I think Auckland housing prices will continue to fall by 15%-25%


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REINZ has just released its monthly report. I think the shrinking sales volume has modified the current decline in house prices.

I also continue to update my forecasting model (household cash flow) , assuming that in the next 4 months (December - next March):

1) If interest rates continue to remain at the current level, housing prices will continue to fall by 15-18%; (the median price will fall back to December 2019-January 2020)

2) if interest rate continues to rise to 7% (ASB predicts that OCR will rise by 125bp), then house prices will continue to fall by 20-25%; (Median home prices fall back into 2016-2019 range, dating back to March 2016 levels)

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@kalenebari As a general rule for every 1% increase in interest rate there is a corresponding 11% drop in buying power (for a $1M loan over 30 years that is ~11-12% increase in payment as well). Obviously it takes time to rattle through especially for those that are on fixed rates. Talking to an RE friend she said that 28% of borrowers will go from sub 3% fixed rates to over 7% interest resets mid next year... just think about that for a sec... 28%. That is a 40% reduction in buying power and nearly a 50% increase in payments. Knock on effect will be a lot of housing distress mid next year. Banks are already making calls to people that are or will be distressed recommending they sell or extend duration.
@kalenebari Agreed but I foresee worse. The last time interest rates were at this level the median price in Auckland was circa 450k. Have Wages almost tripled in the last 15 or so years? Hell no.

The ride down has only begun.
@gavenv You got me curious so I looked up some numbers. The last time interest rates were at this level was during the drop in the GFC circa 2008 so actually 14 years ago. you're pretty much bang on for the auckland median then at 450k. Since then we've had wage inflation of a bit over 60% according to the labor cost index (national data, didn't look for just auckland).

I guess if you were valuing houses based on that they'd be a nominal 730k, but that ignores tax changes and bracket creep.
@ceraphima Also take into account the massive price increases over the years have helped a lot of people to make peace with the idea of living outside of auckland, which they wouldn't have previously considered had it been more affordable.

They've convinced themselves now that Hamilton is just fine for example.
@amelia97 Ethnic food in Auckland is objectively better though due to more competition. I'm really not a food snob, but it's just the truth from my experiences. Not gonna go into specifics, but there's a big contrast with other cities in certain cuisines.

I assure you I'm really not a food snob. My family are a lot more critical. But even I was quite dissatisfied when I went to certain places with them.
@gavenv Once unemployment goes up, rates will fall. House prices will go up and we will put up with inflation as we wont be able to drop rates further. This happens eventually in all fiat countries....
@iamactullygabenist They'd need magic to prop them up. It's interest rates that are doing all the heavy lifting, and parliament can't alter those. And the RBNZ isn't going to annihilate the economy by lowering interest rates while inflation is high
@amelia97 They will wait for unemployment rate to increase, this is the figure to watch.

The catch with inflation is that it is driven by supply side problems e.g. energy sector. So what happens when ocr is low, and inflation stays high since demand>supply causing inflation in the price of goods.
@iamactullygabenist I think it's more about unemployment rather than house prices imo e.g. in america the fed dont care about asset prices, they look at unemployment and inflation rate as in the long run this is what causes the country harm.

govt may bring back interest rate tax deductibility in the next election though to buy votes
@purebliss Food inflation numbers just came in at 10.7%, the highest in 14 years.

RBNZ will keep raising and housing will keep dumping. Even current prices don't reflect what they should be - stock is building up and vendors are hanging on, but for how long will they be able to?

And we haven't even got recession or unemployment yet.

It all points to one thing: this ponzi is about to collapse.

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