Toss-up: Soft landing or real estate hell?
Part One
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.