Predictions of big house price falls silly, says economist
With the housing market seeming to have easily fended off the worst predictions of its fall, at least for now, the doomsayers have come in for some derision.
In his Weekly Overview commentary out today, BNZ chief economist Tony Alexander -- emphasising the views were his own -- was generally positive about the prospects for housing.
The housing market was recovering, although the upturn could not be strong for a while yet if at all this cycle, he said.
Dwelling sales had jumped and consents were now growing and he expected they would continue to do so for the next two to three years, particularly given New Zealand's housing shortage.
"And that is one reason we have so strongly argued against the silly forecasts from some wayward people of house prices falling 30-40 percent in New Zealand," Mr Alexander said.
"We have a supply-demand imbalance at current prices with insufficient dwellings."
He goes on to discuss, without naming, three "such wayward pundits", and advises to always ask, when listening to people promising riches or foretelling doom, what might be motivating their position.
Newspaper headlines are also questioned, with Mr Alexander pointing out that negative sensationalism sells.
"It is hard-wired into us to pay more attention to things which may be bad for us than things which may be good."
Mr Alexander is also scathing about measures of housing affordability.
"Keep in mind that they give zero insight into where house prices are going and are only really useful for voyeuristic commentary on the pain those on lower incomes might be experiencing to try to get into the housing market," he said.
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Comments and questions10
For an Economist, Tony Alexander sure is a down-to-earth, straight-talking regular Kiwi bloke.
Not afraid to say what he really thinks.
And doesn't spout bullsh*t either.
What a refreshing change from the usual no-personality cardboard cut-out pinstripe suits in positions like his!
When the credit market freeze rock solid again, we will see who has got the weak hand.
Good to see rational opinion to act as a foil against the rantings of those pushing their wares.
Not like that blowhard Olly Newland
The banks with a large proportion of their assets tied up in mortgages have a vested interest in keeping house prices high. Can you really believe a bank employed economist??
What is "motivating his position" one could ask.
If the current median price for a wooden tent in NZ reflects fair value, we are in strife.
Opening the immigration floodgates is the only way to keep this insane pyramid scheme afloat. It would be funny if it wasnt the reason, cause and problem of NZs current financial position.
Disclosure: I have a vested interest in investing to improve NZs productive sector
No or very low deposit loans, demonstrated an expectation of ratcheting prices by lenders. If prices fell significantly the securities will suffer and so will banks. Ask yourself which side of the fence a lender is going to sit. Chaps like Tony Alexander have a high vested interest in pumping the market.
Borrowing is the fund source for house price stabilisation or increases and this is the banks business. Buyers and sellers are unwittingly destroying any chance of an export lead recovery. The estate agents play some part, but are really just doing their job which is to get the best possible price for the seller.
The money to fund household debt is by and large imported. No different to importing cars or clothes. The interest and capital repayment relies on exporters receipts for repayment. It seems for the duration of the last housing boom, buyers have imported far more money than the cash value of our exporters goods, result the largest private debt in history, second largest in the OECD.
My view is the fix needs to be quick, we were in trouble well prior to the American & European sub prime debt surfacing. The OCR jiggering does little that is fact. Government needs equalize tax and depreciation treatment for all residential property, Remove taxation from all forms of cash savings for NZ residents,
Introduce tax on profits on all real estate excepting 1 or 2 family homes and 1 business premise.
Provide incentives to save, remove incentives to speculate in real estate. Problem solved.
That my view.
Be very careful of the motivations of this and any other commentator.
Mr Alexander is clearly affected by the needs of his employer in regard to the risk exposure they have in the property market due to their mortgages. The last thing banks want is a property price drop and will simply do all they can to express "independent" views to try and keep prices up (or at least flatten price decreases) to allow them to buy time to reduce their risk position over time at the expense of their poor customers.
Multitudes of individuals and institutions have turned to the business of "dealing" in property over the last 15-20yrs as the new form of national wealth creation.
This requires, as Arthur pointed out, the necessity of importing capital to eventually be paid back by industrial /agricultural exports which currently struggle in an enviroment leveraged against the starting of new entities.
Of course house prices are not going to collapse... this is basic supply & demand economics... NZ has too little supply and massive demand. The only way house prices will collapse is if we all start living in tents... Until we start building more houses than we need or the population starts dropping, house prices will continue to rise.
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