Posted on 6-5-13
The Big Lie On Housing
By AM, 6 May 2013
Why are house prices rising? It can't be, as the politicians of every stripe
say, there's a house shortage causing excess demand - the home ownership
rate is dropping. Somebody is lying, who and why?
The NZ Reserve Bank's low interest rates have triggered a flurry of
homebuying by domestic and foreign speculators which is the main reason for
pushed up prices. Local homeseekers numbers maybe up for all we know but so
many have given-up looking to own their own home, due to high house prices,
that their presence in the market place is going down, not up and that's why
the homeownership rate is in the dumps. It's also why home-owner-occupier
sales are declining, as prices edge higher more people are opting to rent
rather than own. One would expect that rent prices would therefore be going
up, they are not, because the supply of rental properties is going up as
renters enter the home market in significant numbers.
Mortgage sales have dropped sharply in NZ since 2012, difficult to know why
as it could be banks are keeping homes off the market to reduce listings,
create the illusion of scarcity and push up prices or that there are simply
less house-owners having to give up their home to the bank.
Either way this combined with the push by domestic but mainly foreign
speculative house buying is the truth covered up by the big lie of our age,
too many homeseekers chasing too little home building.
The fact is a sustainable housing recovery depends on:
1. Wage rate increases
2. Low unemployment and high full-time employment numbers 3. Easy access to
Given none of the above, when, not if, the speculative bubble starts leaking
air, house owners, more to the point, mortgage owners will be hit by
lowering house valuations causing pain to be added to the already painful
world most people are living in.
While rising prices and sales volumes suggest a recovery in the economy the
economic indicators do not indicate there is economic support for rising
house prices. What does explain rising house prices is persistent low
interest rates, only moderate new construction rates and formerly reluctant
speculative buyers are bringing action to the market. This type of demand
will not buck economic realities forever.
Meantime when interest rates go up (there is nowhere else for them to go)
then even those who have managed to borrow for their own home will find
home-ownership difficult to sustain in the absence of
economic/wage/salary/employment growth and home-ownership will go down even
further leaving more easy pickings for speculators and renters.
For the last year or so prices have been driven by low interest rates, bank
mortgagee sale suppression and a surge in investment, mainly foreign sourced
but that won't continue through 2013-14 because yield-seeking speculators
are not making the money they figured they would buying to rent. Rental
yields on single-family homes are going down to as low as 5% or less. That's
not enough to wet the beak of the big players. Now that the price of even
mortgagee sale properties has increased significantly the renters are going
to make even less which means they'll probably reduce their spending on
housing. It might not happen tomorrow but-as prices go up and profit margins
narrow, it will happen.
House prices are going up because politicians cover for their class-mates in
the finance/banking/renter world as the latter cash in on the
last-great-hope of finance-capital uberprofits, the need for people to live