Interest rates going to stay low for a long time yet! 2-3 years at this stage.

New Zealand’s interest rates are linked to the worlds interest rates by a very simple formula. A formula that the Reserve Bank just hates, as it limits its ability to raise interest rates.

“If our interest rates are considerably higher than the rest of the world then people from around the rest of the world  want to invest in our banks. (And why not! if you can borrow money in your country for less than 1% and invest it in a safe place like NZ for 3-4% why wouldn’t you? Its making money on other peoples money . 300% return from day one.). Therefore if our interest rates are high, overseas people want to buy NZ dollars. This pushes our dollar value up against the rest of the world. The reserve bank has stated on numerous occasions that they are uncomfortable with our current dollar value at around .72c US. The problem with a high NZ dollar is that it makes our export goods more expensive overseas and therefore we have a harder job selling our stuff which harms the economy. The link between our official cash rate and our export success is a direct and real one”

Therefore what is happening in the rest of the worlds economy is of vital interest to us. particularly the USA economy as that is by far the largest economy on the world. The worlds largest economies ranked by Gross Domestic Product  as :- USA, China,  Japan , Germany, United Kingdom.

So we need to watch the USA very closely to see signs of interest rate rises there as these will eventually reflect in our interest rates . The news coming out of the States is bad, in fact it’s very bad. When the stimulus the money printing did is taken out of the economy there is very little sign of any real  growth and lots of signs of continued recession or near recession. For this reason we are seeing very little sign the USA will be able to more than pay lip service to interest rates or perhaps put a token rate  rise in to encourage investors .

This Article by Tony Sagami  in his newsletter ‘Connecting the Dots ” tracks some vital indicators of how the USA economy is really doing apart from the artificial Government spending created by printing 10 trillion dollars worth of money . The important point to remember is that 70% of the total USA economy is driven Americans buying stuff in America. If this article is true then we have a long wait for their economy to turn the corner.

“Live by the Consumer, Die by the Consumer.” written  Toni Sagami

The Dow Jones Industrial Average has been going sideways ever since the Commerce Department reported that retail sales in July came to a grinding halt (0.0%) in the month of July.

At the same time, the list of companies warning of disappointing sales—Starbucks, McDonald’s, Ford, Burberry, Gap, and many others—suggests trouble in shopping paradise.

Most recently, Target reported a Q2 drop of 1.1% in same-store sales and said it expects a “challenging environment in the back half of the year.”

There are many reasons why Americans have become reluctant shoppers, such as stagnant incomes and rising debt loads, but one of the underappreciated challenges is a distinct change in spending psychology.

According to Deutsche Bank, Americans are becoming big savers.

The saving-vs.-spending mentality has shifted for all adults, but the change is most dramatic for the live-in-mom’s-basement generation.

You know where else the evidence of shopping fatigue is showing up? In the transportation food chain.

Truck Slowdown: Truck shipments continue to decline. July shipments were down versus 2015, 2014, 2012, and 2011.

Ship Slowdown: Maersk Line is the largest container shipping company in the world, so it deserves close attention. Times have been tough for shippers, but Maersk expects the business to get even worse.

“Currently we are challenged by market headwinds,” said CEO Soren Skou during the latest earnings call, “…in the form of low growth and excess capacity in both our industries, and that has led to declining prices and declining revenue.”

And Jakob Stausholm, a member of Maersk Line’s management board, told Reuters, “It’s really tough, and everybody in the industry is really suffering, and so have we.”

Maersk isn’t the only shipper singing the blues. “World GDP growth is struggling… Combined with trade growth slowing down, this is a recipe for a very bad market,” said Evangelos Chatzis     of rival shipper Danaos.

Port Slowdown: The Port of Long Beach just reported a 7.7% year-over-year decline in the number of shipping containers passing through:

“Due to continued market uncertainty and high inventory levels, the traditional holiday peak season is off to a slow start, and several national forecasts have been revised downward to reflect this softness in cargo movement.”

High inventory levels? The inventory-to-sales ratio is climbing, which tells me that demand is weakening and businesses are having trouble selling their products.

The ratio typically increases during the late stages of an economic expansion and often represents the turning point in a business cycle.

Remember, companies accumulate inventory for one of two reasons: (1) voluntary accumulation in anticipation of booming sales, or (2) involuntary accumulation as unsold goods pile up.

You’ve heard it a million times—the US is a consumer-driven economy with 70% of GDP tied to consumer spending. That is why you need to connect the dots between the retailers’ warnings, the shift from spending to saving, and the struggles of the entire transportation food chain.

 

August News letter

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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)

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• The Great  Meths (P) Myth

 

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Have you ever wondered why the smallest  amount of  residual “P” smoke left in a house is reported to have such devastating health effects and plus require massive cleanup costs,  while the person smoking the “P ” seems to be able to take copious quantities of the pure product into their lungs and not drop dead. It’s been troubling me for years as to why so many users are able to inhale what must be lethal doses , yet we don’t see them dying like  fly’s. Something did not add up.

 

For years now we agents have been bombarded with the risks of Meths. We have had numerous experts coming to our offices and conferences, detailing the risk of meths contamination. Our poor owners have spent thousands of dollars ridding houses of low grade contamination where someone had smoked a “P” pipe in the property once or twice.  The lawyers have climbed on board and added ‘P”tests to just about every contract. The banks want a clear ‘ P”  test before they will lend on the property . We have had guidelines issued by  the Real estate institute about best practice . The REAA has fined and chastised agents for not taking due care if there is the slightest a risk of someone having smoked “p” in the house . One poor agent even got fined for not reporting a rumour that the last owner may have smoked in the property,  even though the agent had tested the property and found it had  NO  contamination.

 

It now appears, we the public have been grossly misinformed on the subject .  Dr Nick Kim, ( A Senior lecturer in Environmental Chemistry at Massey University,)  who peer reviewed the current standard tests 6 years ago recently said  We tested the residue left on walls by meth smokers and found the potential health effects of past “P” smoking was no worse than those of tobacco” ( Stuff.Co) “

 

For years we have  accepted the New Zealand Health department benchmark for safety of  0.5 micro-grams per 100 square centimeters, but it now comes out that the tests were designed to measure contamination in houses where “P” was manufactured and have ” somehow slipped sideways ” to where  it’s now being used as a guideline for all houses.  This happened when local bodies tried to find a  test for contamination and this was the only one around.
The message now emerging is that the test is designed to measure one chemical in the manufacturing process. Dr Kim says “Methamphetamine is like a marker for all the other chemicals that might be present, but you haven’t tested for, that would occur in manufacturing, but wouldn’t occur in smoking” ( Dr Nick Kim . T.V.1 Fair Go).  In this case the chemical is the end product, “P” itself. While “P” is harmful in big doses, it’s the soup of chemicals that are used in the processing of “P’ that are the real danger. Chemicals like Toluene, a solvent used in paint thinners, Lithium a heavy metal used in batteries and Acetone, another paint thinner. By taking one chemical out of the process and measuring it, the general quantities of the other harmful products are proportioned and basically assumed or guessed. If this much “P” is present then there will be that much Lithium, Acetone and Toluene.

The reality is the end processed product “P’ will have very small quantities of the harmful products in them. They have been used in the manufacture but are not part of the end product. It turns out that to test a house that has been smoked in, rather than used for manufacture, is not an accurate test .

 

Millions of dollars have been spent by trusting buyers and owners to get houses checked and if necessary cleaned,  all because some bureaucrat  misunderstood the basis of the testing.

 

To use a rather personal analogy, if you think of the toilet paper in your house. If you measure the chemicals in the paper now, you will find minute traces of Hydrogen Peroxide, Chlorine dioxide and Sodium Hydroxide, but at safe levels.  (you would assume). But if you measured the paper when it was sitting in the factory  vat, soaking in  bleaches and other stripping agents,  it would be full of these chemicals and very unsafe for your delicate posterior. But once the product is finished the chemicals will have largely been stripped out leaving the paper. So if you design a test that measures the chemical contamination in the processing factory, work out the rough proportion of each chemical in the soup, and then take one of them, in this case the  paper as your marker , then you have  a great  test for the proportions of chemicals in other  paper factories. But if that measure happens to be the end product (the paper) which then goes through a washing process that strips the chemicals out of the paper, and you apply your factory test to the residential home roll of toilet paper, you have a problem. The roll is full of “paper” which your factory marker test says is harmful. But it’s not the same product that was sitting in the chemical soup. It’s been cleaned and should be  near  perfect for purpose. ‘

 

This article is certainly not an endorsement for “P” usage as I have many friends whose families have been ravaged by “P’ usage in their children,  and you just never hear good stories about ‘P”,  but in terms of health standards  we have been lead by the nose on this one , with our wallets and common sense being raped by the powers that be, who appear to have  very little knowledge of what they were actually doing
Another Myth we have been sold is that “P” residue stays there forever.  Dr Kim says “ Households where Meth was still being smoked or worse, manufactured were obviously a risk to health , but once it stopped , the residues would break down over a matter of months . ( Stuff.co).  When asked about what is a safe level for houses where people have smoked only, remembering the current NZ health standard is 0.5ug,  Dr Kim says “10-20 ug should be safe, I’d be happy for my kids to live in a household with anything up to 12 Ug.” ( Fair Go).  The current  safety level is 1/24th of this and we have had buyers insisting on expensive cleans that take the property into the margin of  scientific  error  at 0.02.

I am reminded of a lecture I heard in the Mental Health field many years ago. The lecturer was a visiting American Psychologist and he was talking about the rapid growing in mental health issues. He said the following.   “ When you are up to your a**e in alligators, its hard to remember that your initial objective was to drain the swamp, but you also have to remember that not everyone wants the swamp drained as there is a lot of money in Alligator skins”

 

 

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Please Don’t Sue Me Just Because You Can !

The article from my last newsletter contained the sentence.  “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.”

With my permission this article was copied,  and published in the local Harcourt’s publication “Blue Print”. I have since been  approached by a senior member in the company  with a caution. “If members of the public take your words as gospel and act on them accordingly, and you turn out to be wrong , then you have left yourself open for possible law suites, and  disciplinary action from the Real Estate Agents Authority. “

I  accept there is a risk in putting any predictions in the public arena,  but based on over 30 years experience , reading the Real Estate tea leaves is the one thing I can do better than most.  I can add opinion, analysis and knowledge to your buying or selling decision. No one can know what the future truly holds, but there are footprints showing the way. These foot prints have been there in previous cycles and lead in  certain directions and based on my and Diana’s experience we try to interpret the signs we see from inside the industry and pass these on to you. It’s no guarantee that they are right, and I would think they would only be one part of your decision making process. I dread the day when people don’t share information because they fear the shadow of the bureaucracy. I think its called Communism

The warning  led me to think hard about what could go wrong with property prices and why the  prediction could be wrong. After much thinking there are some factors we have to consider.

• Tony Alexander the BNZ Chief Economist has put the case that the population growth is restricted to Auckland, along with the housing shortage The price drivers are specific to Auckland and that people are taking a risk investing in the provinces as there is little population growth in these areas.  That may be fair in some provinces but we  are seeing huge population growth in Whangarei. The District Health board figures are showing population growth way beyond the 1 percent the Whangarei District Council has predicted.

The building  companies are seeing an unprecedented demand for new houses, with some people not being able to book a builder for 12 months or more. As agents we are inundated with Aucklander’s buying in the district. So while I have the greatest of respect for Tonys’ undoubted ability, the evidence we are seeing here on the ground, says this is not a factor in Whangarei .

 

That only leaves international factors to think about. I don’t feel qualified to talk about these events and their repercussions as its not my area of expertise but will  lightly touch on two of them to highlight possible concerns

  • The Brexit. I know of people who lie awake at night worrying about this,  mostly English people.  If England leaves the EU what will happen? Will the EU collapse? There is no doubt the EU is in trouble  regardless if England leaves, and if it deteriorates further it will badly affect the world economy. And when the world economy sneezes little old NZ gets a cold. So this is a possible hiccup to our price rises.
  • The USA economy. I subscribe to a publication by John Maudlin , an investment adviser in the States who is aptly  named ‘ Maudlin” and he and his writers scribe a lot of “End of the financial world as we know it”  stuff. One article that I paid attention to was an analysis of the growth in The USA. The growth is almost entirely made up of three sections. Government spending, Military spending and Health Spending. All the other major productivity sectors were either flat of heading down. They argued that the USA recovery was an illusion based on huge quantities of printed money going into these three sectors while the engine room of the USA, its productive sector was stalled. They highlight the inability of the USA Fed to raise interest rates as further proof of an ailing economy.  There is no doubt that if the USA economy is still very sick, as they suggest, then we too could  get a rather nasty stomach bug.

 

  • There are numerous other overseas concerns such as oil prices, Russian aggression, disease, The Middle East and Donald Trump to name a few, but the reality is we can’t do anything about any of them. We are a small isolated country at the bottom of the world. A small isolated country that seems to have its act together, a country that is punching way above its economic and financial weight and while we do that we have every chance of coming out of any future global financial crisis better than most . And if the s**t really hits the fan we can unleash our secret weapon.  We have Ritchie McCaw retired from Rugby and ready to unleash on any misfortune. Our future is safe!

Our problem is we don’t have enough houses. Houses are a commodity like any other commodity, like cars, coffee and root beer. If there is good supply, prices stay constant, if there is a shortage prices rise. We have a shortage of houses in New Zealand. The greatest shortage is in Auckland but this shortage is being shipped to the provinces by Aucklanders’ leaving Auckland and moving to the provinces.

 

While we know the solution is to build more houses , if we look at the cause its  been created by a combination of :-  world events and by Government/ Reserve Bank “solutions” that cause boom bust cycles.  The reserve bank lifts interest rates to stop house inflation and kills building, which creates a shortage of houses and so on. Building is always the first to get hit in a world crisis and in an interest rate hike. We have seen this pattern over and over . Muldoon did it in 1980 when he put in the price and wage freeze. When he lifted the freeze house prices boomed. The Share market crash  of 1987 was next. When the crash was over, house prices boomed. Then Don Brash as reserve bank governor raised interest rates through the late 1990’s to stop house prices, when this was lifted by Wheeler in the early 2000’s house priced boomed. The G.F..C of 2007 led to the market crashing and now we are in yet another boom. . The more the disruption to housing  growth, the fiercer the recovery.

And that is why the government is finally doing the right thing by not interfering with house prices. If left alone they will find their natural level and grow at an average of 8 % per annum. Building companies can work in a stable environment , supply will increase and demand will balance out. But the more outside interference we get,  be that internal or external, the more boom and bust cycles we will get. If we don’t have the boom bust cycles real estate will become a steady investment rather the current all in, or all out, cycles we currently experience .

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A Quick Snapshot of  Other Real Estate Matters

 

  • Whangarei year on year property prices are accelerating again.    May’s sales price was up 15.6% (Corelogic May). that means the average Whangarei home is going up by $1200 per week and as predicted the growth is accelerating again. My December prediction of 17.5% – 22.5% growth is looking good and there is a risk this may be conservative.
  • The average Rental Price from Just Rentals for May is $362 per week, with the number of inquiry’s for properties steadily increasing to over 750  per month . The demand for rental property in the area has increased by over 35% in the last 5 months

 

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.

 

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What makes us Kiwi’s?

I want to be a kiwi

I recently had a special insight into what is so special about rural and provincial New Zealand. Some friends of mine who own a house in the local countryside,  had left to chase the big $$ and live in Northern Australia for the last 6 years, returned last week to renovate the house and move back for good.

A growing sense of disillusionment swept over them as they landed in Auckland to grey clouds and a rare cold snap. Upon arriving at the first set of traffic lights into Whangarei, they were met by the small scrum of scruffy window washers who pester all our new arrivals at this junction. They had a foreboding sense that the city had gone downhill since their departure. The occasional beggar added to the overall negative look.

They arrived at their house to find the lawns were up to their knees and the beautiful rock landscaped section was overgrown and untidy. The driveway full of weeds and their old home felt neglected and unloved. Australia suddenly beckoned with its sunshine and snakes. The much anticipated return was slowly turning to dust and fallen dreams. They cancelled delivery of their container of belongings, cancelled their job interviews and asked me to list the home for sale, they were returning to Australia.

And then the magic started. Acquaintances and strangers came forward to help with tools, time and encouragement. Neighbours introduced themselves and offered spare beds and furniture, meals and conversation, friendship and laughter. To the fore burst the natural warm friendliness that is so infused and inborn in every rural and provincial New Zealander. So instinctive  that they don’t even know it’s there. It’s more than a willingness to help others; it’s a desire too. They will go out of their way to look for opportunities to make a stranger feel welcome.

The Aussies in waiting were moved. The comment was made:-

‘We have been looking to settle into a community and this place feels like just that. People actually care! “

Now I don’t know if they will settle here permanently or not, but I felt proud! Very proud! That deep down glowing sense you feel deep in your heart when you sense something great just happened. . Proud of the people who are my fellow countryman and women, the people who make this great nation what it is. A friendly, warm, caring place where strangers and friends are genuinely welcomed into the community by real people, who have real Kiwi hearts and Kiwi values. Values so entrenched that most Kiwi’s don’t know just how friendly they are. No wonder it’s such a great place to live and why so many want to live here.

I’m not sure if these heart felt values are still the norm in the big cities like Auckland and Wellington, where a new breed of people seem to be emerging. The Cosmopolitan Kiwis or “Cosiwi’s” for short. Where it appears the name of a preferred Coffee or Wine is more important than the name of your neighbour. Where what you do for a living is more important than how you do your living. For their sake and their communities sake let’s hope the real Kiwi values remain underneath those moisturised and spray tanned skins.

A word of Caution for Sellers

We are seeing a high number of signed up sales falling over. This is strange in a rising market. A large number of these are Auckland investors.

I once dealt with a Commercial developer whose catch phrase when he heard about a new property was “Just get my foot on it ” . That meant get a contract in place and then I’ll do the research to see  if I can make any money out of it. Great for him, but a real bastard for the owners if he couldn’t see money in it or, even got too busy to be bothered with the research. It meant their property had been off the market for that time and usually involves some costs to the owner in legal fees.

There is at least one property coaching school where they advise their clients to put in a full price offer on a property, sight unseen.They add a clause that says the agreement is subject to a building report  and doing a due diligence within 10 days . They are basing the buying decision on the internet photo’s, the Whangarei District Council website and a look down the street using Google maps. I have heard one such client say “its not an emotional buy so I’m just looking at how it stacks up in a practical sense. I don’t have to love it” . They are often putting in several such offers on properties in the district ,then travelling up one day to inspect all the properties and decide which one they want.

While these deals are exciting at the time they have a high fall down rate, as once the buyer sees the property, warts and all, they often find they do have an emotional reaction after all, or worse still pick a better option and cancel the contract.

The other strategy they recommend on this course, is to find a problem in the builders report and every property has some issue.  They then use this item  to negotiate the agreed price down.

I personally believe the buyer should inspect the property or have someone else inspect the property before putting in an offer.  It’s not to say you won’t still have problems with the builders report but at least you  know the property has passed the first visual hurdle and the agent has met the buyer and been able to form some sort of opinion as to their motives and character.

 

 

 

Tony Alexander, BNZ economist says

Tony puts out a weekly report about the economy . As a Real Estate Agent I  have followed his writing for a number of years and have found his views  compelling, informative and well researched. Like everyone he gets it wrong every now and then , but he seems to get it right more than most . If you don’t get his newsletter I  recommend subscribing to it. The article below is from his latest issue of the “BNZ Weekly Overview”

Housing I gave a talk on the Auckland property market to some 700 people at Ellerslie Event Centre last night and here are the nine key points which I spoke to in terms of whether they represented a threat to the strength in Auckland’s market. The answer for all was no. Hence, as written since 2009, Auckland prices rise.

  • NZ economic growth. Is the growth outlook bad meaning the outlook for jobs and incomes is bad meaning people will find themselves unwilling and in more and more cases unable to buy a house? No. While dairying is weak there is a lot of strength in tourism, export education, wine, pipfruit, kiwifruit, honey, manufacturing even, and construction.
  • Auckland growth Has the surge been a flash in the pan and will we go back to the old world of Auckland being just a bigger version of Wanganui? No. Auckland is New Zealand’s agglomeration delivering growth from the fast interaction of talented young people from diversified backgrounds. Auckland was 21% of NZ’s population in 1961 and now it is over 34% heading to 40%.
  • Migration Is the migration boom about to bust? No. Migration busts when we head across the ditch to make money during an Australian minerals boom and our economy is in or close to recession. But our economy is not forecast to enter recession soon and Australia’s mining boom has been and gone and won’t come back for a generation. Net migration is likely to remain strong for a number of years and 60% of the net flow goes to Auckland.
  • Construction Is Auckland house supply about to boom? No. There is a shortage of builders, shortage of developable land, shortage of land not simply being landbanked, development costs to finance infrastructure can be huge. Supply will rise but the shortage is still getting worse.
  • Interest rates Are they about to rise strongly? No. The RBNZ is still easing monetary policy and the bigger global problem is low inflation rather than any inflation threat. Interest rates look like staying low for a great number of years/decades.
  • Regional investing Are investors flocking to the regions for yield and low mortgages going to keep doing this at the expense of investing in Auckland for the next few years? No. Investors, having soaked up cheap stock which has sat on the market a long time in the regions will soon start to ask themselves whether population growth will justify growth in supply they see in some locations. In certain locations like Hamilton and Wellington prices are likely to rise with logical economic and population growth support for a number of years. But in many locations elsewhere population growth is likely to be less than some people are thinking and investors questioning growth assumptions will eventually wonder whether they can liquidate their asset quickly should times and rentability again get tough in the less popular places.
  • Aging population Are baby boomers going to sell their housing investments soon to fund their retirements? No. They need yield over a greater number of years (rising life expectancy) than people were thinking just a few years ago. The boomers will hold their housing assets for the income they yield.
  • Chinese buyers Have they disappeared for good? No. They are returning in force going by the anecdotes over the past four weeks with more to come when eventually the Chinese implement their Qualified Domestic Individual Investor 2 regime in six large cities. There is no timing on when this will happen and it probably won’t until the capital outflow from China seen this past year eases off.
  • Backlog Have potential buyers given up all hope? No There is no shortage of people bemoaning their decision to hold off buying since 2007. They want to buy and eventually will raise the deposit to do so.

There are other factors but these main ones sum up the situation. Pressure on Auckland prices is upward though it is not only doubtful that we will see prices rise at the same average speed as in recent years, we had better not else the Reserve Bank will impose stronger lending controls. Should the regions produce widespread rises near 20% per annum then the 30% minimum deposit requirement for purchase of investment properties in Auckland will be applied to the rest of the country.