Market Predictions.

Contents

  1. Have We Reached the Peak of the Growth Curve .
  2. Thanks for noticing
  3. Homelessness and the Link to The Reserve Bank
  4. Rental Comment
  5. The Great Meth Myth Revisited
  6. Donkey Business
  7. Out of the Mouths of Babes

 

I have just returned from a lovely week in the Kaweka ranges with two fine men. I enjoyed a wonderful time with two great personalities. Both with new-borns so their priority was catching up on a bit of sleep. Lots of laughs, a few gut busting walks, serious games of “Risk” late into the night, loads of trout caught in the most pristine of rocky rivers, with most released. No deer this trip but they were there laughing at us,  and the big bonus is that both men were my sons!

price-rising-pic-by-julz

Back in November 2015 we predicted that the correction cycle was about to kick into life in Whangarei and owners should hold properties. I started that newsletter with the words “the winds of change are in the air”. What followed was two years of growth with the average Whangarei property rising by over $120,000 .  We are beginning to see early signs of the same “winds of change”.  It’s more of a gut feeling, supported by minimal evidence, but it does seem the Oomph! has gone out of the market . That’s not to say the market has stopped rising, far from it. The market has a lot of growth in it yet, but it is starting to look like we may be at the peak of that growth curve. While the growth will continue we are seeing the early signs that that growth rate will start to slow down.

In a recent conversation with a senior bank manager, he revealed that the 40% deposit requirement was having an effect with a slowdown in lending. He also mentioned that it was affecting all the wrong people, the first home buyers and the Mum and Dad buyers picking up a retirement income. The seasoned investors had plenty of equity and therefore less trouble borrowing.

We are seeing lots of sales happening, but the panic buying seems to have gone out of the market and we are not seeing the same number of buyers at open homes. We are still getting multiple offers on properties but maybe two or three contracts as opposed to the 6-7 we were getting in the peak.

The one thing about Real Estate is that the market moves slowly and we as Agents tend to see trends long before they become evident. We are probably at least 6-12 months away from any significant slowdown, but we think it is coming.

Auckland has been the key driver of our market and we continue to see a wave of Aulander’s taking the opportunity to cash up and buy in the provinces. This is not showing any signs of slowing yet, but will if the Auckland market continues it’s slow down and properties become harder to sell. Again we are some way off this happening as the Auckland market is still growing at around 15% year on year. Should this growth slow to around 4-6% we will see the effect in the provinces. Basically as long as there is someone to buy the Auckland properties the Whangarei market will bubble along, but should these buyers dry up then the slowdown will be here.

Its not that the market is going to hit a brick wall, far from it, it has considerable momentum and our predictions that the average price in Whangarei will hit $500,000 are still odds on, ( October sales reached $451,874), but what we are seeing is the first signs that the market may be changing. We still predict growth through this year and into next year but once it peaks in the next month or two it will gradually start to slow. Growth is more likely to be at saner levels.

We also have to be aware that the Real Estate market generally has buying seasons. The February through to June months are the busiest with October being the next. If the boom market slows down then the effect of the selling season has more influence and we see bursts of activity in these months with quieter times between

Tip.  If you are holding a property to get the capital gain, its time to start thinking about selling it. You have plenty of time, but don’t hold off too long as you want to be selling into the rising market while it still has plenty buyers. If you try to sell when the market has slowed you join a rush of other sellers doing the same and you may have difficulty.

Thanks for Noticing .

thank-you-jpg

We have had a number of people on the mailing list ask when the next newsletter was coming out. . It’s good to know it’s been missed. The last issue was in August so it has been a while. We try to put these out at least every second month, but don’t want to just be writing them for the sake of writing them. We want to make sure there is something to say and the last two months have been more of the same. A rapidly rising market, with year on year growth hitting 23.9%, in line with our prediction of 24%.  So basically while it’s been an exciting time for property owners there has been nothing new to write about. At a seminar we attended recently, we were told that if 3-7 % of the people on your mailing list read your newsletter it is a success. We currently have over 70% opening this newsletter. We really appreciate that you read it and thanks you for your support.

The Recipe for Homelessness Courtesy Of The Reserve Bank!

homeless

We have long advocated for an untouched Property market where the regulators stay out of the residential market and let it find its own level. Every time the powers that be intervene they create a crisis in another area. A past example is the building industry where the boom and bust cycles created by rising and lowering interest rates have resulted in our country now having to import builders to meet current demand and a serious lack of new building. Along with this trend we now have the 40% deposit ratio and its unintended and dramatic long term effects.

The first is increased homelessness. Imagine the supply of rental houses is like a pyramid. The best tenants get the ones on top of the pyramid, as the tenant’s suitability declines, they move further down the pyramid. The top of the pyramid is made up of quality homes in good areas and the base of the pyramid is made up of poor quality homes in undesirable areas. If the supply of good quality rentals reduces, (the intended effect of the 40% loan ratio to stop investors and speculators) then the tenants for those properties take the next best one they can find further down the pyramid. They are assured of getting it because they are quality tenants and they will squeeze out the ones below them. This process continues right to the bottom of the pyramid, where the people who are “challenged “ as tenants find they have no choices. There is nothing available for them and they drop out of the pyramid like so many water drops falling from a squeezed sponge. When the 30% deposit ratio was introduced and sales slowed down we saw an increase in the number of homeless in Auckland. That will be nothing to what is about to happen with the 40% ratio, if the Reserve Bank is successful and drives the Mum and Dad property investors out of the market. The rental supply will not keep up with demand and the vulnerable and least able to advocate for themselves will have no options but the streets or temporary shelters provided by charities.  A new wave of homelessness will be created because of the unintended consequence of the deliberate and artificial interference in the value of a house.

Basically the country needs the financial input of these investors, be that Mum and Dads or long term professional landlords. We need these people to be pumping their capital into housing. If they don’t, and we are seeing a slowdown now, then we as a country have a consequence which is more homelessness.

However there is a solution and that’s the second consequence! The government of the day can step in and build thousands of rental homes for these people to fill the gap left by the private landlords! But this isn’t easy. Firstly where are the builders going to come from and secondly where is the land?. When I managed Housing NZ for the Whangarei District in 1992 the Crown owned 72,000 state houses. By the time I left in 1994 they owned 68,000 homes.  I haven’t got the latest figures but information from the various census figure shows 69,000 is the current figure.

Based on population growth we are short around 15,000 state houses now. At a conservative cost of $400,000 per house and land package, we the taxpayer would have to find 6 billion dollars in extra taxes to fund these houses. And that is without the existing private landlords deciding they want to pull out of providing rental housing. Currently the private landlords provide around 355,500 (Census 2103) rental houses while the Government provides around 69,000. If just 10% of those landlords decide they don’t want to be owners, then the state will need to purchase or build another 35,000 homes to fill the gap. That’s another 14 Billion dollars of extra taxes needed.  We can’t have it both ways.  Either support the landlords who are doing their bit for our country by investing their capital in housing, or be prepared to take up the slack and pay way more in taxes to provide more housing. Alternately  expect a huge surge in homelessness.  I’m pretty sure we all know which way we are heading.

Since drafting this article the Government has released its $300 million , 1,400 extra temporary bed places for the homeless package. We now know which option has been chosen. In a war its called “collateral damage”

If you are looking for the early warning signs that this is happening right here in Whangarei then read the next article.

Rental Comment.

for-rent

The lovely Renee Wilkinson , Business development Manager for Harcourt’s Just Rentals , has been talking about an increasing trend she is  seeing. The number of  properties that they are advertising for rent has dropped by over 50 % year on year. Down from Mid 150’s last year to 50-70 this year .  This means there are less rentals available and they being filled faster . Because of the lack of choice more tenants are staying put rather than moving around increasing the shortage. The rental market is already starting to hit a crisis level with good, well qualified people,  unable to find a rental property.

She has also stated that they have 6-7 well qualified tenant applicants for every good rental property. This demonstrates a strong growing demand for rental properties and the flowing  down the pyramid effect discussed in the earlier article .  The good news for landlords is rent  rises are happening  as demand is clearly outstripping supply ..

meths-pic-1

                                          The Great Meth’s Myth.

We are delighted to see some common sense finally coming through on “Meth’s/P” test levels  . The Health Department have heeded the concerns expressed by Dr Nick Kim  a senior  lecturer in Chemistry from Massey University,  that they were applying the wrong measurement to houses where “Meth’s” had been smoked rather than manufactured, and have subsequently relaxed the standards .

The 0.5 level remains for “P’ labs where it has been cooked, which is what the test was actually designed for, but drops to 3 times the level at 1.5 for houses with carpet and 4 times the level at 2.0 for houses that don’t. This is a common sense approach although still ridiculously conservative as Dr Kim sated that the safe level was more like 20 and that he would be happy for his kids to live in anything up to 12x.

The amounts are still way too low for any Health risks but at least this should solve some of the ridiculous situations, where people have had to clean houses or even replace interior walls , for miniscule amounts of meths,  based on a false understanding of dangers.

One important comment Dr Kim made that all landlords should remember, is that rather than rushing in with expensive cleaning options, try opening windows for a while . The “P” contamination from smoking does break down over time just as cigarette smoke does. His comparison with cigarette smoke is a good analogy to keep in mind.

A special thanks to Dr Kim for his enlightening work in this field and the restoration of some common sense in the great bureaucracy. This man will save landlord millions of dollars

For a look at the earlier article click here

donkey

SOME INTERESTING STUFF ABOUT DONKEYS.

One of the best aspects of Real Estate is the people you meet. From all walks of life, with the experience and diversity of ages. As a result you hear the most interesting bits of information. A few days ago it was Donkeys . The information came from four different people all in the same day.

The first gem was Donkeys live a long time. Your pet braying machine can live for up to 50 years! No wonder they get so smart. This came up as I am about to list a property where the pet Donkey has stayed as part of the chattels. The Donkey has been there for as long back as anyone knows yet the property has changed hands three times.

The second snippet if that Donkey’s keep bulls in line. If you have bulls run a donkey with them. The Donkey will be peacemaker and will stop the bulls fighting. One Donkey will keep about 30 bulls from fighting. They do this by kicking the bulls and biting the bulls on their rumps when they get aggressive, and if that doesn’t stop them they will bite them on the testicles!! No wonder the bulls fall into line.  There’s nothing like a nut cracker from a large toothed Donkey to take the fight out of you. !  Perhaps they should be introduced into our prisons.

And then, American sheep farmers have been known to run Donkeys with their Sheep in the wild country. Donkeys have an aversion to any canine and if they are in their patch, will chase them relentlessly, and as we all know “they kick like a mule”. The Donkeys keep Coyotes and dogs away from the flock. Apparently they can also bite down on a Coyote’s neck or back and throw them through the air.  What a useful if slightly noisy animal.

From the mouths of Babes

little-blond-girl

Just an aside , My sweet, angelic, blonde, butter wouldn’t melt in her mouth, three year old  granddaughter fell hard on her rump, at her Great Grandmothers 60th Wedding anniversary, after trying to scale a table.  She has two older brothers who teach her all sorts of strange language, as evident when she loudly proclaimed to the throng of oldies who had gathered around her concerned about her wellbeing.  “ Oops ! think I might of cracked  my ball sack!”

                      

August News letter

Barry - Email Header

Whangarei Real Estate Market Stays Hot Over Winter

price risesWhangarei property price rises continue to accelerate. The average price, as per Corelogics latest August release, is $421,750. Rising at 19.9% year on year. That’s growth at $1,614 per week for the average home in the city. While the press gnash their teeth in fury at the ‘Housing Crisis’ most home owning New Zealander’s will be rubbing their hands together as they see their wealth growing. At the beginning of the year I predicted we would see growth between 17.5 and 22.5% this year. I also predicted that this growth would accelerate in the first part of the year and start to slow towards the end of the year.

I am never wrong small

I suspect I will be wrong on both counts. Growth is very likely to accelerate beyond 22.5 % as Tauranga has now hit 25.7% and Hamilton has hit a massive 31.5%. Hamilton’s growth rate is now faster than Auckland’s ever was. So the chances are Whangarei will hit a growth rate of around 24-26% before starting to slow early next year

Meanwhile Auckland has slowed down to a mere 16%. Auckland’s growth rate has been consistently slowing for over 6 months now, showing it is heading towards it peak. But keep in mind inflation is running at less than 1%, bank deposits are around 2% so 16% growth on an average Auckland price of $992,000 is still $2,836 gain per week. So 16% growth in Auckland is worth nearly double the value that 20% is to Whangarei. At the current slowing growth rate Auckland will peak towards the end of next year.

The reserve bank has been doing it level best to reign in the housing market and the latest rise in deposit requirements is the latest bucket of water on the Auckland housing inferno. Investors now require 40% deposit.  This may have a short term effect but as investors usually have other property they can use to leverage deposits and as house prices are rising rapidly therefore increasing the same investors property equity as we speak this will have, at best, have a short term effect.  The issue which is still there is supply. When you have a shortage of houses then the market will continue to push prices up regardless of any other tinkering.

Jono Ingerson, Head of Corelogic says:-

The Reserve Bank’s own analysis expects these measures to slow property value growth by 2% to 5% less than would have been the case without these restrictions. So if values in an area were going to increase 15% then they would now slow to say 10%. They don’t expect prices to crash.

If we apply this thinking to Whangarei then we could see growth over the short term slow down to around 19-20 % from the projected 24%. That’s still very rapid growth.

He goes on to say: – “However investor groups I have spoken to over the past two weeks are not talking about pulling back, instead how to get around the lending limits. This includes splitting their portfolio across different lenders, including non-bank lenders who at this stage are not subject to the RBNZ restrictions.

The reality that keeps coming up is nothing is going to change long term until the building supply is increased. Investors are smart people and they will find their way around the restrictions until its no longer worth their while.

The most important part of the latest tinkering is that new building is exempt from the deposit restrictions. . I think we will see more investor interest in new builds which will be great for the economy and will over time sort the fundamental issue of housing supply. This translates directly into rental demand with our sister company “Harcourts Just Rentals “who experienced their highest ever demand for rental properties with over 1000 requests in July. Rents are rising and the time is ripe for investors to look at the European tenancy system where rentals are more like commercial leases. Longer terms (up to 20 years) with rights of renewal so the tenants can on sell their rental lease which encourages them to develop the grounds and improve the décor of the property.

We see no evidence, be that, level of enquiry, open home attendance, or the number of contracts being presented, to suggest there is any lessoning in activity. Whangarei House prices are still headed to an average sale price of $500,000.

The problem with Real estate is trying to find the right information to assist with decision making. There are a huge number of people who constantly get quoted in the media who have massive personal barrows to push. The list is long, but specifically includes Financiers, share brokers, many economists, and basically all journalists. The most unreliable source of Real Estate opinion you will ever get will come off the pages of your newspaper, or from the screen of your TV or smart phone. News stories are written to shock and intrigue you, and they seldom get their facts right before launching forth. The opinions come from everywhere except from the people at the coal face. For example the press, based on some pretty weird interpretation  of the real estate statistics,  have been predicting the Auckland market has peaked and is about to burst for over two years now, while the  evidence says its slowing down a little but has  some  way to go before it peaks .

I read with amusement an article by Real estate Legend Sir Bob Jones  who wrote  in May this year, about  two “media darlings” who are constantly quoted as reliable sources of market trends. Bernard Hickey and Shamubeel Eaqub.  Jones with his usual wit and satire writes “ As an aside , his ( Eaqub’s )” wisdom” on this issue , along with Bernard Hickey’s, the latter a doomsayer without peer, should be seen in the light of both some years back ,selling their Auckland homes and fleeing to the capital to avoid their claimed imminent Auckland Housing price collapse. In light of subsequent events, those brilliant judgements have cost them considerable loss of wealth, which rather weakens my life long militant atheism. “

The Current Case for Buying new build New.

If you are looking to invest new, or to replace what you have, there is very strong argument to buy new. Most real estate agents won’t push for building new as the builders have their own salespeople and the agent gets left out of the commission loop. bleeding heartYes I know your heart bleeds for us, but there are nine very compelling reasons to consider this in today’s economic climate.

  1. 20% deposit will get you in. Unlike existing homes, the new 40% deposit criteria do not apply to building new. Therefore building for the average New Zealander is now a lot cheaper in terms of how much you have to have saved yourself.
  2. It’s going to cost you more than the second hand house you were looking at (around $550,000 in Whangarei) but consider this. You will get a long term (5-10) guarantee on the house. It’s a bit like buying a new car, you know you won’t have any maintenance costs for a number of years. Your home will have the latest weatherproofing systems and treatments. It will have the latest technology in insulation and heat retention with most new home buyers saying their power bills halved. You can guarantee it’s all new and has none of the maintenance issues an existing property may have, nor is “P” contamination going to be an issue.
  3. You will get a higher rental as these properties are sought after by tenants who will pay a premium for new properties. Most new builds are renting for around $500 per week, which is a return of 4.7% on a purchase of $550,000. Your tenant is going to come from the top of the rental heap and is more likely to stay longer and look after the property better.
  4. New build suburbs have a two year period when they look like a jumble of roofs and bricks. But then the planting kicks in and the boundaries become clearer. The subdivision takes on a new appearance and historically prises rise. Established planting seems to put around $50,000-$70,000 in value onto all the properties in the subdivision.
  5. New house prices are based on the value of the land plus the building costs. Building costs rise steadily while land is more sporadic in its rises. So the next house that gets built, that is similar to yours, is going to be dearer than yours thus ensuring your value is increasing also.
  6. The work required to add value is going to be within most people DYI skills. Planting gardens and lawns, building birdbaths, and maybe some painting are going to be easy projects that most people can do themselves.
  7. Chattels Depreciation. While you can no longer depreciate your building costs you can depreciate your chattels. With a new build there is clear evidence what the chattel actually cost so there is a start figure to base the depreciation on which is not the case with existing properties. The depreciation rates are high with many items around 25-30% and when you sell you don’t have to pay any of this back. The average new build will have a long list of depreciable items. (Carpets, Hot water cylinder, fencing, Driveway, Decking, Dishwasher, Oven, Drapes, Heat Pump, and light Fittings, to name a few.) . You will need to get a chattels valuation done which will cost about $600 (tax deductible) but as can be seen from the list above, this cost could easily hit $40,000-$50,000. Depreciation in your first year could be around $12,000. It will drop quickly after this but at the top tax rates this is worth the effort
  8. You are doing your country proud. We do have a shortage of houses in many parts of New Zealand. Whangarei is one of these areas. The only way that property prices will stabilise is when there are enough houses. So by building new you are doing your bit to alleviate a very real problem we have. This is in direct contrast to both the USA, Ireland and parts of China where the number of houses was greater than demand therefore causing prices to drop.
  9. It is very good for our economy. New building creates jobs. Building is a high labour intensive industry that flows through all the groups of tradesmen, to the suppliers, to the landscapers to the draftsmen and so forth. Building new gives the council another rating opportunity thus increasing the wealth of your district. Building is currently one of the driving forces in New Zealand’s economic recovery, being recognised by the Reserve Bank along with tourism and immigration. Starting with the Christchurch rebuild and now driven by Auckland it is one of the main factors setting our economy apart from most of the rest of the world.

 

Rental demand increasing

The statistics from Harcourt’s Just  Rentals show a growing amount of inquiry for rental property. This is unusual activity for the winter months when people tend to stay put more. It is another sign that the Whangarei population is growing more rapidly than the WDC has planned for . We would expect a small delay and then for rents to increase in line with the demand for properties. All great news for landlords. ( Figures supplied by Renee Wilkinson the person to talk to for  property management ph.  021892443)

Rentals Jpg

 

 

 

So Where Are Prices Going Now ?

In last Septembers newsletter article headed ‘”Is it a Boom or a Correction ?” we argued the case for where property prices in Whangarei were heading. (To see the article click on the link Here ). This article based growth on a conservative 8 % growth year on year. Conservative because the historical growth figure for property in NZ is actually 10%. We tracked both the Auckland and Whangarei markets as we tend to play follow the leader with Auckland.

We have updated the graphs below to show how prices are tracking against the 8% predicted line. These graphs are based on the REINZ figures which are based on median prices. These are different from the figures CoreLogic provide as theirs are based on average prices. As a rule Corelogics’ average figures are higher than REINZs’ median figure.

Auckland graph

As you can see Auckland is just below the 8% line and looks like it will reach it this year. The dip in the red line is because we have only included the first three months of the full year. This will straighten out towards the end of the year. The scary aspect to this graph is, if we were to use the historic 10% Auckland growth line that history dictates, then the red line would currently be sitting at just over 1.3 million.

We chose the more conservative 8% because when we first graphed this trend, Auckland prices were sitting at just over $600,000 and a figure of $900,000 seemed like moonbeams! 1.3 million seems like moonbeams now but in 12 months time it may surprise.

Whangarei Graph

As can be seen from the green line Whangarei is in catch-up mode, with $70,000 added to the median price since 2014. If this chart is correct then we have another $110,000 to go before we hit the predictive line of $450,000.

While this amount seems hard to believe, the figures from Corelogic are showing huge growth in the provinces, with Hamilton and Tauranga now hitting 23.3% and 22.6% growth per annum, faster than Auckland which is now down to 16.9%. (16.9% is still dramatic growth rate and based on the average Auckland price of $931,061 that will add another $157,339 dollars to the average Auckland house by this time next year. Million dollar houses will be the average Auckland house price)

It’s hard to find any evidence that this type of growth won’t happen. We would have to see at least one of the prime drivers going in the wrong direction and we don’t. Interest rates are heading down, emigration is rising, housing supply is diminishing, building materials are rising, and rents are rising.

This week the NZ Herald had an article on Aucklanders’ buying in the provinces. This was based on research by CoreLogic and contained the following statement.

‘Auckland investors and movers bought 23.9 per cent of all properties sold in Whangarei, 19.5 per cent of Tauranga sales and 17.2 per cent of homes in Hamilton……..CoreLogic senior research analyst Nick Goodall said Auckland investor interest in Whangarei had “kicked up” over the past year or so,”

It is fair to say more of this interest has been in the investment sector, but we are getting our share of people moving into the district to live. It has been said that only a very small proportion of Aucklanders are selling up to move to the provinces but if you do the maths, a small percentage is all it takes. For example let’s say 1% of Aucklanders decide to relocate. It’s a small proportion of the Auckland market but it is it still 14,000 people and that is a huge amount of internal migration when you consider the size of the populations they move into.

So do we predict the Whangarei market still has $110,000 growth in it? The answer is YES!. At this stage there is nothing standing in the way.

 

empowering people through property banner -1

 

 

Where we are, where we’re going and what this means for you…

  • 10% growth reached

First and foremost I want to wish you all had a Merry Christmas and a Happy New Year. It’s great to look forward to a new year and the challenges it will bring. Diana had a total knee replacement on the 14th December so our break was based around her recovery. She has been back at work three weeks later so good on her for having the heart of a lion and being the model patient!

Looking back on 2015 it was a huge real estate year and the market has moved strongly. Corelogic have released their December figures and there are a few surprises.

Firstly Whangarei has entered double digit property growth with the chart below showing 12.9% growth year on year. The increase is in line with predictions I made earlier in the year at an increase of over 10%. But I have to admit 12.9% is higher than I predicted.

The question for 2016 is, where it will go next? As boom markets are rare it’s hard to predict based on past evidence. What I do predict is that it will continue to rise as prices are still a long way from where they should be (See September newsletter or go to Blog link at bottom of page for reasoning). The average price in Whangarei according to Corelogic is now $380,592. To catch up with the trend line, as Auckland has now done,   prices needs to move to around $500,000.

The figure of $500,000 is based on QVRP figures which show a better average price in my opinion. If you use the REINZ figures then the catch up figure is $450,000. One shows the average price and the other the median price. Both figures show growth.corelogic graph

  • 2106 predictions

So How Fast Will Prices Rise in 2016?

The answer is faster than they are now!   12.9% growth is going to look slow next year. As you can see from the chart Hamilton has hit 19.5% and Tauranga has hit 18.2%.  Auckland is now at 22.5% but may have reached a growth peak as the rate of growth is slowing. All three provincial centres are still accelerating in terms of their growth rate. It seems hard to believe now, and I am reluctant to put it in words for the fear of being wrong, but all the evidence points to a growth rate next year, for the Whangarei market, of 17.5-22.5% possibly higher. It depends on whether the growth happens quickly over a year of slightly less quickly over two years.  My guess is it will take two years, although 2016 will show a greater proportion of that growth. The growth will follow a bell curve hitting a high and then slowing down.  The peak of the bell curve should be towards the end of next year.

By the end of next year I would expect the average house price in Whangarei at 20% growth, to be $456,000 – a price increase of over $76,000.

That will still leave another full year of growth of over $50,000 in 2017 before we hit the natural values line of $500,000. Of course the line will have shifted upwards by 2017 and the natural values line will be higher at $540,000 so there is actually $90,000 of growth left by then.  As in any boom style market the chances are very high that we will overshoot the natural level and 2018 will also be a good year.

To put these figures in perspective, if we take the QV current average house price of $380592 and multiply that by the current growth of 12.9% then we have Whangarei properties currently increasing by $4,091 per month or $944 per week.

However If we look at the predicted range of 17.5-22% ( 20%) then we will see the average property increasing in value  in 2016 by $6343 per month or $1463 per week .

In 2017 average house values will be $459,000 so taking a slightly slower growth rate of 15% will see house prices increases of $5,737 per month or $1324 per week.

It’s a great time to own property.

  • 2017 predictions & Possible road blocks to prices rising

In 2017 average house values will be $459,000 so taking a slightly slower growth rate of 15% will see house prices increases of $5,737 per month or $1324 per week.

It’s a great time to own property.

So what could go wrong?

There are a lot of potential factors that could impact prices over the next few years. I will name a few but there are a lot better sources than me to explore these.

  1. Another Global Financial Crisis, like China or the USA having a meltdown.
  2. Donald Trump getting his finger over the nuclear launch button,
  3. The Reserve Bank whacking interest rates up, a new building technique or material that allows cheaper housing.
  4. A dramatic drop in the fees/ cost of subdividing and building,
  5. A major rise in the price of oil, Increasing tension in the Middle East, Auckland housing prices collapsing as the media have been suggesting for the last 9 months.
  6. All of these are possible scenarios (some are happening), but in my opinion unlikely to dramatically affect our New Zealand market, some events would strengthen it. “Which is more likely …? That Auckland’s prices come down to the levels of the rest of the country? Or that the rest of the country starts to catch up with Auckland?
  7. If the rest of the country continues to chase Auckland’s prices, as is happening now, then the chances of Auckland’s prices dropping, reduces significantly as the gap closes. Based on the Core logic figures Hamilton’s growth rate for December is 19.5%. That’s only 3% lower than Auckland and closing fast. In the past Auckland was growing at 300-500% faster than the same provinces. It is very likely the provinces growth rate will pass Auckland’s this year as they begin the catch up cycle. Auckland prices are not actually dropping, it’s just the rate of growth is slowing as they pass the peak of the bell curve.
  8. The lesson learnt out of Auckland is, not that prices come down as land supply increases but that the builders, developers and suppliers of materials all increase their margins so there is no drop in prices. Until the current housing demand is satisfied prices will continue to rise. Why would prices drop when there are buyers out there willing to pay the money?   I come back to a comment I made at the beginning or the year.

Rotorua

In the last Newsletter I made a note that I thought Rotorua had to be ready for a growth spurt and I see that house price growth has hit 9.3% this Month which is a massive increase on the 2.3% growth a couple of months earlier. It’s not my market, but if I lived in Rotorua I’d be looking for a rental right now.

  • The contribution of the 65+ age group.

happy penioners

Pensioners are adding value to the Country?

From a survey of 8000 people in 2013 NZGSS found the following.

  • One-third of people aged 65 years or over (65+) said they, or their partner, provided support to family members aged under 18year of age who didn’t live with them, according to the 2012 New Zealand General Social Survey (NZGSS).
  • And 15 percent of older people provided support to 18 to 24-year-old family members who didn’t live with them.
  • People aged 65year+ provided money, a place to stay, and help with childcare to younger family members who didn’t live with them (excluding their own children). Money provided to those under 18 was usually spending money or an allowance, while for 18–24-year-olds it included educational costs or text books. For family members aged 25–64 money was given for bills or debt.
  • Just over one-fifth (21 percent) of people aged 65+ provided help with childcare to family members aged under 18 years.
  • 12 percent gave this help to family members aged 25–64.
  • Of all people aged 65+, 6 percent allowed their 18 to 24-year-old family members to stay in their home some of the time; 16 percent provided a place to stay for those under 18.

Tip #1   Goal in life… Live long enough to be one!

  • The risk of going Guarantor

One of the saddest sales I was involved in was a retired couple who helped their grandson set up a business by going guarantor. The grandson went broke, took off to Australia, leaving the Grandparents with an $80,000 loan against their house. What many people don’t know is that a guarantee is not just for the loan amount but includes penalties and any unpaid interest and debt accrued. The amount owed to the bank may be double what was originally guaranteed.

We got involved when this property was being put up for mortgagee sale. Fortunately, with family help, we managed to refinance the grandparents. However this delightful 80 year old couple now has a significant mortgage on their property in their retirement years. You can imagine the strain they are under.

Tip #2 It’s a lovely thing to help out another person, and bless you for having the heart to do it, but if it involves your own home get good independent advice before you commit.

Cats and dogs

 

These are restrictions the Whangarei District council are applying to most subdivisions that include any bush. Basically it means anyone buying the land cannot have a dog or a cat as a pet. It might be a big advantage to the native birds in the bush but it’s a huge disaster for everyone else. Properties with these covenants are very hard to sell and frankly the covenants often get ignored. One of the main reasons the developer of the  “Golf Harbour” subdivision in Maunu went broke was because the “cats and dogs” restriction made the properties very hard to sell and still do today. If you consider that the bush concerned is huge, 1500ha, and is bordered on three sides by Maunu road, Western Hills Road, and Three Mile bush road with a rough guess saying there are around 800 homes with direct access to this bush, then you have to ask what sense does it make to say, “but you 20 people here can’t have the same rights your neighbours do.”

If you lived close you could take your dog for a walk along any of the streets where these covenants exist but if you actually lived in one of the houses then it is “No dogs or cats for you!”

Further towards town if the “Pukenui ‘gated subdivision half way down the Maunu hill is a reasonably new subdivision which also has “no cats and dogs” conditions because they back onto the same Pukenui Forest. Like many of these more unreasonable restrictions, people tended to ignore them. So there were a reasonable number of cats and dogs roaming around the subdivision. The council has decided to enforce the restrictions and these naughty evil pet owners have been given a time lined ultimatum to get rid of their pets or face the consequences.  Guess what!  If you drive through this community today you will find lots and lots of “for sale” signs. Rather than getting rid of their pets these naughty people are getting rid of their houses.

A person I know was considering subdividing their bush block into two. It could be done but both, the new section and the existing section with the existing house on it, would then have Cat and Dog covenants on them. The person currently has both Cats and Dogs. They would have to get rid of them as part of the consent. This is unreasonable and stops growth in the area. The end result is they are not going ahead with the subdivision.

The consequence is that the bush surrounding their place will continue to have no protections. The dogs can roam free through the bush, whereas with a little compromise the bush could be fenced off and these areas could be a dog free at least! Good luck trying to make it cat proof!   Pest plans to eradicate opossums, rats and stoats could go ahead as could plans to eradicate invasive weeds.  So the end result of the WDC policy is that instead of having improved protections for the bush the bush has no protection at all. It’s a good example of where the legislated intention to protect and conserve nature is thwarted by what actually happens in life when the good intentions of the legislators hit the hard realities of practice.

HJR Logo

A New Rental Feature.

Because Harcourt’s have access to such a large database of information through “Harcourt’s Just Rentals”, I want to introduce a new feature to this newsletter. This will be the average rental price paid by tenants to “Just Rentals.” This figure is not a breakdown of rents by bedrooms, just the average paid.  It will give a good indication of where rents are heading, up or down, and how fast.   The figure for the end of November is $346 and December $350.55 which shows a 1.3% increase over just one month. This should be the beginning of a trend as rental prices start to catch property increases. I will start to graph this figure as more of this original data becomes available.

 

 

 

News you probably weren’t expecting…

Real Estate Salespeople are the Good Guys!

A recent survey conducted by ‘Neilsons’ on behalf of the Real Estate Agents Authority found the following. Among those who had recently taken part in a real estate transaction with an agent.

88% found the agent knowledgeable about the market. 85% were provided with all the information they needed and thought the entire process was clearly explained to them. 84% found the agent both professional as well as knowledgeable about the relevant legal requirements. 84% thought the agent acted ethically, honestly and openly during the transaction.

This is a big improvement on past surveys and shows the new legislation is having a good long term effect on the public perception of the profession.

Real Estate or GOLD

Gold v Shares v Real Estate over the last 10 years 

I’m a Real Estate agent !. Why ?. Because I unashamedly love and endorse my product. It’s really good for you. You can’t have enough and everyone should try to get some . It empowers people and helps build families and communities. It’s the safest and surest way to having a comfortable life.

Out of curiosity, I thought I would measure how over the last 10 year Gold , shares and real estate compared. It’s been difficult times and there has been a lot of talk about the best place to have your assets. The difficulty in comparing each category is Real Estate is measured in thousands of dollars while shares can be measured in cents. To look at apples with apples I have taken a Gold price graph (from paydirt.co.nz)  and the NZ share price graph (from the NZX top 50) and the medium Real estate price for NZ ( from REINZ.) They all cover the period from January 2006 until June 2015 I have then standardised these by measuring each assets movement on a scale of 1-50 . Forget about where the lines start , because they each started in different positions. Gold was low , Real estate was high. The important point is where they were in January 2006 compared to where are they now. ( June 2015 )

gold v shares

Gold . gold A pretty good investment over the last ten years. It’s fair to say gold is in its golden years because of the Global Financial Crisis and has performed out of its skin. If you started with a $1,000 gold ingot you now have a $3000 gold ingot. Your asset grew around 200% over this time. You would not have received any additional income from holding it.

Shares .  Not so good. If you started with a $1,000 portfolio you still have a $1,000 portfolio. You will have received dividends of around 3-5% over this time so you should have received about $300-$500 in cash as well. But what about splits and share buy backs etc?. Yes I know! it’s only an quick comparison so don’t be so pedantic and what about the fact that the NZX50 only measures the 50 top companies. If one of them goes broke or has a bad run it simply drops out of the equation altogether and doesn’t affect the NZX 50. (I’m still holding my Chase Share Certificates waiting for them to reappear in the NZ50X, but I’m not bitter)

homeReal Estate. If you went in with a $1,000 property (I know there’s no such thing, but this is just an comparative exercise! Really! Did your mum raise you on lemons or something? ) you should have an asset worth around $3,000. If you had rented your $1,000 house out you should also have around $500 cash as well.

The real estate figure used is the NZ medium so doesn’t differentiate Auckland from the rest of the country, but it’s the best way to compare apples with apples. If I was like  the NZ stock exchange I would only use my best performing cities as a measure. The REINZ 5X. Auckland, Queenstown, Wanaka, Tauranga and Hamilton

So purely on the return it’s easy to see why real estate is such a popular and sound investment. The other thing this graph shows is the relatively steady rise in real estate over time. It has the odd short term dip but nothing compared to the roller coaster ride of the share market and gold. It looks to me like Real Estate is a sound investment strategy while the Share market and gold are closer to gambling. You are trying to pick highs and lows and  getting  in and out at the right time.

There are a number of other reasons why Real Estate has so many followers as an investment, such as the effect of gearing, but for this article it’s purely about the return. So why do new Zealanders have such a strong fascination with property? Because they are smart that why!

 

Is it a Boom or is it just a Correction

boomOR JUST A CORRECTION

Over the last thirty plus years of selling I have seen plenty of boom and bust real estate markets. In Whangarei we are heading into the next “boom” market. On the surface it would appear that the market is constantly booming, stagnating or busting. However I don’t think that’s what’s really happening. The “boom bust” cycle is more to do with the way we measure the market. I think it’s more a case of the market having a natural upward movement and then occasionally falling behind, then correcting back to where it should be . In other words, we have corrections that correct any slowdown in the market. These slowdowns are caused by economic factors such as the global financial crash in 2007, or by political intervention as occurred in the late 1990,s and early 2000’s when the reserve bank governor at the time used interest rates to artificially cool the market.

I have seen historical figures that show house prices in both NZ and Australia have moved at an average price of 10% for over 125 years. The English figures, which date back to the Domesday book of 1086, show a similar 10% per annum trend.  Not surprisingly this book was created for “William the Conqueror” , a Frenchman of Viking descent , so he could better tax the English citizens he had just conquered. I’m surprised he wasn’t called “William the taxing froggy Bastard”.  Maybe the English were more submissive in those days, or more likely “Conqueror “ was a French word that he introduced to the English language, by telling the newly conquered British that it meant “ taxing froggy bastard “ .

10% growth seems such a high figure and I guess houses of today are very different from the hovels that “William the Conqueror” taxed into submission, but never the less it seems to be consistent over the years and over different nations.

To test this I have taken a more conservative 8 percent per annum growth rate and because I don’t have access to all the government statistics, I have used figures kindly supplied by the REINZ which go back to when they first started collecting sales figures for NZ in 1992. The two graphs below show 8% growth from 1992 for Auckland and Whangarei. The 8% annual growth figure is the red line in both graphs. The green line is what actually happened each year. Because 2015 hasn’t finished yet I have taken the latest medium sale price for August from the REINZ figures.

auckland chart

If we start with the Auckland figure and take the red line ( 8% growth) as the basis of what should be happening in a perfect world where we don’t get wars, economic collapses, and governments artificially boosting interest rates to haul in housing prices. We have a red line climbing steadily as the population slowly grows and land becomes in shorter supply and therefore more valuable. The “law of supply and demand” at its simplest. The green line represents what actually happened over this 24 year period, occasionally going above the line but pretty much tracking it until 2007. We then had the global financial crisis of 2007 where property prices stagnated for around 5 years before starting to correct back to where they should have been.

Note the use of the word ‘correct “, If you use this model then that is exactly what the green line represents. A correction back to the underlying value of property. Auckland looks like it will be fully corrected in about 16 month when the green line crosses the red line at about $900,000. The Auckland market still has $150,000 to go before it reaches its natural growth level.  If you take 10% as the natural line then Auckland still has three years to go.

whangarei chart

When we look at the Whangarei market and apply the same criteria we get a few more fluctuations, probably due to the smaller size of the city and the effect that would have on averages. But the real item to notice is the huge gap between the red line where we historically should be, and the current green line. Unless there is going to be a major change in population trends where provinces just stop growing, there is going to be a large catch up. All the news today is about how Aucklander’s are moving out of the city to the more affordable provinces. I hear on the news how unless you actually own a house in Auckland it is nearly impossible to afford to live in the city now. Two average NZ wages (Stats.govt.nz) of around $600 per week ($1200 combined) are not enough to live in Auckland anymore.

Every time I slowly creep through the Auckland motorway congestion I wonder two things. First and loudest “how can anyone actually live here?” And second,  quietly, in case a fellow congested traveller has their window open, “if everyone hates their current mayor as much as they say they do, how come he is in his second term. Haven’t they heard of democracy!”

People are moving out of Auckland in increasing numbers, some to retire and others  so they can  afford to buy a house and have some sort of lifestyle. There are still plenty of jobs in the provinces especially for those with a good work ethic. Many of these Aucklander’s moving north are bringing their jobs and skills with them so don’t need pre-packaged employment.

So while Auckland still has a short way to go to reach its ideal line, Whangarei has only just started. If this model is correct, then we can expect to see the average property rise by over $150,000 in the next 3-4 years. As mentioned in previous newsletters the growth is well underway with Corelogic’s August newsletter having 4.6% growth for Whangarei year on year. (August figures) This will accelerate over the next few months. The evidence is there. All agencies are desperately short of listings. Traditionally agents are buffered from a shortage of listing for a while because they have the “old unsold ones’, Those listings that have either been on the market for years or were withdrawn because they hadn’t sold but were still available at a price. These properties are now being sold as agents phone withdrawn listings to see if they would sell. By October /November we are going to see some real pressure on existing prices. It would be fair to say that most existing agents are saying “Wow” nearly every  time a property sells. Wow because we didn’t think it would get that much!

Although the Whangarei graph doesn’t show much recent growth, (it will in the next few months) there is a clear upside happening now, and logically, based on past historical factors, you can expect the Whangarei market to have a large correction. This could  be a minimum of $100,000 but should be more in the range of $150,000 to reach the correction line.

(Note. I have said before that I prefer the average market figures that QV use as a more accurate reflection of house price levels in our city rather than the medium levels that REINZ use. Because I have access to the REINZ figures I have used these. For some unknown reason there seems to be a lag behind what the REINZ figures show and what QV shows. QV have the current Whangarei House price for July at $353,402 while REINZ have it at $280,000. The $350,000 level seems to better reflect what I am seeing in the market place and clearly shows the growth we as agents are seeing.  As proof I only need to think of the average  Whangarei house today. Three bedrooms ,  150m2,  double garage,  flat section, I could find you that for $350,000 ( just ) but its not there at $280,000.

Just as today, back in 2003,  I could see all the same signals indicating a correction was coming. I thought a smart man like myself  would mortgage everything I had and buy 10 houses right now. But regrettably caution prevailed and I did no such thing. I just couldn’t conceive  how a property that was worth $150,000 today was going to be worth $300,000 in three years’ time. So I did nothing.

I feel the same way today. I am sure there is going to be a big correction and the smart thing to do is to go out a buy more houses now, but there goes that caution buzzer again. I’ve got a big stake in the property market anyway, and will get a nice gain if and when the correction happens so why take the risk?.  I bet I don’t feel the same way in 3 years’ time when I look back cursing that caution.

Advice #1 Buyers . Pay the money being asked . It’s foolish to negotiate hard in a rising market . The capital gain you get after securing the property will do the negotiating for you. Quote ”In a rising market you never pay too much , but you may buy it too early “

Advice #2 Sellers. Time to hold on if you can! Your asset will almost certainly be worth more money tomorrow than it is now.

The media The media love a story, and seem to love zigging when everyone else is zagging. This can have a large influence on people’s exposure to real estate stories as they read the current headlines. Recently the Media have been finding articles to support the Auckland market being in a bubble that is about to burst. Take for example the following found in the NZ Herald.

“Jan O’Donoghue, QV home value northern operations manager, said speculator trading patterns showed signs that they thought the market could soon turn. QV stats show more than 2000 homes have been bought and sold more than once over the past 12 months. Often, nothing has been done to improve these properties at all and speculators are just on-selling it and taking the capital gain. Rapid on-selling can be a sign that some speculators may believe we are close to reaching the top of the market and decide they have made enough profit,” she said.”

There is such a fragile link between 2000 homes being bought and sold more than once in 12 months and the market reaching its peak that it beggars belief. What about the factors against it. There is still a massive shortfall of homes, Interest rates are heading down towards a historic low, Immigration is at an all-time high, and land to build the new houses on, is wrought with difficulties as various self interest groups oppose and slow the developments. I’m sure Jan O’Donoghue didn’t mean her comments to be taken as “proof’ the market was about to collapse, but the media will continue to push negative stories because it sells newspapers. The reality is Auckland has a way to go before it hits it peak and then the  most likely scenario, is it will stop growing for a while rather than collapse.

The Winter Effect. Having sold real estate for over thirty years I have observed some common patterns. With the odd exceptional year, sales volumes are seasonal. Winter is a time the market slows down. People tend not to list over winter because their house is not looking its best. The weather is rubbish, so maintenance jobs get put off till spring. Buyers are more reluctant to brave the climate to look for houses, but most importantly there are less physical daylight hours for people to look at homes. The end of July through August and into September  the market slows down. It moves again in spring, peaks late summer and autumn and then drops off starting late June. I keep hearing media reports about the sales figures slowing down. Don’t believe it! That’s just the winter seasonal effect and we are still full on into a boom (correction) market. Very few listings and multiple buyers for any well priced property.

About this Newsletter . “ What’s it all about Jimmy!”  Diana and I worked out a few years ago that the most powerful and useful thing we could share with you was our real estate knowledge . We put our combined 50 plus years of real estate selling experience into print to help benefit you in your decisions. The newsletter is based on what we are seeing, statistics, media,  and reports as available, together with some original research and our interpretation of what it all means . We try not to sit on the fence but to make predictions about what we see happening in the near future specifically in the local Whangarei District. History is a great teacher .

Oi! Oi! Oi! Strewth mate ! The kiwi population just keeps getting bigger !

Our net annual gain in migrants is increasing pace with an annual gain of 58,300 migrants.

This shows an increasing trend as more people arrive in New Zealand than depart. This is a far cry from the old 1970,s political slogan “Would the last person to leave New Zealand please turn out the lights”

When the month of June figures are broken down we see some interesting trends

Aussie diggerThe largest single category of 24,100 people, were from Australia with two thirds of those being New Zealanders returning. When you combine that with the fact that 64% of total migrants were between 15 and 35 years of age we can see that it’s our young returning. The great Aussie dream seems to be over. It’s the third month in a row where there have been more people coming into the country from Australia than are leaving. We haven’t seen this happen for 20 years. However before we read too much into that, it is a paper thin net gain of only 100 people. Let’s face it we still have 24,000 people leaving the country for Australia so the 100 net gain looks pretty slim.

The next biggest group are from the United Kingdom at 13,500 with a high percentage of these being Kiwis returning to our shores. . Very close behind them are the Indians with 13,300 and the Chinese with 10,300. Half of the Chinese migrants have student visas so are here to study.

Most of the Kiwi’s returning will be bringing some money back with them and will want to get onto the property ladder. These returning Kiwis are less likely to gravitate to Auckland as they know more about the rest of the country , so may help move property demand to the provinces where the returnees can align themselves with proper winning  Rugby teams .

(Researched from Statistic NZ June 2015 press release)

July update… The good news just keeps on coming!

 

money treeJust when I thought I was done, some new bit of news comes along that gets me excited again. Excited because I own property and like most of you, property is my key asset. If it’s worth more money I’m happy as it increases my wealth. I know it’s supposed to be bad for the economy but seriously I question the logic behind that. 

So for the great news… Core logic have released their June figures. Growth in Auckland year on year has now hit 17%. Ya! Boo! Sucks not to be an Aucklander. Tauranga has now hit 7.3% up on last month’s 6.75%. But the really exciting news is good old Whangarei has leap frogged Hamilton in growth hitting 4.6% year on year. Last month we had 3.9%. So just as predicted the growth rate is accelerating. What I did not see was Whangarei’s’ growth rate passing Hamilton’s. Whangarei now has the third fastest residential housing growth rate in the North Island. 

The most likely cause is Aucklanders! They are to blame for everything good and bad that happens in New Zealand. Earlier in the year we discussed the ripple effect as Aucklanders took advantage of the record prices in their city and moved out of Auckland and purchased in the provinces. It made sense that Tauranga would grow faster than Hamilton as it is a smaller version of Auckland with its harbour location. However the same logic applies to Whangarei. It has the harbour location and therefore logically should appeal to Aucklanders, more than the complete change in geography that Hamilton provides. And although the Aucklanders leave the big city for a quieter provincial life they do bring some of the city with them , which is great for the cafes and businesses in town that benefit from the different spending patterns of city folk! Not so good for the tractor salesmen and fertilizer merchants but good for the boat shops and real estate agents.
The long and the short of it is that the property growth rate in Whangarei is going quicker than I had anticipated and I now think my earlier prediction that property growth would hit 7-8% by Christmas is conservative and a figure of 9-10 % is more likely. 

Tip! If you are thinking of buying, factor this in... That property you are looking at for say $400,000 now is likely to be $450,000 in December. So rather than risking losing the property by beating the owners up with tough negotiating, you are better to pay their price, secure the property , and rely on capital gains to get you that bargain. Come Christmas the price you paid will look cheap.

Tell us, are you moving on the property market? Buying, selling or both? 

Are property price rises bad for the economy? 

price risesI met John key for a few brief moments after a conference. He really didn’t have time to speak to me but as we walked down a corridor flanked by his entourage I did get to ask him a question. I asked, “If small business is the biggest employer in New Zealand, and the banks want housing collateral to lend to small business, isn’t property growth a good thing as it funds small business?”

For me this comes from owning a small business. When I wanted money to expand or even to cover a cash shortfall the only thing the banks were interested in was how much real estate I owned and what my equity in it was. That was the only security that counted for a business loan.

They wanted to know how the business was going, but the business was worth nothing in terms of a security. The only security they valued was the equity in my private house or houses. Therefore as far as I was concerned my residential housing funded my business. The more my house was worth the more secure my business was.

I’m still not sure if John Key was really answering the question or just trying to get rid of a pesky business owner in his rush to get to his next appointment… The brief answer he gave suggested he agreed. “Yes! I get that, residential housing funds small business.”

I have always felt comforted by his reply as it suggests there is agreement in top circles that the two are linked. A healthy rising real estate market bodes well for small business as it makes small business more secure. I have heard figures that around 90% of jobs are in small business. I always wonder if the softly softly approach the government seems to take to residential investment isn’t tied in with this concept…

What are your thoughts?