House prices could keep increasing by around 5% to 7% a year for the next three years, according to the BNZ's latest Economy Watch report prepared by the bank's economists.
"At its most basic, there are too many people chasing too few homes," the report said.
"Until such time as there is less demand, or enough houses are built to meet current demographic needs, then there will remain upward pressure on the prices of the housing stock.
"At this stage excess demand rules!" the report said, which would keep upward pressure on house prices.
"We think house prices nationally could keep inflating at around 5% to 7% per annum over the next three years," it said.
But it also warned that there could be significant regional differences, with house prices in Christchurch potentially declining.
In the immediate aftermath of the Christchurch earthquakes, both rents and house prices moved steadily higher," the report said.
"However, while the good folk in Christchurch may be disappointed about the pace of the rebuild, there has categorically been a lot of it.
"Indeed, so much so that the prospect of a future oversupply now looms.
"At this stage the possible oversupply of land is more immediate, but in time, given the land availability, it looks likely that demand for housing will be met.
"This is already being reflected in house price inflation which has fallen to zero from a peak of around 19% in late 2013.
"The possibility of house prices actually falling is now very real," the report warned.
But not so in Auckland.
"There certainly seems very little chance of Auckland's demands [for housing] being met any time soon," the report said.
You can read the BNZ's full Economy Watch report here.
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17 Comments
Auckland prices will need to keep increasing at about 12%+ per annum for this forecast to be correct given prices outside of Auckland are barely moving (will Aucklanders buying elsewhere trump a dairy depression? maybe).
With a current Auckland median of ~$780k the forecast implies a median of well over $1m in three years time. Household income will have increased by no more than about 6% over that time. This implies a median multiple of about 12-13 times in Auckland? No, household income is not the primary driver in the market right now but politically it's a big issue.
I'd take issue with any assumption that Auckland prices can continue to inflate at 12%+ without increasingly severe intervention by the RBNZ. Even National will probably go to more extreme measures if this rate of price inflation continues.
I'd agree with the comments regarding Christchurch. The market has cooled noticeably since the start of the year, with all the rebuilds now coming on line. So many of the owners have are already living elsewhere and are selling up, or they're moving back in and leaving a rental property vacant. Many properties, especially the newer ones, are now being offered at 2013's CV or even below.
Auckland is already very very close to waking up and finding itself with more expensive real estate than London (and almost every other city on the planet). Except Auckland is a barely more than a tiny city with half the rental yield and laughable household incomes to support the prices.
I know people have delusions that Auckland is a "global city" (whatever they think that means, probably it means [ cheap pejorative racial sterotyping removed. Ed. Don't do it.] ), but it might be time for some people to travel the world a bit and get a dose of reality.
I'd be feeling very very brave making that prediction. A lot can change in a couple of years and somebody has to continue playing the part of greater fool the entire whole time. Who is going to pay? Nobody with local income can afford it even now and those foreign speculators can be wiped from the market with the stroke of a pen. Or even just noticing that the NZD is turning to custard with a potential recession looming.
Who around here has the balls to keep on buying now?
Well, I suggest to go to few auctions and see who is buying. It is IMPOSSIBLE to live and work in NZ and buy a house now. Had an interesting talk to one guy yesterday. He has 4 houses (3 rentals) - he can buy another one as he has assets. Crazy! And he will get the mortgage, he will deduct the interest as it is 'deductible expense of the business' and he will rent it out.
For working people (like myself) - it is impossible to compete with the current mix of buyers. And yes ... i have lowered my expectations. I'm not looking for a posh house in Ponsonby...
Yes....and they've shown their true colours - and quite quickly, too.
I remember when I first started commenting on this site, the housing market problems in Auckland were only caused by "the foreigners" and "immigrants".
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Then more and more reports were showing it was the local investors who were distorting the market, a distortion which became more pronounced after the LVR was introduced, and FHBs got quickly priced out.
There was no remorse, just glee.
Displaying their greed like a badge to be proud of....proclaiming how much money they're sitting on.
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Never mind that a house is a place of shelter, should be a place to feel safe and secure. Instead houses are being traded with scant regard to the people it's affecting.
Bought up by the people who know how to play the game, who do not care in the slightest that by lining their own pockets they are taking away from somebody else.
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I wouldn't even take the BNZ economists comments seriously. An economist from the same bank was reported last Saturday (in the Herald) as saying that NZ was likely heading for a recession.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=114…
So which is it BNZ? Will house prices continue to rise or are we going to have a recession?
I don't think we can have a recession and have house prices continue to rise. The world doesn't need bi-polar economists.
.... I'm not sure the overseas cheap money will last forever.
And when you say overseas conditions I assume you're taking into account $4 trillion which just got wiped off the Chinese stock exchange over the last few weeks. There may be a few Chinese who at about this time are considering safer places for their dollars. I'm not sure if NZ and our falling dollar would fit the definition of a safe investment right now.
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