End of the property party? Good news

Don’t blame media if house prices stall

D on’t blame the media for spoiling the party and precipitating the levelling off of the Auckland housing market boom. There comes a point in any long- run boom — be it for shares, property, or commodities — when rational behaviour kicks in.

Speculators consolidate their positions and the market levels off.

When it comes to Auckland housing, other factors are constraining behaviour. The most important of these is the fact that banks have curtailed the ability of their customers to take on excessive mortgage debt.

Some of this is due to central bank- imposed restrictions and some due to mere prudence. Loan-to- value restrictions limit the amount banks can lend to owneroccupiers with less than a 20 per cent deposit. Investors now have to have a 40 per cent deposit. Some may squeal, but if we are to have a resilient society, this needed to happen.

This is rational behaviour.

What is not rational is to expect the authorities to stand by while house prices continue to escalate month after month, to the point where home ownership — particularly in Auckland — becomes permanently beyond the scope of average salary and wage earners.

This is not only an affront to New Zealand values; it is also a fundamentally stupid situation which leaves the taxpayer playing tail- end Charlie when it comes to bridging the funding gap through accommodation supplements, so ordinary Kiwis can even pay rents in Auckland, let alone a mortgage.

From a taxpayer perspective, the sooner the market consolidates the better.

What’s also not rational is to indulge in media- blaming and single out journalistic reportage as possibly leading to a “sentimentdriven price correction over and above what market fundamentals might dictate”, as the BNZ’s Craig Ebert did this week.

Ebert has been around a while. It is difficult to understand why he became so anal as to single out media coverage as potentially being “self- fulfilling to the extent that folk fearful that a market might correct are more likely to withdraw from it ( buyers that is) and sellers will either delist their properties, simply not sell or, if under pressure accept lower prices than might otherwise be the case.”

Imagine the furore if people bought homes on the back of stories which predicted perpetual gains in house prices, when the data clearly shows a consolidation is occurring. I suspect it was easier to take a pop at the media than to take direct aim at ASB’s Nick Tuffley, whose comment on Liam Dann’s Economy Hub — that it is now a “buyers’ market” — kicked off the debate. Ironically, Ebert went on to have a bob each way, by saying “we still think genuine excess demand will underwrite the Auckland housing market, but, equally, the prospect of a reasonable correction in prices grows by the day.”

I happen to be in the camp which says a reasonable correction in housing prices may be no bad thing. It would lead Aucklanders ( at least for a period) to view their houses as homes — not simply a magic money machine, where investing in a house will see their equity expand exponentially, month after month.

It would also lead to more interesting discussions at Auckland barbecues.

Journalists have copped it for failing to predict booms, and for failing to predict when they stop. Journalists were blamed for hyping companies during the NZ sharemarket boom of the 1980s and for failing to predict the finance company collapses during the

2000s.

But hear this: reporters will not be in the firing line for too much longer when it comes to predicting market shifts.

As Fortune reports, computers can often do a better job at this than journalists.

“Algorithms are able to detect everything from earnings data to social media sentiment, and are much faster than any keyboard-pounding journalist. This recent wave of automated information has brought big changes for financial news, and economists and the media industry are still digesting the implications,” says Fortune. Yale economics professor Mark Shiller, in his book Irrational Exuberance, talks about how “significant market events generally occur only if there is similar thinking among large groups of people, and the news media are essential vehicles for the spread of ideas.” In other words, by the time the reporter picks up on the shift, it is already well under way.