SOURCE NZ Herald
4.00AM Monday February 11, 2008
By Maria Scott

4:00AM Monday February 11, 2008
By Maria Scott

Don’t expect Alan Bollard to announce a steep drop in the cash rate. Photo / Mark Mitchell

These must be troubling times for many property investors. Those reared on a diet of freely available credit and low - for New Zealand - interest rates are facing credit rationing and stubbornly high borrowing costs.

Banks have become cautious about lending as a result of the international credit crunch and there are fewer lenders overall because of the collapses among local finance companies.

William Cairns, of mortgage bank Cairns Lockie, says the contraction in the finance company sector has caused problems for developers, in particular. Some of the hardest hit are those subdividing land; anything from five to six sections up to the big boys. “That market is very, very hard.”

Finance has also been choked off for apartment complex developments and small commercial projects. Cairns says he is also hearing that developers are seeing borrowing facilities withdrawn, typically where a project has run beyond deadline, where once they would be have been rolled over as a matter of course. In these cases, borrowers may be forced to sell.

Until a couple of months ago, says Cairns, borrowers assumed that interest rates would rise and then drop off. But now borrowers are facing the prospect of high rates for many months.

Floating mortgage rates are nudging beyond 10.5 per cent, depending on the lender, and even some shorter-term fixed rates have topped 10 per cent. There have been some reductions in fixed rate mortgages recently, especially over five years, in response to the lower costs of funding internationally. But economists do not expect the official rate in New Zealand to fall steeply and sharply, as it has in the United States, because of the inflationary pressures that remain in the local economy. The domestic economy is the main influence on the cost of floating and short-term fixed rates.

“People now know that with an election coming up and maybe tax cuts, interest rates are not going to drop in the short term,” says Cairns.

Investors with large portfolios of debt usually have a range of loans maturing over different terms.

Mortgage broker Sue Tierney, who is also president of the Auckland Property Investors’ Association (APIA), says: “We don’t like it but we get used to it.”

But sustained high rates are making it more difficult for investors to make their numbers add up. Rents have begun to rise after a prolonged period of virtual stagnation but they are still not at the levels they should be at, says Tierney, compared with the cost of home ownership. Even with the tax losses allowable on the cost of running a property investment portfolio, yields have become too low for investors to see much value in adding to their portfolios.

CLICK HERE TO READ PART TWO >>>

SOURCE NZ Herald
5.00AM Sunday February 10, 2008
By Anna Rushworth

Olly Newland has been a property consultant and investor for 47 years but says ‘a million doesn’t tinkle the teacups’ in today’s Auckland market.

A million-dollar home was once the ultimate symbol of a highly successful life. But times have changed - and the days of landing a massive mansion for a seven-figure sum are long gone.

Twenty years ago the magic million would have secured a grand estate in the heart of the sought-after northern slopes in Auckland’s Remuera.

Now buyers attracted to the suburb are finding the same amount will buy only a basic bungalow or townhouse.

Olly Newland has been a property consultant and investor for 47 years but said “a million doesn’t tinkle the teacups” in today’s Auckland market.

“A million dollars would buy you a very nice house without any super luxuries - above average without being super duper.”

Newland said the market had gone through big changes, even in the past decade.

“Ten years ago it [$1m] would have bought you a major home in the best suburbs, with a pool, the whole lot.

“It probably would have got you five bedrooms at least, and several bathrooms.”

And in the 1980s the same sum “would have bought you a huge home, a mansion”.

David Rainbow, of Bayleys Real Estate, has been selling houses in Remuera for 24 years and thinks you can still buy well on a million dollars. “A million dollars is a lot of money, let’s not lose sight of that fact.

“You would get a nice house for a million dollars, obviously depending where you are.

“You probably would not get a view for a million in Remuera.”

Twenty years ago, Rainbow sold 37 Claude Rd in One Tree Hill for $1.35 million.

The three-storey character home was on the market for the first time and came with tennis court, three bedrooms and a double garage set in just over 0.4ha of grounds.

Ten years later he sold 87 Melanesia Rd in Kohimarama for $1.1m.

The modern home included three bedrooms and a rumpus room. “A million dollars bought you a lot.”

Five years ago Rainbow sold 63 Mt St John Ave in Epsom for $1.2m. The money didn’t go quite as far, although it still bought a “very picturesque” villa with a pool and double garage.

Prices have risen dramatically across Auckland in 30 years. A villa at 10 Wood St, Freemans Bay, sold for $280,500 in 1990, before leaping to $705,000 in 1998 and almost $1.8m in 2006.

Michael Boulgaris has also noticed big changes in the 21 years he’s been selling million-dollar homes in Auckland.

“Back then it was what $5m would buy you today, so it’s swimming pool, tennis court, lovely views. For a million today you’re looking at a very standard three-bedroom bungalow,” he said.

Carl Madsen of Barfoot & Thompson said that $1 million was now the “entrance level” for a house in Auckland’s Herne Bay.

CLICK HERE TO READ PART TWO >>>

New Zealand has the least affordable houses in the world.

It scores worst in an international survey of the world’s six most expensive housing markets, passing Australia for the first time.

Demographia, an international survey business run by Hugh Pavletich of Christchurch and Wendell Cox of the United States, today issued its fourth annual report, showing New Zealand has slipped drastically on an international scale.

The United States, Australia, Britain, Ireland, Canada and New Zealand were studied, and the results reveal NZ house hunters face the biggest gap between earnings and house prices.

Wages are so low and house prices are so high that it takes 18 years and six months of a household’s entire annual income to pay for a home, Demographia found. That measure is based on median house prices compared to median wages.

Australia had been the least affordable country of the six, but New Zealand has overtaken it, partly because of high mortgage interest rates.

But in Aucklanders are no longer the worst-off New Zealanders. Tauranga is now the country’s most expensive city compared to its wages, ranking 20th of 227 cities in the survey, followed by Auckland in 31st place and Christchurch in 34th.

“New Zealand has the highest-cost housing among the surveyed nations in relation to incomes. It also has the highest interest rates,” the study said.

Houses in Los Angeles remained the world’s most expensive, and California was the most expensive area.

The most affordable houses are in Canada’s remote Thunder Bay, followed by Youngstown in Ohio and Fort Wayne in Indiana.

Demographia’s authors say town planners should solve New Zealand’s housing crisis by freeing more land on city fringes.

Mr Pavletich and Mr Cox cited former National leader Don Brash, who in an introduction to the study called for the abolition of urban limits.

“Despite all the evidence, governments continue to pretend they are powerless to make housing more affordable or, worse still, implement futile interventions which make the situation worse as the New Zealand Government is proposing,” Dr Brash said.

He was referring to Housing Minister Maryan Street’s Housing Affordability Bill, which would require developers to include cheap houses in new estates or to make compulsory gifts of money or land to councils.

The bill, introduced to Parliament last month, aims to stimulate the provision of affordable housing for first home buyers and low-income families.

But the Property Council and Master Builders Federation say the proposed law would push up the cost of houses. Other homebuyers would pay the price as developers put up the cost of mid- and upper-range homes to compensate for profits lost in building the cheaper homes for first-time buyers.

Real Estate Institute national president Murray Cleland said he was shocked to hear of New Zealand’s ranking. First home buyers were being hardest hit.

He said tax rates were too high - “and that’s an area that needs to be looked at” - but territorial authorities also had to take a good share of the blame.

Councils had restricted land supply unnecessarily at a time when people desperately needed more sections for building.

“You look at small provincial towns where the councils have freed up land - it’s been swept up.”

As well, exorbitant council fees and charges were making new housing developments unaffordable.

“A large part of this problem is the cost of getting building permits,” Mr Cleland said.

Property Council national director Connal Townsend said yesterday he was not surprised by the Demographia survey and he criticised the Auckland Regional Council for its growth policy which restricted city limits.

No one wanted urban sprawl, he said, but “if people can’t afford to live in the city, what’s the point of the policy?”

The demand for apartments may be cooling.

New Zealand’s home-building approvals fell for a third month in November adding to signs that record-high interest rates are dampening demand for property, particularly apartments.

Approvals to build new houses and apartments declined 0.1 per cent from October, when they dropped 4.6 per cent, Statistics New Zealand said yesterday, citing seasonally adjusted figures.

Excluding apartments, however, approvals climbed 1.8 per cent, the most since May when they gained 2.5 per cent.

A cooling real estate market will further slow an economy that expanded at the weakest pace in a year over the third quarter.

Easing domestic demand will help curb inflation pressures that prompted Reserve Bank Governor Alan Bollard to raise borrowing costs four times last year, taking his benchmark to 8.25 per cent.

“The housing market is under the gun and facing considerablepressure,” said Philip Borkin, an economist at ANZ National Bank. in Wellington.

“The interest rate increases we’ve had are really taking their toll now,” he said.

Nine of 15 economists surveyed by Bloomberg News last month forecast the central bank would lower rates this year as economic growth moderated. Five expected no adjustment and one predicted higher rates by December.

- Bloomberg

Residential property prices rose at a slower pace in December for the fourth consecutive month, a trend expected to continue this year, according to national valuer QV.

Property values rose 10 per cent for the December year, slowing from growth of 11.4 per cent in November and a year high of over 13 per cent in August.

The average national residential sale price fell to $388,253 from $393,198 in November. It was more than $400,000 in October.

Rising mortgage lending rates and slowing immigration had softened demand since August’s high, QV spokesman Blue Hancock said.

“There is nothing in our statistics to suggest that this trend will not continue into 2008, with the spring market having failed to provide the usual resurgence,” he said.

Several banks recently raised mortgage lending rates, with Westpac increasing its two-year fixed rate mortgage to 9.6 per cent from 9.4 per cent on Saturday.

Rates were around 8 per cent two years ago.

Most economists polled by Reuters expect the Reserve Bank to keep its official cash rate steady at 8.25 per cent until late this year or early next, when it is expected to cut rates.

Values rose in Auckland City by 9.1 per cent, in Christchurch by 8.2 per cent, and in Dunedin by 6.9 per cent, all down between 1.5 and 1.7 percentage points from November.

- NZPA

Devonport houses. Photo / Herald on Sunday

Auckland house owners got much richer last year, despite a levelling-off in the super-heated property market.

Figures from the city’s largest agency, Barfoot & Thompson, and the Real Estate Institute showed Aucklanders got spectacular returns on housing, ignoring warnings from Reserve Bank Governor Alan Bollard against tipping money into property.

Average or median price increases beat most bank interest rates.

Barfoot’s figures showed a 12 per cent average gain last year. Real Estate Institute figures backed this up, showing big gains for most Auckland areas.

But property sceptics say the gains should not tempt buyers back into the market, which they believe may weaken further next year.

Barfoot’s figures, out yesterday, showed an average sale price of $480,738 in 2006 climbed to $538,478 last year.

The 2005 average sale price was $458,784.

Peter Thompson, the firm’s director, said that although fewer properties were selling, prices were holding up well.

“It’s interesting to note that property prices do not seem to have been affected by reduction in sales volumes,” he said.

Last month’s 495 sales were down more than a third on December 2006.

But the average sale price for December was still 2.4 per cent up on November, Mr Thompson said.

He predicted the number of house sales in Auckland would stay low this year, but prices would still be firm and might even improve.

The Real Estate Institute’s annual figures for Auckland - from November 2006 to November last year - also showed big gains in many areas.

The North Shore’s median price rose 7.14 per cent, from $504,000 to $540,000. Waitakere City’s price went up 8.78 per cent, from $353,000 to $384,000.

Manukau City reached $438,000 last November, an 8.15 per cent increase on the $405,000 of 2006.

Papakura District’s median price was up 10 per cent, from $309,100 to $340,000.

Metropolitan Auckland’s median price increased 6.59 per cent, from $425,000 to $453,000.

Rodney District was the star performer in the Auckland region. Its median price increased 10.12 per cent, from $449,500 to $495,000.

The median price for a house in the Franklin District rose 8.48 per cent, from $359,500 to $390,000.

Bank of New Zealand chief economist Tony Alexander said the figures did not mean more Aucklanders should pour money into housing.

Price figures were volatile and fewer houses were selling, which showed the true state of the market.

The average sale price numbers seemed to show the market was strong, but turnover was low and the number of listings was up.

He expects weak housing figures for the first half of this year.

TELLING FIGURES

Average sale price
2006 - $480,738
2007 - $538,478

Average sales a month
2006 - 938
2007 - 915

Average monthly listings
2006 - 1476
2007 - 1639

Source: Barfoot & Thompson

SOURCE NZ Herald
5.00AM Tuesday January 08, 2008
By Anne Gibson

Waiheke Island is one of the Auckland region’s hottest real estate areas, according to SuburbWatch.

More like a stone skimming the surface of the water than a rock sinking - that’s how the housing sector’s fortunes are being forecast for the year ahead by the moderates.

Agents are keen on the soft-landing theory, promulgating the view that the market will flatten rather than collapse. But not everyone believes them.

Pessimists such as economist Rodney Dickens are talking more of “the hell that can unfold after house-price booms”, referring to the need for a 40 per cent drop to get some balance back in the market.

“Scoff at this if you will, but it is an interesting coincidence that this roughly matches how much the New Zealand median house price would have to fall to get the gross rental yield on the average rented dwelling back up to the historical average level,” said the former ASB research chief.

Anecdotal evidence of a flattening market includes the sheer volume of For Sale signs and honest but anonymous responses to the BNZ’s monthly confidence surveys where agents admitted some open homes did not get a single visitor.

Banking economists cite more concrete evidence: flat prices throughout much of this year, a lengthening in the number of days to sell and national house price sales volumes which have almost halved in the past few months.

“House prices in New Zealand have essentially been flat since hitting $349,000 in April,” said BNZ chief economist Tony Alexander.

House price inflation was running at its slowest pace in 4.5 years and it now took an average 34 days to sell, seven days longer than a year ago.

“We are moving into weak market territory. No surprise there,” he said.

Desperate homeowners in some areas are selling for well below their registered valuations and analyst Kieran Trass reckons the slump will just get worse.

The McEwen Yield Report, published by analysts and advisers Investment Research Group, raised the dire scenario of a big slump, saying the sideways slide might occur but an all-out slump could not be ruled out.

“Is 2008 going to be the year of the property crash?” asked the report. David McEwen pointed out that when an asset category is on the wrong side of its long-term average benchmark - that is, above fair value - a day of reckoning eventually will come.

Dickens believes the Reserve Bank’s attempts to slow the housing market achieved precisely the opposite. Instead of starving the monster, it fed it, just as he believes the British housing boom was sponsored by the Bank of England and the United States housing boom was fed by the Federal Reserve. And he doesn’t particularly like this year’s outlook.

“The recent fallout in the US housing market - falling house prices, collapsing residential building activity and the mortgage/liquidity crisis - give us some insights into what can happen when a central-bank sponsored housing boom turns nasty.

CLICK HERE TO READ PART TWO >>>

Mortgage brokers face tough times as the dramatic slowdown in house sales and a cut in the commission they earn from banks eat into their incomes.

Mike Pero Mortgages says it processed a third fewer loans last month than it did in November last year.

Mike Kingston, spokesman for Auckland where the Mike Pero franchise handles about 10 per cent of home loans, said it was a sign of the market.

“The difference between the list price and the sale price is opening up. I think you find now that vendors are having to be much more realistic.”

The number fits with the latest Real Estate Institute figures, out this week. REINZ says nationwide 7837 homes sold last month, compared with 9990 in the same month last year.

Meanwhile the main banks have slashed the commission they pay brokers for bringing in loan business. ASB was the first to move, and implemented new rates on October 1.

Head of retail banking Ian Park said instead of paying a flat rate of 0.8 per cent of the value of a loan, ASB now paid brokers between 0.5 and 0.7 per cent.

Park said it was a cost-cutting move as the profit margins banks earned on home loans had been shrinking for some time, for reasons including competition in the banking market and the international cost of funds.

“This didn’t sneak up on us, we knew this was happening, so we kept talking to them [brokers].”

The National Bank also cut broker commissions from October 1. General manager of business development Mark Patton said it now paid brokers up to 0.7 per cent of the value of a loan, but had different arrangements with various broking firms.

Westpac said it had implemented changes to its broker commission structure last month. It now pays a flat 0.65 per cent, down from 0.75 per cent with the ability to access a 0.1 per cent bonus.

Miranda Caird, chief executive of Roost mortgage brokers, said the cuts in brokerage from banks was taking about a third off the group’s income.

But she said although Roost had seen months within the last year where numbers of loans processed were down significantly, year-on-year its loan volumes were flat.

Adam Parore of Adam Parore Mortgages said he was surprised to hear the Mike Pero number, as his group hadn’t noticed a drop-off.

Of the cut in commissions, he said mortgage broking was a constantly changing industry and players had to stay dynamic.

He said brokers had once earned “trail” - 0.25 per cent of the value of a loan annually over the lifetime of the loan - and had got used to good incomes. “All our guys are pretty new and pretty fresh. None of our guys had big trail books.”

Mortgage Brokers Association chief executive Megan Salt said it was “a very difficult and tough” environment for brokers at the moment.

On top of the commission cut and the downturn in the home-buying market, the sub-prime lending crisis had affected some investors and developers who were finding it difficult to access funds, Salt said.

But homeowners were continuing to favour brokers. Between 37 and 42 per cent of loans were processed through a broker compared with 23 per cent several years ago, she said.

And well-established brokers with good client bases were busy re-fixing mortgages, as terms came up and people looked to restructure to consolidate debt or fund things like home improvements.

“A broker is … a professional adviser, a manager of the financial needs of their clients. A good broker will manage that relationship well.”

SQUEEZED
Mortgage broker commission earned on a $200,000 home loan:

* Was up to $850
* Now could be as low as $500

While the numbers of house sales have slowed, house prices appear to have held up - so far.

Real Estate Institute figures show the national median sale price was $352,000 last month, up from $350,000 in October and compared with $330,000 in November 2006.

But figures from Quotable Value on Monday showed the average house sale price was $393,000 in November, down from $406,176 in October.

The ANZ said in its economic commentary this week that house price growth was basically flat.

Another indicator that the heat had gone out of the market was the number of days it was taking to sell a property - now a median of 40 days, the highest level since the start of 2002.

Historically a rise in the median days to sell had preceded easing house prices, and the bank said it did not expect this property cycle to be any different.

Property sector respondents to the BNZ’s latest monthly confidence survey expected prices to slow. There was “now real evidence of price weakening although not across all bands of property”, said a Christchurch valuer.

An Auckland real estate agent said: “I am seeing some very scary registered valuations held by second tier lenders. Some are well beyond current realisable value.”

New York - Plentiful jobs and big bonuses in the financial sector have supported home prices in New York City’s richest borough even as other once red-hot property markets have cooled.

But with financial markets hitting a rough patch this year, even Manhattan could feel some pain.

“Manhattan is the centre of the financial sector and it is being particularly hard hit,” said Robert Shiller, a Yale University economist and co-developer of Standard and Poor’s S&P/Case-Shiller Home Price Indices.

Wall St brokers and bankers, especially in the bond and mortgage sectors, are bracing for bonuses that may be flat to about 10 per cent lower than last year’s record US$34 billion ($43.4 billion).

“People are starting to anticipate lower bonuses and the whole effect on the market,” said Shiller.

“There is a good chance we will see more of a downtrend in Manhattan home prices over the coming year.”

Bonuses affect the sales volume and prices for the entire market by setting the tone of buyer sentiment.

“It primes the pump, so to speak,” said Jonathan Miller, director of research at Radar Logic, which tracks home prices.

“A net decline in payouts are very likely to first impact transaction levels,” he said. “The number of sales then would temper the rate of appreciation. How much depends on what the bonuses end up being.”

Looming layoffs could exacerbate the pain.

Last year, the securities brokerage firms accounted for 177,000 jobs, according to Moody’s Economy.com. The overall financial sector accounts for 7.5 per cent of Manhattan jobs but 28 per cent of the overall income, the research firm said. Marisa DiNatale, senior economist at Moody’s Economy.com expects the financial sector to shed 10,000 jobs across the greater metropolitan area of New York City’s five boroughs, northern New Jersey, and three counties north of the city.

“Probably about 70 per cent would be in New York City. Most of them would be in Manhattan,” she said.

The days of 20 per cent annual price hikes and bidding wars for the perfect New York abode look to be over.

“We may not see this double-digit growth across the board [in Manhattan], but certain sectors of the market will still experience strong price appreciation,” said Pamela Liebman, chief executive at real estate firm Corcoran Group.

There are factors that will keep prices supported. For one thing, about a third of new condominium buyers are foreigners, who are benefiting from the weak dollar.

Secondly, about 70 per cent of the housing stock is made up of co-operatives in which residents own shares in the building instead of their individual units.

Co-op boards, which oversee the building sales, are more diligent than lenders or brokers when it comes to allowing a new buyer to share in the ownership, thus reducing the chance of mortgage defaults by the buyer.

But the most striking difference is supply. Manhattan simply doesn’t have enough apartments to meet demand. Its island nature and cost of land and construction has made building new apartments expensive and difficult, keeping supply tight.

“The inventory data coming out of Manhattan shows that inventory continues to fall, so there doesn’t appear to be any inventory problems at all,” DiNatale said.

- Reuters