February 23, 2013

Buy low, sell high?

From the Herald

Expectations of house price inflation continue to climb in ASB’s latest quarterly survey and are close to their all-time high 10 years ago.

The same seller’s market is reflected in a drop in the net balance of people who consider it a good time to buy a house

That doesn’t make sense to me.  If people expect house prices to keep rising, ie, that houses now are cheaper than in the future, they should want to buy.  Is the market confused, or is it the Herald (or, of course, me)?

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Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »

Comments

  • avatar
    Nathaniel Wilson

    This is the same newspaper in which an article about the relative price of iTunes tracks (all converted to $NZ) offered the high $NZ dollar as a reason why tracks are more expensive here than in the US. In short, I don’t think it’s you that’s confused (and maybe not the market either).

    11 years ago

    • avatar
      Thomas Lumley

      Certainly a *high* NZ dollar would be expected to have no impact on the relative cost of tracks here vs elsewhere. But an *increasing* or *unexpectedly high* NZ dollar is a reason for prices to be higher here compared with other countries.

      Apple has always had nominal prices that are fixed for fairly long periods of time, and so are presumably based on what they expect the NZ dollar to do over at least a year or so. If they underestimated, things will become more expensive here. Also, since the NZ dollar is relatively volatile, they will want to set a higher nominal price than they would if the dollar was stable or if the price could adjust rapidly.

      11 years ago

      • avatar
        Nathaniel Wilson

        Agree entirely, but in a similar vein to the Real Estate issue, it wouldn’t take much more detail for these articles to make sense. Why they go for meaningless quotes etc… instead of a bit of explanation I don’t know.

        11 years ago

  • avatar

    It’s possible to not want to buy because it’s expensive relative to your current situation and will suck up much of your disposable income, so in that sense buying is bad. Yet it still might get worse in the future.

    That’s my situation…

    Also I don’t understand why people consider housing as an investment when they have to pay so much interest in order to buy one. Maybe I’m radical but I think the idea of buying houses to try and make a profit (instead of to live in) is dumb and possibly unethical.

    11 years ago

    • avatar
      Thomas Lumley

      Yeah.

      Though if people buying houses for investment really is a big part of the problem, it’s strange that there’s also a shortage of rental housing in Auckland.

      11 years ago

    • avatar
      Richard Penny

      Perhaps. However if someone believes house prices are going to increase 10% p.a. and also believes that mortgage interest rates aren’t ever going to be above 8% there’s at least a 2% tax-free gain. Even better when you can deduct interest costs. Obviously there are other costs in owning a house etc., but consider what other investments are going to give and the risks associated with them.

      Very statistical in terms of probability of events and the outcomes of the events – though getting probabailities and valuing outcomes here is not necessarily done well.

      Of course the thing is to be the organisation guaranteed to borrow at a few percent less than what they lend at and also has first call on the person they lend money to.

      11 years ago

  • avatar
    Martin Kealey

    The obvious elephant in the room is the surfeit of people.

    And the promotion of “growth is good” overlooks the thinly-spread externalities. Every new person who moves into Auckland (where I live) makes me just that teensy bit worse off:
    *more congestion on the arterial roads;
    *longer commute to work (measured by time);
    *depletion of farmland;
    *further for my food to come (and more expensive food);
    *in-fill housing spoiling the view from my back yard;
    *more people-noise just everywhere;
    *further for me to drive to get to the edge of the conurbation (to escape the madding crowds);
    *less choice of work location, because the economies of scale push towards centralization of my industry (so I can’t even opt out and move away);

    So maybe the problem isn’t that houses are too expensive, it’s that they’re too cheap, in the sense of allowing extra people to move in. (Draw a ring on the map around Auckland’s economic hinterland and say “no more”.)

    A government that allows unfettered urban sprawl over prime farmland is mortgaging our future food-security as a whole country.

    Sorry, not exactly statistics related, but it’s a classic case of modelling only *part* of a system and then using the model to justify some expediency.

    11 years ago