Category: Personal

NZ Lockdown

We are in lockdown for the first time since Feb. 170 days of freedom. It is level 4 and the government just extended 8it to mid week. It seems there are about 30 known cases of the Delta variant in the community, which means there will be more to come. The government is moving hard and fast. Having said that, we have only 20% vaccinations (I got my first one today having become eligible only last week).

Lets see how it goes.

AirBnb?

So, in my own personal journey to make sense of the housing market I have been feeling a little frustrated. All I hear from experts and non-experts is the same thing – “its going up and it can’t possibly go down”… I literally hear folks say “housing prices can’t go down in New Zealand”… also, no one seems to be taking account of the fact that we just experienced the largest fall in GDP over a quarter ever…even bigger than the great depression. Infact, quite the opposite, yesterday I heard someone in the industry try to tell me the economy is on fire…they also tried to tell me immigration is going to grow next year … I don’t buy it.

My gut feeling is that when all the experts are saying the same thing, then at least some of them must be wrong…

That leads me to really dodgy research and theorizing as I try to make sense of it myself.

Here are my latest anecdata…

  1. NZ seems to have a housing crisis it that we don’t have enough houses to go round – we have the lowest owner-occupier rates since the 1950s
  2. the rental market is crushed with not enough availability and rents being high (see same article above).

However…the most interesting stuff I am seeing is :

  1. there appears to be a huge growth in internal tourism, but it does not replace the amount of $ generated by the lost international visitors.
  2. International tourism is (was) NZ biggest product in terms of generating $ from overseas
  3. from 2013 to 2018 it seems the ‘shared accommodation’ (airbnb, book a bach etc) economy grew from occupying 8% of the total holiday accommodation market to somewhere between 12 and 20%
  4. small towns like Raglan has almost no rentals but a LOT of airbnb accommodation

So…could it be that the low interest rates is driving the big buy up, but it is being done by older NZers buying a second home? As this drives the prices up less and less new players can enter the market as the houses become unaffordable…

However… could it also be true that these folks can’t live in two places at once so they either renting their place out long term or using it as airbnb accom? Certainly in Raglan I think, looking at the listings, it is more likely they are listing these second houses in airbnb…

Also it seems the forecast is for growing unemployment. It also seems that NZ is recovering from the recession ok (2nd and third quarters had the biggest fall in GDP in history at -12%)…but we are not going to open the borders for 12-18 months…

My gut is that all this is related. I’d bet that the rising unemployment numbers and the ‘returning to normal’ overseas will see asymmetrical migration – a growing net immigration loss over 2021 as more and more folks leave because the world is back to normal but NZ doesn’t increase it’s intake because it continues to be very conservative when managing the virus. If this is the case it will be very bad for NZ.

Could that also mean less demand for holiday accom? Would that mean folks would be keener to rent out long term pushing the price of rent down and releasing some of the pressure off the rental market? Would that in turn also slow down the housing market? Does a really slow recovery bring house prices down even with low interest rates in play?

I have no idea…

Of course and I really don’t know what I’m talking about but I’d like to try and get a handle on whats going on as I don’t trust things when everyone is in agreement and yet no one can give me a good explanation as to why and my own anecdata doesn’t co-relate to these opinions…

Leveraging FOMO

So… big disclaimer…I know absolutely nothing about real estate or economics. I say this because this post is a brain dump while I work my way through these two topics in the context of small town New Zealand. If anyone can help me understand this better please take note of how little I know (and how much I have to learn!) and send me an email – adam@adamhyde.net (i’d love your take on it).

At the moment there are record highs for real estate around the country. All this when some smart folks that know a lot more about this than me (Westpac Bank) had predicted a downturn in prices due to COVID.

So, right now prices are high and it seems this is due to a decrease in listings combined with all time low lending rates (due to the reserve bank trying to stimulate the economy). At the same time we are sliding deeper into a recession.

What I also see, anecdotally, is the following:

  • real estate agents stoking the high expectations of resale prices and fear of missing out (FOMO), which I guess at the end of the day is their job. However, it does seem to me to be contributing to a little despondency and panic in the buyers.
  • some panic buying. I saw one bidder upping their bid at auction (with no one pushing against them) by almost 100k on a property that eventually sold to them for 1,070,000 NZD. The buyer was worried about being outbid and so went up twice with no one bidding against them.
  • stories abounding about ‘outside money’ (from Auckland or rich NZers returning home) but net immigration is down 90% (see these eye opening graphs – there is no one coming in with bags of cash).
  • when attending auctions it seems to me that all the bidders are older locals.
  • a couple of absurd buys at well above value are forcing the market to speculate that the elevator is going up faster than usual.
  • 3 houses here in Raglan *did not sell* at auction (they don’t mention this in the articles).
  • bidding at auctions is tentative and shy.

It looks all the world to me that older NZers, with all their money in a (possibly) freehold house somewhere close are leveraging their capital to buy a second property. The interest rates are low so they aren’t making any money on their savings, they can borrow money cheaply, and they have the capital in their existing home (and the values are going up) they can leverage to get to the minimum 20% (soon 30%) mortgage contribution required by the banks.

So they really don’t have to put any money in. They only have to worry about repayments.

To me that explains the high rates.

But also, I don’t think these people necessarily feel so comfy doing this. They aren’t used to it. I think its a bit of a panic of shy folks. If I were to pull out my emotional thermometer at these auctions I would say the reading would be ‘tentative or ‘fragile’. Bids are slow, no aggressive moves. Some bidding battles going slowly up by $1000 a bid.

Where does it go from here? Well, I don’t trust someplace where you hear everyone saying ‘it can’t go down’ and ‘you have to get in now!’.

I don’t know the market lingo to really know what it means but I think its ‘over heated’.

What does that mean for buying a house now? Well…for starters, I think the raising of minimum deposits in March 2021 (from 20% to 30% for investment properties) won’t effect it much as these folks have the capital.

Right now it feels like a bit of a sugar rush but in a lumpy market. Some places selling crazy high, some around what you expect, some not at all. How long will it last? No idea.

My big question is – how is the economy going to effect all this? What happens when low interest rates fuel real estate purchases during a recession?

It seems general wisdom is that interest rates will remain low for some years. But can folks keep up the payments if their personal financial well being becomes less healthy due to the recession? Are these folks (mostly around retirement age) effected by this? No idea.

One factor tho is COVID. NZ has been very conservative with COVID and instituted restrictions that many other countries have avoided because of the slowdown effect on the economy. Health before wealth is the mantra here. But that also means that NZ will not be letting folks into NZ anytime soon. Why would we after we have enjoyed such freedoms while the rest of the world has been through dark times. Life here is ‘normal’. The Government got in on a landslide largely because of this. So, we will open up slower as the vaccines are distributed around the world. The rest of the world will get going but NZ is not going to change anything fast. We will see even more folks leave NZ while we still have immigration flow limited by the total number of available quarantine beds.

I think this will mean our economy isn’t going to get any external boost anytime soon…

I don’t know what this means for real estate. My naive musing is that it will point to housing prices slowing mid 2021 as more folks leave NZ (counter to the belief that this is utopia), maybe prices will go down if folks that can’t make repayments due to large loans and a long recession put properties back on the market. I don’t know. Dangerous to bet on it, so if you know any better please educate me!

Nikau Walk

NZers sometimes call New Zealand ‘Godzone’…which I think derived from the mumbly Kiwi accent. When we say ‘gods own’ ( as in ‘gods own country’) it sounds like we are saying ‘godzone’… anyways, on some days, like today when we walked through the bush near Raglan, it feels pretty much like godzone.

A friend – Mike – told me a good related joke on a call the other day…

…there was a NZer walking through the bush in NZ and he sees God walking casually down the path towards him…

NZer: “god! what are you doing here?!!!”

and god replies “…working from home mate!”

…pretty much sums it up.

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