Price is simply a function of what someone is willing to pay for goods and services. It is subjective and hardly ever a good indicator of true value. True value is a function of strong fundamentals. In times of a crisis, it is very natural for decision making to be driven by price instead of fundamentals because of the amount of emotions involved in the midst of uncertainty.
New Zealand GDP reported last night came in at its worst in 29 years, down 1.6% in the first quarter. In the middle of this supposed recovery attempt, it is imperative for everyone to understand how to read the market during a crisis. Housing market data is notoriously slow in being reported and hence, the upcoming decline will have a long tail driven by delayed data and inaccurate reporting.
For those that paid attention to our articles throughout March and April, would know that this crisis, as much as it looked like a health crisis (at face value), was never actually about the health of the people. It was more about the health of the “system”, the health of the economic engines that drive both countries. Weaknesses in the engine are now beginning to show and that’s what we are going to cover in today’s article.
Giant economic stimulus packages have already been announced on both sides of the Tasman. In my previous article about COVID-19’s impact on the housing market, I mentioned we were looking into producing a course with the sole aim of helping property investors make something good of opportunities that will emerge out of this time of crisis.
Most people make the assessment of whether the market is going up or down, based on the price volatility of the underlying assets. In case of the housing market, if house prices are going up, the general assumption is that the housing market is going up. The stupidity behind this assumption is beyond words to explain so I’ll just call it for what it is – its dumb.