David Whitburn

Posts Tagged ‘all whites’

Before I jump into my next blog on New Zealand house prices, we have scored a remarkable 1-1 draw against Slovakia.  The highlight for me was the perfect Shane Smeltz cross and then a powerful Winston Reid header to score this vital goal in the World Cup, which meant that the mighty All Whites claimed New Zealand’s first ever FIFA tournament point.  I’m supporting our country in the football World Cup, and know most readers will be doing so too.  Our next game is at 2:00am Monday 21 June against Italy – thank goodness for replays and MySky.

Now it’s time to review what the market has been doing recently.  Here are the latest house prices to May 31 as reported by the Government Valuation agency, Quotable Value.  Over the past 12 months from 1 June 2009 to 31 May 2010, New Zealand’s average house sale price has gone up by 5.6% to $403,070.  This is an interesting statistic as it shows a decline in the rate of annual change, meaning last month nationwide house prices fell.

It was the first decline in the annual change since March 2009, since the rate of annual change was 6.1% to in the 12 months to April 30th.  Nationally, values are now 4.1% below the market peak of late 2007, which is also down from the 3.9% reported from the 30 April 2010 statistics.

Regional Breakdown

My prediction is for a cold winter both temperature wise and house price wise.  The Reserve Bank is raising the OCR which will cause interest rates to eventually rise relatively sharply, and credit criteria with our lenders is very tough, especially when compared to the prevailing conditions of late 2003 – early 2007.  There is a lot of fear and uncertainty around still in light of the continuing global financial crisis, particularly in light of Greece being downgraded to ‘junk bond’ status and fears of defaults by large banks and countries in the Euro zone.

Where are we in the Property Cycle?

I would note that we are in the downturn phase of the property cycle, and there is still much more time to go.  Property market researcher Kieran Trass and Author of Grow Rich with the Property Cycle (whom I worked with and got a lot of advanced property investment mentoring from, in 2003 – 2004), showed me research that every property slump or downturn, laster longer than the boom immediately preceeding it.  Leading economists from ANZ National Bank Ltd – Khoon Goh and Chief Economist Cameron Bagrie have written and spoken in the past comparing the events of the last 15-20 years, including the last two property cycles.  They have predicted this downturn to last for several more quarters.  I am picking the recovery to begin in late 2012, and currently I predict that the next boom will begin in late 2013.

This will happen on the back of house prices reducing very gradually across the country over the next part of the year. Then wage inflation will help, combined with increased immigration (and indeed internal migration will continue to help Auckland), easing bank credit criteria once the global financial crisis is over, simple supply and demand with the under-building of houses (especially in Auckland where the majority of immigration is to), affordability easing in slight of slightly lower house prices & increasingly higher wages, and higher rents.

New Zealand is following its economic big brother Australia and is doing well in recovering from the depths of the long recession we had.  The major news for New Zealand last week was that our unemployment rate dropped from 7.1% to 6.0% in a single quarter.  This was a stunning turnaround, and I am now very worried that Reserve Bank Governor may take this important statistic as a signal to reduce the fiscal stimulus that a low OCR provides (lower funding costs to businesses, and less punishment to a weakened housing sector at present) and raise the OCR by 0.25% early than 16 September as I thought likely, to 26 July or possibly even on 10 June.  Last Thursday night and Friday saw most of the major banks raise their 6 month, 1 year and 2 year short term fixed rates.  I am personally predicting 26 July for the first rise in the OCR right now.  One thing is for certain – floating interest rates and short term interest rates are going upwards.

As the All Whites have named their squad and head to South Africa for the FIFA World Cup for the first time in 28 years, we are going to be fed a diet of the beautiful game.  Whilst I haven’t played outdoor soccer for 3 years now, I have been enjoying playing Indoor Soccer (FIFA Futsal to be pedantic) at the ASB Stadium in Kohimarama.  Why this is relevant is that Auckland is blessed to have so many people from a number of countries around the world.  In our Masters League (must be >30 years old) we have players from Spain, France, Italy, England, Greece, Germany, Denmark, Sweden, Wales, Scotland, Ireland, Uruguay, Chile, Brazil, Argentina, Bolivia, Columbia, USA, China, Japan, South Korea, Indonesia, Singapore, Malaysia, Thailand, Australia and of course plenty from New Zealand.  I got thinking after the games about the various countries in the world really struggling, particularly those in Europe.  Grecian rioting about cuts to pensions and Government workers’ wages, and Greece’s mega bailout by the European Union is highly topical.  With more debt defaults and concerns raised about Portugal and Spain’s Government looking in peril, this caused a lot of fear in the market.  These events saw the Dow Jones industrials to a loss of nearly 1,000 points (to below 10,000 points) in less than half an hour, with a few thousand computer aided trades processing many hundred of trades in a single second, providing a red herring to the core issue of global financial instability. Gold prices soared to record highs at US$1,248.60 per ounce (12 May 2010).

Greece’s economic collapse

Will the Euro collapse?  I don’t think so.  Greece has been a scare, and Spain and Portugal are making bankers nervous.  However the economic  powerhouses of Germany and France wouldn’t want to see that, and the epic meeting by the 16 finance ministers of the EU full member countries came up with a 110 billion Euro bailout of Greece, in return for Greece’s Austerity Plan.  Greece’s welfare state where they promised the earth to their pensioners and looked after their civil service extremely well, has at last had to come to an end.

The riots will still likely continue as the EU have imposed stringent conditions on the bailout.  Prime Minister George Papandreou said that this will involve “great sacrifices” and signal an end to their failed welfare state.  The austerity plan aims to achieve fresh budget cuts of 30bn euros over three years – with the goal of cutting Greece’s public deficit to less than 3% of GDP by 2014.  It is currently a massive 13.6% of GDP.

The measures include:

• Increasing VAT from 21% to 23%
• Banning increases in public sector salaries and pensions for at least three years
• Scrapping bonus payments for public sector workers
• Capping annual holiday bonuses and axing them for higher earners
• Raising taxes on fuel, alcohol and tobacco by 10%
• Taxing illegal construction

Finance Minister George Papaconstantinou stated that Greece had been called on to make a “basic choice between collapse or salvation”.