Daily Briefing, Wednesday February 13th, 2008

Firstly,We have news just out showing house prices nationally fell 1.5% in January from December. Real Estate Institute figures also show the volume of houses sold in January was down 31% from a year ago.And, this is the ominous one for people who have just put their houses on the market.The time taken to sell has risen to 49 days in January from 36 in December. It’s the worst in six years.The housing bust has just started.You might have heard on Tuesday that Helen Clark is proposing a shared equity mortgage scheme to help first home buyers get into cheap houses.It’s supposed to address the housing affordability crisis that’s developed in the last 5 years since house prices more than doubled.The idea is that either a bank or the government would take an equity stake in a house being bought by a first home buyer and share the equity gains as the house price rises. The theory is that then the home buyer won’t have to save so much as a deposit to get into the market.This really is just mucking around at the fringes. A similar scheme has been launched in Australia by Adelaide Bank, but hasn’t really caught on. A second scheme was actually cancelled in Australia yesterday. There’s a couple of problems with these schemes. Either the buyer doesn’t really want to give up the capital gains or the bank doesn’t want to get into the business of betting on house prices. The other problem such a scheme would face in New Zealand is that house prices are likely to fall in the next couple of years. So any bank is unlikely to want to share in growth in negative equity and it’s not something most voters would want their government to be doing either. This policy is a headline in search of some sustainable detail.The affordability problem is not a demand or a financing problem. Most people have no trouble getting a 90% or a 100% loan these days. It’s just they can’t afford the repayments. Getting the bank or the government to take 10 or 20% is unlikely to change that much. The real problem is a supply problem. There simply aren’t enough new houses being built to keep prices from rising. To be fair to Helen Clark, she spent a good chunk of her speech on Tuesday addressing the problem of supply and has promised a review of how much land is available for new housing. She also wants to free up government land for new housing. Those are both good moves. But it really is too little too late.Housing is 30% overvalued and the only things that will reduce that are a housing property crash, a slump in interest rates, a boom in wages or a boom in house building.
The most likely outcome in the short term is a drop in house prices.That started in January.