According to REINZ statistics, New Zealand property prices hit an all-time high last month of $355,000. This certainly fits with all the hype that surrounds the industry, and might even help lift the number of new listings. 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 observed 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 hypothesise that the middle to top end of the market has come back into the property market a lot faster than the lower to middle end 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 and November settlements, another factor which jumps out at me is that around 30% of sales have been to clients who had been in the market for at least six months – some for over a year. A swing in confidence and a perception that prices might increase has helped convince buyers to “close” deals. This is not genuine momentum.
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
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 this: 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.
So if you’re wanting to make your move, don’t be disheartened by alarming news stories which make it sound as though prices are shooting through the roof day by day. In fact, this is still a buyers’ market and with some hard work and a bit of luck you can find a great deal.
