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Thread: NZ Property - late stages of a blowoff?
1) Being bearish on housing in NZ in the last 10 years was wrong and a view I have been guilty of
However let me put on my bear suit once again and suggest certain events this year have me concerned about a serious correction
1) Being bearish on housing in NZ in the last 10 years was wrong and a view I have been guilty of
However let me put on my bear suit once again and suggest certain events this year have me concerned about a serious correction
2) At the height of the Covid market panic all the consensus economists were pointing to housing corrections in 20/21
The RBNZ rode to the rescue by simultaneously lowering interest rates, loosening lending standards (LVR’s) and recapping the banks through historic QE.
The RBNZ rode to the rescue by simultaneously lowering interest rates, loosening lending standards (LVR’s) and recapping the banks through historic QE.
3) In very basic terms visualize the countries economic engine as a coal fire. The RBNZ saw it starting to rapidly reduce temperature in March and run the risk of going out altogether.
In response they filled the hopper with year’s worth of fuel.
In response they filled the hopper with year’s worth of fuel.
4) The housing market now has excessive fuel that has pushed the "temperatures" to seriously high levels which they’re now struggling to bring down.
5) The ramp-up in prices, particularly the regions, has been staggering. Regional cities increasing 20-50% in literally a 7-8m period!
https://www.stuff.co.nz/life-style/homed/300181730/wellington-citys-median-house-price-approaches-1-million--and-theres-no-sign-of-a-slowdown#:~:text=Homed-,Wellington%20city's%20median%20house%20price%20approaches%20%241%20million%20%2D%20and,no%20sign%20of%20a%20slowdown&text=Wellington's%20housing%20market%20continues%20to,new%20real%20estate%20industry%20figures.
https://www.stuff.co.nz/life-style/homed/300181730/wellington-citys-median-house-price-approaches-1-million--and-theres-no-sign-of-a-slowdown#:~:text=Homed-,Wellington%20city's%20median%20house%20price%20approaches%20%241%20million%20%2D%20and,no%20sign%20of%20a%20slowdown&text=Wellington's%20housing%20market%20continues%20to,new%20real%20estate%20industry%20figures.
6) If you look at the chart of the classic bubble trajectory I believe we're in the late stages where public participation is in the Enthusiasm, Greed, delusion, and moving to the new paradigm stage.
7) ANZ figures have shown this moonshot leg up in prices has been fueled by property investors who have accounted for 2/3 of new loans.
People seem to believe they're playing a game of Monopoly. They seem nonplussed about what property they buy https://times-age.co.nz/battle-over-25m2-home/
People seem to believe they're playing a game of Monopoly. They seem nonplussed about what property they buy https://times-age.co.nz/battle-over-25m2-home/
8) Market History's of manias and busts have shown repeatedly that in the late stages of speculative bubbles lending standards have loosened and shadow bank/non-bank lenders take a greater role in providing credit.
Japan in the 90’s and the GFC are good recent examples.
Japan in the 90’s and the GFC are good recent examples.
9) I have the growing suspicion that the end to this speculative mania is being engineered by the RBNZ and big four banks to try and remove as much blood from their hands as possible. The price rises have gone too far and cannot be fixed without a correction.
Holding...
Holding...
10) The RBNZ in the face of exponential house price growth has set March 21 as the date to put LVR’s back to 40% rather than as soon as it became clearly visible they were being abused.
11) The Big 4 have spent the last half of this year filling up their coffers with records lending.
Now this month they have come out in unison to immediately raise their LVRs to 40%. Also producing bearish notes and commentary warning about corrections. https://twitter.com/JeneeTibshraeny/status/1338692526757167105?s=20
Now this month they have come out in unison to immediately raise their LVRs to 40%. Also producing bearish notes and commentary warning about corrections. https://twitter.com/JeneeTibshraeny/status/1338692526757167105?s=20
12) My thesis is that property investors will look at the window closing in March with higher LVR’s and will be very motivated to accumulate as much stock as they can before lending standards are tightened.
13) They will see that the door is closed on them by the big banks and my suspicion is mortgage brokers will direct them more and more to 2nd tier non-banks as an option.
This will be extremely attractive especially when they can potentially buy with as little as 20% down.
This will be extremely attractive especially when they can potentially buy with as little as 20% down.
14) In the four years from 2016 to March 2020 non-bank lenders in NZ grew 300% in the total amount of residential lending they were doing. I could see a situation where they grow another 300% this year.
15) When this ends badly banks will be able to point out that they regulated themselves and warned about the risks. The natural scapegoats will be the non-bank lenders and property speculators.
