Rising incomes and falling mortgage interest rates are having the biggest impact on affordability for first home buyers at the moment, with house prices at the bottom of the market staying largely flat.
According to the Real Estate Institute of New Zealand, the national lower quartile residential selling price was $600,000 in March, which, give or take a few thousand either side, was more or less where it's been since August 2022. That's after dropping from its record high of $670,000 achieved in November 2021.
Those trends can clearly be seen in the first graph below, which shows only minor monthly movements in prices at the bottom of the market over the last 19 months, with the overall trend remaining flat.
In the meantime mortgage interest rates have been tearing away since mid-2021, with the average of the two year fixed rates charged by the major banks peaking at 7.04% in November last year. It has since declined in every month since and had eased back to 6.77% in March this year
While that is a hopeful sign for aspiring first home buyers, it's probably not enough of a fall yet to make any meaningful difference to affordability levels.
Interest.co.nz estimates the mortgage payments on homes purchased at the national lower quartile price with a 10% deposit would have been been around $911 a week in March, or $719 a week with a 20% deposit.
Although that's down from their respective record highs of $935 and $740 a week set in November last year, the trend over the last six months has been for mortgage payments to bounce around current levels, with relatively minor movements from month to month. (See the second and third graphs below).
The biggest change to the strings that pull affordability lately has been to incomes.
Interest.co.nz tracks the median rates of pay for people aged 25-29 to estimate the after-tax pay for a typical young couple working full time.
Using that formula, the median after-tax (combined) pay for a young working couple would have increased from $1955 a week in March last year, to $2081 in March this year, giving them an extra $126 a week (+6.4%) between them.
Unfortunately around 40% of the extra money would have been eaten up by the movement in mortgage payments over the same period and the remainder would likely have been slurped up by the ravenous beast called inflation. This means in spite of their rising incomes of late, affordability for typical first home buyers probably hasn't improved much over the last year.
While the increase in incomes, the flattening of prices at the bottom of the market and the recent modest decline in mortgage rates are all positive signs for future affordability levels, they have not been big enough so far to produce any meaningful improvements yet.
Whether the current movements in the fundamentals of affordability represent a turning point in the market or a brief pause before the resumption of business as usual, remains to be seen.
The best that could be said of the current market for first home buyers as that at least it's not getting any worse.
The two tables at the bottom of this article show the current main affordability measures for typical first home buyers in all of the main urban areas of Aotearoa.
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83 Comments
Actually, it IS getting worse - their ability to repay is diminishing, with every year that passes.
I'm not sure if that's true. House prices are flat now and better priced than they were in 2021. Wages are up too. There is plenty of stock to choose from and negotiate a lower price. And as a new Mortgagee you should be able to secure a mortgage rate below 6% quite easily. By the time you rollover, carded mortgage rates will have eased considerably.
I'd say that it is the best time to be a FHB in two years. Whether it is going to get better than this will surely be debated below.
Baptist, please provide evidence/reasoning that carded mortgage rates are going to ease. I think this is something you might need to pray for.
-SMG.
Ok. 1) We are in recession. 2) unemployment is ramping up. 3) Inflation is falling at a fair clip. We are only 1% above the target range now. 4) Nearly every economist is predicting an OCR cut within the next 12 months (the normal fixed term. 5) Of the inflation remaining, it is mostly domestic (rents etc.). This inflation is usually not brought down with a high OCR. In fact, the inverse is often true. 6) The NZD is currently climbing against many of our major import markets. 7) and finally, mortgage rates are already dropping. SBS advertised a 5.99% rate this week.
This inflation is usually not brought down with a high OCR. In fact, the inverse is often true
considering big part of the CPI is housing, and big part of housing is debt. OCR is inflationary if it increases, and deflationary if OCR drops.
another thing is, I see OCR dropping some time down the track, but I am not sure OCR will drop before FED and Aussies. it's more likely OCR stays until Q1 2025 I'd say.
I think I agree with a Q1 2025 drop. Maybe Q4 2024. Bank rates may pre-empt that though. Perhaps Scooter and I agree but are just talking about a different timespan. Assuming a FHB fixes for 1-2 years, they can have reasonable confidence of rates being down rather than up at the time of refixing.
IMO banks & RBNZ were anticipating greater financial stress in the covid-era, coupled with increased regulatory capital track - banks are well placed from a capital/risk perspective and are fighting for balance sheet. Hence competitive rates from SBS, but I don't think that reflects interest rates coming down.
-SMG.
Appreciate the answers Baptist & Huttman:
- I struggle to conceptualise how the OCR increasing is inflationary. Economics lesson 1 says higher rates = decreased willingness to spend and improved exchange rate, both deflationary.
- "every economist is picking rates to come off in next 12 months" - while a correct statement, this has been a correct statement for 3 years. ;)
-SMG.
You are correct Scooter. The point I am making (and I think Hutt man as well) is that the remaining inflation is concentrated in domestic products that are often serviced by debt. Things like rent and council rates. Mortgage rates can have an inverse effect because of cash flow. If a landlord is servicing a high monthly interest payment, he will be more inclined to push the rent up at the next review. Especially when there is competition for housing. Hope that makes sense.
Thanks Baptist - that makes sense. I just question whether it stacks up that a "landlord is inclined to push up rent due to reduced cashflow/higher mortgage". Those MFs would put rent up on their grandparents and certaintly don't need a reason other than "they can" - I do agree with you though, especially in the context of competition for housing.
My rent has just gone up for the piece-of-shit I live in, straight over to China. The poor maintenance guy has been sent back to the mainland after chopping down the neighbours tree lol.
-SMG.
I have two rentals so I suppose I'm one of those MFs ;). For what its worth I'll give my 2 cents. Most landlords are very slow to push rents up in this country. This is because the have a sense of social wellbeing (all of my tenants I consider mates) and also because we have a strong desire to keep the investment passive. Finding new tenants is a pain in the neck and comes with risk. When I have a good reliable tenant I would be a fool to exploit that relationship. High monthly interest rates put cash flow stress on the landlord, and this will counter the above considerations. I recently increased my rent my 7%. I could have put it higher with current market prices but it was a higher jump than id normally do. The high mortgage repayment were definitely a factor in this decision. High interest rate = rent inflation in this case.
hahaha you're alright Baptist 🤝 it is interesting to hear your POV, as me being a young person, I don't actually know any landlords (on a level where we have an open discussion). So in my misinformed view, they are all 10+ property owning freeloaders - obviously this is not you. I'd say the landlords I know, which cater towards the student / YoPro market, are in that "MF" bucket. All the best, Baptist! I'd sell before it all crashes down ;)
-SMG.
If you tenants are paying for an asset they will never own, but instead you will, then you ain't their mate. Just slightly deluded with the relationship and your own moral compass.
They are paying me for a service. Namely accommodation. I don't understand why this is considered wicked compared to other service industries. I recently rented a car I would never own. Was that vendor morally corrupt?
It's not wicked and you're not morally corrupt for having rental property.
What is not good is NZ's effective regulatory capture to the point we have massive over allocation of capital into speculation on property, while working Kiwis are overtaxed and property speculation undertaxed (and tax evasion tolerated).
This is causing societal problems and it is rather unfair on following generations. Especially unfair when provisions for younger generations have been cut to enable tax cuts for older generations in their turn, while property has been bailed out and subsidised with taxpayer money multiple times over.
It's not your fault, in your investing activity. What you advocate or vote for may be destructive, but that's another matter. The likes of Luxon cutting taxes to directly benefit his 20 million plus conflict of interest is also a potential issue.
Higher interest rates represent a market wide pricing signal that reassures landlords that most others will be doing the same and as such there is lower risk of the tenant jumping ship.
Yikes!!!
1689 Baptist ...short memory mate ...remember when NZ always had higher mortgage rates than the US ? ....do you want to know why ?
Well, if the RBNZ had rates at US levels, the NZD would devalue and no one would buy the kiwi peso ...which is inflationary, so the "twisted" CPI would move up again ...back to square one.
Rates will NOT go back down, anywhere near those levels in the 2010's .....get used to it.
I did not say rates will go down to 2010 levels anytime soon. What I did say is that they will decrease from their current levels within 12 months. I don't think i am overly optimistic on that front? All of the talk of OCR cuts is about when rather than if. I am yet to meet a serious commentator who thinks we will have to wait until Q3 2025 for a cut. The FED will cut before then too.
1689 Baptist ..... OK fair enough, but remember if they do go down, it means the NZ economy is really "spluttering" like a 1964 British Seagull 5hp outboard motor ....while the NZD would go down through the floor ....and gas up to $5 a litre etc etc
I'm calling a soft landing. Both the FED and the OCR will begin cutting within 12 months. If you can keep your job you'll be ok. And my 1980s Seagull outboard is still running! 😉
Soft landing ......mmmmmmmm with $8 billion pa on gummint interest payments already ....there is SO much money being funnelled away from the economy in interest payments already, where is the money for the "soft landing" going to come from ? ...I haven't got it (unless they take it by stealth) .... that's right ...MORE debt...truly marvellous.
And compared to most economies, NZ has considerably more room for debt, rightly or wrongly.
Debt to GDP ratios for various countries:
New Zealand 35.9%
USA 129%
Canada 107%
UK 97.1%
China 77%
Japan 264%
India 89%
Ireland 44.4%
Baptist you may need to pray more about private debt, yours and other..... but yeah public is not so bad in comparison..........
Baptist have a look at the NZ figures for private debt - New Zealand Private Debt accounted for 138.64 % of its Nominal GDP in Dec 2023,....so forget about your public debt...and this brings me back to my point earlier - where is the money going to come from - MORE DEBT !
138% isn't that bad comparatively. Most countries are around 200% our historically high rates have inhibited our debt growth.
your line moved a bit...... and as it moved all your debt became my debt...
see any issue here? what do you think would happened to the "asset"
I don't follow sorry
The Fed may not. One should not assume anything. Currently the market is winding back expectations of interest rate cuts as quickly as you can say "market crash". Higher For Longer is slowly morphing into Higher Forever. There are now whispers of rate hikes on the Street. The Fed has also started to wind back QT now, so that will have the effect of an interest rate cut without cutting interest rates.
To think the Fed / USA is the entire world is a massive mistake. The USA is out-of-step with the majority of the world's other economies at this time. Take care basing your understanding of the future based in the USA alone.
Good to know that FHBs are getting a reasonable bite at the cherry these days.
TTP
good to see more home buyers on the market.
Scooter here. Unemployment is ramping up, every economist report pushes out when interest rates are coming down, brain drain has recommenced - soon the rampant immigration defribillator is going to turn off.
The time has finally come. Leverage loving boomers who caused this mess will have to repay some of the wealth pinched from the generations before and after them.
-SMG.
We do seem to have hit a 'tipping point'. my opinion is we have hit the limit of growth by immigration
Local and central government has maxed out on what they can charge the public for new infrastructure and public services .. and we have'nt got the money to maintain and upgrade what we already have. Its not just that they cant afford it anymore.. its also that we are nearing the point the public wont accept lesser services.
So unskilled immigration will have to stop, new housing developments will no longer be viable (unless developers are keen to pay full infrastructure costs when houses are selling for less than they cost). And house pricing and GDP will tail off.
Out come will be we have to find a way to develop our economy and infrastructure based on productivity and innovation... in the private and public sectors
Seems more like we've maxed out on debt as a way of deferring paying more for those public services and infrastructure, but we can reasonably increase what we pay in the near term.
But increasing what we pay for services and infrastructure to our land might mean less left over to send to banks for the land itself. That would balance things out.
Just as when Devonport had high rates decades back (local council debt issue) it resulted in lower demand for the land. IIRC
Might mean more impetus for rating more on the land itself and encouraging more intensification to allow sharing the cost of the infrastructure to that land. Given sprawl is so much more expensive, something Wayne Brown seems to realise too.
That limit, by means of immigration, is; a means to keep employment up to fund the current super due to the falling birth rate. Govt is already struggling to find the money left right and centre for all their ambitious projects and were left with a whole lot of wastage from the last regime. Think about it, if we are having a brain drain of skilled people to overseas, then we need to replace them to keep in employment to then keep the tax take up to fund the current growing super demand. I cannot see this as being sustainable any other way, even for a time. Like banks, the govt is in extend and pretend mode using a band aid strategy at the lobby of the business world to; keep wages suppressed, and keep super going for a little while longer in the faint hope that baby boomers start popping off sooner than later so the status quo can continue. The world is beginning to see NZ for what it really is, propped up on artificial numbers (capital gains) and doing everything it can to suppress wages, as the primary means of controlling inflation impacts not only the disposable income of mortgage holders, but also the cost of business lending which makes it harder to do business here.
I’m starting to think that the housing crisis may be a symptom of a bigger issue. If we go further upstream to a source of this unaffordability problem we may conclude that the middle class is steadily being eviscerated.
If you want to gut the middle class and transfer their assets to the rich over time, here’s what a society must do:
1. **Tax Policies**: Favorable tax policies for the wealthy, such as lower capital gains tax rates and loopholes, allow them to retain more wealth.
2. **Corporate Subsidies and Bailouts**: Government subsidies and bailouts often benefit large corporations and the wealthy, indirectly transferring wealth from the middle class. QE comes to mind.
3. **Income Inequality**: Structural economic systems can perpetuate income inequality, with middle-class wages stagnating while top earners see substantial increases.
4. **Inheritance Laws**: Inheritance laws that favor the wealthy allow for the preservation and transfer of wealth across generations, concentrating wealth in the hands of a few.
5. **Financial Markets**: High-risk financial activities and speculative investments can disproportionately benefit the wealthy.
6. **Education and Healthcare Costs**: Rising costs of essential services like education and healthcare can burden the middle class, while the wealthy can afford these services without financial strain. (Incidentally, I have seen discussions here around the possibility of removing school lunches for those in need. How can this possibly benefit NZ society in the long run?)
7. **Corporate Practices**: Practices such as outsourcing, offshoring, and wage suppression can reduce costs for corporations but often at the expense of the middle class workers.
New Zealand doesn’t tick all the boxes (yet) but many countries around the world with a declining middle class do.
With more and more of the middle class’ income going towards the increased cost of living, assets are going to more and more accumulate in the hands of the wealthy. They’ll be less inclined to give up these assets - even during a recession - given how much their wealth has expanded during the GFC.
We may well be in the middle of making history, for the worst: A regression to an elite land-lording, class divided society that many of our ancestors fled from. The FIRE economy with her cycles of boom and bust, may take decades to play out in a slow but steady decline.
I hope I’m wrong.
Agree - the problem for the elite is that our neighbours over the ditch are happily accomodating our skilled middle class workers - offering more money, better housing and a better lifestyle.
The more our relative salaries, infrastructure, public services and way of living decline the faster the exodus.
Watching the actions of the current government there seems to be an acceptance of the issue and growing urgency to fix it.
We need CGT, adjusted tax brackets, space tech companies (and similar), less unskilled workers, fix the gang issues, introduce mandatory kiwisaver, drop the cultural differences, improve skools and policing, better defense strategy and a lot more, in a hurry or everyone will start to pay regardless their social standing
Just waiting for our daughter to finish school and - unless things changes - we will be off to the Sunshine Coast. One less tech business for NZ to worry about.
Absolutely. Was locked in further when a new govt came in and handed out more welfare to commercial property, then cut taxes on property speculators, while raising costs for working folks and cutting public services. A govt that seeks to transfer yet more wealth to assets while disincentivising those who do the work provides yet more motivation for younger productive people to go elsewhere rather than paying for older asset owners.
Terrible for productivity, rewarding the value takers instead of the value makers.
We've taken away hope from many young people. The social contract is broken. We have a falling birth rate and a government focusing on supporting property investors who may or may not be doing anything actually productive and almost certainly aren't doing anything innovative.
The elites worldwide don't want a "middle class" - they want wage and salary slaves and get as much out of them as they can, while paying the least amount of money, so immigration.
While with housing, force them to rent, as houses are unaffordable, as we all know - then slowly increase those rents and property prices, so the goal of the 20% deposit just gets further and further away.
Now they have "maxed out" on that plan and property isn't selling, the banksters increase interest rates, so their decreasing mortgage books are getting their cashflow back ....so maintaining the return to shareholders funds .......truly marvellous.
While Corporate Practices has a lot in it I think we can also put in
*Strip productivity to reduce corporate responsibility
But cutting down to lower productive methods a company can employ lower skill workers and bear less costs of company upskilling and equipment maintenance. Those low skill employees can be pushed to gig contract roles so the company does not require more productivity investment in employees and in the equipment even on a safety basis. Hence the return to redundant and dangerous work methods in NZ and even worse offshoring to countries using modern day slavery and more modern day slavery in NZ as well. The worse the productivity in NZ the better the existing companies CEOs pay rates. A telling legal case in the public now is does the CEO and upper management bear any responsibility for dropping safety, productivity & better work methods instead favouring those who use more dangerous and less productive means of work.
NZ is a low productivity country, lower then many third world countries and poor OECD neighbours. We struggle to even build houses that can last 5-10 years with minimal repairs. Billion dollar govt projects have critical failures on day 1 and show such signs of ineptitude and management failures (with management not being familiar of better productive measures & methods) it is embarrassing.
Let me also link you to your own page that shows the median income to price multiples Median Multiples | interest.co.nz which showed a decline but is now showing a slight uptick.
At the moment we are near the bottom of the status quo bust that is still being held artificially high due to the underwriting of the previous Govts. restrictive land use policies and other bureaucratic waste that stem from that.
This still means house prices are overpriced by approx. 25% because of non-valued added costs in the system.
This is what many would call waste as it can be removed without affecting the amenity value of the property. Of course, what is waste to us is revenue to others, hence the outrage by those who receive this when it is taken away from them.
The previous status quo would mean that we would expect to crawl along the bottom of this cycle for a time before a rinse and repeat of the next boom.
But if the present Coalition successfully implements desired land and building reforms, then the restrictions in the system will be removed, waste will be lessened and prices will remain stable and become relatively more affordable as incomes increase, and other variables like interest rates etc. will have less of an effect.
This is what happens in jurisdictions that have truly affordable housing.
The main issue is that it is always a 'changing horses midstream' exercise and there is still a chance that the property market gets 'wetter' before the chance is successfully made.
This could include prices falling further as the historical effects of oversupply move through the system, and then a possible undersupply(and prices rising) caused by the likes of councils, etc. holding back new subdivision consents until the new rules are understood(including a shift in their ideology), and then the unfeasibility of building in the present market and having to wait until the removal of systematic waste and wage inflation kicks in to make it economic to build again.
The combinations and permutations in the short term are going to be interesting
But if the present Coalition successfully implements desired land and building reforms, then the restrictions in the system will be removed, waste will be lessened and prices will remain stable and become relatively more affordable as incomes increase, and other variables like interest rates etc. will have less of an effect.
Absolutely no chance. Their backers didn't elect them to get affordable housing, there's absolutely no desire within this government to have house prices fall to affordable levels.
They campaigned on it and got elected.
So did the two previous administrations.
Yes, but my reply was to Sparrow saying they didn't.
Key said they do, but did nothing.
Ardern/Twyford said they did, but did the wrong thing.
Bishop says they do, and I like their policies although they need a tweak, and they have been true to their action plan to date, and so the probability is higher than the last two administrations.
The only thing the coalition are going to do is to try to remove the urban boundaries so that their massive land banking donors on the edge of our cities can cash in. Look up who own land on the edge of the city and who donated to National this election.
The aim is to open up and out to allow the landbankers to be bypassed as needed to more affordable land.
This will remove supply restrictions that allow land to be monopolized and bid up in price.
The jurisdictions that allow this have far more affordable land and house prices.
Labour also promised to do this but did nothing.
Great, so a 50% increase in the lower quartile price since 2019? Fantastic! Aren't we so lucky! /s
Thanks again, Greg et al.
Of interest to me is the stark difference in mortgage repayments between a 10% deposit and a 20% deposit. In Akl that's the difference between 57.8% and 45.6% of after tax income.
Another way of reducing the % of after tax income consumed is to borrow less. I.e. don't max out the borrowing to what banks may lend you. Instead, focus on the first home as the starter home. Paying huge sums in interest, as you you do in the first 5-10 years of 20-30 year mortgage is just money down the drain and 'capital gain' - always vastly overstated with pithy statements like 'house prices double every 10 years' - will never make up for it.
This calculator (https://www.interest.co.nz/calculators/full-function-mortgage-calculator) shows this extremely well. Far better for most to keep that mortgage term as short as possible (10 years is great) so that build equity at a far faster pace. And don't forget that turning your Labor into cold hard cash by cleaning up, fixing, painting and renovating pays dividends too.
All those things make sense in the abstract. But we don’t live in the abstract. Economists in ivory towers springs to mind.
’Focus on the first home as the starter home’. Ummm, I think many do? And can only afford the starter home, if they are lucky.
10 year mortgages? Do the sums on the calculator, assuming a 750k townhouse purchase, a 550k mortgage, and 7% interest rate…. How many households could afford that???
Not many. And those households would aspire to something better.
"assuming a 750k townhouse purchase, a 550k mortgage, and 7% interest rate"
Thank you for reinforcing exactly what I'm saying!
How about $350k two bed apartment in a quality apartment building instead? (Perhaps forgoing a car and walking, biking or using PT as well?)
Do the sums on the calculator ;-)
In fact ... better still, use this: https://www.interest.co.nz/calculators/full-function-mortgage-calculator
Precisely why cities need infrastructure planning to favour cycling and public transport to then allow for different housing. The quarter acre dream isn't relevant anymore in or very close to large central cities. The current system doesn't support never ending suburban sprawl and private vehicle transport. The best cities in the world I've ever been to had the best public transport systems that were; easy to use, affordable and conveniently regular. Having lived several years abroad with no car and only public transport of friends with a car for the odd roadie, we need to rethink and realise that the dream of 30 years ago that was available for most, is now more scarce and pricey, therefore we need to consider other options.
Lol you are dreaming if you think there are 350k 2 bedroom Freehold apartments going in the CBD that are not liable for millions in repair costs. NZ cannot clad apartments to save lives. Also to not consider the leasehold and body corporate repayments on top of a mortgage (when those costs are massive and can overtake the entire deposit for the purchase) would be disingenuous to anyone you advise getting into apartment purchases. It would almost be criminal financial advice if that was given as part of work. You would be very out of date to not consider the very high costs of apartments we have in NZ; you know the ones that are not currently in stages of "remediation" or getting dangerous building notices, the ones that are still standing, newly built with no known issues in materials (most of which have known issues not disclosed in ads, which had to laugh at the number of vendor circumstances which "change" when the sht hits the fan), and no major leasehold costs or annual fees.
By any chance are you trying to offload an apartment that is undergoing remediation repairs and financing issues currently? Lots of those going for less then half the valuation or hilariously for a $1 to the stupid poor sap that is going to be left holding the bag. So many have flaws in design to the point of being more actively dangerous. So many stretch the point of definition of what is a bedroom you could call them out on it in a rental agreement. Then lets get into the difficulty for young families living in apartments and the lifestyle of which we already know of the issues & social endangerment already so advising it for a young family without adequate disclosures or advice in the lead up is shameful. I get it that you think you can live in an apartment but it a very different story for a family with 3 children to live in an apartment, own it and then face paying the ongoing costs of repair for it.
Whether the current movements in the fundamentals of affordability represent a turning point in the market or a brief pause before the resumption of business as usual, remains to be seen.
My guess is the market will change dramatically when QV re-values all the regions/district that were previously re-valued in September 2021. Those new valuations will be completed in September 2024 - and from what it seems the market is doing - GVs should decrease significantly if current asking prices (the majority are well under GV) and sales (similarly) are followed.
It will be the first time the market sees an overall/district-wide reduction in GV (in my experience anyway).
That will 'tune' the minds of sellers to the reality of the current situation.
CV/GV are based on market valuations at the time they are taken. They have no basis as a 'today' market value price point except to set a ratio that reflects the movement in market value from which they were taken. There is even a table that shows this ratio.
Irrespective of that Dale, Kate has hit the nail on the head here.
That will 'tune' the minds of sellers to the reality of the current situation
i 100% agree and feel that this will cause the many sheeple out there (who believe housing is a one way govt backed bet) to seriously rethink that view point. We all know how sheep operate - follow the flock mentality kicks in and its on like donkey kong for housing prices.
I think it is a combo of being dumb and acting smart enough to appear dumb for using them as justification of what a property is worth at 'any time,' other than the moment they were valued.
Yes it also enforces FOOP
Thanks Kate, I wasn’t aware valuations were due to come out this year. It is true that it may influence the collective mindset.
It’s for insights like this that I am here on this forum.
It depends on the region. Wellington was valued in September 2021, FWIW I never considered our property there to ever be worth its 2021 RV. I expect a chunky downgrade this year of around $200-250K, which is much closer to reality.
You can challenge the CV valuations and present evidence that your property would not be of similar value to those around your suburb & recent data. After all the algorithm used for calculating CV is really an averaging and does not take into account land profiles, and improvement age or issues with improvements (house, & other buildings). In an area undergoing a lot of redevelopment that means existing houses could have much lower CVs in comparison. This also means you can lower the comparative CV value and rates paid. I have done this several times and it did not affect the other algorithms or market valuation appraisal on properties or banks valuation metrics (which were insanely high compared to the more accurate valuation). It seems the more people rely of garbage algorithms and garbage data the more the CV values are garbage (GIGO).
As General Comment explains, it is only a select number of districts/region that will be re-valued this year. All valuations for rating purposes (GV = government valuations) are done three-yearly - but the whole nation of local authorities (councils) aren't done at the same time, or all in the same year.
It is only those councils that were last valued in 2021 that are re-valued this year, 2024. Any revaluations done in 2022, for example, were already showing falls from the Q3, 2021 market prices, but those falls at that stage were not below their previous valuations.
That's what will be very different this time around - as only those done in 2021 reflect the peak of the market prices.
If you tell me what district(s) you are looking at purchasing in - I can look up the year that they were re-valued last time around. It is information freely available in homes.co.nz
In Christchurch CVs were dropped in 2019 from their 2016 levels. Fortunately Covid came along in 2020 and saved all of us Cantabrians from cheap houses.
Hastings District valuations dropped post-GFC, our property went down 12.5%. A lot of valuation changes come down to good/bad timing.
Interesting - I guess we've never lived in a district where that happened. But that's good news that QV do drop them as well as put them up :-).
Napier 2014 RVs also down by just over 10% compared to 2011.
However, worth noting that the dip was short lived; in 2017 they were up 35% compared to 2014. (To confirm, check some Napier properties via One Roof for their historic RVs)
I’m not suggesting that we will see similar past significant capital gains in the future; the future BBQ talk will be simply that - the past gains. I think property may well be similar to that of dairy farms; considerable capital gains over the decade 2000 to 2010 and for the past decade largely flat although with fluctuations.
As an aside; Napier received its latest RVs just last month. While not compared to the very top of the peak, they were up 15% from 09-2020 to 09-2023.
Affordability vs historical NZ past?
Not relative to other locations these young NZers could move to .....
There are reasons why 100,000 NZers have left in the last year
Are that couple - lying on a bed - really looking in astonishment at house prices?…. 😉
In the lifetime of this website has it ever got any better?
touche! Perhaps post GFC 2009-2010. But I get your point.
Rent a 3-beds house in North Shore is $800-900 per week, almost like my mortgage.
Do they have a better option? they can live with their parents
Bonus for the parents as they can get cheaper retirement care
Worth noting that when you’re trying to work out fair values for property and future cashflows and affordability you need to factor in actual inflation (not fake understated CPI)
Rental income is inflation proof and keeps up with true inflation (currently say 10% per year). If you’re renting inflation becomes a liability and you’re likely looking at rent increases of 10% compounding per year given current fiscal and modern monetary policy trajectory. If you own a property inflation becomes an asset since it pays off your debt for you and insulates you against the impoverishing effects of inflation.
So the negative yield observed between CURRENT rent vs mortgage rates needs to be balanced by also looking at the FUTURE trajectory of true inflation (that rent increases will reflect) and the trajectory of interest rates (likely capped here especially with the way CPI is designed to understate inflation)
Based on this measure which in my estimation will follow sustained and increasing true inflation over 10% and capped interest rates (very negative real yields) I would suggest property is actually fairly valued at these levels.
Great analysis.
Yet property has been the absolute worst investment, in the high inflation world that has returned since 2020/21.
Property needs to increase in value by the CPI or your 10% rate, just to hold its value.
Yet it has not even come close to being 0+.
This means property in Auckland has dropped by a REAL rate of -40% over the last 4 years and Wgton by -48% in the same period.
When rents move to a 7%+ yields, this too will make sense. This yield will be most by capital values dropping, not so much be strangling the poor sop renters, for more of what they cannot already afford.
Sure a fair value analysis doesn’t mean markets trade based on those parameters in the short term. Abundant liquidity and low rates drove markets above fair value before inflation arrived, now however that inflation has pushed fair values higher and prices have come down to close the gap.
Prices can’t stay below inflation costs for long, they are not simply defined by what people can afford to maintain a current standard of living. Standards of living just drop and people are forced to downsize or share accomodation etc.
"Prices can’t stay below inflation costs for long, ..."
Have you checked the 70s? In inflation adjusted terms house prices flatlined for 10 years. The reason was the massive zoning changes undertaken by Councils to free up land supply while also up-zoning in many places.
Which neatly tails into my next point ...
You say, "The blame for it rests with monetary policy, excessive government spending and regulation rather than house prices in a free market (there is little NZ can do regardless, ...."
If by "it", you mean "house price rises", then the last government's NPS-UD (National Policy Statement - Urban Development) and the MDRS (by Lab, Greens and National) made massive changes to the land available for up-zoning, i.e. increasing supply. Note that Auckland Council did the same by up-zoning huge hunks of Auckland back in 2016 and Auckland house prices flatlined - in nominal terms! - until RBNZ inspired covid madness.
"our inflation is largely imported."
If you are referring to the energy component, then yes. But for just about all else most economist believe we've imported deflation. (Certainly our central bank believes that's the case and is now using that 'fact' to artificially transfer wealth from the indebted to the un-debted.) Could you elaborate on that comment?
I hear what you're saying about section prices which is very much influenced by policy and population growth and has a less direct link to inflation that's certainly fair (the earthworks and infrastructure and labour costs of subdividing still links to inflation however). All the ongoing costs though like council tax, insurance, maintenance, building costs etc are all highly correlated to true inflation.
The 70's was a period when inflation was measured correctly, interest rates were also raised to compensate so you didn't have the highly negative real yields being experienced today. It's the negative real yields that justifies higher property prices today, if that wasn't occurring any uplift in rent from inflation would simply be offset by an equivalent uplift in borrowing costs and fair values would simply flatline based on models using cashflow projections.
Given we make almost nothing in NZ like every other developed western nation we import inflation through all our imported goods. The money supply being created by the US and Japan also sloshes onto our shores and inflates capital values over here. With that background it's hard to see what useful impact hiking rates has other than increasing everyone's costs further still, reducing everyone standard of living and causing businesses to fail and people to lose jobs.
Now that we are so integrated with the rest of the world, for hiking rates to actually work we would need major economies to hike rates inline with true inflation (they are not, especially Japan) and we would need the governments of those economies to also exercise fiscal restraint so that supply isn't gobbled up by government spending and so that money supply doesn't keep accelerating (government debt is a form of minting money contributing the supply of reserves)
A mortgage decreases in real terms in an inflationary environment as well as the house equity. Meanwhile, rents increase.
"... factor in actual inflation (not fake understated CPI)"
Excellent, Julz. Well done.
Indeed
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