Tony Alexander Update July 2020

Each month I run four surveys of different groups of people, all with the aim of providing useful information which investors and small businesses can hopefully utilise as they work their way through this unique period in our history. The biggest survey usually attracts about 3,500 responses and focuses on people’s Spending Plans.

I ask readers of my weekly Tony’s View publication what they will likely spend more on over the next 3-6 months and what they will spend less on. Armed with such information I can give guidance to retailers and service providers regarding what their upcoming trading conditions will look like. For instance, my latest survey showed that a high net 41% of people intend boosting their spending on domestic travel. This suggests that the anecdotes we have been receiving regarding full car parks at some attractions around the country are probably accurate.

A net 21% of people intend spending more on home renovations, and a net 7% intend spending more on their gardens. But a net 14% plan cutting spending on motor vehicles, a net 9% on furniture and appliances, and a net 9% also on clothing and footwear. There are many other categories which I ask about, but the ones I shall focus on now were initially volunteered by people, much to my surprise, in my first experimental survey three months ago. I now formally include them as spending categories.

A net 9% of people say they intend spending more on shares. This is down slightly from a net 12% in May but gels very well with the many stories of young people in particular flooding into the sharemarket. In fact, a net 22% of people aged 30 and under plan buying shares versus just 12% for those aged 31-50, a net 6% of those aged 51-65, and a net 4% of those over 65.

This is something which we have not seen in New Zealand since the deregulatory period of 1984-87 when share clubs were created and people borrowed money to buy whatever was the latest “corp” investment to appear. That all ended in tears back then and although the Financial Markets Authority have recently issued a warning to some companies not to hype the possibilities of sharemarket investing, the fact that banks are not lending money for people to speculate suggests this is not a repeat of the unsustainable three year credit and asset price boom back then.

A net 7% of survey respondents say they intend buying an investment property, unchanged from May, and a net 3% say they intend buying a property for their own use. These are not the sorts of results you would expect to see if there was widespread pessimism regarding prospects for the housing market.

Which brings me to the other three surveys I run, which are in fact focussed on the property sector. The first is the REINZ & Tony Alexander Real Estate Survey of licensed real estate agents all around New Zealand. This survey showed that early in June a net 55% of near 450 responding agents were seeing more first home buyers in the market and a net 25% were seeing more investors.

I asked them what reasons investors were giving for buying. 64% said they were reacting to low interest rates. 60% said the investors were looking for bargains. I also asked what buyers generally seem to be mainly worried about. A gross 50% of agents said insufficient listings, 37% said difficulties getting finance, and 48% said jobs and income.

But here are the two interesting results. 55% of agents said that buyers are worried about prices falling. But only 12% said the buyers feel that prices are too high. What I read from these results is this. Worries that prices might fall are not holding buyers back.

They are in the market, they cannot find the properties they want because of a shortage of listings, they are looking for bargains but I have yet to hear a single anecdote regarding a property selling at a cheap, cheap price, and job worries are not holding them back.

There is a solid level of unsatisfied demand in the housing market and that is why price declines so far have been very muted. There is no flood of new properties coming onto the market, and recent pieces of news tell us that if anything, potential sellers will be more and more feeling that holding onto their property assets could be a good idea.

It is not just that interest rates are very low. There is also evidence of a structural shift in the net loss of Kiwis overseas last year which was underway before any of us had heard of Covid-19. And the media is increasingly filled with stories of Kiwis flooding back home filling up limited quarantine capacity.

Throw in the fact that job numbers actually rose in May and the incentive to retain property has grown.

My third survey is of property valuers.From them I have learnt that while enquiries for valuation jobs are growing, they are falling strongly for off the plan valuations. That is, potential property builders are less and less asking for estimates of what their townhouses, houses, and apartments might sell for if they were to be built. Dwelling construction is going to fall and that will tighten up already constrained property supply.

My final regular survey is of mortgage brokers/advisors. Theirs is an insight-rich field of knowledge which as far as I can tell has never been truly mined before. The insights which they provide are fascinating and include the following. Banks have tightened up their lending criteria in recent months apart from some very recent easing for investors by one or two banks now allowing purchases with just 20% deposit instead of the 30% when Loan to Value Ratio rules were still in place.

A net 79% of mortgage advisors say that they are seeing more first home buyers looking for advice, and a net 51% say that more investors are doing the same. A net 60% feel that banks are less willing to lend than before and the many comments which advisors submitted show that waiting times for loan approvals have blown out toward two weeks.

Collectively, the survey results show a housing sector which in some regards is gummed up with a shortage of timely finance and a shortage of listings. But there are plenty of buyers, and as each week goes by and they do not find what they want, we know from past cycles what this will do to house prices. The vendors will become less willing to accept low offers, they will then start raising their asking prices, and the buyers will capitulate.

And that in a word is what we see asset markets do time and time again – capitulate.This refers to a situation where a large group holding a particular view eventually throw their hands up and say they are clearly wrong and the market is going in the other direction from that which they were expecting or holding out for. When they capitulate in their incorrect view, a surge in prices can occur.

We are not there in the NZ housing market yet. But the way things are going, as long as the government now has good border control, and as long as enough news emerges overseas to retain hope that a viable vaccine is on its way in 2021, there is a rising chance that before the end of this year the underlying trend in NZ house prices will have turned back upward again.

Email me at to subscribe to my free weekly “Tony’s View” for easy to understand discussion of wider developments in the NZ economy, plus more on housing markets.

By Tony Alexander

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