Q&A: Talking up the market?

Olly, aren’t you and most of the market commentators trying to talk up the residential housing market?
With low economic growth worldwide, and the likelihood of limited income growth within NZ you seem to be forgetting the affordability factor of the average tenant or home owner who has limitations on servicing either rent or a mortgage. For rentals this means yields are either going to be remarkably low or prices are going to ease further to fit an acceptable yield platform.
As you have stated banks are getting “tougher”and will continue to be so for a further 6-12months which will influence greatly the prchase price. These new market values will shock most property owners and they will choose not to sell rather than face the reality of the market. A property shortage would in normal times bring about a rise in sale prices but we are not in a normal market situation and I believe we are in for further readjustment downwards.
Statistical means can be manipulated but the reality is NZ and many other nations property has been seriously overvalued for a long time. Past models are no longer valid in this market.
— Richard Jones

Dear Richard
I am not trying to talk up the market. Indeed a down market is more profitable as I can now drive bargains that were unthinkable a few years ago.
From past experience, when property prices rise dramatically (as they did) rent levels are forgotten as investors chase capital gain.
Now with the market flat investors are being much tougher on rent levels and will push these upwards to the maximum. Couple this with virtually no building,
leaky homes, low interest rates and the earthquake and we have a classic scenario for rent rises in the offing. The property market is not the share market.
Things do not happen suddenly and logical reactions do not always appear on time. I believe we are in for a large bout of inflation as the politicians try to get the economies of the world through the recession. This will feed into a push upwards for wage rates and thence into rents.
As you say past models are not valid any more but human nature stays the same.
Greed and Fear will always rule and the models will revert to the norm.
Regards
Olly

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