Thursday, February 2, 2012

New Zealand House Prices To Go Gangbusters

Whoopee, the supply of houses are down, money is going to be cheap for some time, and buyers are lining up with their new loans. House prices are going to begin a new bubble.

Well, so said a Financial Advisor on New Zealand TV today.

Let's think about this a little, and I would be interested in your thoughts also.

Perhaps the supply is down because prices are depressed and would be sellers don't want to lose that little bit of positive equity, let alone increase the negative equity losses they already have. They are holding on before selling; just.

The prospects of cheap money announced by the Federal Reserve last week means cheap money globally. Cheap money globally means bubbles anew. So prices could go up, not wholly unlikely.

But, recall this graph of New Zealand house prices since 1992, the time when house fever started to go a little bezerk. When measured against the ultimate hard asset, gold, prices have returned to where they were back then. In other words, the bubble burst and value is back where it started.

click to enlarge

So maybe don't buy now because you think prices are a good retirement income, that prices will always go up. That little lark appears to be finished.

Housing consents may be interpreted by some to be another indication of housing shortages going forward. Housing consents last year hit a 46 year low. Yes, 46 years. But this could also be an idicator of the current malaise in our economy. Danger signs for production and jobs. With cheap money, wouldn't you think building would be up?

Australian housing prices are staring to retreat. Brisbane prices are down around 3% and Sydney 2.7%  and Perth prices are barely holding on, at least in the middle priced home bracket. There is an "orderly retreat' in house prices, as the SMH reported today A 4.8% decline nationally.

It is a similar story here. No crash in prices but a creeping orderly retreat if not a stagnation nationally. But looking at national prices here in gold terms, prices have dropped significantly from taking 227 ounces to buy the average house in December 2010 to 167 ounces in December 2011. A 36% percent decrease in housing value. Ouch.

But I guess that all depends on whether you think gold is the best measure of value.

So what is changing? Gold in a bubble? No, low interest rates, set by Central Banks, cause cheap money and cheap money is cheapened money. The more you increase the money supply, the more asset prices rise. Don't believe the money supply story? Here is a graph of the change in Central Bnak balance sheets worldwide since 2006.

You see, value is the key. Value is being whittled away by the very same forces that are causing interest rates to be low and it is catching people out. It is hoodwinking investors and new home owners into thinking that housing is a good deal right now.

Hoodwinking even Financial Advisors.

Gold in New Zealand dollars: $2094.88 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $40.60 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)

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