My main housing thoughts - Tony Alexander

Housing Market Written by Tony Alexander, Apr 14 2022
London
Guest post from Tony Alexander

Guest post from Tony Alexander

Recently, I wrote a lengthy article listing the main things I am saying about the NZ residential property market at the moment – some of which I have been warning about for 12-18 months. Here are most of those points in summarised form. Enjoy.

House price forecasts cannot be trusted

We all proved that two years ago when predicting prices would fall 10% or so. Base your purchase decisions on whether or not a property you examine meets your family or investment needs – not if it just looks like a bargain or might get cheaper if you wait. The risk is someone else buys and owns it for the next 20 years.

House prices won’t crash

There is good price support from soaring construction costs, high job security, a shortage of rental accommodation pushing rents higher, and people with mortgages having been tested already on their ability to service rates of 6.5% and higher.

No flood of Kiwis is headed our way

Not with soaring labour demand offshore. We Kiwis traditionally go offshore to earn higher incomes and few will now forsake that for the high house prices, low wages, and high cost of living NZ offers. In similar fashion however, these factors will likely encourage a brain drain over the next couple of years.

House construction will peak this year

Easing prices, tightened lending criteria, slow population growth, and resource constraints suggest developers will be easing back this year and house construction will fall from 2023 for maybe three years or so.

New anti-investor policies from the government are unlikely

The government will feel that with house prices falling, borrowing costs rising, and net migration outflows, that any extra moves against investors would risk house prices falling firmly heading into next year’s general election. That is probably not something they will want.

Rents will keep rising

There is a shortage of rental accommodation around New Zealand, especially at the low end of the pricing range. New Zealand has a fundamental shortage of social housing and it seems reasonable to expect that Kāinga Ora will continue to seek to purchase properties to add to the stock while the government continues to provide strong support through the Accommodation Supplement.

FOMO has gone

The fear of missing out factor has now virtually disappeared from the mindset of buyers all around New Zealand. It has been replaced by FOOP – a fear of over-paying. For now that fear is encouraging buyers to hold back.

LVRs will ease

That is, the next change in Loan to Value Ratio rules is more likely to be an easing than a tightening. This might not come before the end of the year however during the period in which the Reserve Bank will still be tightening monetary policy.

No wave of investor selling is underway

There has been a definite pullback in investor demand for property since the tax changes announced on March 23 last year. But there is no evidence of anything other than mildly extra investors selling since then even with mortgage costs rising at the same time as deductibility of interest expenses is disappearing.

Overall, the housing cycle has turned, we are in the downward leg, but things will likely flatten out for most regions before the middle of 2023.

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