Law Of Unintended Consequences

It is with a wry sense of humour that the results of a certain policies or actions are referred to as examples of the said law – similar to “Murphy’s law”. In the online world a particular kind of consequence has been identified as the “Streisand Effect.” It specifically deals with attempts to hide or remove specific pieces of information (or pictures), which perversely results in the more widespread dissemination of that information. It is named after the episode in 2003 when Barbara Streisand (unsuccessfully) attempted to sue a photographer for $50mn and to have an aerial view of her mansion removed from a publicly available collection of 12,000 shots. The photograph was taken as part of a government sanctioned and commissioned project, and the resulting publicity drove 420,000 visitors to the website over the next month. In the UK numerous public figures have tried to obtain injunctions preventing newspapers publishing details of their affairs only to find the information being ‘tweeted’ and ‘retweeted’ thousands of time, and garnering far more interest in their private lives than their own celebrity deserves.

Discombobulation

It was C.S. Lewis who said “Don’t use words too big for the subject. Don’t say “infinitely” when you mean “very”; otherwise you’ll have no word left when you want to talk about something really infinite.”
I should, therefore apologise for the title of this piece – however, I am in a state of ‘discombobulation’ and feel the need to rant!

First I shall explain – discombobulation is a feeling of embarrassment that leaves you feeling confused. Embarrassment can be caused by many things – such as the behaviour and performance of the England Rugby team – I have seen better from 5th form rugby tours! There is the embarrassment I feel at having neglected this blog for so long, there is the embarrassment caused by the silence that befalls the room as you finish your best joke… but these are not the source of my feelings.

A certain Mr Roger Wade

Extraordinary times require extraordinary thinking…

“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill

It would be easy to fall into the trap of believing that Christchurch post the Feb 22nd EQ is hopeless place to be involved in the real estate industry. According to the REINZ the number of transactions in Canterbury in April was 626, compared with April 2010 when there were 742, and April 2007 (the height of the boom ) 1,174.  All pretty gloomy stuff. But there is always another perspective – take yourself back to the days immediately after that EQ – TV reports showing the harrowing pictures of collapsed buildings, desperate rescue efforts, and the only number people followed was the growing fatality list. If it had been suggested back then, that  in the 2 months immediately following there would have been over 1000 sales, I suspect no-one would have believed it. Alternatively, consider the situation of the Japanese after the terrible EQ and tsunami in March – Christchurch is relatively unscathed in comparison to the entire towns wiped from the map – and that is not to forget the loss of so many lives.

The Road To Recovery…

This post is a copy of this month’s Market Watch newsletter from Harcourt’s CEO – Hayden Duncan – factual but optimistic – Christchurch and its people are fighting back…

The Canterbury market has been awash with commentators predicting what will happen to the real estate market since the February 22^nd earthquake.  Following the first full month since the earthquake we thought that facts should be shared to reflect the reality as rumor can be misleading.  As a group Harcourts is responsible for more than half of all real estate transactions that take place in the region, for that reason we feel it appropriate to provide early reporting of the situation to keep the marketplace informed.  The following are the Harcourts Group figures for the month

Out Of Context, Out Of Mind

Regular readers (and apologies for the long delay between posts) will be familiar with my frequent rants against various media and their selective interpretations of facts and statistics (especially with regard to the property market.) But I am driven to ranting again, having recently had a letter published in The Press

Don’t be a lemming!

It is an unalterable feature of human nature that we all think we deserve to be better off. We want to be paid more next year, or be wealthier next year. Once upon a time economies were beholden to unionized labour that extracted higher wages, without any justifying increase in productivity.

have the courage to think for yourself

But over time general price inflation eroded those gains in nominal wages leaving few people better off in real terms. The global nature of trade and finance in today’s world means that ever increasing wages are a thing of the past, and so too is general price inflation. Asset price inflation now serves the same purpose as the old wage inflation, and market crashes serve as the old general price inflation, to erode excess gains in wealth – except it can and does all happen much faster!

Stock markets going up by 30% or 40% a year makes investors feel wealthier – but when the markets crash that wealth is destroyed in minutes and with it goes our sense of well-being.

Another facet of human nature is that we take comfort from the belief that the future can be predicted as an extension of the past. A whole army of economists and market commentators make their living perpetuating that myth. The con that economic activity can be predicted with decimal point precision is something we would rather believe in than question.

The reality is that all these commentators are doing is rationalizing particular values or market movements as continuations of our immediate past, but they miss the seismic shifts in how economies or markets are driven. The 1980s and 1990’s saw incredible liberalization of financial markets – the big investment banks (particularly in the US) were in effect able to print vast sums of money (through various derivative instruments) which fuelled incredible asset price inflation in stocks, commodities and real estate. This has been unwound to a large degree in the last few years as banks have collapsed and so too many asset prices have fallen or stagnated.

New attempts at regulation and authorities printing money are attempts to “fix” the problem. How that eventually ends up is not my concern here, but I doubt anyone making any precise forecasts right now really knows. Look at the price of gold right now – this is rationalized as a natural response to higher inflation that is “inevitable” because so much money is being printed (by the US and UK in particular.) But how is this money going to cause general price inflation – the global economy is too competitive for any producer to set prices higher. It is gold as an asset class that is increasing in price, as this money chases a home – inflation fear is just the rationalization based on the mistaken belief that the world will do what it did in the past. Comparisons with the Great Depression of the 1930’s are spurious given the different global economic regime. And that does not include any sense of how the internet and global communications have changed things, in good, but unknowable ways.

What does all this have to do with real estate in Christchurch? First and foremost my firm belief is that we have to stop thinking in terms of a return to “normal.” We cannot undo the earthquake. It looks as though we are going to have to accept large aftershocks sporadically as the new “normal.” So getting structural engineers reports on property, doing your homework regarding whether or not insurance will be available – these are now things we just have to accept. They do not stop us from buying or selling – they just change the process.

Secondly we have to stop thinking in terms of the market returning to “normal” in terms of house prices going up 10 or 20% a year. For now they are tracking sideways. If you want to buy a house because you think it is going to make you money, then have a good think about why it should – I don’t necessarily agree or disagree but don’t trust an economist to tell you! By the time the papers are telling you all is well with property as a (speculative) investment, prices will have been rising for a good while. For now the commentators have a mindset that the market is in the doldrums and any evidence will be fitted into that framework. Suffice to say that I am working with a number of clients who think now is a great time to be buying land.

To quote George Soros, the man often referred to as the one who beat the Bank of England – “The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.”

Bottom line, it is Ok to buy and sell – people are doing it all the time – stop looking for external reasons to justify what you want to do, whether it is upsizing or downsizing or investing. Make your own judgments and have the courage of your convictions – don’t be a lemming.

How would Donald Trump rebuild Christchurch?

“The Don” or “The Trumpster” has not, as far as I am aware, been asked his opinion on how to rebuild Christchurch, but I would love to hear his ideas. Why? Simply because he works on the principle of “thinking big” – “if you’re going to be thinking anyway, think big!”

I am not thinking that Christchurch needs to turn itself into New York or The Gold Coast with towering buildings, but I would like to see some “big thinking” in terms of how

Normal Is Just A Cycle On A Washing Machine

As a real estate agent the most common question I get asked is “what is the market doing?” Since the 7.1 earthquake struck on September 4th a common variant is “Is the market back to normal yet?” This obviously begs the question of what is “normal”?
There is a lot of information and misinformation, rumour and counter-rumour flowing in Christchurch. Clearly there are a number of issues that have arisen in the aftermath of the quake, not the least of which are question marks around the willingness of insurers to take on new business, and delays in obtaining LIMs from the council. The reality is that most of these issues can and are being dealt with on a case by case basis.

A Kick In The Teeth…

Walt Disney once said “You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.”

“If ya can’t convince ‘em, confuse ‘em”

Confusion is a state of mind. A person who is confused does not understand their environment and may respond or react inappropriately to it.  So says the medical dictionary. Causes of “confusion” can vary but include head injuries, hypoglycemia, vitamin deficiencies and illegal drug  taking. I would like to add to that list ‘reading articles about the property market.’

In the Press this morning, the article on house prices in Christchurch said they were “4.6% HIGHER” than a year ago, “3% BELOW” the market peak and have “remained fairly STATIC…for the past six months.”

Have a look at pretty much any blog on the NZ property market and the ensuing comments and you will find those saying the market is crashing, and those that argue it is holding up fine – both with equal ferocity talking up their own positions and prejudices.

Then look at the recent decision of the Reserve Bank to raise interest rates by 25 basis points and the accompanying statement “The world economy continues its fragile recovery. Trading partner growth has turned out stronger than we predicted, however, future prospects for growth have deteriorated.” This paints a ‘confusing’ picture of strength and weakness.
So why did they decide to increase the Official Cash Rate?

I would guess the discussions went something like this…

Governor: “So what is our growth forecast?”
Economist: “Er, um, I think maybe up, or, um, possibly down, er…”
Governor: “Inflation forecast?”
Economist: “Well it will go up, and er, down, er maybe!”

And so the decision looks like… because we think the economy may be growing, but it might not be in future, we’ll put rates up now, so we can lower them later!

Would you like your Doctor to prescribe your medication like that – “Ok the medicine looks like it is working, but we are not sure, so we will stop it now, so that when you get sick again we can give you some more and looks like we are doing something!”

I just don’t get it. It seems to me that not long ago we were all being told that we were in the midst of the greatest financial meltdown since the Great Depression – so would it not be wisest to keep policy easy for a bit too long,  rather than apply the brakes too soon.

There is something absurd about trying to precisely model economies that are made up of people who can all change what they do, in different ways, at different times – we are not a set of mathematical equations! The economists and policy makers all forget that there are actual people that make up the employment statistics – not just numbers. Actual families are losing their homes – mortgagee sales involve people, not just banks and bits of paper.

But I digress…we live in a confusing world, and people will make mistakes at the best of times. Right now, your biggest mistake would be to believe anyone with a vested interest in talking the housing market up or down.

If you want to move house because your current arrangements don’t suit – then do it – if you are waiting for some clear message from the statistics, you will be where you are for a long time! Find a nice house you like and can afford and buy it! Want to fix your mortgage rate – do it if it makes sense to you. Don’t let the bank tell you it makes sense – remember the banks are there to make money – they would not be suggesting we do things that lose them money and they are always the other side of your transaction. At the end of the day, it is your life, your decision – think for yourself & make up your own mind!

It was, after all, Harry S. Truman (33rd president of the USA) who said “if you can’t convince ‘em, confuse ‘em!” Don’t let them confuse you – have the courage of your own convictions!