We all know that the residential real estate markets all around New Zealand have been rampant since just after the middle of last year. Every week we read articles about how much house prices have risen, how high they are, how difficult it is for young people to buy a property, and what the government should do to correct the situation.
Basically, we’re reading exactly the same articles we were also reading in 1987, 1994, 2003, 2007, and 2015 in Auckland. We’ve been here before and none of the “remedies” which have been applied have prevented house prices continuing to rise at a pace well above the rate of growth in household incomes.
There are many reasons why this has happened. But if I were told that I only had ten seconds to speak and could only mention two of them they would be these:
All the other factors in play add extra flesh to the bones of the story, but the muscles are largely these two factors.
I can answer that question in two ways. First, by considering the next three decades. Over that time period much higher house construction and the ending of structural falls in borrowing costs and bank deposit rates means the average pace of house price inflation is likely to slow from 6.8% a year towards 5%.
The second way I can answer the question is by assuming it refers only to the situation right now – in which case my answer is that while the market remains highly frenzied, early signs of a turnaround are appearing.
Their numbers show that whereas house sales in November were 34% ahead of a year earlier, and December 46%, in January the annual rise was only 3%.
The other is that whereas average house prices around New Zealand rose by 3.9% in November and 2.2% in December, in January they rose just 1.3%.
Then there are some interesting results from two of the surveys I run each month. One is that for the first time on record more real estate agents have responded in the REINZ & Tony Alexander Real Estate Survey that they are seeing more investors looking to sell than fewer.
The net percentage is low at just 5%. But this is a change. We can also see from that survey that whereas in November a net 59% of agents said they were seeing more investors, this fell to 45% in December, 31% in February, and now just 15% in March.
But the rate of new inflow has slowed quite a bit. Similarly, whereas in November a net 64% of agents said that they were seeing more first home buyers, that fell to 50% in December, 46% in February, and a net 32% in March.
Also, in the mortgages.co.nz & Tony Alexander Mortgage Advisers Survey a net 5% of advisers for the first time said that they were seeing fewer investors seeking advice.
None of these indicators represents a slam-dunk case for the market turning. But collectively they suggest the more forward-thinking investors in particular might be taking the opportunity of the current frenzy to sell off some of their less desirable stock, while pulling back from the excessively high bidding seeming to be happening in some parts of the country.
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