The recent softening of Auckland house prices is probably just a temporary lull, according to BNZ chief economist Tony Alexander.
In his latest Weekly Overview newsletter Alexander said Auckland house prices were probably still rising, but at a slower rate than previously.
Some recent softness in the market was due to Chinese buyers struggling to get funds out of China and investors looking outside of Auckland for lower priced properties elsewhere, he said.
That had created a small opportunity for Auckland buyers to be a bit more choosy.
"Auckland buyers face a small window to pick and choose from stock on offer to a slightly better degree than a few months ago," he said.
However that probably wouldn't last long because Auckland's housing shortage was continuing to get worse due to increasing migration and not enough new homes being built.
" Auckland gained a net migration in the year [to October] of 38,000 people, a population boost of around 2.5%," he said.
"That means the need for an an extra 12,700 houses using Auckland's three per house occupancy rate.
"Consents in the past year have totaled 8700. Auckland's housing shortage continues to get worse and worse..."
With interest rates still low, that meant prices would eventually start rising again, he said.
It would also lead to higher density housing in many Auckland suburbs.
"Auckland has no option other than to intensify given the lack of funds to allow development of an efficient transport system which will allow people to live a long way from their places of work," he said.
You can read the full Weekly Overview by clicking on this link.
30 Comments
Hi X ..totally agree ....when will the NZ media stop asking these clowns about the future of Auckland house prices.....they will never ever say, that they may be on a decrease or a trajectory to "flatline" , which for so many on this site would not be great, as all the current gain is through capital gains not rental income.
I always look at it this way - you walk onto a caryard and say to the sales manager, shall I but that 2013 model or wait 12 months when it will be $5k cheaper .....of course he is going to say "BUY NOW !!!" .....just like mortgage debt, our Mr Alexander, instead of peddling used cars, is peddling mortgage debt !! ...... did you know what "mortgage" means in Latin ....mort = death & gage = grip ...so "deathgrip" !!
I have never known any business group (apart from car dealers) that go out of their way to mislead and misrepresent their customers and potential customers .......CAVEAT EMPTOR ... "let the buyer beware" ....BEFORE you sign your life away for the benefit of our Point Piper and Toorak neighbours .....
Ding Ding..If it is too good to be true story, out of China.
Out of debt, into the global Ponzi big scheme of things., .
It is all a mugs game. Back peddling...Who knows.?
Probably someone needs to pay back Ding Ning the Ponzi owner of Ezubo Chinese investment.
http://www.bloomberg.com/news/articles/2016-02-01/china-arrests-ezubo-e…
How ironic, if Ezubo had laundered the money via the Awkland Real Estate brokers many Peerless offices, via the Banks kind auspices.
Probably why some of the houses purchased are all empty.
But then I am a cynical b......at the best of times. And these apparently, are not the best of times peer to peer, to peer, to peer.
So many users on this site praying for an Auckland house price collapse. I don't believe everything Tony says.. however you can't deny the net migration into Auckland. Until that stops it'll keep the fire hot regardless (compounded by ridiculously low interest rates).
As long as capital gains above the rate of inflation/income growth are factored into 'fundamentals' valuations will be stretched. Income (rental income) and long term interest rates should be the primary pricing determinants. When income barely covers interest let alone principal you know you are in an unsustainable situation. Even if you form the view that interest rates will continue to fall for decades there will soon be no way to amortize the principle repayments over a 35-40 year loan.
Look no further than the value of NZ housing stock vs. GDP.
I think the thing most detractors of property inflation don't understand is that people are not sustainable. At 7.4 billion and growing (see http://www.worldometers.info/world-population/) there is pressure on property prices. In a country like NZ with a high standard of living and relatively low population the pressure manifests into capital gains through excess demand for property.
When you say "fundamentals" you want to ignore the capital gain caused by excess demand. You are focused on the house as a rental business when in reality the house is also part of the business (i.e. trading stock). Therefore, the gain that can be made on sale is a "fundamental" which should be factored into the return on the investment. Ignoring this reality is not conducive to maximizing one's returns...
Sure, he's stating the "facts", but what is more interesting is what he's not stating and what most people never take the time to ask. Banking economists have a wealth of analytical resources to work with, and I'm sure that BNZ, etc have fancy models to understand the impact of migration and housing stock to forecast with a reasonable MoE about house prices. How many times have you heard Alexander ever talk about those models and his / the bank's fundamental philosophy on how they approach this? Of course they don't. They don't Joe Public to be too educated or start asking questions about their esteemed POV.
Alexander knows the above and he can prattle on through the media where the average person can't see the smirk on his face that is wide as the Waikato.
Looks like Tony has all bases covered:
There may not be an “end” as such as we have seen in the past, simply periods such as Auckland is going through now when some buyers back off for a tad. In the absence of any serious interest rates threat in the next few years the cycle is only likely to definitively head downward if we get a combination of booming supply (very unlikely in the short to medium term), imposition of much tougher finance access rules by the RBNZ (highly probable), and a reasonable-sized economic shock right after tighter rules have been introduced (unknowable)
It doesn't matter where prices go, Tony has predictions to cover all outcomes within the same note.
He is sorely mistaken if he thinks adding supply is a prerequisite for price drops. And it's really nice he could take interest rate risk off the table with a few keystrokes. Let's see how emerging markets go when the Fed hikes - there might be a whooshing sound from countries like NZ as the capital flees. Just look at how much Russia had to hike from early 2014.
Maybe none of that will happen, but Tony saying so doesn't change the risks.
Well said. Yes, he doesn't really address the unknowns as it's not within his mandate and role of responsibility. At the end of the day, he doesn't have a public responsibility to tackle and explain risk to the public. However, you would think that he does with his bank's customers.
I think most people would concede that an enormous great collapse is not imminent. But for him to say that prices are going to keep rising is ridiculous and misleading, particularly for people who may rely on it. If the market gets a new injection of overseas money then maybe but most immigrants, along with most of the NZ population, cannot afford these prices. RE agents are advising vendors round here to go on market in Feb so has definitely slowed here.
I'm starting to think that Auckland property is going to go off a cliff from the demand side. I.e. at some point housing and infrastructure in Auckland becomes so expensive and the quality of life so bad that people will have no choice but to look elsewhere. If that is elsewhere in NZ then those regions presumably get a boost making them more attractive to Aucklanders and it all escalates.
To all intents and purposes Auckland is full. Even if you cram more people into apartments and in-fill housing they still need to get around. For comparison, Melbourne has roughly three times the population of Auckland but is MUCH easier to get around in.
Time to get out of your office Tony and into some auction rooms.
Unless the chinese come back to the market it is game over.
They have been the key driver in Auckland for 3 years now.
Much that Tony A,John K,and the real estate industry don,t want to admit that.
The dirty money game is over boys lets see how you good you are in the next 2 years.
http://www.rbnz.govt.nz/monetary_policy/ocr/
No knights in shining armour this time round.
BnW, Chinese were in the game for sure and that anecdotally seems to have subsided, that doesn't escape the fact 38000 immigrants need a roof over their heads, fairly basic logic, one competes for stock... remember sooner or later 300M middle class Chinese will find a way to get their pennies out of the mother land, it will be a tsunami
I totally agree Brendan, but try 600 million-
"Currently at around 200 mdillion, and predicted to swell to over 600 million in just ten years' time, China's middle class will propel the most populous nation to become the next consumption powerhouse. China's future middle class will likely be larger than the combined populations of the US and Japan."
http://www.investmentweek.co.uk/investment-week/feature/2433353/why-we-…
Unless our government starts doing something now a big lump of that 'small change' will land up here. This so called "beginning of the end" for the Auckland property market, is actually only the deep breath before that 'tsunami' of money floods into God's own and buys up wholesale. I would if I was rich and foreign, Auckland prices will never, ever come down. And is surely the only sure bet on the world's roller-coaster markets.
Oh and that other thing the NZ head-shed is allowing, hundreds and thousands of immigrants into Auckland.
But wait, there's more.....or at least there should be.
Like the owners of unrented property, the rentiers who are wondering is this the time to quit. These two do help soak up the I satisfied occupiers.
The sale of a rented property does nothing to change the occupation because a renter will now become a somewhat satisfied owner occupier.
"Back in late-2012 when I warned that Auckland house prices would rise a lot more than the 40% they were up since 2009 because of net migration flows turning from negative to positive, I figured the annual gain might get to 30,000 or 35,000. It has now, in the year to October, hit an astounding 62,477 courtesy of 120,123 people shifting to NZ for more than a year in the past 12 months and just 57,646 leaving."
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