According to REINZ stats New Zealand property prices hit an all-time high last month at $355,000. It certainly fits with all of the hype that surrounds the industry, and might even help get the number of new listings up. I just wish we’d get more balanced commentary and maybe someone digging into the numbers a bit.
I just had a look through our mortgage applications and would observe that they have increased from an average of $330,000 last year to $420,000 this year. Sure some of this reflects changes to our customer base. However, taking a qualitative look at our clients, I’d hypothesis that the middle to top end of the market has come back into the property market a lot faster than the lower and middle ends of the market. We are dealing with a lot more upgraders and professionals coming back from overseas. By definition this will result in higher sale prices (on lower sales volumes.)
UPDATE [Bernard from Interest was saying in a post today that the stratified median (that segments the housing market) is still down 3.1% on last year.] This supports my view that the market is currently distorted.
When I look through our October/November settlements the other observation that jumps out is that about 30% related to clients that had been in the market for at least 6 months, some over 1 year. A swing in confidence and a perception that the market might increase has helped convince buyers to “close” deals. This is not genuine momentum.
Lastly I have a number of Investors on the books who would love to buy but simply do not fit bank lending criteria. Investors in particular are finding it a lot tougher to make headway in this market.
The end result is that I think you will see significant volatility in the headline property sales statistics over the next 12 months. I wouldn’t be surprised if we see prices drop back again early next year. It also means – don’t read too much into the headlines. There are still plenty of bargains to be had out there and not every property is hotly contested. I had a client last week buy a house at mortgagee auction $200k below CV simply because there were no other bidders, and she is not a ruthless investor.
Reasons why property prices might soften in the New Year:-
- Some of the current activity is a hangover from those that didn’t buy in 2008
- Australia is starting to look attractive again to Kiwis
- Reduced Government spending – we cannot keep spending $250m per week more than we earn!
- Changes to tax policy for investment property – this is surely on the cards
- Higher interest rates (albeit still fairly low)
Negating this to an unknown extent:-
- Population growth
- Restricted amount of new building activity
