The New Zealand housing market has experienced a "perfect storm" and "unprecedented" price gains, according to ANZ economists. They say the market will cool "in time".
In the bank's latest Property Focus publication, ANZ senior economist Liz Kendall, senior strategist David Croy and chief economist Sharon Zollner say the perfect storm we've seen in the housing market has combined: A fear of missing out (FOMO), scarcity of properties and expectations that house prices will get further out of reach - all at a time when interest rates have been falling and bank funding has been readily available.
"This dynamic is expected to contribute to further price gains in the short term at least. We expect the housing market will cool in time, but exactly when is highly uncertain, given that momentum in the market can be slow to moderate, she says.
Strength in the housing market through the second half of 2020 was "unprecedented", the economists say, with prices rising 16% since May.
"Increases like that are unsustainable in the context of incomes that have been stable at best."
Annual house price inflation is still below the peak seen in February 2004 (24% y/y), which followed a year of solid monthly gains (1.8% m/m on average), the economists say.
"The upturn this time has been shorter but sharper, with price rises of 2.1% m/m on average since May.
"It is possible that continued momentum could see the 2004 peak in annual house price inflation surpassed.
"But there are reasons to think that the upturn might not have the same persistence this time around. A key difference is that the economy was very buoyant in the early 2000s, with incomes growing strongly. This time income growth is fairly stagnant and house prices are already very unaffordable relative to incomes – making continued house price inflation at the current pace unsustainable."
Kendall, Croy and Zollner note that reports of rampant house price inflation "have inflamed FOMO" in a tight, supply-constrained market.
And they say while some heat will come out of the market at some stage "in the meantime, New Zealand’s issues with acute housing unaffordability continue to worsen".
"To reverse the tide, big, bold action is needed urgently."
Eventually, the ANZ economists say they expects that an easing in acute market tightness will occur and fundamental factors will return to the fore, including income considerations, weak population growth (with building strong), affordability limits and credit constraints
The Reserve Bank has moved to curb high loan-to-value ratio lending to investors, effective from 1 March, they note, with some banks acting pre-emptively to rein in lending to this segment.
"This will have some effect in dampening house price inflation (say 1-2 percentage points, according to the RBNZ), though only temporarily, as with previous imposition of such restrictions. Nonetheless, these may play a role in curbing (in the RBNZ’s words) 'irrational exuberance', thereby contributing to a slowing in momentum."
"Overall, we expect house price inflation to moderate, with solid gains in the next few months, followed by a more marked cooling," the economists say.
"House price declines can’t be ruled out, but for now that is not our expectation and sits squarely in the ‘risks’ basket."
ANZ is currently forecasting house price growth of 3.5% for the March 2021 quarter, followed by gains of 2% in June, and 1% in the September quarter. The next three quarters after that (up to June 2022) are also each forecast as 1% rises.
What this would mean for annual house price inflation, according to ANZ, is that it would be 15.3% at the end of March, rising to 17.8% by the end of June this year, but then falling to 7.7% by the end of the year and 4.1% by the middle of 2022.
118 Comments
Political parties in opposition ALWAYS criticize the one in office that house price being unaffordable, immigration level being high, rivers being dirty, productivity being low.
But interestingly, once the opposition ones sit in the office, they will suddenly mute on all these issues and do nothing to improve.
haha .
I find it not only interesting but extremely disappointed to this political system.
The housing bubble is making a great many New Zealanders feel 'wealthy' and supporting spending. In a real way housing is now our economy, the consequences of a fall in real (inflation adjusted) terms for any duration would be devastating for homeowners. Consequently I do not expect to see much easing, in fact I wouldn't be suprised if RBNZ intervene again to make sure that scenario doesn't play out.
The two things I can see changing housing would either be an increase in productivity measures (which would raise wages/CPI/interest rates) or extreme liberalisation of housebuilding (think of Houston, Texas.) However I consider these probabilities moonshots in the current political environment.
In addition to RBNZ support New Zealand could feasibly reopen its borders in the second half of this year (Vaccine delivery due in Q3, as the Israelis are showing if you hit the ground running it doesn't take long) which may well offer a nice little tailwind to house prices.
For anyone who thinks that the NZ government have ultimate control over the housing market, and not international interest rates - I have a lovely set of robes to sell you, finest fabric, latest fashion, invisible to idiots who can't see how wonderful our government is. If you know what's going to happen as a result of QE/MMT to those aforementioned rates, I've got a whole wardrobe to sell you.
MMT is a description of how our monetary system operates and it has nothing to do with any policy choices that our politicians make. If you wish to blame anything then blame neo-liberalism as that promotes the creation of money by the banks over that of the government and in fact it promotes governments to run surpluses which can be very damaging for the private sector.
QE is just an asset swap, bonds are exchanged for bank reserves and it makes no difference to the ability of the banks to lend. The Bank Of England explains here how the banks create money. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creati…
If I swap my 2.1 million dollars for your 1995 plaster rendered, kiln dried timber leaky building then that's just a simple asset swap too. If I was the central bank then that's kind of how it works. Good collateral is swapped for garbage assets, and bad decisions are wiped away. The original asset owners are made whole again, and they can play the roulette wheel of speculation again and again.
"The housing bubble is making a great many New Zealanders feel 'wealthy'..."
Which is illogical (unless you happen to be a slumlorder with multiple houses who cashes in) - collectively we cant all win
The extra "wealth" just buys exactly the same house in the new market
The real story is that all wealth = DEBT
We are just indebting our future selves
Which reflects no real growth and a need to up the leverage until it breaks
Its not illogical. Mortgage interest rates have dropped from 4.5% to 2.5%. That is a lot of extra money in people's pockets as they refinance their mortgages, which makes them feel flush, and they will go out and borrow to buy a new car or a boat because they can afford the loan repayments, or will spend it on discretionary items like furniture, house renovations, or holidays. Others will decide they can now afford to buy a bigger and better house as the larger mortgage will still be the same repayments as what they were paying a couple of years ago, so they will trade up to a nicer house in a better suburb and feel wealthier as a result. Yet others will take the equity in their current home that's accrued over the last few years, and go buy an investment property since the extra cashflow now means they meet servicing requirements. The fact is that nobody is just swapping house for house in the same market, they are awash in cash and are using that cash in different ways.
Well no, if the official cash rate were at say 10% then a) house prices would be much more affordable/not a viable way to save for retirement and b) term deposits should generate a sufficient income stream for retirees.
The difference is a) whose money is involved and b) leverage.
In Canterbury, the housing market appears to be very active with buoyant auctions and listings selling very quickly across the region, builders are very busy and with reports of there being shortages of available land. Speculators appear to very active a recent story doing the rounds sights the case of a Christchurch city residential housing development in an average location. Builders were selling houses off the plans, these were snapped up by speculators, some buying 8-10 houses with an expectation of reselling them upon completion for a profit $80k - $100k each, mind boggling considering the developers and building already will have a margin in the deal. Whilst they have yet to realise this profit it clearly indicates a very high level of confidence in the market. Just where the buyers are coming from begs a question or is this just a flash in the pan.
From what I've seen its first time investors from outside of Christchurch, who believe that Christchurch's affordability is simply an aberration and that prices are about to sky rocket and catch up with the prices in Wellington and Auckland. They don't realise that there is no shortage of housing, that building is going on not just in Christchurch but in Selwyn and Waimak, and without any population growth there will soon be a major over supply of rental housing. Fletchers is sitting on dozens of unsold properties in the city, locals don't want to buy them, so off the plan buyers will need to find some other Auckland mug to take them off their hands once they are built. The good news for local people is that they finally are getting the opportunity to offload a ton of badly repaired earthquake damaged homes to buyers who know nothing about earthquake damage, and arent even bothering to get building inspections done LOL.
True, but the yield is worked out on market value, just like capital gain is worked out on the gain, not what you paid for it.
What you need to really look at is the cash on cash or an annualized rate of return over time, after-tax.
Also what it doesn't show (which I'm no way saying is any justification if they are crying poor me) is they could have withdrawn cash or loaded up the property with 'other debt,' to buy another property, for a holiday, our using as cross security for a business or the bank of Mum and Dad.
"the consequences of a fall in real (inflation adjusted) terms for any duration would be devastating for homeowners"
So i'm wondering homeowners or investors or speculators? I would have thought homeowners could ride it out, cause they are living in their home. Does the 35% of non home owners have to suffer longer because of the irrational behavior or greed of the investors or speculators?
Well we can clearly now see where Labour has nailed it's colours.
1 They will totally underwrite the gains of property speculators unlike those who invest in the productive economy to create employment and real wealth for the whole country.
2 They will sacrifice the hopes and dreams of young families to protect property speculators.
3 They will force tax payers to underwrite speculative property gains by subsidizing families, so that they can pay the rents that are a consequence of these totally outrageous house prices.
4 They will undermine our productive economy because housing costs must ultimately be paid for by employers through wages, taxes and commercial rents. I.e. huge amounts of money are bleeding out of the productive economy into the pockets of property speculators.
5 They prefer to largely hide behind the Reserve Bank and it's very limited range of options to stimulate the so called depressed economy, (is it really? where are the measurements that support this?) rather than take direct responsibility and instigate meaningful initiatives that will add to and improve the economy. (subsidies to private green schools and the various make work schemes don't come close to doing this.) The net effect is that the RB's lowering of interest rates is forcing billions of dollars into the property market, enriching and encouraging property speculators to make housing even less affordable. Labour seem passive and content in the face of this.
Labour are no better if not worse than the John Key Government. The thing that they have in common is an extremely charismatic leader who says one thing and does completely the opposite.
It's a wonder they didn't use the term, 'Black Swan event.'
'the housing market has combined:
Fear of missing out (FOMO), - Didn't see that coming
scarcity of properties - Didn't see that coming
expectations that house prices will get further out of reach - Didn't see that coming
all at a time when interest rates have been falling and bank funding has been readily available - Didn't see that coming.'
Plus Removal of LVR's - Didn't see that coming.
Oh' we are on track for another record profit - .........
It's a wonder they didn't use the term, 'Black Swan event.'
The observation below might as well be that, when the masses eventually hit the streets with pitchforks in-hand, since banks are not about to stop excessive residential property lending to the already wealthy minority.
This time income growth is fairly stagnant and house prices are already very unaffordable relative to incomes – making continued house price inflation at the current pace unsustainable."
I like their line, "To reverse the tide, big, bold action is needed urgently."
And of course they, the banks and the Government, all know that any such urgent, big, bold action won't happen.
#rentcontrolnow
I've got my pitch fork ready - just need to finish collecting the data :-).
You would be better off lobbying for the Labour Govt to adopt the "Christchurch Model" as per the National Party policy. Go on Facebook buy sell groups in Christchurch and they literally laugh at anyone posting a for rent ad for a property that is $450--$550 a week, and call the advertiser out for trying to rip off people. Not that the advertiser is ripping anyone off, as for that price the house is usually an immaculate 3-4 bedroom home in a decile 9/10 school area.
I just don't see where/how one can compare the Canterbury geography with its flat land for miles, with a place like Wellington. Some have suggested, for example, opening up intensive residential development in Ohariu/Makara but without the road widening and tunneling needs (even before thinking about reticulated services) I suspect, would make that unrealistic. Engineering build costs on our hills is so very different to CHCH - and existing underground services are a mess in the city and suburbs, as it is.
It's easy to weigh the various variables that make up the value of a property.
As an example, two identical sections, flat, with no views are $100,000 each. And then you changed one of the variables to steep hillside, then the cost of the extra earthworks might devalue that section by $30,000, but if steepness also meant it had a sea view then that variable might be worth $80,000, so the new price for that section would be $100,000 - $30,000 + $80,000 = $150,000.
Of course, there are dozens of variables that you can factor in. But the basic variable under right, and the first input, is the availability of supply for the land. The original price of the land might only be $100,000 in a balanced market where supply equals demand but might have to be put into the starting equation at $200,000 if supply is constrained.
The variables themselves have different supply and demand contraints, sea views, close to a certain amenity many people find desirable etc.
And there are two main constraints, 1) geography and 2) Regulatory. It's the regulatory constraints that add the most cost by far, and most of them could be removed without lessening the amenity value of the property.
And if you think Cantebury land can be easily developed, even when flat, some TC3 land in Christchurch can have up to $140,000 of land remedial cost just to get to 'good ground' to start foundations.
I think people desperately need to take a chill-pill and stop watching the 'news' and listening to shock jocks.
Jacinda this, Orr that, Megan Woods is, Grant thinks.. Before commenting on this post, walk round your neighborhood for 45mins.. yes you can listen to music, but try to say hello to a couple of people.
Try deleting Facebook and YouTube off your phone for a few days. These house price increases are causing people anxiety, short of giving spiritual council; single-mindedness might help - stop adding news and social media garbage to your mind every time you're bored and see your phone.
interest.co.nz is innocuous enough, but I can tell commenters are getting too caught up and it's clouding reality [probably having been revved-up by other outlets first]. The internet is a place you visit, then your back to the material realm - spend some time in the material realm!
Social Media and News addiction is a huge problem and an adult conversation about it is near impossible because ALMOST EVERYBODY is addicted. The world is in a collective fever dream of sorts. To be fair comments on this article have been pretty down-to-earth.
That is a really good comment. I’ve found myself reading WAY too much news this year. Also I think it’s time for us to get off fb once and for all. So creepy and voyeuristic, so addictive plus there is the censorship issue. What are some tips for avoiding news when you’re on smartphone all day for work purposes?
Theoracle... forced the Mrs and kids to watch Social Dilemma. Within a minute of the credits rolling they all had their noses in their devices again and didn.t move for the next several hours. I admitted defeat with only one act of resistance. I moved my 15 year old sons expensive gaming computer (which I stupidly bought for him) from the rumpus room to the lounge table. At least now he is forced to participate in some kind of social, family interaction, even if most of it consists of grunts, moans and the standard "be quiet, I'm concentrating".
Property investments in NZ are both risk and tax free with a annual compound growth of the averages at 8% for the last 20 years! To put that in perspective, $1,000 invested in property 20 years ago is worth $4,661 today and that's not including rental yields! Where in the world would anyone find such a great investment but NZ? There's literally no downsides, no volatility and it's tax free. Now couple that with limited supply and valuation increases surpassing interest payments- it's really raining buckets of Gold!
It's really not too hard to become a millionaire. Forget the bears and whinners, they are poor for a reason.
Even my daughter stopped using "meh" about a year ago. Yes the NZ$ has been debased, but clearly other currencies have been debased even further - otherwise the NZ$ would not have strengthened against them.
So your comment had zero merit and the 1 was because I'm feeling generous. Less of the flakery and whataboutery,
1. The TWI does not measure the expansion of the money supply relative to other countries.
2. An oz of gold today is approx 44% more expensive than 10 years ago (USD approx 43%).
3. NZD strengthened approx 3-4% against JPY and 8% against USD in 2020. But it collapsed in March against both currencies. There is a reason for that.
Arguing against NZD debasement is pointless and futile.
CWBW... 8% compounding growth (in NZ over the last 20 years) is actually pretty piss poor. I'm guessing the NZX50 returned double that, commercial property a lot more and if returns are compounded even plain old TDs wouldn't have been too far behind till a few years ago. Traditionally most property investments are negatively geared so there is usually no rental yield. Of course property investment is easy to leverage, which, when things are good (which they have been since 1980) increases returns. However, we should all bear in mind when things go badly leverage also increases the losses and they can compound just as powerfully and quickly.
In the last 20 years (or 40 for that matter), the NZ investment landscape has been akin to fishing in a marine reserve and an 8% compounding return almost an illustration of (financial) failure. It would be nice if things really were as simple as you believe.
So called shortage is just in listings. There is a truckload of unoccupied and under occupied housing out there. I pass many empty on my daily work and many with grandma living alone in a three bedder. Throw in the multiple units coming on (6 units one site, but only 2 get listed at a time) and all those airn bnb's chasing virtual tourists.
Hamilton rentals up 200 from a year ago to 635, for sales down over 300 to 427. (trademe0
tik tok.
Not mentioned as factors:
- inflation rising means it will erode debt leveraged up.
- safe haven orientation
- buying up loads of off plans, number of which we are not told.
- inventory depletion is a factor of factor above, ie stuff that would not sell a year ago is now selling for daft money
Not a "Black Swan" event but maybe a fluffy duckling?
https://www.nzherald.co.nz/business/land-for-giant-350m-426-room-radiss…
Don't worry about Jessy. The day she declared "Climate emergency" sealed her resume for her next lucrative job in UN. Every policy driven by her were bricks paving towards that. The country can burn all it wants as long as her plans come to fruition. The day she took over labour, we already saw it, and as expected, the dull and naïve fell for it.
Everywhere you look in Auckland there is a wannabe developer putting 4-5 townhouses on an old 1/4 acre that used to have one house. For each of those townhouses they want 900k plus. How much exposure does ANZ have to these developers? The population is not increasing and the number of people who can afford 900k townhouses is definitely not increasing. The market cooling will be predicted by ANZ once any of these developers stop making their payments.
Never mind that's committing $38K of after-tax income towards having just having a roof over your head at historic low interest rates to make bare minimum payments. Throw in PAYE, student loan payments, rates, insurances, running costs for a car, food (if you're into that kind of thing), childcare, etc...
The same people you expect to magic 100K plus into existence for a deposit are the same ones paying the exorbitant rents that mean they have shit show of getting a deposit together. Unless it is gifted to them. Do you really think one of these is worth a million dollars.
https://www.trademe.co.nz/a/property/residential/sale/listing/277404507…
Interestingly no one in political power is strong enough to tackle housing... they are simply avoiding it
They all know forcing house prices to decline to more affordable level is political suicide so prefer to talk to the issue - but take no action
What we really need is another credit crisis in NZ
Ardern has already stated that NZer's 'expect' house price increases
Wow compare that Covid induced "Blip" compared to the 08 crash and then even worse a record recovery while still in the middle of a pandemic. Stuff like this is enough to make you quit trying to make any predictions for the future. I'm thinking that the housing market has now absorbed so much capital that it cannot be controlled, its now just to big to let it fail and nobody really has the political desire to try and reign it in.
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