The Auckland housing market can’t crash? Bollocks it can’t

Vancouverites upset about being priced out of the housing market because of rising real estate prices fueled by foreign investors, are likely to be heard as the apparent bubble has just burst.

Greater Vancouver home sales have fallen 85% in the first half of August to a mere 87, down from 597 homes over the same time last year.

Meanwhile, Richmond was down 96%, Vancouver West down 94% and the North Shore’s West Vancouver down 90%.

Panic selling has started.  Panic induced bargain buying is still a long way off.

Although the Johnny come lately are still listing homes to cash in on the capital gains, the buyers have dried up, thanks in part to the 15% tax the B.C. government introduced on property transfer’s for foreign nationals buying real estate.

The descent in housing sales is being perpetuated by China’s State regulated media which is warning Chinese buyers of the dangers of owning Canadian real estate.

And if you think our government wouldn’t introduce such a dampening measure on foreign sales, you need to have a good look at both Labour and NZ First policies.

Even with a National-led government, if it includes NZ First, this may be one of the pragmatic compromises that will wipe hundreds of thousands off people’s equity.

Labour, of course, will do it without blinking.   Stuff the rich pricks.

Jared Dillian, former Lehman Brothers trader and noted financial writer, says that the real estate market is near the peak of a massive bubble.

Dillian says that a long, drawn-out “death by a thousand cuts” scenario is in the cards for the Canadian housing market. And, this economic pain will probably last for years.

He also notes that nearly all mortgages in Canada are “recourse mortgages” (except in Alberta). This means in-the-hole homeowners are not as likely to walk away as they were in the US housing crisis.

Dillian states that more interest rate cuts by the Bank of Canada could be in the cards. With the prime rate in Canada at 0.5% right now, it’s not far to zero. In fact, he wouldn’t be surprised to see negative rates by the second half of 2017.

He goes as far to suggest selling any real estate assets in Canada you have, including your home, because you’ll be able to buy that same property back cheaper in three to five years.

Similar adjustments to the market have been seen in Europe, where even 10 years later, prices haven’t recovered to their previous high.

 

Canadian Investor

  • Sally

    If there is a slim chance that the Labour, Greens or NZ First look like they are going to be in the next government I will be urging my husband the time is right to sell. Then go on an extended holiday overseas. Then when Labour and the Greens have stuffed up the housing market come back and buy again.

  • oldmanNZ

    The market has turned already here, the 40% deposit has had an affect. Investors are selling, not buying,
    Not many buyers out there.
    If you thinking of selling, it msy be too late.

    • Sailor Sam

      We went to an auction in Matamata earlier this week.
      Prices extremely high, a section for $209,000, one 3b/rm house $385,000 another $435,000.
      All sold to locals.
      Another bought before auction for $435,000, another being negotiated at around $495,000.
      No sign of slackening here yet.
      But I believe it to be unsustainable.
      Makes our house, bought 18 months ago at those prices around $400,000 well above our bought price.
      And when the prices do crash, I bet that the green/labs will blame John Key.
      Interestingly there are very few houses on the market in Matamata at present, sale numbers are down.
      edit – added last sentence.

      • Miguel

        As I read on a financial blog some time back, if something can’t go on forever, then sooner or later it’s going to stop. Obvious, but it’s clear that sooner or later houses won’t be able to keep going up and up; they already need two high-paid workers to afford, as well as a deposit top-up from mum and dad and/or Kiwisaver, so there’s not much more that can be done to support things.

      • philbest

        I am a principled free market supporter and I despise what the Greens stand for, and I despise utopian social engineering, which is really what urban planning is, and this is really the problem here. It gives me no pleasure to agree with anyone that this IS the John Key housing bubble, and when it bursts, it won’t be possible to blame Helen Clark’s government, or Green ideology. Not when there has been NINE YEARS of opportunity for honest, intelligent reform. You can’t turn around one day when it suits you, and blame the Left and the Greens for a problem that your team did not have the integrity to deal with when the opportunity was right in your lap.

        • Sailor Sam

          I am not disagreeing, but when a green politician states she wants house prices to collapse by 50%, then she cannot ever say it is John Key’s fault when it happens.
          Just as A little party leader cannot blame John Key. But mark my words, they will.

          • philbest

            If the bubble is John Key’s fault – and it is – and that it will crash one day is a certainty – why is a minor party leader’s comments anything to do with the blame? I would very much prefer that the “centre right” in NZ politics had done the right thing and was not “to blame” – but they did the wrong thing, and they are. Hating the Greens as much as I do, does not make me blind to my preferred side’s wrongs when they do commit them, or make me dishonest about them. All I care about is getting the historical record straight so that the correct reforms happen one day. If it is a new Rogernomics type phenomenon on the Labour side, I will support it. Phil Twyford actually supports the “Municipal Utility District” concept used in Texas, which makes him as much clearer than John Key on housing, as Roger Douglas was than Robert Muldoon on import restrictions and government monopolies. Urban planners did it; National under John Key did not have the spine or the integrity to confront this and do the right thing. I am 100% opposed to the probable Green / Labour / left narrative that “neo-liberalism and rampant free markets did it” (and the solution will be of course, more State housing). The honest, intelligent untainted remnant of the centre-right in NZ has been placed in the miserable position of having to keep up the long fight against utopian urban planning, with their actual government in its 3 terms, having been missing in action on the ideological battleground. These things have ghastly long-term consequences, with the Left (and its cohorts in the MSM) advancing the ideological ratchet another notch every time the opposing “right-wing in name only” party behaves like the French in 1940. Any party that manages to bring on the crash sooner, with less mortgage hostages than if it were left to run its course, will actually be on the right side of history. Michael Reddell has this right. https://croakingcassandra.com/2016/07/28/a-couple-of-cartoons/

            “There are no totally easy or fail-safe ways to unwind the disaster that the New Zealand –  especially Auckland –  housing market has become.  But this is a clear example where the sooner it happens the better…”
            The whole post is a must-read of the highest insight and integrity.

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            Sailor Sam
            I am not disagreeing, but when a green politician states she wants house prices to collapse by 50%, then she cannot ever say it is John Key’s fault when it happens. Just as A little party leader cannot blame John Key. But mark my words, they will. 5:47 a.m., Thursday Sept. 1 | Other comments by Sailor Sam
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    • Rebecca

      I think the 40% keeps the banks happy – but the investors over the last 5 years have a ton of equity = the 40% requirement becomes noise and wont affect their ability to buy….if they want to
      Cant see a crash – but I do feel everyone wants it to slow down – more measures will be introduced soon I suspect

  • Rebecca

    But Aucklanders are earnestly assured that foreign buyers are merely a drop in the ocean, so this could never happen here… unless somebody is telling porkies. Just as they were in Canada when they exclaimed that “foreigners are only 3% of purchasers!” and yet a 15% tax on those few buyers, magically crashed the whole market.

    • Bazza63

      And that house price is for Greater Vancouver which is about 10 times the size of Auckland in land area.

      • Rebecca

        Couldn’t be- Auckland already is far too large which is why leafy streets need replacement by high-rise sardine apartments to create the most liveable city in the galaxy.

        • philbest

          From the Demographia “World Urban Areas” database, which is authoritative (measured by Google Earth image pixellation of existing built area, not municipal boundaries)

          Vancouver, 1150 square kms

          Auckland, 544 square kms

          Vancouver has 2.3 million people versus Auckland’s 1.3 million – Vancouver has lower density suburbs and not a significant amount yet of added density, making it quite a bit less dense overall. Auckland is actually pretty unique for the kind of infill it has already been having for the last 20 years.

          Auckland is actually the second densest city in the Anglo New World already – only Toronto, with 6 million people, is denser. In fact there are many cities in Europe of around 1 million population, that are less dense than Auckland. We have been fed lies about Auckland’s “low density sprawl”. There are US cities that are 1/3 Auckland’s density, in fact that is almost a given for US cities of around 1 million people.

  • JohnO

    A housing market crashes when the prices fall. The above story mentions that the number of sales has fallen but not that the price has declined. The number of sales has fallen by 85%, 90% and 95%. Who cares if the market is slow. As long as the price holds up the market is not crashing.

    • philbest

      Yeah, there might be several false “turnarounds” before the proper bust comes. But it will come.

    • Wheninrome

      No listings, no buyers okay market just a slow day at the office. However when there are no buyers and someone wants to sell for whatever reason they sell for the price they can get, if no keen buyers around they will lower their price until there is a buyer, that is hkw the arket starts to “correct”. Seen it happen 3 times so far and they were all very real corrections, the word out there is that the winds of change are a happening, not necessarily the very expensive properties as they always have less potential buyers and take longer to sell, but agents are reporting no one coming to open homes, wait and see.

  • Metricman

    A drop is sales volume is a bit different from a drop in sale prices, and indicates a slowdown in turnover. Smarter people than me may advise what that means. A key indicator for the market here is one called housing stock levels. I.e if nobody posted any new listings, how long would it take to sell all the houses currently listed for sale. The real estate industry gets twitchy if this falls below 30 days.

    • philbest

      Philip J. Anderson in “The Secret History of Real Estate and Banking” advances a convincing hypothesis that property-cycle length is set in concrete and the economic fundamentals just affect how big the bust is when it comes. There could be several “false alarm” market peaks yet, in both Vancouver and Auckland. But when the real thing comes, the Irish in 2008 will look lucky that they got it over with then, rather than pulling every dirty trick in the book like our leaders did, to get the bubble reflating to ever more insane levels. Next time there will be no dirty tricks left to “save” us, apart from the fundamental levels of price and debt.

  • philbest

    I feel like I am in the middle of an “invasion of the body snatchers”, that almost no-one else around me sees that Auckland, and probably the whole of NZ, is in a bubble that is as over-inflated as anything in 1929, or Spain 2007, and the bust will be just as painful. It might be years yet before it comes, but it will come when everyone has given up and are expecting “the new normal” to last forever. Busts happen that way. I recommend Philip J. Anderson “The Secret History of Real Estate and Banking”.

    Vancouver probably has a few years to run too, the current slow-down is in sales, that might not translate to cycle-end collapse in prices.

    • philbest

      And John Key will go down in history as the leader who should have known enough to address this problem in 2008 – Don Brash was clear in 2005. In 2008 it was the Clark government’s bubble and the pain of unwinding it could have been blamed back. Just like Lange could blame Muldoon for everything. But Key blew it and the day of reckoning for Kiwis will be that much worse when it does come, for the fact that politicians found it expedient to keep kicking the can down the road with inquiry after inquiry after inquiry.

  • Wheninrome

    Do we want or believe in the free market approach, if we do lets not blame anyone but ourselves, the decisions we make and why we make them. There is a lot of sheep like behaviour in NZ.
    If we want protectionism and protections from our silly mistakes then vote labour, they will look after you, yeah right. You will still pay one way or another. Under labour the actual creators of wealth will be taxed to pay for the poor people who lost money in the housing market. The reality is you have to live somewhere, buy and sell on the same market. If we didn’t change our houses so often (think your parents or grandparents) the market would be more realistic, but greed plays a big part.

  • Disinfectant

    Some of the comments below are refreshing.

    No longer the rah, rah, rah you don’t know what you are talking about commenters picthing in saying all is well and property prices never crash.

    Well, they do. I have lived through them, and this current boom in New Zealand is the biggest I have ever seen.

  • andrewo

    Vancouver has a million square miles of empty space to the east of it and the city has been sprawling out there for some time: It has potentially limitless housing supply. Not so Auckland.
    As the Auckland market becomes fully priced I would expect to see a dramatic drop in turnover but the only people to suffer from that as the real estate agents. Its happening several times in the last couple of decades and it will happen again.
    Interest rates are staying down for the long term. It is highly unlikely that we’ll see a spike in rates that puts mortgage holders under pressure.
    On the negative side, the flow of money out of China will stop eventually and, maybe more importantly, the flow of Kiwis returning from Aussie due to the mining industry cutbacks will also drop. And yes, a government cut in immigration numbers might dampen things a bit.
    My take: if we see more than a 10% drop I will be surprised. Most likely prices will plateau for a few years.

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