You can wait a lifetime to have a Eureka moment. Mine happened this morning actually, as I munched my breakfast salad, lovingly prepared by my beautiful wife. Breakfast salad is a wonderful mix of bacon, egg, cherry tomatoes, mushrooms, lettuce leafy type stuff, and the ubiquitous and highly priced avocado. A great start to the day and an excellent meal if keeping regular happens to be your New Year resolution. First home buyers I like to read the newspaper while eating breakfast and I noticed two lead stories this morning:
  • The usual fodder, gasping loudly about housing affordability
  • Avocado prices
In my daily work as a mortgage professional I am well aware of the relationship between these two things. In a nutshell: Everyone knows that wannabe first home buyers who regularly eat smashed avocado have no hope of buying a house. It’s been a long-held theory that avocado consumption by home buyers (and first home buyers, in particular) leads to delayed onset house buying. It’s even lead to some commentators hypothesising that eating avocados is like firing a bullet into one’s own financial foot! Thank God I’ve been a homeowner in the lucrative Auckland property market for 15 years. I’m one of the people that has enough equity to afford smashed avocado on Vogels. I love a bit of frivolous analysis. And while I can’t seem to add a second data series to produce a fancy graph in my Excel spreadsheets, I can plot one series and then print it off and use my pen and a ruler to plot another series! Here is my masterpiece: Avocado first home buyers Do you see what I see?
    • Avocado prices go through a 2 yearly cycle (thanks to Stats NZ for the data)
    • House prices go up and down (this graph shows the percentage change on a quarterly basis – pinched from the RBNZ)
    • Avocado prices are a lead indicator of house price growth…
So, when avocado prices rise and spike we tend to see house price growth buttoning off too? Is that because the cost of consuming avocados means that wannabe property buyers suddenly have less income available with which to service a mortgage, and so the demand for houses falls away? Who would deny the budgetary impact of a $5.99 avocado! Against that we see that house price growth does show some resilience, and it took two rather large spikes in the avo price to knock house price growth down (May 2016 and 2017). The data lead me to believe that the current spike in avo prices will continue to keep a lid on house price growth. It’s like avos are giving the housing market a third punch in the face to make sure it doesn’t get too big for its boots.

The Eureka moment?

Why don’t we give Adrian Orr (RBNZ Governor) the ability to manipulate avocado prices in the same way he can tutu around with the OCR! Imagine the level of control he could exert over house prices! Oh, the affordability! OMG I’ve discovered a new law of economics and a new macroprudential tool for the RBNZ! Eureka! Eureka! While poking a stick at the market is a fun pastime, I can usually be found giving solid advice to first home buyers and people remortgaging. So if you’re looking for a bit of sound insight, do get in touch anytime!
About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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