$60b wiped from house values

4:00AM Tuesday May 19, 2009

By Anne Gibson – NZ Herald

The property downturn wiped $60 billion off the value of our national housing stock and $25 billion from Auckland last year, says an industry commentator.

Kieran Trass, an Auckland property investor and analyst, yesterday released a report citing QV numbers showing the downturn resulted in Auckland house prices declining by an average of $50,000. QV said last week that national prices had dropped 9.2 per cent in the three months to April compared to the same period last year.

Mr Trass said some parts of the country suffered more than others, and cited a 16 per cent drop in Mt Roskill house prices last year. The slump was New Zealand’s worst since records began in 1961, he said. BNZ chief economist Tony Alexander checked the figures and said Mr Trass was correct.

The Reserve Bank’s monetary policy statement showed the national value of housing stock was $568 billion by the last quarter of 2008, well down on the $614 billion in the last quarter of December 2007.

Mr Alexander said house prices dropped dramatically during the 1970s, but inflation was high then, too, so one factor offset the other.

“Real house prices fell away in the 1970s but nominal house prices would not have decreased as much as they did last year. “During the 1960s, there was no nominal annual house price fall, nor during the 1970s and 1980s, but in 1991 there was a nominal fall of 3 per cent and in 1999 a fall of 4 per cent.

“So in nominal terms, Mr Trass is right on the mark, no worries,” Mr Alexander said. But he discouraged New Zealanders from becoming overly concerned because most people were not real estate investors and their financial wellbeing did not depend on short-term capital gains.

“For most people, it’s not a worry, but it would be if this continued at the annual rate because people would lose so much of their wealth they would decide it’s better to take bankruptcy, walk away from the mortgage and the house,” Mr Alexander said. The economic outlook indicated a recovery and he said house price drops of more than 9 per cent were highly unlikely to be recorded for this year.

Real Estate Institute president Mike Elford also said Mr Trass’s figures made some sense. He said that with a median price of $350,000, the country’s 1.4 million houses could be worth more than $500 million. So a $60 billion drop based on last year’s 9 per cent QV value fall was not unrealistic.

Mr Elford encouraged people not to focus on any losses. He said the feedback he was getting from real estate agents nationally confirmed his belief that prices would rise again soon. “It appears to me that we are at the bottom of the market.”