent statistics, estimate Whangarei District’s population to be 87,700 residents, a 2.1% increase on the previous year, and reveal that just over half of this growth is in the urban area.” (WDC planning June 2016)

One has to question why the population is growing at 2.1% yet still be assessed at 0.9%

Based on the 2016 estimate the population of the Whangarei District at 2018, is currently sitting at 87,700 +870 +870 for 2017 & 2018 = 89,440 people.

We know from the census returns that this figure will be underestimated, but let’s look at what we can currently measure using other sources. There is a Government body that accurately records people registered with doctors and the medical system.  As their funding is based on the actual population seeking services this proves a very accurate way of tracking population growth,  because to have access to the medical subsidies available in our health system, you have to be registered. What these figures show is a very rapid  growth rate since 2013 but more significantly since 2016. Keep in mind the WDC population growth estimate is for 870 people per year.

 2016                         1835 new registrations                                                                               2017                          2094 new registrations                                                                             2018                            on track for  2432 new registrations

This is over double and closing on treble the WDC estimate, but in line with the WDC statement of 2016 showing a 2.1% actual growth.

This means that in a 3 year timeline from 2106 to 2018, while the WDC is planning for a population growth of 2610  people,  the population is actually on track to  more than double that growth rate at 6,361. The last 5 years of medical figures show that the population growth rate is accelerating, so the WDC is not only underestimating the real population growth but falling further behind each year.

  • What Impact on Housing Demand.

boomThe below snippet is taken from my July 2015 Blog post and explains how many houses we need per 1000 people.

Statistics NZ say the average number of people in each occupied Whangarei household is 2.5 people per household. WDC has a higher figure of 2.77 as they have factored in the empty holiday homes. 84,500 divided by 2.77 people is 30,505 dwellings required and 84,500 divided by 2.5 people per household is 33,800 dwelling required. Based on these two calculations, we are either currently keeping up with demand or we could be around 2,500 dwellings short. If we support the WDC figures (and I do) then we are currently sitting about right. However, if we see the kind of growth rate that is being suggested by the Hospital research, then we are facing a looming housing shortage starting about now. We need 361 new houses per 1000 new people and residential resource consents for new homes are running at about 350 per year (WDC resource consent monitoring 2014)” 

The current WDC new house building consents (these are issued house permits, so some may not have been built yet) 

2016     612 new houses                                                                                                              2017      611 new Houses                                                                                                                      2018 to date 253 New houses

Based on the WDC figures of 361 new houses for 1,000 people, we are not keeping up with our current demand by about 80-100 houses a year.  The consents from 2016 are nearly double the consents of earlier years so kudos to the building industry. The surge in new houses built means the looming crisis has been partially averted and we have a shortage of houses in the hundreds rather than in the  thousands as is the case in Auckland. However, we are seeing new builds failing to keep up with population demand and the gap will grow and therefore we will continued to see pressure on the available housing stock.

As mentioned in earlier articles this will first be seen in the very bottom of the rental market. The people with poor tenant history will be the first to find they can’t get a rental. We are well into that phase now. Our rental department says they get well over 1,000 inquiries per month. Of these 80% will not fit the good tenant requirements for our landlords. This indicates there are 800 people inquiries each month who are starting to find the supply of houses is drying up for them.

The problem most builders are facing is the lack of sections available for sale. We have fallen way behind the numbers needed which is not helped by the draconian processes and costs one must undertake to create a section.

Enter the super heroes of the urban environment …. The developers!!   I have said before  that these people are not the enemies of the state they are so often portrayed as. These are the heroes of the people, the knights in shining armour who bravely put on their plastic safety helmets  and armed only with wads of money and a shield of reports combined with  the patience of a snake charmer, take on the legions of bureaucratic dragons within the system. Fighting super  slow motion battles , these modern heroes battle  against overwhelming hurdles and weird senseless conditions, to eventually triumph through to win a few sections> The builders then  create your next castle and future  haven and the dragons get the last laugh by taxing you every year to live in it.   Bless the developers, your heroic work does not go unnoticed!

  • House Prices Keep Rising with a Surprising Jump.

House Prices

Corelogic have the average Whangarei House price in May at $524,268. This is a huge jump on the previous month which was at $512,326. The rate of growth suddenly accelerated from what has been a gradual decline. This could be a one-off anomaly, but it may be the early signs of some new pressures in our marketplace such as the aforementioned population growth. We will monitor this jump carefully as this May saw increases back to the market peaks  increases with property growing in value at around $3,000 per week.

In the office we are seeing  pressure on any property priced under $650,000 with multiple offers on many, which appears to be driven by the first home buyers back in the market. The market still has a strong upward drive, so while the rate of growth is slowing, we don’t see house price rises stopping anytime soon.

Our new year prediction of the average house price being in the $525,000-$550,000 by the end of the year looks like it may be conservative with us nibbling at the lower end of that figure 5 months into the year.

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Electric cars, Unions and Real Estate

Content;

Newsletter

  1. Electric Cars and batteries
  2. The impact on powering houses.
  3. The future rise of the Unions. CEO wages versus General wages. Lessons from the USA
  4. House prices now and tomorrow
  5. New Zealand Population Growth

 

Electric Cars are the Future Electric car

One of my sons works as an Operator at the Marsden Point refinery and he will considered this article blasphemy. Sorry lad, but I think the writing is on the wall.

I have recently read the Elon Musk book by Ashlee Vance. It’s a great read in itself but more importantly shows the age of electric cars is upon us now. All that’s holding it back is the amount of cars that can be produced.

In the news you often hear how his company “Tesla” is in trouble with slow production levels and two fatal car crashes. This is typical media hype.

The only trouble Tesla is in in, is that they haven’t streamlined their factory production levels to meet the 2500 cars per week targets. (they will then raise this to 5,000 cars per week and then 20,000). Around 450,000 of these cars are presold with deposits paid on them, so at 5,000 cars per week they have 7.5 years’ worth of orders already. Most of the cars are sold by word of mouth without any major advertising. This is not a company in trouble, far from it, it is a company that is leading the way in new electric car production. A lot of the old-style combustion motor car manufacturers are seeing the same writing on the wall. BMW and Toyota both have shareholdings in Teslas’ battery factories and these manufacturers are starting to get into electric car production in a big way.

Think of electric cars as more like computers with a few extra moving parts. The latest car upgrades get emailed to you and you simply download them into your vehicles computer to have all the improvements.  You don’t have most of the heavy stuff  that’s in a traditional  car such as a motor, differential, drive train, brakes, cooling fluid and radiator. You have more storage where the heavy stuff used to go.

Teslas’ winning advantage is that the cars are not hybrids with all the weight disadvantages of a traditional motor along with  the extra costs of an electric motor and batteries. They are dedicated electric cars and as such, building them will get cheaper, just like building your Television did. We are in a new era of transport. It’s no co-incidence Tesla is based in the Silicon Valley area with other electronic technological companies rather than in the traditional steel towns of old.

The secret to electric cars is batteries. Tesla has now branched out into massive battery production factories which they call Gigafactory’s. (Panasonic is their partner). These factories dwarf anything we know in New Zealand with one such factory in the process of expanding from 180,000 square meters to 1.2 million square meters. That’s about 120 hectares or over 120 rugby fields, and this is just one of the battery production centres.

The secret to batteries has been the development of Lithium-ion batteries. Any home handyman who changed from their nickel-cadmium electric drill to a Li-ion one knows the huge leap in performance this created. These batteries are restricted in size as if they get too big they can catch fire. Samsung knows all about that with their phone batteries catching fire. Tesla has pioneered building huge battery packs from these small 18.6 mm x 65 mm batteries. The individual batteries are the AA size you would put in your torch but by putting many hundreds of these small batteries together along  with a cooling system, Tesla have created big battery packs of around 540 kg. These packs are safe and can power a car for up to 550 kilometers on one charge.

But wait there’s more!!! The giga factories have just developed a slightly larger battery. Its 21 x 70 mm so that’s only slightly longer and fatter than its’ predecessor. Its about the size of a 12 Gauge shotgun shell. Although a commercial secret, Tesla says these batteries are 35% cheaper to produce and have about twice the power of the 186 x 65 batteries.

We all know that electronic technology goes ahead in leaps and bounds and that electronic products just keep getting cheaper. This will be the case with the electric car. Within 1-2 years there will be the next big break through in batteries that will see vehicles with 700- 1000 km ranges. There are strong rumours that the next battery technology has been found and uses a different and more common product than Lithium.

And the two fatalities! Both were people incorrectly using the self driving technology when they shouldn’t have.  Nothing to do with the cars safety but a lot to do with the self drive technology that still has some teething troubles.

Prediction. Electric vehicles will be the top selling car in NZ within 5 years and combustion vehicles will be all but obsolete with 15-20 years.

 

question mark So what will be the  impact on housing?

Travel will be cheaper and therefore people will be prepared to live further from their work. Combine this with the portability of work with the advances in internet and data speed.  Peace, privacy and quality of life will become more important than they are even today. Driver-less technology is a partial reality today and as this gets  developed to much higher safely standard the drive to work or school may become a time for a nap or to read your emails.

Good schools will still dominate the choices of young families, but the provinces and country districts will benefit from people moving out of the cities for lifestyle reasons.

The technology of these new batteries will transform power supply for domestic housing. At the moment solar powered homes are the rarity and only marginally economic, but with the new technology solar power capture will improve and the all-important storage of that power will be more efficient. It’s probably not worth rushing out and buying solar power now as the collection and systems will improve over the next 5 years and today’s systems will be obsolete and expensive by then. For example, Tesla’s Home Power-wall 1 storage battery held 6.4 KWh while the Tesla Power wall 2 which came out 18 months later has 13.5 KWh. Its still shy of the average NZ homes daily consumption of 46 Kw but with the speed of technology advances, standard new build homes will have the option of being entirely self-contained for power in 3-5 years. Its only going to take one more advance in battery power or one more advance in solar power recovery, for the dream of being self contained in power to be a common reality.

With technology improvements daily power consumption will go down. Take for example your hot water heating  which typically accounts for 40% of your power bill. The latest technology, (which is being used in NZ homes today)  uses the latent heat in the atmosphere to  help heat your water. Its the same technology as your heat pump. It sits outside the house and can link into your existing hot water cylinder so you can take it with you if you want. The manufacturers claim it can reduce your hot water bill by up to 70%.

The rise of the union movement. CEO salaries and the revolutionUnion

The New Zealand Union movement has had some of its saddest years. The once powerful unions lost touch with the people they represented and over a number of years paid the price for a high level of arrogance. New Zealanders turned off the union in droves and are still doing so in huge numbers as the Union movement continues to stick stubbornly to the old-fashioned ways. However, this will start to change, and a new breed of union is on its way. The wages to boss’s gap is getting bigger and it is only a matter of time before the actual producers start to say we want a bigger slice of the cake.

New Zealand is developing one of the highest average wage to CEO salary disparities in the world. Basically, the bosses who are paid to return more money to the shareholders, are squeezing the workers who produce the products by one of the higher ratios in the world. According to the Herald the average CEO of the larger organisations receives $1,732,000 remuneration per year. Statistics NZ has the average wage in NZ as just under $60,000. That means the CEO’s get 29 times the workers income.

The USA demonstrates the growing trend to reward sections of the community disproportionately with the CEO ratio moving from 33 times in 1978 to 276 times in 2015. The average worker pay over this period moved around 10% while the average CEO’s salary moved around 950%.

These types of increases are not sustainable and are a bit like a pyramid scheme. They will reach a level that the general population find intolerable. We note that the NZ Reserve Bank has alluded to this issue on several occasions mentioning surprise at the lack of wage rises and the contribution to continued low inflation.

Research by Jonathon Tepper in the article “Why American Workers Aren’t Getting a Raise” suggests some key reasons that all seem to have parallels in NZ.

  • The weakening power of the Unions. The ratio of union members in the USA has dropped from 20% to 11%. In the past the unions drove up workers wages while checking CEO wages. Weak Unions mean there is no check on either. The few unions that are still strong have better average wages for their members. (In NZ Take the operators at the Refinery for example.)
  • Company owners are taking a bigger slice of the pie. Corporate profits as a percentage of GDP are at record highs while wages are at a record low as a percentage of GDP.
  • Too many industries have become monopolies either in the country or the locality
  • There is not enough divergent competition for workers. The trend towards monopolies means the company does not have to compete for workers. (some examples given in the article are:- Two companies control 90% of the beer Americans drink, 75% of Americans only have one internet provider, 5 Banks control half of the nations Banking assets, 4 companies control all the US beef market, 4 Airlines control almost all air travel.
  • Over half of all public firms have disappeared in the last 20 years.
  • Average mark-ups have increased from 18% in the early 1980’s to 70% in 2014.
  • There is a growing disparity between wages in the big cities and wages in the provinces.

It hasn’t happened yet, but this growing inequality suggests that rather than a French style revolution where all the boss’s get guillotined , we will see a surge back to unions. The wage earners are not going to continue to see themselves on a diet while the big boss continues to get fatter and fatter consuming a bigger and bigger slice of the cake. Unions will have to shift their thinking from the old school testosterone fuel behemoths of the past to something modern and sophisticated, but it is inevitable that something is going to change. The corporations and CEO’s will only have themselves to blame as we enter a new age of strikes and industrial action. Days lost to industrial action always rises during a labour Government and we are seeing the early signs of this with a looming nurses’ strike just around the corner.

House prices now and tomorrow  

stats

The just released Core logic figures for Whangarei show our city and region still rocking ahead with an average $510,409 price for the city and still rising, although slowing a bit. The fundamental shortage of properties remains the main driving force and until this is met prices will continue to head up. Our own figures show that it’s the bottom half of the market that’s gaining impetus. In a recent sales meeting we saw that 94% of our sales were under $600,000. In the last newsletter I predicted that we would see a price growth phase in the early part of the year with a slower period in the winter and then rising again in the spring. More like the traditional markets of the past.

The current level of sales is backing this up with offers and multiple offers on most under $500,000 properties and busy open homes. The small drop in the deposit ratio to 35% has seen a flood of first home buyers come on the market and this is further driving the bottom end. Investors are back, and the current price rises have a lot of buying pressure behind them.

New Zealand Population Growth Still Rising

The latest net migration figures are out, and we have hit our highest net gain ever of 72,300. This is the figure left after all the people leaving the country is deducted from all the people coming into the country. Hopefully this isn’t the result of the Aussie’s populationcontinuing to be bad sports and sending back all those good Kiwis that they turned bad and they now consider too rough for their country. Seems hard to believe that someone’s bad character can be a reason to send them home to New Zealand when usually bad character is a pre-requisite for a leadership role in an Aussie sports team or politics. Think of how many future leaders they are deporting.

For us this migration trend continues to put underlying pressure on the housing supply. This upward correction cycle has lasted longer than most and seems to be drifting on, pushed from behind by the migration figures back into our country. Most of these people are not in a position to buy so we are seeing increased pressure on the limited rental stock, with our company reporting record levels of inquiry for houses.

This underlying population pressure will continue to push property and rental pricing in New Zealand. We are at a time when we should be moving into a slow market growth position as prices have caught up with where they should . But with the current population growth continuing upwards we have a conundrum with cooling price pressure meeting rising population pressure.

Next issue we will look at the local population growth versus the housing supply.

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Email me if you have anyone that wants to be on my database and who will be interesting in receiving this newsletter on a monthly basis.

barry.joblin@harcourts.co.nz

 

 

 

 

February 2018 – Newsletter

Contents

• Real Estate Lessons From Colin
• House Price Predictions
• Rentals and Rent Rises
• The New Government And What It Means For Property.
• The Media And Why I hate Them

Real Estate Lessons From Colinmoney tree
Back in the early 2,000’s I met a local farmer called Colin. Colin was building a rental portfolio for himself and his extended family. Colin concentrated on the low-cost areas that most people shied away from. He was the mystery man who would turn up at the auction without having been inside the property and he would bid. He was often the successful bidder and our company sold a good number of homes to him. We would often hear him say, in the modest, soft spoken and hesitant way of a farmer who spends many hours in his own company . “Well as I’ve just bought it I’d better go and have a look at it “ At that time he was paying about $30,000 for a freehold ex state house ,although I often heard him say how he had snapped up bargains for a lot less.

Over the years I hear about his progress through the grapevine and on the rare occasions that I run into him I would mention something like “ I hear you have got 50 Properties now”. In his polite and modest manner, he would usually let slip that he had a number usually about double what I had heard. The last figure I heard through the grapevine was that he and his family group had 200 properties and that his whole family were now involved in the business of maintaining a large rental portfolio.

Colin came to mind when I sold a property on January the 2nd smack in the middle of Colin’s specialist area for $220,000. I though if he has 200 of these then he is an exceptionally rich man. His properties would be worth over 44 million dollars. The property I had sold was rented out for $310 pw so applying that figure to Colin’s portfolio he may be generating a gross income of $62,000 a week or just over $3 million a year. Keep in mind that Colin paid around $30,000 and less for some of these properties, so at $310 per week, the property is yielding a gross return of over 50%.

Apart from having a great deal of respect for the man I have learnt a very valuable lesson from him. In Real Estate you don’t have to buy the best properties to get rich. The bottom of the market is where all the trouble is. You will get more meth contamination, rent arrears, tenant turnover and damage, but if you are prepared to tough it out it’s a sure-fire way to riches.

All property goes up in value, even the bad areas. Colin’s early purchases are worth over seven times what he paid for them in just 18 years and in all that time he would have been getting a rental return that should have covered or exceeded his loan costs. He has a business that can provide employment for his children and grandchildren and I bet his extended family are getting some of the best practical “ how to do it schooling’ that money can buy.

House prices predictions 

ask the crystal ball1Quotable Value showed their first drop in prices for Whangarei in three years . The average price dropped from a high of $500,800 in September to an average of $495,464 in October. This would suggest that the market has peaked and may be either stabilizing or on the way down.
In my opinion we still have more growth to come although I will revise this opinion if the next few months figures are also downward. We are seeing a greater number of first home buyers in the market and we are starting to see the Auckland investors back in our market. These seem to be the “Mum and Pop” investors who have now saved the 40% deposit and see the Whangarei market as affordable with a reasonable rate of return. The re-emergence of these lower end buyers will influence the averages downward.
 
Upon returning to the first company meeting on the 12th January it was interesting to see that of all the sales that occurred over the break all were under $500,000. Investment properties are selling fast and there will shortly be a shortage of supply and upward pressure on prices.
The fundamental shortage of housing is still the driving factor and until that is addressed prices are heading upward throughout 2018. 
Quotable value have the Whangarei market sitting at an even $500,000 at the end of 2107 and we predict that this figure will be sitting at around $525,000-$550,000 by the end of the year. The market rises are slowing but the demand is still there. We expect these rises to be more seasonal with the daylight savings months accounting for the majority of this growth with a slow period in the winter.
 
The prediction is 5-10% growth this year but more likely to be in the higher end of this range than the lower.
 

For a more detailed report into the forces driving house prices this year ,Tony Alexander, the BNZ economists , latest newsletter 15/1/18 is well worth a read.

Rentals and Rents  detective

Our team reported a big increase in vacant properties prior to Christmas with around 30 rentals sitting vacant. This was in stark contrast to earlier in the year when they had reported their first ever zero vacancies. This could look alarming, but I remember from my Housing New Zealand days that this was a common trend just before Christmas and just after.  People move out of their properties and share with friends and family to save a bit of money over the holiday period.
I am marketing two properties in the cheap price bracket where the house is overflowing with extra people, despite that not being allowed on the tenancy agreement. One landlord visited their property with me to find that one of the not allowed extra’s had occupied the garage, along with her equally not allowed dog. It’s something to watch for over this period as it puts extra strain on bathrooms and kitchen facilities and these temporary guests usually become permanent.
You can’t blame the tenants for finding ways to lower their overheads, but do you want that to be at your expense. Since writing this article the number of vacancies have dropped to 21 which is also in line with historic trends.
Rental prices have not gone up as much as predicted but all the supply and demand pressures that were there last year are still present and it is inevitable that we will see a strong rise in rents charged this year.
The prediction remains that rents are going to an average of $460 per week ( currently around $400) . We incorrectly predicted that this would be by the end of 2017. Its got to be by the end of 2018. Surely !

The New Labour led Coalition Government.

We have always tried to keep our personal politics out of these newsletters, although I’m sure some biases show through. So without judgement into the rights or wrongs of the current government we want to discuss what a labour lead Government means to Real Estate: –

Prices.
A labour Government has historically been good for house owners. Property prices tend to rise, and a recent press article showed that over the last 12 years house prices have risen faster under Labour than National, per annum. It seems very unlikely this will happen this three-year term as we are coming off a huge price adjustment period but history says it will.

There are some forces in play that will put pressure on house prices. The lower paid believe they are going to be better off under Labour. This has tended to result in more buyers entering the market to buy their own home. However, with the current prices and the loan to value ratios the hurdle between wanting to own, and having the means to own, will be too high this time around so we won’t see this increase.
Interest rates.

Interest Rates
We tend to see mortgage rates going higher under labour. This is very likely to happen again as by lifting the minimum wage you create pressure all the way up. Take for example a company that provides support for people who have left hospital on the way of cleaning their homes and basic health care. Most are on minimum wages with some having yearly rises above this level for length of service and skills. If the basic wage rises, so do all the rest of the wages to keep the differences in scale. The company is funded by the District Health Board for services provided so they have to go back to the Heath Board for the extra funding. The Health Board have to go back to the Government (or cut services) and the Government have to go back to you or borrow the money in competition with you. Anyway you look at it, there will be competition for whatever money is available and that means higher interest rates.

One of our successful predictions made in 2016 was that interest rates would stay low until 2019, (Despite some very learned and skilled economists saying they were heading up in 2017.) A big tick to Barry and a baa-humbug to the people who really know their stuff. This prediction however wasn’t based on any magic crystal ball or reading the tea leaves better than anyone else. It came from a press release that Graham Wheeler ( The Reserve Bank Governor ) made in early 2016 where he said that “Interest rates would stay low until 2019.” The reserve bank controls the interest rates so what they say must carry more weight than all the economist put together and the say interest rates are going to continue to stay low until 2019.

With strong pressure on inflation, especially wage inflation, it is inevitable that interest rates will be heading up by 2020

Supply.
There is no way on this earth that 10,000 new homes are going to be built this year or the next or the year after that. We don’t have the builders, the plumbers, the electricians, the land, nor the legislation that allows quick building. 10,000 homes a year is an empty election promise.

Building Costs
If the government step in and starts building (which is the only possible way towards this goal)you will see building supply companies and builders putting their prices up.The law of supply and demand applies to the people building the properties and supplying the materials as well. We have already seen this happen after the Christchurch Earthquake where builders doubled their hourly rates in just over two years.

The price per m2 to build will quickly go past the current $2,000 -$2,500 per meter standard and prices will reach around $3,000 per m2 by the end of 2020. That means the average 180m2 house will cost $540,000 to build. That is without the cost of a section. It stands to reason that if the cost of a new 180m2 house reaches $540,000 plus land (at say $260,000 per section) $800,000 all up,then that will put pressure on existing houses and they also will rise in cost .

The conundrum is this: – If you drive a substantial building programme you will drive the prices of housing up (not down) Houses will be less affordable thus defeating one of the purposes of building the houses in the first place.

Employment
Jobs get created under Labour. We are already in a growth phase for jobs with over 450,000 full and part time jobs being created since 2009. Labour will create more. Every labour Government since “Rogernomics” has increased the size of the Government sector. This coalition has signalled it intends to do just that with more Teachers and Police for a start. More jobs means more people are in a position to buy property so we will see demand from the newly employed . In most cases this will be where the household has gained two incomes and a mortgage is more affordable.

In summary we should be in for three good real estate years with a strong and growing buyer base. Many of these buyers will be in the lower end of the market so we may see average prices appear to drop a bit as these sales skew the graphs. But the reality will be the increased demand for these cheaper houses will be driving this price bracket higher. We are already seeing this in our January market.

The Media And Why I Hate Them ! Reporters

Maybe its because I’m getting older and a little bit wiser but I just cant stand how the media ( especially the NZ Herald) try to make the news rather than report it. For over a year now they have been predicting and reporting an Auckland housing crash. Take this headline on the 11th January Herald,
“House Sales Plummet in 2017 ” by Holly Ryan.
Higher prices,higher deposits ,finance constraints and lending tightening has seen the number of houses sold in 2017 plummet….”
The heading and lead paragraph are slanted to show how the Auckland market had tanked. It is only further down the script that you found out they were only talking about the number of sales which had declined . House prices had actually gone up by 6.6 % over the year. The slowdown in sales is much more likely to reflect a shortage of houses for sale than a shortage of buyers. A more accurate headline would have read

“ A shortage of listings is slowing the numbers of sales and putting increasing pressure on existing prices “ .

And then on the 18th January the heading
“The supply of Auckland Rentals drops 35% “ by Aimee Shaw
“Aucklands supply of rental properties has dropped 35% while the median weekly rent is predicted to spike to an all time high. The number of rental properties coming on and off the Auckland Market is down 35%compared to December2016 and rental prices in the region are up 3.9 percent.”
It turns out these figures are a press release from Trademe. The supply of houses hasn’t dropped by 35% in Auckland. Its just that Trademe experienced a 35% drop in the number of rental listings they received compared to December 2016. The reality is when rentals do get harder people stay in one place rather than house shopping  for better properties and locations, therefore the turnover rate drops. We have been seeing this trend all year. It is true that rentals are getting in short supply, which is a stupid but inevitable consequence of a Reserve Bank that deliberately makes it harder for people to buy rental properties. But to headline that the supply has dropped 35% is just ridiculous.
And then to say that “rental prices are up 3.9%” again shows the complete lack of understanding of the reporter. Trademe are an advertiser. They only know asking prices . They don’t know what the property actually gets rented at. To report this as factual just demonstrates the low levels of investigate and deduction skills of many of today’s reporters.
A more accurate headline would have been
A growing shortage of rental properties in Auckland is resulting in a 35% reduction in advertising”
We are in an age when reporters take press releases as gospel and completely fail to investigate and understand the true story behind them.

empowering people through property banner -2

September 2017 Newsletter

confused seaA confused sea .


We have time is real estate when the winds of change are blowing in all directions. In sailing terms, this is a confused sea and we have one right now in Real Estate. For once I’m really not sure which way the market is going. If we look at the hard evidence then we are into a substantial slowdown. Open home attendance is way down to one or two people an open. Internet enquiry is down so much so that one or two enquiries a week is the norm when in the past it has been one or two a day.  Listings are still coming in at an average rate but sales are down. Prices are stable with one or two bargains starting to appear. All evidence that the market has peaked and the brakes are on.

However, there are number of factors that may be working together to create an artificial and very temporary halt to the market. This combination may be having a temporary effect against what is a longer-term trend.

From a logical and historic viewpoint, we should see quite a bit more growth before we hit a peak. These include the overriding fact that there are not enough houses in the system to meet the current supply. The population is growing at a record level. The creation of new buildings and sections is way behind target and getting worse rather than better. Rents are going up and interest rates are predicted to stay low for a long time yet. Aucklanders want to get out of Auckland.

When we look at the factors in play to slow the market down we have the usual seasonal ones. The days are shorter so there are less daylight hours to look. Most people are still in winter hibernation mode and would sooner sit by a nice warm fire than go out and look at properties.  Historically the market is slow over winter.

Then we have my friends at the Reserve Bank with their deposit ratio’s doing their bit to build a bigger and bigger homeless pool. The Asians appear to have left the pool and are not playing in our market anymore. The media have been scaring everyone with their “Market is About to Crash “headlines. But none of these fully explain the current lull. The only new factor in play is the three-yearly election. I just about refuse to believe it could be such a big factor as people still need houses. Under labour the market goes well as more people have the perception they have more money to spend and under National most of the same people think they have more money to spend. Unfortunately, no one will have more money to spend as the various promises get watered down or sink into inflation adjusted obscurity. What will happen is the Real Estate market will continue its ever present and increasing cycles as it has done for 130 years in New Zealand and nearly 1000 years in England.  There is no good reason why the Real Estate market should pay such close attention to the election but every three year it does. Despite it having no logical reason and therefore flying in the face of reason it does. I am still in denial, but it is the only new factor in the market.

The Auckland market has stopped its slide and I would suggest is poised for its next run upwards. At some stage, although not yet , the Reserve bank will drop its deposit ratio requirements , thus unleashing the next artificially created boom cycle as the pent up dam of first home buyers suddenly do have enough deposit to buy and a new wave of buying hits the marketplace.

In Summary. The evidence is there that the Whangarei market has stalled for now. I predict that this is just a short-term effect and the market has an upside yet. We will see the proof of this in Mid October WHEN Winston’s NZ first party WHO is the king maker will make a decision. Last time he was in this position it took three months before we even knew who the government was as he horse traded with both parties to get his policies on the agenda. It was a painful process!

cl-logoCorelogics latest figures


The August figures are in and Whangarei’s average price is $497,489. Just a fraction under $500,000 which should be reached in September and recorded in the October release. The increase from July is $3,277 which is $780 a week.  The rate of rise is slowing down from 17.2% year on year to 15.7%  year on year putting my earlier prediction of 12% by the end of the year about right.

for rent

 

Rental Update


There is no doubt now that we are heading for a rental crisis. There are not enough rental properties available to meet the current demand. This is clearly evident in Harcourts Just Rentals last monthly report (Courtesy of the lovely Renee Wilkinson)

Just Rentals is the largest Rental Agency in Whangarei and they currently have just 10 properties for rent. That may not seem so surprising but when you consider that they currently have zero vacancies the true story comes out. This translates as: – every one of their vast collection of houses is full. The only properties available are the ones that are becoming vacant over the next three weeks or are deliberately vacant for repairs and that is only 10. Two of which are available at over $500 per week.

These may not seem startling figures but as the ex Whangarei manager for Housing New Zealand I can tell you they are. We never had figures like this and we were just about giving the houses away. These figures are unheard of especially in winter when you usually have your highest vacancy rate. Tenants are choosing to stay put rather than join the hundreds currently on agency waiting lists. If Just rentals had another 100 properties they could fill them in weeks. Ring Renee and give her the challenge! (021892443)

Contrast this with a steady 900-1000 enquiries a month and you can see the picture unfolding

Another telling figure from HJR is the arrears amount which is running at just 1.4%. Looked at differently this means that 98.6 out of every 100 tenants is fully up to date with their rent. Again a starling figure in an industry that deals with deaths divorces and departures like no other.

The Rental crisis is here now and rents are going to go up. If Just rentals had another 100 properties they could fill them in weeks.  Ring Renee and give her the challenge! (021892443)

angry granma

Grandma would turn in her Grave

mothballs


The security police have decided that Grandmas favourite cologne “Mothballs “are dangerous and have been banned in NZ. You know that strong smelling Camphor based white ball that grandma or great grandma put in her closet to kill moths. Invariably it tainted all her clothes so that as she walked down the street a steady stream of dead and dying moths were left in her wake along with a few overcome pedestrians, and a lot of kids saying “what was that funny smell mum?”

Well it turns out they are dangerous. To quote WebMD.

Mothballs are a pesticide product that contain either naphthalene or paradichlorobenzene as active ingredients. Both chemicals are toxic fumigants (which means they volatilize into the air) and must be present in high concentrations to be effective. This is the problem. Concentrations high enough to be effective for pest control can be dangerous for anyone exposed to them.

Mothballs can seriously impair indoor air quality. In fact, the odour of mothballs can be detected at a few parts per billion in the air. (One part per billion is about several drops of water in an Olympic-size swimming pool.)

 

Only HealthWhat are the potential health impacts?


  • Symptoms of exposure to naphthalene include headache, nausea, dizziness, and difficulty breathing. Exposure to large amounts of naphthalene may damage or destroy some of your red blood cells. This condition is called haemolytic anaemia. Some symptoms of haemolytic anaemia are fatigue, lack of appetite, restlessness, and pale skin. Exposure to large amounts of naphthalene may also cause nausea, vomiting, diarrhoea, blood in the urine, and a yellow colour to the skin. Based on the results from animal studies, the Department of Health and Humans Services (DHHS) concluded that naphthalene is reasonably anticipated to be a human carcinogen.

I don’t think the security police have finished with this one yet. I am waiting for my first contract where someone wants the house tested for ‘Mothball Contamination”. It’s coming!

Private Rentals versus State Rentals.


The 2006 Statistics which were revised in 2011 (Statistics NZ) show the following. Of all the rented properties in New Zealand;

  • 81.8%    (299,607)    were privately owned
  • 3%          (11,004)     are owned by local authorities
  • 13.49%  (49,419) are owned by The Government Agency Housing New Zealand
  • 1.6%      (6,165) are owned by state run enterprises such as education   and hospital homes

We must keep in mind that HNZ say they have control of just over 62,000 homes so that probably means they also lease around 12,500 homes of private landlords.

The key point in these statistics is: –  New Zealand would be in a lot of trouble if it didn’t have the private landlords. Near enough to 4/5 renters rent off a private landlord. These private landlords should be getting medals for community service rather being used as a political football every election and part blamed for the housing crisis.  I see the argument that they are competing with the first home buyers and driving prices up but this carries no weight when you have the Reserve Bank putting 40% deposit requirements on first home buyers and driving them wholesale out of the market. To blame private landlords and then put up such financial barriers is complete nonsense.

We need to back the private landlords who are the real heroes in a housing crisis. I can see the argument for more state sector housing but this is a huge cost to the government of the day (more than all their election promises combined ) so has to be built up over time and history shows that large scale state houses tend to create large areas of “ State Licences Uninhabitable Mismanaged   Societies” or as they are more widely known SLUMS.

empowering people through property banner -1

 

 

 

 

 

Recipe – The Sure to Rise Housing Crisis Cake !  (warning can cause indigestion )

 

Ingredients

  • Find a large smooth pot then grease it with a thick coating of Resource Management Act to ensure that all ingredients stick to the sides  in a tacky gloop,  thus infusing the recipe with a strong flavour of bitter bureaucracy
  • From a strong stock of 72,000 state houses in 1991 , slowly reduce the number to 62,000 by slicing and dicing  off both ends  of your houses .
  • Liberally sprinkle more people into the mix. The amount can vary each year but  ideally about 70,000 new people per year
  • Add a dash of 40% deposit ratios into lending to reduce, or better still drive private landlords out of the dough.
  • Use part of the deposit ratios to make housing unaffordable to the young therefore trapping them in the gooey
  • In a separate pan reduce the amount of fat available to developers until they are reduced to shrivelled husks of their former selves, unable to build anything other than canary cages.
  • Pour all ingredients into a large Terra- Firma pot ,  then add  a generous spoonful  of  homemade  “ shortage of supply rental rate rises” . Knead  into a smooth paste and leave  in a globally warming environment until the batch has doubled in size.
  • Bake together until nicely golden brown or slightly burnt,  then  sprinkle   5,000 refuges on top to ensure all support  services are completely  and entirely overloaded.
  • Best served hot  on a bed of fragrant  crushed hopes.   ( Serves 4-5 million people )

 

 

‘When Will  They  Ever Learn !    When Will They  Eeeeever   learn! 

 This chorus from Pete Seeger’s famous folk song “Where have all the flowers gone “, best describes the current round of Reserve Bank meddling in the financial markets.  We have long said the safest way to regulate the real estate cycles is to not regulate it at all. Let it find its own level  just as we let bananas, boats and boots find their own level. The market decides what these items are worth just as it should decide what property is worth.

The latest attempt by the Reserve Bank to regulate the money supply by restricting its availability is going to have unintended and serious housing consequences.

We have already talked about how the Reserve Bank decision to increase deposit rates on purchases squeezed the investors, which in turn squeezed the supply of rentals, which in turn squeezed more tenants into  homelessness.  ( April Homeless Reserve bank Link)

The new credit restrictions are going to have as dramatic an effect on supply. You will already be hearing in the media how developers are finding it hard to get finance , and how some projects have already been  cancelled and more are due to be cancelled . Developers are high risk from a banks viewpoint so they are the first to get their money supply reduced or cut off when money supply is restricted.

Yet we are in a housing crisis!

Auckland is about 35,000 houses short of the current need and this figure is growing daily. Building consents in Auckland are struggling with around 7,500 per year. So what will happen when the developers are told  “No you can’t borrow the money “. The very housing projects we need to see go ahead to meet demand are going to be cancelled or postponed and the shortfall of housing is going to get worse.

Surely we should be encouraging the developers, who are the real heroes in a housing crisis, to build more. We should be making access to funding easier not harder, cheaper not more expensive. Any thought that government of local bodies can fill this housing shortfall is fanciful. The only people with the skills, experience, expertise and drive are the developers. Cut off their money supply and you have just cut off the housing supply for everyone.   .   It doesn’t seem that the shortage of houses is going to be addressed anytime soon.

We continue to argue that that house prices should be left alone to find their own level without political or external financial interference.   We only need to look at the Auckland market as an example.  We have supplied a series of graphs showing how house prices have a natural upward progression. If left alone, they head up at about an average of 8% a year.  If held back for a few years, either by global conditions or financial interference, they have a correction period where they catch up. This is commonly referred to as the Boom/Bust  cycle.  The graphs show Auckland has caught up with its natural level so should rise at around 8% for the next few years .

The Reserve Bank is being given credit for stopping the “ Auckland Boom”. We think the Reserve Bank had very little to do with it and the Auckland market had reached its peak for that time and simply run out of steam. If growth was the effect of lending restrictions then we would see that growth stifled across the country. The reality is the opposite.  Auckland has slowed to around 8%   but the provinces are rocketing along despite the lending restrictions and will continue to do so until they have caught up with their natural level.  In Whangarei that will be around $550,000.   (Boom and Bust explained )

 

Rental Demand.

On paper the average rental price paid in Whangarei has stabilised at just over $400 per week. It has actually dropped a bit from its high of $421 to a figure of $403.  However this apparent stabilisation of rents is an illusion created by a number of cheaper properties becoming available particularly units and two bedroom homes.

Just Rentals had their highest rental demand ever for the month of May with just under 1,300 people enquiring about property to rent from Trademe alone. Compare this with the 15-20 available properties at any one time and we have a ratio of over 65 people per property just from the Trademe enquires.

Two inevitable outcomes.

Firstly rents are going to go up and our earlier prediction of rents being around $460-$470 by the end of the year is still looking likely.

The second outcome is going to be homelessness.  To date Whangarei has all but been insulated from the sight of homelessness but with the growing number of renters and the slowing amount of rentals available, it is inevitable that this will rise and the local  social support networks will be stretched then overrun.

Evidence of rising rents is in Renee Wilkinson’s latest report (BDM for Harcourts Just Rentals) :- the  highest residential rent she could find on Trademe for Whangarei is $850 pw  and the lowest is $220.  There were 14 rentals advertised at over $500 per week.

 

House Prices

Corelogics’ May figures still have Whangarei house price rises rocketing along at 19.4 year on year growth. This is in line with our New Year prediction that saw growth rise for the first six months and then start to decline to around 12 % by the end of the year.  The average Whangarei property is now at $483,049 and growing at an average of $1250 per week.  This will see the $500,000 average house price prediction made in September 2015 being reached in September this year.

 

Some Observations From The Coal Face

  • The number of buyers has dropped off
  • But then again so have the number of quality listings. If there were more average priced listings there would be a lot more sales in the city.
  • Midway through June we saw a small jump in activity. There seemed to be more Auckland buyers  in the market and we had a lot more  properties going to  multiple offers than we had in previous weeks
  • Buyers appear to think they have a bit more time to buy but the multiple offers are proving them wrong.
  • The winter is traditionally our slowest time . Once daylight savings stops, the days get shorter and there is less time and inclination to look at property .
  • The serious long term investors are still in the market but the mum and pop investors are in short supply.
  • The Asian buyers ( from Asia) are all but gone .

 

Its Tough Being a Real Estate Agent .

We are such easy targets.

Recently one of my colleagues ,  who is incredibly  street smart but struggles a bit with  writing skills, received an email with these encouraging words :-

“Have you read this ? If I was the vendor I would be utterly ashamed. Oh . and how much are they paying you for this “.

This type of email is just so harsh and unfair. I know that in a perfect world every word would be spelt correctly and every comma would be in the right place but in this day and age the people who actually know what is spelt correctly and where all the commas and apostrophes   go,  are a rare and dying breed.  Over 30 years I have meet a lot of Agents who are Dyslexic or have writing difficulties, some, including the recipient of this email,  have been truly great at their profession, despite their challenges.  I am  very proud to say Real Estate is one of those rare occupations where these people are not only welcomed and accepted, but helped to learn how to overcome these difficulties in a positive supportive environment, and in the process become better educated and earn an income at the same time .   The saddest part of this email is the writer has published a paper on the negative effects of shame on learning.

As an aside, my spell check is telling me that I have spelt the word “Spelt” wrong. I have checked its meaning  and spell check has it wrong !!! . I am either writing about spelling in the past tense or i could be describing “an ancient form of wheat with long spikelets containing two light red flattened grains” . I’ll leave it up to you to decide.

 

Good Buying .

We tend not to advertise in this newsletter but will make the exception for this property.

The property is 8 Selwyn Ave. It’s a rough looking weatherboard home right on the corner of Rust Avenue and The Western Hills Bypass. Its on it own freehold section ( less a R.O.W ) which is great, but what makes it a great buy is the location. Same side of the road as Burger King, but on the other corner. It’s zoned residential but would suit a number of professional occupations. Probably one of the highest profile locations in Whangarei with ample parking and good access at the rear.  Needs a bit of a tidy up, but a great property to buy for the future. It  was purchased for roading purposes and is going up for Public Tender  on the 17th July.  Call or email for more information .  (8 Selwyn Ave)

 

The American Economy is still in deep Stook!

Far from showing signs of recovery the USA economy is showing strong signs of tanking, not helped by being under the unstable influence of its current and isolationist  leader. The long term effect for us in NZ,  is low interest  rates  (below 6%)  for some years to come as the world economy continues to struggle.

Here is a brief summary of the opinions of a number of the USA’s strategic thinkers and investment analysts who recently spoke at the SIC 2017 (Strategic Investment Conference) in May. This conference is attended by those who make the decisions of where to invest their own and others money. These snippets are taken directly from an email sent to subscribers of “Maudlin Economics” by Ed D’Agostino .

The common theme from these men, who are paid to get ahead of the market, is refocus your  investments in the USA and get it into the emerging countries such as China and India.  With this type of thinking coming from the people who advise the advisers the USA is due for some capital drain which will not help their already blundering economy.

Louis Gave, CIO of Gavekal: Diverging monetary policies and valuations would suggest emerging market equites will outperform their US counterparts over the coming decade… Being underweight US stocks is the slam-dunk trade, while consumer-related stocks in emerging markets are attractive. With certain European sectors near their 2012–2013 crisis lows, they look interesting.

Raoul Pal & Grant Williams, founders of Real Vision TV: Investors should be deploying capital based on the powerful demographic shifts now happening across the world… With the coming wave of retiring Baby Boomers, US equites will suffer. Look to capitalize on the huge developments taking place in India and Asian emerging markets.

Lacy Hunt, EVP of Hoisington Investment Management: Every US recession since 1915 (bar the one which followed WWII) has been preceded by the Fed tightening monetary policy. This time will be no different… Today, the bond market is telling investors these rate hikes will have adverse economic consequences. We have likely not seen the low in bond yields.

Marc Faber, publisher of Gloom, Boom & Doom Report: With favourable economic conditions and massive projects like China’s One Belt One Road happening, the setup for Asian emerging markets is extremely bullish. The opposite is true for the US and Europe… Investors should be selling US stocks and focusing on quality consumer and utility companies in emerging markets.

Mark Yusko, CEO & CIO of Morgan Creek Capital Management: The US is in the late stages of the business cycle, and when the downturn comes, stocks will drop by at least 30%. The outlook for US equites is bearish, but consumer and infrastructure stocks in emerging markets look attractive. There are amazing opportunities to buy quality companies trading at big discounts in China and India today.

Peter Boockvar, chief market analyst for the Lindsey Group: Just like quantitative easing caused asset prices to rise, if the Fed reduces the size of its balance sheet, asset prices will plunge… Given today’s lofty valuations, it’s a major sell signal for stocks if economic data continues to disappoint. Investors should be deploying capital in beaten-up sectors like agriculture and precious metals.

David Rosenberg, chief economist for Gluskin Sheff: Due to several deflationary headwinds facing the US economy, expect growth to remain lower for longer… The bull-market in bonds, which started in 1981 is not over. Investors should be stepping up the quality of their portfolios and investing around “late-cycle” themes.

John Mauldin, chairman of Mauldin Economics: Very soon we will have to deal with, one way or another, the largest twin bubbles in the history of the world: global debt and the even larger bubble of government promises. There will likely be some type of debt jubilee, accompanied by huge currency devaluation. As the disruption unfolds, it will be necessary to not only diversify among asset classes, but also trading strategies.

 

Property Collapse!! – Another media Beat-up

16/5/2107 The NZ Herald reported

“New Zealand’s housing market has a 40 per cent chance of going bust in the next two years, according to global investment bank Goldman Sachs.

In a research note published this week Goldman says the New Zealand’s housing market is the most over-valued amongst the G-10 group of developed economies, Bloomberg reports.

Goldman, Bloomberg said, defines bust as house prices falling five percent or more after adjustment for inflation.

Bloomberg reports that Goldman looked at housing markets in the G-10 countries -those with the 10 most-traded currencies in the world – and finds they are most elevated in small, open economies such as New Zealand, where house prices have rocketed in recent years.

Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation.”

The weakness in this sensational report is in the last sentence “ three standard metrics”. Whose standard metrics ? Not mine!

This report ignores the three prime factors that are driving house prices . Supply, demand and interest rates.  Why an “expert’ opinion should ignore these is staggering. Supply and demand are the two factors that define all pricing in all markets. The next most important factor in house prices is interest rates. Low interest rates drive prices up.

While the three most important measures of house pricing have been ignored  two of the measures they have used are seriously flawed . . Let’s look!

  1. Ratio House prices to Rents. There is always a lag behind house price rises and rents. The house prices go up first and then the rents tag along behind, but there is a delay. Initially tenants resist the higher rents and it only as necessity hits that they buckle and pay the higher rents. There are numerous rental glass ceiling that have to be broken in this process for the rents to rise. In Whangarei one was the $400 a week barrier. That ceiling is well and truly shattered now and rents are rising rapidly. Every news report you see on rents is saying how fast they are rising and how new record rentals are being paid. This catch-up process lags about 2-3 years behind price rises so to compare current rents to current house prices in a rising market is very poor research. It may work in stable markets but not rising ones.

 

  1. Ratio house prices to household income! This is another fantasy measure. It was introduced in the 1930’s to assist with state house pricing. It doesn’t have any validity in current house values. Firstly you couldn’t compare a 1930’s house with a house of today. Today’s houses are over twice the size and have more electrical points in the Kitchen than the 1930’s house had in its entirety. This measure has no relevance in today’s real estate pricing yet it still gets held up as a standard of affordability. It isn’t an accurate measure and hasn’t been for the last 30-40 years.

 

Coming back to the basics of “ Supply and Demand.”  There continues to be a SERIOUS   shortage of houses ( in the vicinity of 40,000)  with the supply of new houses not keeping up with the growing demand. We are falling further behind rather than catching up

There continues to be a growing demand for houses as our net population grows by just under 100,000 people per year. (72,000 from migration and 28,000 by natural growth).

Interest rates are expected to stay historically low for at least another 18 months.

There is a lot of emotional talk in the marketplace, fuelled by the media who latch onto, and headline, every bit of controversial data they can, but at the end of the day logic will prevail. Until our supply catches up with demand we will have upward pressure on house prices.

 

And How good is this American owned Bank at predicting their own market yet alone New Zealand’s

  • Almost everybody on Wall Street missed the financial crisis. But you would be hard-pressed to find a major analyst at a major Wall Street shop caught more unaware than Abby Joseph Cohen, the Goldman Sachs chief strategist who still had her rally cap on well into 2008 as the market imploded. Cohen set an uberbullish 1,675 price target for the S&P 500 for that fateful year, not foreseeing that the world was crumbling before her eyes. The stock market index would close at 903.25, a 37 percent drop and 46 percent below Cohen’s target. That same year, Goldman replaced Cohen with David Kostin and moved her over to a position as “senior investment strategist.” Yet on Wall Street there’s always room for a second act: Cohen maintains a prominent role at Goldman and even was selected to go first at a recent high-profile question-and-answer session with Federal Reserve Chair Janet Yellen.

 

  • Goldman Sachs was unable to see the risk in the USA subprime mortgage market, was heavily exposed ,  and required a 10 Billion bailout  (Federal Loan ) to survive the 2007 financial crisis.

 

  • Would have to pay $550 million in fines after the Securities and Exchange Commission said the firm misled investors on the other side of the Paulson trade. Goldman Sachs tried to keep their clients in the subprime market during the Subprime collapse against the advice of Paulson.  ( Read “The Greatest Trade Ever” Gregory Zuckerman)