ANZ report says Auckland housing market has remained soft despite the recent surge in net migration

I'm more talking about the houses in the top suburbs - Merivale/Fendalton/the Hill suburbs, houses are regularly hitting the $2M+ mark now.  I imagine Wellington top end housing would be more than that. 

First rules of property? Location. Location. Location.

Look at any major city. Townhouses in the right locations appreciate just as much as the rest. Will NZ be different? No.

Which is how it should be. I don't want a giant rundown section an hour's commute from town, I want a tidy, energy efficient place, just big enough for me and my family with a smallish section that doesn't need a huge amount of upkeep, convenient to work/school/amenities. Oh, and that I can afford (ha!).

We're renting in a row of townhouses on the Shore that were recently completed. One was for sale late last year but the investor didn't get want he wanted. So they rented it but it's for sale again as they apparently can't afford to keep topping up the mortgage. 

This will all start to get properly interesting when joe public gives up on the usual mantras:

- 'bricks and mortar'

- 'safe as houses'

- 'doubles every ten years'

- 'prices only go up'

- 'buying always beats renting'

- 'leveraging is the way to make money'

- 'immigration/regulations/building costs guarantee a never ending shortage'

 

Owner occupier buyers should always remember the behaviour of those with their vested financial self interests: https://youtu.be/Yz246_Pjjkc

Here are some comments made by commenters on interest.co.nz (names withheld).  Their comments show their line of reasoning.

A) 1st Mar 24, 3:52pm

Oh dear, OldSkoolEconomics......

You forgot to mention i) the strong prospect of falling mortgage interest rates in the not-too-distant future, ii) the steep rise in immigration and, iii) the new coalition government's house-friendly policies/ regulations......

Also, you need to recognise that there's a chronic housing shortage in NZ - which won't be sorted anytime soon.

Historically, people veer towards tangible assets in uncertain times - including land and buildings. The outlook for property in NZ remains excellent.



B) 

8th Feb 24, 11:28am

House prices are always tied to replacement value so I don't see them shifting down much while everything is still going up

1st Mar 24, 9:41am

Been predicting 4 to 5% for like 6 months now. Clearly some people jump into the comments section before looking at the charts. Not many places in the red, looks like its already lifting to me.

17th Apr 24, 12:14pm

3 to 4% gains by the 1st Jan 2025 down here. This government needs to put a lid on immigration and fast or it will be higher still.

C) 

17th Apr 24, 12:04pm

I am still holding to a 0% change in house prices in 2024 by years end. The increasing stock is not that shocking (13% up on March 2023). Interest rates are trekking down slowly. Immigration is high. Rents are growing. The cost to build new is astounding. These factors will all counter the high inventory levels.



D) 



13th Feb 24, 12:45pm

Auckland, Paris, London... they're all the same

More population, not enough houses, prices will continue to rise





E) 

20th Feb 24, 1:39pm

Rates have only one way to go.

Only wishful thinkers were propaganding otherwise.



F) 



2nd Mar 24, 8:48am

126,000 people coming into the country each year means house prices won't drop that much. It's done on purpose for that reason I reckon.



G) 

 

2nd Mar 24, 8:42am

The next 6 months will be an interesting case study. My suspicion is that house prices are not that sensitive to supply for a number of reasons:

Interest rates dominate as people tend to reach for the best house they can afford (which is capped by the mortgage payment cost). When rates start to fall over the next few months, prices will go up because...

School zones, public transport, amenities, etc make competition for some houses fierce despite the expanded supply - keeping prices high

Every sale is basically an auction and people overcommit to the house they want (and realtors are expert at creating bidding wars)

Prices won't drop below the level that yields a decent rental income as investors will step in

Kiwis basically expect house prices to always go up over the long-term

Most will say buying is the smart move

The NLP is strong in that one

In Dec 2021, Tony Alexander gave 19 reasons why house prices won't crash.   Here's a reminder of what they were.

 

1. Rising construction costs

The more it costs to build a new house the greater the incentive for people to keep searching amongst listings of existing properties and the greater their willingness to raise their bid price.

2. Construction delays

Shortages of materials, labour, infrastructure, and council inspection timeliness mean projects will increasingly be delayed. Concerns about delays will curtail the speed with which the housing stock grows whilst also encouraging buyers to turn back to searching for existing property listings.

3. Sunset clause activation

Awareness of the risk that some developers will take advantage of delays to exercise clauses allowing them to cancel agreements with off-theplan purchasers will also encourage some buyers to switch back to current property listings.

4. Construction firm closures

A lot of inexperienced, under-capitalised, underfinanced people have and will soon enter the property development sector. Difficulties managing uncertain flows and prices of materials and staff will cause cashflow problems which banks will not always be willing to solve. Closures and failures will inject a level of caution regarding new builds by new operators which will not dominate the sector but will at the margin encourage some buyers to switch back to looking for properties through listings – or confine themselves to the large and long-established industry players.

5. 165,000 migrants

The government’s recent decision to allow 165,000 migrants on temporary visas (including family members) to apply for residency visas, will open up the possibility of home ownership for some. This greater demand will be spread over a number of years, but it will nonetheless go some way to offset new government curbs on the number of migrants they will allow in.

6. Job security

The labour market is extremely tight and at some stage people will realise they have strong bargaining power and that there are many options beyond their current position. This will lead to New Zealand’s version of the so-called Great Resignation underway in the United States – though one aspect of that for us will be people deciding that if they’re going to shift for higher pay, they might as well make a big leap in income by hopping across the ditch.  Overall, once people realise they have high job security they are more likely to consider purchasing a home or investment property.

7. Backlog of buyers

The ending of the first nationwide lockdown last year revealed a surge in housing demand from the many young people who had been unable to find a property. While a lot of the backlog of frustrated buyers will have been cleared out recently by the stepping back of investors from March 23 providing space for first home buyers, there are probably plenty still remaining.

8. High household wealth

People’s wealth levels on paper have soared in the past two years as housing and other assets have soared in price. Feelings of high wealth are likely to encourage some people to remain interested in gearing into another property. But it pays to note there is a risk that the opposite effect listed above is larger.

9. High inflation expectations

People’s inflation expectations have increased. If people expect inflation to stay high, they will seek to move their investments into assets which tend to at least hold their market value as the general level of prices goes up. This includes property, except to the extent it is funded with rapidly repricing debt which might become expensive.

10. High test interest rates used

Over the past few years banks have not tested the ability of borrowers to meet debt servicing requirements at the rate they have actually borrowed at, but at something perhaps 3% - 4% higher. A substantial interest rates buffer is therefore in place which will cushion the impact on the housing market as mortgage rates go up – but perhaps never actually reach the test rates which were used when people borrowed funds in recent years.

11. Christchurch catch-up

The long-overdue catch-up of prices in Christchurch began in winter and is likely to run through the next 2-3 years. Affordability in our second biggest city is much better than elsewhere and some internal migration to there from up north, by young buyers in particular, is likely to continue.

12. Bank panic will pass

For the moment, banks are restricting credit availability more than is likely to be the case to house buyers over the coming couple of years. They have stopped low deposit lending in some cases for fear of breaching the new rule that such lending cannot exceed 10% of all new lending. Willingness to lend at less than 20% deposit for existing properties will return. Banks have also been scrambling to meet new requirements of the CCCFA and over time they will form more realistic opinions as to which expenses to include and which income sources to allow. Hopefully, willingness to lend to those on variable incomes and entering their 50s will return also. Banks are also voluntarily experimenting with DTIs to get their systems up and running for when such rules are officially imposed. Experience will make DTI application eventually more efficient.

13. Development potential

Soon, virtually all sections of all sizes will be subdividable and developable in our top five cities. This possibility will make property owners more willing to hold onto their properties through tough times.

14. Forecast declines wrong

All forecasts of house price collapses have been wrong, and it is notable that last year as we learnt about Covid-19, border closures, and lockdowns, no mainstream prediction of house price declines came close to those made during the GFC. Almost all those who have believed decline predictions in the past and held off buying have been worse off. Experience will make people cautious about believing forecasts of big price declines and they will remain engaged with the market.

15. Auckland departees

Covid-19 and soaring paper wealth from higher asset prices have combined to encourage many older people to activate their downsizing and retirement relocation plans years earlier than they had been planning. This effect is likely to continue through 2022 and 2023 and be of benefit to the regions which seem to have benefitted most so far from Aucklanders relocating – Bay of Plenty, Waikato, Northland, Gisborne, and Hawke’s Bay.

 

16. Auckland not over-priced

The last time the Auckland housing market faced “corrective” forces (ignoring the first lockdown) it was at a peak with prices well out of line with the rest of the country. That is not the case now and there is little reason for believing that our biggest city will experience a worse housing market in 2022-23 than anywhere else – in fact it may easily outperform a lot of the rest of NZ.

17. Higher listings will encourage buyers

Many people who would like to buy are not in the market currently because listings are hard to find. But listing numbers are already rising and will rise further as agents get less success selling to buyers without listing (friendly ‘phone calls), vendors reluctant to sell for fear of not being able to buy lose that fear and list, and existing investors take profits and slowly react to tax changes.

18. Frenzy freedom

Many people wanting to buy a property have withdrawn from the market, tired of stress in auction rooms and the expense and time involved in repeatedly assessing potential properties in order to bid for them. As the market calms down, auction rooms become calmer (they already are), and a summer rest is hopefully achieved, these buyers will slowly re-engage.

19. No taxation double-down

One week after the March 23 tax changes I started delivering this warning. If house prices are still rising above 10% per annum come March 2022 a majority Labour government failing to achieve any improvement in housing affordability will conclude it did not go far enough with removal of interest expense deductibility for investors. They might double down and remove all other expense deductibility as well. The chances of that happening are now very slim given the slowdown underway.

In summary, the ending of the prices boom is good news for first home buyers because listings are set to improve and price growth will be slower.

Its good news for good real estate agents as they will get more listings to transact. It’s good news for investors because the risk of additional unfriendly legislation has fallen.

 

Isn’t it best just to understand that forecasting is impossible. The most successful fund of all time - Medallion- has even said its correct trades are under 51%. It’s what you do with the information not the information itself. Bagging out economists seems to me for personal satisfaction rather than any real gain. Just use their information as you would any other. One thing is for sure they want to get things right it’s got nothing to do with “bank agenda” I know most of the bank economists and they are all independent thinkers.