KEY POINTS:
Here is an earlier selection of Your Views:
Fraser
I have never known anywhere in the world where all you hear is about how the housing market is going to plummet. I think it is people who are annoyed about not having their foot on the property ladder that start these rumours as a form of sour grapes. I have been in property in some form or another for 18 years and as a long term investment, it is a great idea. Why do people think so many people from Australia, the US, the UK and the Asian countries are buying here. Go down to Taumaranui and see who is buying up all the property there. Go down to South Island and look there. The reason that interest rates are so high is to attract investment from overseas and to keep imports cheap, thus making us think that we are better off than we are. Credit card debt is easy to get no government efforts made to curb that!
Just face the facts, there may be a slow down in the housing market, but if you can afford to hold on to your investments, you won't lose out.
John (Nelson)
As we arrived six month ago in New Zealand, we are probably one of these 'cash rich' emigrants some of the previous writers referred to.
Although looking for a property we have not bought yet because our experiences in the market have been very disappointing so far. Vendors still have hugely inflated price expectations for mediocre properties, in particularly when they hear that your are a foreigner. Real estate agents (with the exception of a very few) are at best incredibly incompetent (compared to overseas agents) but most of the times behave arrogantly, are unhelpful and don't like a buyer negotiating a price. Often properties are advertised without an asking price or are put up for tender. In practice, as we found out, this means "vendor wants top dollars" whereas "offers over ..." means "your offer must be a lot of dollars higher". We have decided to stay renting until this over-heated property market returns back to normal and vendors/agents treat us with a bit more interest and respect. We advise other emigrants to do the same and not to rush into stupid property deals. Besides, the current dollar exchange rate makes New Zealand properties a lot less attractive for foreign buyers.
Looking in
The housing market will correct as it always has in the past as housing always tends toward a mean market price that is a multiple of people's income. Housing is not divorced from people's ability to pay for it, but when a correction does happen it never plateaus or flattens. It always overshoots the mean on the way downward and stays down for years because of a change in buyers' psychology. Let's not forget that whatever the returns, housing as an investment or even to own is a hassle. You have to have a good reason to take on that hassle and the returns are lousy in NZ at the moment. The maths all point toward renting or investing your money somewhere else. Here in the States the housing market is crashing and is looking like crashing severely for many factors but mainly because the market became too expensive median prices have become many multiples of people's income and the only way you could keep the first home buyers the bottom of the sales pyramid coming in was to loosen and expand credit just as has been happening in NZ. As an NZer abroad I read the media coverage about real estate in NZ and I'm amazed. Ninety nine per cent of it is from parties who have a vested interest in the property market staying up the real estate institute, property investors, banks, and these opinions are reported as if they are facts. No counter arguments seem to make it through in to the press. The first signs to look for a property market correction is how many houses are for sale and number of days a house stays on the market. When both of these go up and stay up you know that the first sticky part of a downward cycle is starting. Sellers refuse to believe their house is not worth what it was a while ago and buyers refuse to buy at that price hence the stickiness in price. But the momentum is with buyers and some sellers have to sell and the price they sell at becomes the comp and that sets the market and keeps setting it down. Also, reporting the median price in these situations is almost useless. What type of house is the median price buying? Is it a three bedroom or now a four bedroom with a view? Big difference and the median can easily be skewed by the higher end of the market not as affected by mortgage rates and sizes. Meanwhile the correction is already happening but not being reported on because no one is delving in to the figures in the right way.
Cindy
I wish it would drop! I'm tired of renting. I owned my own home but had to sell because or a separation! I have a $25000 deposit and earn $60,000 a year yet I have to sit and pay $365 per week in rent because in Howick, Auckland where I live and work I cannot buy! Yes it is due to immigration. I work at a college and only 35 per cent are New Zealand born the other 65 per cent are migrants and yes they have made the prices absolutely ridiculous in this area there is just no way people like me can get into the market. I think people have also got way too greedy and buy property after property to make money while we are left to rent due to this greed. I hope it drops and I hope it drops dramatically that should the wipe the smiles of their faces.
Kyle (North Shore)
I am 21, have a partner and we are looking to move into a house shortly (currently renting in Takapuna). To be honest, we are not interested in getting into the housing market for the next five years, the money is all artificial and there will definitely be some good buys when a lot of investors can't afford the 11-12 per cent interest rates in the next year or two, and decide to bail out of the housing market all together. At the moment, we are quite happy just to save up to be able to afford something, rather than sink under a $500,000 debt level for the next 30 years. It's just not worth it at the moment.
Peter (Auckland)
Some of the recent sales in the area I live have been crazy QV 600,000 and sale price $1.2 Million. That to me seems a highly inflated price that could easily see a major correction. However, at the auction for the house next to mine there were three interested parties. Two from England with converted pounds and the price did not seem to be an issue. I would say its more immigrants or Armageddon for the market.
Pete (Auckland)
I recently purchased an investment property because every one kept saying that property is the way to go and because it's been good for a few years that it will never go down. Now that I have one I firmly believe that you should buy one too so that there is more demand in the market and the value of my property won't fall. Or maybe I'm really an ostrich.
Agent (Whangarei)
Someone once said, when a taxi driver discussed with his passenger the shares that he had bought and sold that day, it was time to get out of the sharemarket. Now, the average person on the street is discussing the properties they are buying, doing up and selling. Could this be a sign that it is time to get out of the property market? Any person who knew for sure when the market was about to turn would certainly be a very rich person. The market is not that simple. However, there are indicators which must be monitored. These include interest rates, supply and demand, other economic indicators, the overall level of property price increases and length of the current property cycle. The value (overvalue) of the NZ dollar could result in a sudden fall where overseas currency traders can withdraw (sell) vast amounts of NZ currency at short notice should they believe the NZ$ is on a downward trend. This will have a huge effect on the economy, including property. Property investors that have exposed themselves through high level borrowing and low return, and home owners with stretched budgets, are now at high risk. Many homes on the market=glut=price falls.
Hyperborean
The housing market (along with the national/international financial system, if appropriate) will collapse when it is politically judicious for those who might benefit from it for it to do so. Personally, I hope that it does and the sooner the better.
Young Professional (Auckland)
A recent article comparing the price of a house in Auckland vs a similarly priced house in Sydney and Melbourne showed something very simple, and I am sure that a lot of other people saw it too. When you can buy a better house, in a city with a larger labour market, and a significantly higher average income and lower crime rates, it is a no brainer. Whilst I love my country unless house prices significantly reduce to an affordable level within the next three years I will be packing up and leaving for greener pastures.
James Penwell
Collapse is probably too strong a word but a slow-down and correction are more likely. People wanting to buy now should be extremely careful about how much debt they take on. The Reserve Bank may not be finished with interest rate rises yet. Personally I will have no sympathy with any developers, speculators or with anyone who has taken on extreme levels of debt. They will have nobody to blame but themselves (though no doubt they will blame everybody but themselves). I have done the sums and I am financially better off renting (at a lower price than I was paying three years ago) and investing my money in shares, bonds and other financial instruments. I do not buy into the 'capital gain' argument of the property market. The money that you spend on interest over the years now will more than offset the so-called capital gain, which after all, you only realise when you trade down and how many people ever want to do that!
Investor
KiwiSaver will generate a huge amount of money that will be seeking a home in shares or property. Governments proposed equity sharing for first time home owners will also prop up an inflated property markets. Share markets can be affected by the government's FDR method of some off shore taxable shares.
vJohn (Wellington)
That depends on who you talk to. Real Estate agents have a business to protect, so they talk the market up at every opportunity. Some that are stupid enough, believe them. A growing number of economists and analysts are breathing caution, but that depends on what day of the week you happen to read the financial columns. All the while, the markets been hyped, my neighbors have been asking 500k for their run-down shack and tiny slice of godzone. They've been trying for 6 months and cling to the belief that some 'sucker' will come along with the right offer. All of our friends and acquaintances are sitting on their cash, the ones that were looking, aren't anymore. The risks of being caught in a downturn are overwhelming and the sacrifices they'd need to make to buy into 'that' would test even the strongest relationship. So I guess, in time there'll be more of that kind of dwindling interest. And that, with interest rate pressures, will cause a property market recession, if there isn't one happening already.
Sell out of the property market!
Grant has it on the nail. With a return of 3 per cent, and no more capital gains to be seen, the only rational response is to sell out of the housing market. If the market goes sidewise then it should, in turn, fall. The question is "How rational are people?" Will they still be dumb enough to believe that house values can't fall, even when they're selling for twice what they cost to manufacture in the first place? I really don't know. My advice: If you have an investment property, sell it now. Yeah, maybe the market value will still climb, a bit, but that can't go on forever and it must be reaching its ultimate peak. In other words, the capital gains to be won (from here) are in no way worth the very real risk of a dramatic value-correction, which is now breathing down our necks. Don't be a fool get out of the market. All bubbles see their correction in the end.
Grant
The market is being driven by investors, not owner-occupiers. Return on investment in housing is around 3 per cent pa at present levels. No investor would invest for that return; there is an expectation of capital gain factored in. When that expectation evaporates, as it surely will, investors will desert the market and there will be a correction back to historical levels which are based on what is affordable to owner/occupiers and what gives a reasonable rate of return to investors. Historically, these two factors are roughly the same. The only question in my mind is will the correction happen suddenly with an actual drop in values or will it happen gradually by prices stagnating over a few years.
Nozer Bharucha
I have been hearing and reading this doom and gloom about the collapse in the real estate market for the last 5 years. And they have been proved wrong consistently. The simple fact remains while there are more buyers than sellers, there is little chance of the prices coming down. It may slow down, yes, but to expect negative percentage growth from the present 10 per cent average can only be envisaged if there happens to be a calamity on New Zealand soil with world impact.
Richard Prosser
What a load of rubbish. The housing market will carry on the way it is going as long as people have confidence in it. This report is blatant propaganda, and an attempt to influence house prices through scaremongering, where ridiculous interest rate increases have failed.
Relaxed of Auckland
Despite the best endeavours of the Reserve Bank to talk down the housing market for anti-inflationary reasons, the supply and demand factors at work (in Auckland anyway) still appear to suggest that demand and prices will remain high. Auckland has spread so much that housing close to major centres is a finite commodity, and with the continued influx of people to the area, demand can surely only continue. The people arriving from overseas are cash rich, and the lifestyle they can afford with the money they bring will continue to make NZ a popular choice. In addition, the flow-on effect of the Fontera payments to farmers can only result in more money circulating in the economy. The Reserve Bank's continuing rate hike policy will do little to stifle demand, and will only serve to extend the pain that our key export sector is feeling.
Nat
The property boom is a global phenomenon, caused by central bank money injection following the tech crash in 2000 and the 9/11 attacks (e.g. short term rates in the US went from 6 per cent down to 1 per cent.). This succeeded in staving off recession/deflation, but put a lot of froth into housing markets (to use a Greenspan-ism). This has nothing to do with real wealth, it is simply inflation. It appears, however, that the great age of cheap money is coming slowly to an end. Prospective property buyers should be cautious.
Ex-R/E Agent (Dargaville)
I believe there are enough migrants coming in to keep the market buoyant. Cannot see a slump happening any time soon.
Dan
Exactly like 1987 in many ways. Back then it was share prices that went crazy, and afterwards it was share prices that plummeted. Now it's house prices going crazy, I can't see why house prices won't plummet when the crash comes. Belts will be tightened and unemployment will rise, far more NZers are exposed this time than in 1987. Back then NZ was owned by NZers, this time it's owned by foreigners who will pull their money out if they can. It's gonna be ugly.
Frank
New Zealand: a country that has one of the largest current account deficits (as a per cent of GDP) in the developed world and the highest interest rates of all developed nations. A country where the currency is considered 20-30 per cent over-valued by some of the leading global investment banks (some of who are suggesting shorting strategies on the NZD). A country where people over-spend their incomes by 14 per cent by far the highest rate of spending in the developed world. Cities where average house prices are ten times average yearly incomes. A country that gets massively over-taxed by the Labour government and sees over 600 people leaving to go to Australia a week! NZ is heading for a big reality check and possibly a crash in the housing market, the currency and in business profitability just ask Bridgecorp. This is a country that has been living beyond it's means for far too long and when house prices start sliding and people start to realise the seriousness of servicing their debt in a market of zero or negative captial growth they may quickly understand what the term 'negative equity' means and it's not as if Bollard hasn't spent the last 3 years warning you all!
Adam
The Herald needs to stop publishing press releases from real estate agencies that have the only motivation of bringing themselves exposure and more business. These people make money by selling houses, in good times and bad, that is why they are saying sell. To suggest a REA has anything other than themselves in mind when they distribute literature about house price movements is completely naive. You can be sure they will be telling the buyers of these properties that it is a great time to buy.
Hardie Martin
The housing boom reminds me of the share market boom of the late 80's. An artificial market, not based on true values, propped up by the greedy. The real estate gurus would deny this, however, keep in mind that they are the greedy and it is in their interest to 'pump up' the market. A wise person would cash up now and be prepared to buy after the crash but not through a greedy agent.
Karl
The housing market is severely and artificially inflated and, in my opinion, mum/dad-investors are to blame. The traditional forces that shaped the housing market in the past, like population growth, have been replaced by prospectors looking for 'passive income'.
So 'bring on' the interest hikes and capital gains tax. I welcome a crash. Get prices back to where they should be. Encourage kiwis to stay in-country by offering them realistic housing prices.
Moby
I do not think house price will go down.
Dan Parun
The housing market has without a doubt well and truly 'overshot'. Prices are not sustainable which have been helped by Mums and Dads being duped into believing a barrage of 'get rich quick' seminars and promises of 'millionaire overnight' statuses. Property is an investment game which is based on commonsense and extreme calculation. Some yields on offer with the sheer preposterous levels of interest rates currently certainly don't even stake up for investment purposes. We have a misplaced fear of inflation out there and now the RBNZ has raised interest rates so much we will see how deluded they have been when inflation figures come out this week. Inflation is a thing of the past, there is far too much competition around now for it to seriously reappear again. The public sector is the problem, Cullen has expanded far too much fiscally, we are about to pay for this as it is not productive at all. We are about to see everything unravel in the apartment markets where a lot of people will lose their shirts, particularly the ones who currently have the missing-the-boat mentality.
B George
This is an actual story of a friend who is a taxi driver earning a net amount of $700 dollars per week after tax, wife being at home without a job. In 2003 he bought a two-bedroom home for $190,000, paid a deposit of $14000. Now the weekly payment for the home is around $210 probably at a lower interest rate. Now he has another three-bedroom home for $466,000, paid an initial amount of $16,000 and the interest rate was fixed for two years @ of 9.75 per cent by a private mortgage firm, hence a weekly payment of $891.00. So the weekly debt servicing amount is $891 + $210 = $1101.00 i.e. approximately 36 per cent more than his weekly earning. When asked how he procured the loan, the answer was this: an amount of $115,000 was considered or pledged as equity to the new home from his first home. Also the tenants in the new home contributed $400 per week as rent. Even after taking into account all these factors the weekly payment again comes to $491 + $210 = $701.00. Thanks, he is positive about high risk geared investments. Hopefully this would make us realise why and how people are in the housing market.
Joseph
It's high time there is a correction in the market. The government's policies have encouraged rampant speculation, with the rich buying several properties and claiming losses on property investment income, and thereby paying little or no tax on their salary income.
The government should abolish this offset of losses which has led to an artificial boom in the market. Where I come from, there was also a huge boom a few years ago. 300 per cent in a space of 2-3 years. Then came the quick slide down. As long as prices were going up and there was optimism, everyone felt it would never ever fall. But when pessimism set in, the fall was quick.
Rick
Since April 2000 the Reserve bank of NZ has doubled the amount of NZ dollars in circulation. While there are other factors that caused a decrease in housing affordability such as council's bottle-necking the supply of land available for residential use the main culprit has been monetary inflation policy of our current Government. Simply there is now too many dollars representing virtually the same number of goods as 7 years ago. We see the result in the increase in price of all goods from milk and petrol to the prominent housing market. Unfortunately for us all, one of the last things to rise is workers wages.
Inflation is here to stay, batten down the hatches, pay of all debt because the Reserve Bank needs to keep confidence in the dollar high with high interest rates. In April 2007 our M3 money supply increased by year on year by per cent14.4! This is the true indicator of inflation within NZ.
Susan O'Neill
Housing market collapse? I do not think so. There are stories every day with dire warnings and there are just as many stories with saying everything is rosy in the housing market. If the Reserve Bank would just stop pushing up interest rates and give a bit of time for the latest rises to flow through to the economy then perhaps you may see some effect, but Dr Bollard is too impatient and keeps pushing up the rates wanting an instant effect at the same time pushing our dollar higher. All that does is encourage people to get into the property market now as opposed to later in the year. Why not do the big leap get a fixed rate for the next 3-5 years as opposed to waiting and paying even higher interest rates. When will Dr Bollard stop punishing the people for things that are out of their control? People will always need somewhere to live unless he wants us all to live in tents, strange policies I feel.
Gary Pauley
Assets are valued by their cash flows. Once capital gains disappear we are left with mortgage rates at 9 per cent and yields at 3 per cent. At this point then either mortgage rates come down (unlikely), yields rise by a factor of three (unlikely, as renters would have to give up eating!), or house prices adjust downwards as they have in every other country with a house asset price bubble.
Richard
I don't know much about investment. But I know if everyone in New Zealand thinks the money you put in housing market will bring you a lot of profit, the result is very obvious: the market will collapse, at least it won't go as far as people hope. This is a very simple rule: no investment is 100 per cent secured.
Larry of Eden
I was watching the Voice of America several days ago. A similar sort of thing is happening in America. Banks have implemented lots of different types of mortgages and home owners are struggling to make repayments. For example, low doc, where banks ask few questions and will lend the money provided there is enough equity, so should things go "belly up", they can get there money back. Others include sign up for 5 yr mortgage, the first 2 yrs at a relatively low interest (below market), the next 3yr high (above market). With kiwis, they have had it so good for so long any problems with the market is just inconceivable.... just like in 1987.