1 July 2009

Source: Business Day

OPINION: Nobody does an MBA and has the lecturer say to them the success of their business will depend upon the state of the economy.

Business outcomes are almost always going to reflect management decisions. But sometimes the state of the economy will have a clear impact on businesses either for the better or for the worse and that is where us economists come in.

We can provide insight into whether the broad external environment businesses are operating in will provide unusually good opportunities for profit growth or will contain an unusually large number of threats. We can also use our economic analysis to provide insight into risk management decisions such as regarding interest-rate exposure and sometimes exchange-rate flows.

With regard to the housing market, the insight we economists offer is hardly ever worth following by somebody contemplating buying or selling. Individual decisions about house purchases almost always reflect individual circumstances regarding job security, lifetime family plans, availability of finance, and so on. Only sometimes should people pay very close attention to what us economists say about the housing market and we have just come through such a period.

We have all seen stories of house prices falling sharply overseas and there have been strong concerns expressed by a few uninformed people that house prices would also plummet in New Zealand. Through last year and the early part of this year we were at pains to point out that the economic fundamentals affecting the housing market in New Zealand are completely different from those overseas and it would be unreasonable to expect anything remotely approaching 30% to 40% declines in prices happening in some other countries.

Now we have seen our expectations play out with average house prices in New Zealand down only 9% in the past year and monthly numbers showing a surge in turnover since March with renewed interest from investors and also some first home buyers coming back into the market. It looks like prices have stabilised.

Given the fact we can see some signs of life in the world economy and the New Zealand economy, and taking into account the upturn in the housing market, we have now passed the point where people need to pay a lot of attention to what us economists say about the housing market. The housing market has done its decline and now we are simply looking at an environment over the next few years where prices rise relatively gradually under pressure from above-average population growth, below average interest rates for the next 12 to 18 months, and a shortage of dwellings.

The opportunity for investors to pick up an absolute bargain has by and large passed although there will still be some opportunities as rising unemployment forces more of the inexperienced and undercapitalised small investors to quit the properties they purchased over the past three years hoping for a quick capital gain. Our recommendation for first home buyers to sit on their hands has also passed its use by date now that prices have stabilised.

Sad to say, from an analyst’s point of view, the interesting part of New Zealand’s housing cycle has now been and gone. Over the next 2 to 5 years our housing market commentary is going to be along the lines of how wonderful it is that New Zealand escaped the price crashes overseas, how house prices are still overvalued, how price gains will be present but limited, and one other thing which is soon likely to dominate housing policy.

We have a housing shortage in New Zealand which is getting worse and worse. As accelerating population growth bumps up against housing construction at its lowest levels in decades big concerns about housing affordability are going to reappear. How long before another select committee review of the problem?

*Tony Alexander is the BNZ’s chief economist.

4 June 2009

Source: stuff.co.nz

Households could collectively save 2 per cent of their annual disposable income next year when they refix their mortgages at lower rates.

The New Zealand Institute of Economic Research predicts that 35 per cent of all mortgages by value will be refinanced over the next year, cutting the total interest bill by around $2 billion.

Not everyone would benefit, the institute cautions, as only a third of households have a mortgage. “There will be some people who will be receiving a significant windfall gain,” said NZIER chief economist Shamubeel Eaqub.

That “considerable boost” to people’s pockets would be needed. The NZIER believes income will be reduced on average by about $10,500 per person in the next five years.

Positives for the housing market were rising net migration and the low interest rates. With evidence that house sales were gaining traction, the institute said the preconditions were in place for a property market recovery but the biggest risk was job insecurity.

“We’re now starting to see some signs that things are bottoming out,” said Mr Eaqub. “There’s a lot of stimulus in the pipeline but we need to keep in mind that the labour market is weak and that there may still be unwillingness to borrow, and to lend.”

House-building was expected to remain in the doldrums for a while. The sector was set to contract by 35 per cent in the March 2010 year, compounding a near 27 per cent fall in the year to March this year.

Annual residential consents have virtually halved from around 26,000 mid-last year but are projected to almost recover by 2013. They are expected to hit about 17,000 this year, due in part to increasing net migration and encouraging interest rates.

Twenty-seven of the Philippine-based Global Property Guide’s 32 surveyed countries recorded price falls in real terms.

Twelve countries recorded declines of more than 10 per cent, with Latvia plunging the most at 50 per cent. Dubai was next at 35 per cent and Singapore and Ireland at 22.7 per cent and 20.4 per cent respectively.

New Zealand’s property prices slid 6.33 per cent, compared to a fall of 1.22 per cent for the year to March 2008. Australian house prices fell nearly 9 per cent.

Only five countries experienced house price rises, with Switzerland topping the chart at 4.3 per cent and 3.5 per cent in Thailand.

The guide said there was no clear sign of recovery in the market which started it all, the US. An inflation adjusted housing index there dropped 19 per cent.

2 June 2009

Source: NZ Herald

The housing market, which has been depressed for the past 18 months, appears to have bottomed out - at least in Auckland.

Though prices remain soft, the number of reported sales has risen in the past month and far fewer properties have been passed in at auction.

The apparent change of heart reflects not so much the state of the economy but a slow turnaround in consumer confidence brought about by record low interest rates and greater housing affordability, especially for first-home buyers.

This is reflected in the latest ASB housing confidence survey, which shows that in the past nine months those surveyed have become increasingly attracted to the housing market. For the most recent quarter - the three months to April - 59 per cent of respondents felt it was a good time to buy a house, compared with 53 per cent in the previous quarter.

ASB chief economist Nick Tuffey says the improved sentiment appears to be closely linked to the dramatic fall in interest rates in the past year.

According to Auckland’s largest real estate agency, the region’s housing market continued to surge in April, following better-than-expected performances in February and March. The average house price was $502,726, up 2.2 per cent on March. The number of sales at 809 was 79 per cent up on those for the same month last year.

31 May 2009

Source: Sunday Star Times

Want to buy a house? You could face stiff competition from offshore buyers.

Last month a third of all session searches on one of New Zealand’s leading property websites were from outside New Zealand - with increasing interest from Spain, China, Russia and the United Emirates.

The property website lists houses for sale and rent in New Zealand and last month had 134,604 session visits from people looking at properties for sale and 25,902 from those interested in renting. Chief executive Alistair Helm said monitoring where the searches originated revealed intriguing trends.

The proportion of international visitors to the site has grown from 25 percent to 30 percent in the two years since it launched, largely in response to the website’s growth and increasing visibility in Google searches.

The bulk of overseas visits to the site had consistently come from Australia, the UK and the US. But more recently there was a large jump in the numbers of curious visitors from Spain and China - representing a 200 percent increase in traffic. Visits from people in Russia and the United Arab Emirates had also increased.

Helm said he expected some of the increased traffic came from expats who had been attracted to working in places such as Dubai but were now returning to New Zealand.

The interest from China and Russia was likely to be a response to increasing wealth in those countries. Helm thought the 2007 America’s Cup races in Valencia may have raised Spain’s awareness of New Zealand.

Latest figures show net migration in New Zealand has climbed to the highest level in five years, with permanent and long-term arrivals exceeding departures in April on a seasonally adjusted basis.

Helm said international interest in the rental market was also high, perhaps suggesting that immigrants were looking to rent first before buying.

New Zealand property is also well represented on overseas websites such as the UK’s www.rightmove.co.uk, which last week had 386 Kiwi properties, including a listing for apartments in Manukau which sung the praises of the South Auckland city’s blend of urban, rural and seaside communities, “just 20 minutes from downtown Auckland”.

26 May 2009

Source: Yahoo business

The New Zealand real estate industry website is attracting increased international traffic, indicating a potential influx of overseas jobseekers, its administrators say.

In the year to April, their website had a 14 percent increase in overseas viewers looking at the houses for sale section, recording 134,604 hits last month.

International traffic to the site’s rental property section increased 17 percent in the year to April, to 25,902 hits for the month.

The increase in international visitors looking at properties suggested “an unprecedented number of people” were thinking about migrating to escape economic troubles in their home countries, the site’s chief executive, Alistair Helm, said.

The biggest increase in browsers came from Spain, with visitors there increasing by 226 percent compared with last April. Chinese browsers rose 211 percent, followed by visitors from the Russian Federation, up 157 percent.

People from Spain also made up the most increased group looking at rental properties, increasing 248 percent, followed by Irish browsers, at 172, then Russians, up 132 percent.

Those countries had been hit hard affected by the recent international economic turmoil, which encouraged people to look for better opportunities overseas, Mr Helm said.

The influx suggested to him New Zealand had at least been shortlisted by international job seekers .

“Spain’s unemployment rate doubled over the 12 months to March, hitting an all-time high of 17.4 percent. Ireland’s once-booming economy has crashed, the slump in oil prices has hit Russia particularly hard and Singapore’s economy shrank 19.7 percent in the first quarter of 2009. China and Taiwan have also been hit hard by the slow-down in global economic activity.”

13 May 2009

Source: Newstalk ZB

The worst of the housing slump may be behind us, as figures show house prices growing slowly across the country.

The median house price has risen $10,000 to $340,000 since February.

The estimated number of house sales rose 17.9 percent month-on-month in April, following a 9.2 percent month-on-month increase in March. The level of sales activity has lifted 57 percent since November and now stands at the highest level seen since November 2007. However, activity remains about 14 percent below the average level seen over the past decade.

Auckland seems to be leading the market, with sales in Auckland now up 54.1 percent year-on-year while sales outside of Auckland rose 32.6 percent year-on-year. Sales in Wellington were up 23.8 percent year-on-year.

Darren Gibbs from Deutsche Bank says activity levels have now clearly moved off the historic lows seen last year as households quickly respond to the very low interest rates on offer.

“We wonder whether the recovery in activity can progress much further in 2009 (although we have penciled in a 5% month-on-month rise in sales in May) in light of the general weakness we are still observing across most of the economy, including a deterioration in labour market conditions. We will certainly be watching this data very closely over coming months.”

But he says the recovery in house sales point to a much brighter outlook for retailers and residential home builders towards the end of this year.

“This is consistent with our view that the economy will return to positive GDP growth in the final quarter of this year provided that global economic and financial conditions stabilize in line with our projections. ”

Deutsche Bank says the Reserve Bank should hold the official cash rate at current levels until around the middle of the year and not the latter part of next year as the RBNZ suggested last month.

12 May 2009

Source: NZPA

With both volume and median sale price of houses changing this month, economists are saying the property market — a leading indicator of the whole New Zealand economy — is slowly improving.

The median house price fell 1.4 percent to $340,000 in April from a year earlier, although it continued the slow recovery seen in recent months, the Real Estate Institute of New Zealand (REINZ) said today.

The number of houses sold was up nearly 40 percent on last April, though turnover fell 7 percent from March to 6210.

T his slow turn-around was the market responding to the very low interest rates being offered, Deutsche Bank spokesman Darren Gibbs said.

However, he wondered if the recovery would progress further in 2009, given the general weakness of the rest of the economy — though the bank was expecting a five percent month-on-month rise for May, he said.

“This is consistent with our view that the economy will return to positive GDP growth in the final quarter of this year, provided that global economic and financial conditions stabilise ,” Mr Gibbs said.

With increased, “pent up” demand, met by a similarly withheld supply, the economist expected prices to be a little lower than recorded this month, before stabilising next year.

Goldman Sachs strategist Bernard Doyle said house sales were a reliable leading indicator for the domestic economy.

Also, the sales figures hinted at a possible imminent construction boom, he said.

“When NZ was last turning over 6500 houses per month, new construction was running at 24,000 consents annualised, versus 12,000 currently,” he said.

The rebounding activity strengthened Goldman Sachs’s opinion domestic demand will increase through the second half of 2009, he said.

The median house price rose 1.5 percent from March, and was also higher than February’s $330,000, REINZ president Mike Elford said.

The median price dropped in most regions aside from Taranaki, where it rose slightly to $270,000, and Waikato/Bay of Plenty, where it was unchanged.

April was traditionally a slower month due to school holidays and seasonal adjustments, Mr Elford said.

“The figures are not hugely significant, but enough to generate a degree of optimism about the way forward from here,”

The median of 42 days to sell a house in April improved slightly on the 44 days it took in March and in April 2008, and significantly from February’s 55 days.

House sales continued to be strongest in the under $400,000 price bracket, accounting for nearly 4000 of the total April sales.

11 May 2009

Source: stuff.co.nz

The decline in property values has improved for the first time since September 2007, suggesting the housing market freefall could soon be over.

Quotable Value monthly statistics showed national property values decreased 9.2 per cent in the year ending April 30 a slight improvement on the 9.3 per cent reported in March.

QV spokesman Blue Hancock said the April figure was because of a stabilisation in prices paid during the past few months.

Property values in the main centres had flattened, with figures for Wellington, Auckland, Hamilton, Christchurch and Dunedin all improving.

Tauranga was the only main centre to decline.

Prices in most provincial centres had also steadied, prompting an improvement in figures for Rotorua, New Plymouth and Palmerston North. Figures for Napier, Hastings, Wanganui, Nelson and Marlborough had worsened.

Increased sales activity in February and March had carried through into April, resulting in a shortage of listings, particularly in lower-value properties, Mr Hancock said.

“Lower interest rates and cheaper properties are leading first-home buyers and investors back into the market.”

Homeowners were also weighing up their situation, with some choosing to stay put and renovate, while others saw great opportunities to upgrade as the upper end of the market became more affordable, he said.

“Recent stabilisation of property values in many areas suggests that we may be near the bottom of the market.”

QV expected values to remain relatively flat over the winter months, but the threat of rising unemployment could affect an increasing number of homeowners and potential home buyers lowering values again.

Property values in Wellington fell 8.5 per cent in the year to April, a recovery on the 8.7 per cent reported in March.

QV Wellington valuer Pieter Geill said a potential drop in supply in the next few months could boost property values in the region.

Some homeowners continued to feel the pinch, leading to forced or pressed sales, he said.

“There is still some good buying out there.”

Tommy’s Real Estate director Tommy Heptinstall said there was a definite shortage in house sales listings.

“People have been reading all the doom and gloom and they are terrified to sell. But there is still the same amount of buyers in the marketplace.”

The average sale price dropped from $378,399 in March to $372,981 in April, due to more sales at the lower end of the market.

National property values are 9.6 per cent below their peak in January 2008.

House property values in Napier and Hastings fell 10.2 per cent and 9.7 per cent respectively in the year to April.

Values in Wanganui dropped 3.8 per cent and they slid 10.2 per cent in Palmerston North.

Figures for Nelson and Marlborough fell 7.6 per cent and 10.1 per cent respectively.

21 April 2009

Source: NZ Herald

Building work started on 23 major construction projects in New Zealand last month and another 25 big contracts are in the pipeline.

Auckland-headquartered consultant Pacifecon, with 21 researchers tracking building jobs worth $5 million-plus, said it was heartened by the large amount of construction activity.

“This is generating a sense of optimism,” Pacifecon said of the 25 projects announced last month.

Of the big building contracts where site work has just started, many are in the upper North Island.

WORK STARTED LAST MONTH
* Auckland City Council’s period contract for roading renewal and maintenance in eastern area ($33 million), southern area ($31 million), Waiheke and Rakino islands ($14 million), contracts awarded to Downer EDI Works. The $7 million contract for Great Barrier Island went to Fulton Hogan.
* Fonterra Co-operative Group’s cool store in Hamilton ($50 million), builder undisclosed.
* Auckland City’s period contract for street lighting ($14 million) awarded to Transfield Services (NZ).
* NZ Transport Agency’s State Highway One improvements stage 1 at Warkworth ($5 million-plus) awarded to HEB Construction.
* Owens-Illinois Inc’s manufacturing plant in Penrose ($80 million), project manager United Group (NZ).
* Manukau City Council’s sports fields upgrade in Papatoetoe ($12 million) awarded to Dempsey & Wood Civil Contractor.
* Auckland International Airport’s expansion of arrivals processing facilities ($180 million over three years) awarded to Fletcher Construction.
* Rotorua District Council’s period contract for state highway maintenance ($11 million) awarded to Downer EDI Works.
* Rodney Surgical Centre’s two operating theatres in Warkworth ($6 million) won by Comprey Construction.

ANNOUNCED LAST MONTH
* Pacifecon listed the upper North Island projects announced last month as:
* Auckland Zoo’s elephant housing facilities ($11 million).
* Transpower NZ’s 220kV double-current transmission system from Wairakei to Whakamaru (over $25 million).
* Conversion of mixed-use buildings into hotel and office/retail in Auckland CBD (no estimate).
* Te Whare Wananga O Awanuiarangi’s educational institute in Whakatane (no estimate).
* Sacramento Apartments: Recladding of the 153-unit buildings in Botany Downs (no estimate).
* Foodstuffs (Auckland) supermarket upgrade in Rotorua ($13 million).
* New marine events centre on Halsey Street wharf extension, Auckland ($27 million).
* Innovation Waikato’s piazza and retail complex in Ruakara, Hamilton (no estimate).
* New Zealand Home Bonds’ conference centre in Cambridge ($10 million).
* Gulf Corporation’s Hobbs Point residential block (stage 2) Gulf Harbour at Whangaparaoa, 24 single dwellings and market square (no estimate).
* The Celestion Hotel in Emily Place, Auckland Central (no estimate).

WORK ABANDONED
Pacifecon also listed a large number of public works jobs which it said had been abandoned in this year’s first quarter. These included:
* North Shore City Council’s road widening at Takapuna ($9 million).
* Waitakere City Council’s parking building in Henderson ($20 million).
* Manukau City Council’s culinary theme park ($100 million).
* Auckland City Council’s CBD streetscaping ($7 million).
* Capital & Coast District Health Board’s mental health unit at Kenepuru Hospital in Porirua ($10 million).
* Palmerston North City Council’s joint venture recreational lake at Aokautere ($6 million).
* Port Westland’s rail link to the wharf at Greymouth Industrial Park ($10 million).

8 April 2009

Source: Stuff.co.nz 

OPINION: Tony Alexander*

Regular readers of this column or my Weekly Overview publication should be aware that my view on the NZ housing market has been quite at odds with the generally very pessimistic views expressed by other commentators – not only for the past year but also since the June quarter of 2004.

Many people have been gleefully predicting 40 percent falls in house prices believing that events have been conspiring to produce greater house price declines here than in even the United States.

Over there they have “only” fallen 29 percent in spite of massive over-building, huge excess lending and borrowing when mortgage rates when down near 2 percent, and now the biggest credit crunch in the US since the 1930s Great depression when the Federal Reserve shrank the US money supply about 30 percent.

Here in New Zealand the fundamentals have never added up to large declines in average house prices and it appears there are literally tens of thousands of people who share this less than apocalyptic view.

For a start we have accelerating population growth courtesy of rising net migration inflows.

When times get tough overseas ex-pats come home, foreigners shift here, and fewer Kiwis leave to seek their fortunes elsewhere.

Between June 2001 and June 2002 our net flow went from -9,000 to +33,000.

So far we have gone from +3,500 in November to +6,200 in February and a total between 15,000 and 30,000 within a year seems an easy call.

We have low interest rates by NZ standards with the two year fixed rate around 1.6 percent below its average for the past five years and our one year rate at 5.49 percent some 2.8 percent below average.

We have a fundamental shortage of accommodation as evidenced by official efforts in the past two years to find ways to speed up construction – the Commerce Committee investigation.

We now however have collapsing construction with the number of consents issued at the lowest levels in perhaps half a century near 12,500 per annum.

We need about 24,000 a year just to meet population growth – let alone house above average migration-driven growth.

The most up to date data show the housing market – let’s say stabilising rather than rising.

Barfoot and Thompson data for Auckland show their sales ahead 46 percent in March from a year ago.

Our own monthly survey has shown a sharp turnaround in real estate comments over the past two months.

Anecdotes bespeak of a rush of investor enquiries, multiple bidders on properties, and shortages of listings appearing in some areas.

There is undoubtedly a short term bounce effect in the data caused by people rushing purchases to take advantage of low interest rates and because they have put their lives on holds too long and simply want to move on.

That is why we think it is only appropriate to speak in terms of the market stabilising rather than rising.

But it will be interesting to see how prices go this year as an existing housing shortage combined with the worst construction levels in living memory for practically all builders runs up against accelerating population growth. You do the math.

Speaking of maths, investors are increasingly finding they can make their properties cash flow positive.

Imagine what the numbers will look like as the accommodation shortage worsens and rents start rising.

After all, even the unemployed need somewhere to live.

So I maintain the position written here at some stage last year.

If I were looking to make a canny purchase in the housing market – whether as an investor or owner-occupier – I would want to do it before the middle of this year.

This is not to say the listings will completely dry up, just that the best bargains will have been well and truly snapped up by then.

Plus, going by the way things are turning overseas, sentiment about the world and NZ economies is likely to be a lot better.

In fact our latest monthly business survey has found a firm lift in sentiment over the past month – as has consumer confidence measured in the Colmar Brunton poll just out.

*Tony Alexander is BNZ’s chief economist.