Whilst the statistic released by Terralink on mortgagee sales is bleak news for those at the sharp end of loosing their homes, the NZ picture is a far different picture from that experienced in the US – the home of foreclosures!
Terralink reported that in the month of June; 289 registered sales of land and property were as a result of a finance company or bank selling the property following the borrower defaulting on the loan agreement. This is the highest single month ever and now represents just under 5% of all homes sold in the month. However when compared to the the US where the proportion of all homes sold that have been foreclosed (mortgagee sales) over the past year have been over 40%, NZ is suffering nothing like the same fall out.
In the US the foreclosure problem has been the catalyst of the collapse of property prices which is still running at close to 20% year on year decline, and currently around 30% lower than the peak of the market over 2 years ago. Compare that to NZ where the current national property price is now less than 3% below below the peak of October 2007.
In the US the property market has got trapped over the past 2 years in a doom loop scenario, a situation that they are only just getting out of.
The flood of foreclosed houses coming onto the market as prices have fallen leaving homeowners financially underwater had in itself further depressed prices leading to more homeowners defaulting.
Compare this to NZ where firstly the scale of mortgagee sales is far lower and therefore consequentially has less impact on the overall market stock of properties for sale. Additionally there have been enough bargain hunters to ensure mortgagee sales have moved through the market efficiently without flooding the market and consequentially further depressing prices.
This “natural clearing” of the mortgagee market can be well represented in the chart below which tracks mortgagee property listings on the website over the past 33 months and reflects the rise in early 2008 with a tailing off through 2009 to date.
’3’3333333333 is an interesting number – on one hand it is the decline in value of the NZ house stock since the peek in 2007 – on the other hand 3 to the multiplier of 10 (30%) is the prediction of the likes of Bernard Hickey when he was looking to scare the NZ market into decline in early 2008. Some would say that this was just a good way to get yourself quoted in the media and onto TV to promote your web site others would be more generious and say that it was a honest mistake.
Sure it was revised to 15% 3 months ago so that made the original prediction half wrong!!! Now where does it sit at 90% wrong?????
You mention a ‘doom loop scenario’ Alistair as being a huge weight for any eceonomy to lift itself from and here we have the issue with commentators and there predictions which are so wide of the mark they should take themselves away and hide forever in naghty commentator land.
So has the doom loop created in New Zealand – particular in 2008 and very early 2009 done harm? Of course it has Greig is the answer. It depressed sellers fair expectation and brought out even more the bargain hunting buyers – who made even lower offers and depressed the market even more – the poor sellers though well that ‘market guy’ said that the market is going to go down 30% ‘I had better get out now’ THIS HURTS REAL PEOPLE WHO HAVE LOST REAL CASH AND REAL HOMES – while the predictors will come up with all the logic and new data that explains away why they got it so wrong!!!!!!!!!
great article Alistair and one has to agree with Greig – the people who wrote so many of the negative scaremongering articles and made some of the more ridiculous forecasts ought to have thought twice – their words have had real effects.
Unfortunately it is symptomatic of much of our news media – bad news sells, and other who use bad news to sell their wares (websites or books)
It goes both ways. Many during the bubble phase (banks, media, agents and agencies) were just as guilty of talking the market up for their own vested interest and i am sure that it will happen again. Thats life and its up to the individual to do their own research.
Yes, I don’t get it either. The “doom loop” mob (of whom there are very few who are literate and capable of engaging with the media) are dismissed as nut-cases by the investment community, yet are chastised for “scare mongering” when the market doesn’t continue on its relentlessly upwards trend.
This is all rather ironic considering NZers’ basic understanding of financial matters and the factors asset market is woeful at best and usually based on what they want to believe. When the mainstream is in that mode, it’s difficult for dogmatic outliers such as Hickey to be heard among the cat-calls.
Sure Andrew agents, agencies and others are positive about the market in all market conditions – thats our job and the fact that we beleive in real estate as an investment helps. But you have never seen and agent or industry representation claim the market is about to explode with 30% growth.
Yes J.C New Zealanders understanding of finance and financial markets is poor. The NZ school system has some blame here in that for many years no financial literacy has been part of school programs. It is great to see some schools now introducing financial management courses.
The ASB are also involved in a primary school inititive to bring back pupil savings schemes. This was in primary schools 40 years ago until some bright spark thought it was to much trouble.
Well Greig, you admit that financial understanding among NZers is poor, but I would think that Bernard Hickey has done more to promote financial learning than the RE industry. Furthermore, one of Hickey’s recurring themes is that excessive debt has fueled asset price appreciation, and an until an equilibrium is found, the obvious risks to national wealth and prosperity will linger (there’s nothing particularly radical or sensational about that belief). Would you prefer him not to air his opinion (however “extreme” you may perceive them to be) simply because they may “scare” someone? My original point is that if BH alone can talk down the property market (which I frankly believe is nonsense), then you need to look at the ignorance of the general public, not the messenger.
“But you have never seen and agent or industry representation claim the market is about to explode with 30% growth.”
OK maybe not 30%, but in 2007 i sat through a LJ Hooker property investment seminar which claimed that property would continue to grow at 7-10% per annum into the future. They then set up consultations at peoples homes to look at their financial situation and the best way for them to get onto the property gravey train. Most people at the seminar were tennants on low incomes. The fact that the properties would be cash flow negative was not a problem because the values would continue to go up. The seminar was in a low socio-economic area (included free food) and was blatently about drumming up business from people with limited financial understanding.
So where are we now, 2 years later, not 14-20% capital gain but approx -14% off peak (Gisborne).
Andrew,
I am not going to make any judgment as to the appropriateness or ethics of this real estate business to promote property back in 2007. However I would have to challenge your assertion that Gisborne property prices are down 14% from the peak.
Researching the REINZ data of sales for 2007 – the highest median price during the year was $285,000 in August of that year, the lowest $249,250.
By comparison the latest median price for Gisborne as reported by REINZ in August was $280,000 – that would equate to a fall from peak of 1.8%
HeY Andrew – LJ Hooker are probably correct – now I have nothing to do with Hookers but what they were saying was that on average over say a 10 year period the 7-10% gain would be evident.
Gisborne’s housing value no doubt grew in the period 2001 – 2007 some 80 – 100% like may other area’s. Now it has come off 1.8% – wow what a tremendoius invest if you purchased in 2001. Will it happen again? YOU BET AND WHY SHOULD PEOPLE ON LIMITED MEANS NOT ENJOY THE GREAT BENEFITS OF HOME OWNERSHIP.
“Gisborne’s housing value no doubt grew in the period 2001 – 2007 some 80 – 100% like may other area’s. Now it has come off 1.8% – wow what a tremendoius invest if you purchased in 2001. Will it happen again? YOU BET AND WHY SHOULD PEOPLE ON LIMITED MEANS NOT ENJOY THE GREAT BENEFITS OF HOME OWNERSHIP.”
Greig,
I think this kind of air-punching delusional optimism will eventually cause the demise of the property sales culture. The industry should understand that people are not fools, and empty jargon and private desperation are not the way to a fast sale.
According to QV data Gisborne was 14.8 % down in May 09 from the previous year and 9.4 % down in August 09. The discrepancies in the two sets of data (QV and REINZ) is large but what is consistent is the improvement that is evident.
Andrew,
As you rightly state the data from QV for those month do show significant volatility. I would have to say that is quiet normal for Gisborne – the base of data for that market is very small.
In May 2009 there were only 66 houses sold – but a year earlier there were only 28 houses sold – basing any mean / median price on 28 sales will always create the potential for significant swings.