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$3,069,702,604.01
That is a big number isn't it?
This week a chap that I follow on facebook Steve Goodey Property Coach posted this on his Facebook:" I was asked to make some comments in the media this week about where the property market sits at the moment. I had to decline to comment because I really don’t know. I’m seeing properties sell and seeing some just sit at the wrong price point and loads of new listings. It feels like interest rates are biting hard now and that’s a major factor in people wanting to get out if they can.It’s all just a cycle and some will get burned while others make hay while the sun shines….What would you say is happening in your region?
He declined the public comment. Probably because he knows the media want a positive spin on a topic that has no positive outcome for the real estate sector.
And with news this week from the RBNZ announcement to enforce a debt to income ratio loan limit , which is in my opinion a good way to make sure buyers do "bite of more than they can chew" and bring back responsible lending by the banks. It is predicted that, we will see more defaults and losses later this year as the rest of the low rate mortgages migrate from the 2.5% rates to now 7% rates. RBNZ has been warning consumers and the industry of rising inflation since 2017 when ours and the global economy was deflationary, with macro-prudential indicators showing events similar to the late 80's and the GFC.
Back in 2015, I was working for Harcourts as a licensed real estate sales person and had the pleasure of attending a Harcourts seminar with Bernard Hickey as the keynote speaker. Bernard explained why we were in a deflationary economy mainly due to the effects of Moores Law and advances in technology making it faster and cheaper to produce goods and services in less time for the same or better quality. He went on to say that traditional Inflation tools couldn't be used to slow demand as prices for products decreased yet returned the same or better profits. What this meant at the time was globally interest rates were low sometimes negative and the only investment with real capital gain and positive return was property.
This fuelled the exponential demand on property in NZ, with more immigration, the start displacement of renters, shortage of supply and big returns and massive real estate commissions. The LVR rate changes for investors in September of 2016 and a foriegn buyer ban saw the first really effective slow down in this cycle with more on the way, we could see the RBNZ trying to cool the market and warnings of potential higer interest rates on the way.
As Covid hit, this created the perfect storm, low interest rates and short supply fuelling a massive price growth and the pain we see consumers in today.
Getting back to where we are now:
Maybe as Steve pointed out that with more property on the market those that are hurting want out and those not selling are overpriced for the buyers that are in the market, the RBNZ DTI will also force prices down, I suppose that is were responsible lending levels should be rather than the free for all under the previous Labour lead government policy. If consumers have access to easy money and can be lead down a path by others to spend that money at inflated prices that caused the boom but then not see the flip side of what was imenent. Who is really guilty of causing the pain we see now? The Sellers? The Buyers? The Banks? The Government? The Real Estate Industry? I let you answer that.
Now what do consumers do when they start to feel financial pain? Tigthen their belts, stop spending, slows the economy and they all look for ways to save money to keep the roof over thier head. And in many cases we see them to try to sell and get out of the market.
What I took as inspiration from Bernard Hickey some 8 years ago was that technology was going to disrupt the real estate industry. I didn't realise at the time it was me that was going to try and do it.
Now what does $3,069,702,604 have to do with this? Where does it come from and who pays it?
Ok here goes: RNBZ Data shows from March 2023 to December 2023, 70,809 homes were sold
The average house price as of April 2024 in New Zealand is $926,772
The average real estate commission is 3%
Calculate: 926,772 x 0.03 = $27,803 x 1.15 (GST) = $31,973.64 x 70,809 = $2,264,021,049.91
This is a conservative figure excluding any Vender Paid Advertising (VPA), legal or bank fees
What is the annual interest cost on this money at Westpac's 3 year rate of 6.39% ? $144,670,945.09
What does this figure look like over the normal term of a mortgage say 10 years? $3,069,702,604
Say these figures out loud. Sounding them has more impact.
$805,691,554.00 of interest paid in 10 years just to sell a property? Thats crazy!
This is the cost consumers choose to pay to sell property.
Consumers have a choice, they can keep doing the same old things the same old way and expect no change or they can take the lead from all the information they have at hand to make better choices.
The question to you all is: With the amount of technolgy and AI we have in the palm of our hands will you choose to sell property with lower cost full service options like FiSBO® or will you continue to choose the high cost route?
What is it going to be New Zealand?
Other reading and source data
Also have a read of slide 17 where the RBNZ warns of macro-prudential factors that have the same similarities to the late 80's and the GFC here
You can the RBNZ timelines here. Note the start of LVR restrictions was October 2013
