This is the first of a series of articles that will each feature the view of a different commentator on the outlook for the housing market in 2016. First up is Westpac chief economist Dominick Stephens.
"We somewhat controversially pegged in zero house price inflation for Auckland in the March quarter of 2016 and so far it's looking a little weaker than that," Stephens said.
"Our view for some time has been that the Auckland market would slow sharply as a consequence of the recent change in the LVR restrictions, which were tighter for Auckland investors, and the tax changes because Auckland is more sensitive to investor activity than other markets.
"Possibly the turmoil on China's financial markets may affect Auckland more than elsewhere, and the slow down in the economy because the Auckland housing market is somewhat more speculative, in our view, than other markets."
Stephens believes the slowdown that occurred in Auckland in the fourth quarter of last year was "just the beginning."
"We've seen a 30% drop in sales in Auckland and that's a good portent of house price declines to come," he said.
"According to REINZ figures we've had a 6% decline in house prices in Auckland already over October/November last year.
"I'd expect to see a weak market for a number of months, but I wouldn't expect to see prices falling at 6% every two months,"
While prices could fall further, the rate of decline would likely be slower than last year, he said.
However over time, measures introduced by the Reserve Bank and Inland Revenue aimed at cooling Auckland's housing market would probably become less effective, he said.
"Experience does tend to show that regulatory changes like LVR [restrictions] and tax changes have temporary effects on housing markets so that's why we'd expect their impact to wane over time," he said.
Pessimistic about Christchurch prices & woes' of dairy industry expected to bite
Stephens is also bearish in his outlook for the Christchurch market.
"My expectation was that Christchurch house prices would also fall but actually the last couple of months have belied that and there's been a modest upward trend," he said.
"But my overall relatively pessimistic view on Christchurch house prices remains in force."
But outside of Auckland and Christchurch, his outlook was more mixed, depending on how exposed different centres were to dairying.
"Places like Tauranga, Wellington, Queenstown and Dunedin that are not particularly exposed to dairy and are enjoying low interest rates and have just had a loosening of their LVR restrictions, I'd posit a bit of an acceleration in their in their housing markets," Stephens said.
"But places like Hamilton, New Plymouth, Palmerston North and Invercargill that are heavily exposed to dairy, I'm not so convinced.
"So far there's no evidence backing my view that they face a more mixed outlook, but I think the woes of the dairy industry will come to bear.
"So it's a bit of a toss up between low interest rates and weak economies for those regions. And I don't know which way it's going to go, but I wouldn't be surprised if their economies weakened and the housing markets cooled a little in some of those regions."
38 Comments
Forgive my confirmation bias but I think Mr Stephens is by far the most realistic bank economist with respect to house price outlook.
Here is Tony Alexander's outlook to save him the effort of writing it - "Only a new volcano in Auckland or some other scenario I can't even imagine would lead to Auckland house prices falling. You are all idiots if you can't see 10%+ year on year growth forever. I repeat, the crux of my argument is that anyone with a counter view is stupid. But there is a tiny chance I'll be wrong and I'd like to not have to admit that in future, so I also predict that anything could happen".
Such is the level of animal spirits in Auckland that an article needs to be published the day prior to results to soften the blow?
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115…
And this from the NZ Herald who don't even provide full and balanced property data coverage anyway.
That information is known by the electricity retailers and the water-supply retailers
It will never be revealed other than at census time as a result of the census
It will have changed since the last census
Under the "no-surprises" policy government doesn't want you to know
A government faced with the current housing shortage would make it it's business to know
The 2 organisations aren't in the business of providing such sensitive information
The QV stats for December have been up on the website since yesterday: https://www.qv.co.nz/n/monthly-residential-price-movement/phoenix-54
QV hasn't made a press release yet and the journalists haven't bothered to check the website so it hasn't hit the news.
Nov to Dec shows Auckland going nowhere (0.0) but Wellington up quite dramatically (2.0). Mid-2014 is the last time Auckland failed to increase month on month in these stats. Most months it has been increasing by about 1.5-2%.
Press Releases are the news
If there is no press release then there is no news
Journalists don't exist any more
Media outlets rely on receiving press releases in publishable copy capable formats that can be dropped straight in without being checked for veracity or sub-edited
If you believe in miracles, then Awkland is the place to be.
If you believe in reality, do not put all your eggs in the same basket case.
If houses were the only bet in town, then all Bankers would own all the real estate in the world. Never mind little old Awkland. Cash down, no mortgage needed.
But they do not. Not even close. Over mortgaged, over leveraged and waiting for the penny to drop. Maybe?.
Why do you think that Fractional Reserve would save the world, when it is in a tail spin. No matter what % you dream up.
The con job is a Ponzi. And the cons have escaped once before... 2008 I do believe.
Counterfeiting was the next step.
Do you think the whole world is daft, or what?.
Banking is just a type of farming. You feed the livestock the money to buy their own shacks and in return they pay you back with interest. You then take those payments and feed them out again to the next generation. You get wealthier and they think they are getting wealthier, a few of them do. It's rewarding work if you can get it.
OK - so we have low levels of listings in Auckland, net migration surge, still building homes at a level far too low to keep up with demand, interest rates at extremely low levels and likely to go lower as swap rates decline and, as reported elsewhere,11,000 Chinese applying for IRD numbers in NZ.
That surely must add up to an increase in the median price over the next 12 months in Auckland.
In addition anybody buying property, other than a family home, will have to hold it for at least two years to avoid the bright line tax take - this will reduce listing levels.
Barfoot December data indicated a record median price and expect REINZ data will show the same for Auckland and NZ.
Do you have a reference available for the 11,000 Chinese applying for IRD numbers? If true, surely that would stymie the Government and confirm there is a big issue at hand. It's one thing to deny there is a problem - it's another thing to convince the public it's not a problem once hard numbers are available.
Thanks bigblue, found it;
http://www.nbr.co.nz/article/tax-red-tape-delays-hit-foreign-investors-…
Suppose the IRD applications could be so they are in a position to sell their property, but I doubt it somehow.
Haha. NBR spruiking the market by instilling "fear of missing out". The 11,000 applicants will be a mix of students, retirees and seasonal workers etc. I'm fairly certain IRD hasn't trawled through its backlog and categorised each application as "foreign investor" before leaking to the media. The immigration floodgates are open to NZ and this probably represents the new normal 6k per month entering NZ to seek a minimum wage job/permanent residence
I tend to agree with you...
Gary Shilling says ..." Inventory is the mortal enemy of Price "
Housing inventory is a big deal for me.... and it is still at low levels.. Throw into that, everything u say bigblue, and... It would take a global shock of some kind for the Auck mkt to crash and burn.... in my view..
Declining volume of sales... in itself...does not say much.. ( mkt could just be taking a breather )
http://www.interest.co.nz/Charts/Real%20estate/Housing%20inventory
depends who you listen too a bank that got caught last time and is now very cautious or our banks that say we have not over lent
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115…
I don't think anyone is talking about crashing and burning here. Just a medium to long term shallow slump in prices bringing them down more in line with salaries. Prices were artificially raised last year due to many factors but one of them was overseas investment which has dried up and is unlikely to return until China recovers.
I don't think anyone is talking about crashing and burning here. Just a medium to long term shallow slump in prices bringing them down more in line with salaries. Prices were artificially raised last year due to many factors but one of them was overseas investment which has dried up and is unlikely to return until China recovers.
Be interesting to see developers response to even the current modest 6-8% fall already seen in auckland property prices.
A lot of new expensive junk being built and sold in papakura, south auckland, small plots of land, 250k worth of house and 450k valuation on land, either they are making a killing and will accept lower returns or more likely they're making only a small profit after council costs and red tape and will stop builidng if they dont think they can sell this junk for 700k plus
Agree, but take a look at trademe at the large number of properties with an advertised price between $700k and $1m. There cant be too many buyers left with the required $200k cash deposit and $50k pa mortgage servicing ability. I would argue that there is a large inventory of overpriced dumps in Auckland
IRD struggling to process tax numbers for offshore investors, with rumours 12,000 are tied up in a bureaucratic –bottleneck, reports Rob Hosking. Tax practitioners and the real estate industry are reporting increasing delays with meeting requirements of getting a bank account number and IRD number.
Two thirds of auctions fail to sell in Auckland
http://www.radionz.co.nz/national/programmes/morningreport/audio/201781…
they say house prices double every ten years so on todays prices we are looking at a auckland average price of 1.8 mil in 2026, who would be the buyers of these houses if locals wages are not going up by the same ratio, do we have to open the doors even wider to let overseas cash in to support it.
at what point will rents become so low in yield or costs so high that buying of rental houses in auckland becomes unaffordable.
its a bit like watching a slow motion train crash whilst the conductor is down the back playing cards
also we have another millstone that will be appearing around taxpayers necks in future years, how big will the cost of rent subsidies become with more of the population renting (now 34% nationwide over 50% in auckland) from private sector (now 83%)
or will a future government have to do a massive building problem ala singapore to house its citizens
http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11572…
Millstone?
Has anyone ever considered how big that millstone is and how big it will become
It is one of those never-ending decisions that can never be undone
Think about how a government facing a global crisis could ever unpick that
It's impossible
Once established it can never be reversed
Unless the government of the day offers every rent-assistance recipient a massive once-ever one-off payment of say $30,000 per household to relinquish the benefit
Can't see that happening in the forseeable future
One of the best pieces I've ever read on interest.co is this one by Lowell Manning...
I thought it was brilliant and I agree with almost all that he says. ( I printed it out and filed it..!! )
His view on M3 Money supply growth.... His view on the impact of our chronic current acct deficits , impact of FDI etc..etc.. all in regards to affordable housing.
http://www.interest.co.nz/opinion/64724/lowell-manning-says-problem-hou…
What would happen if tenants just refused to pay rent on foreign owned properties? Given that these landlords probably pay no tax in NZ, do they have any right to expect our legal system to back them up?
Further, given the chance that many of the foreign owners are shady characters parking their ill gotten gains beyond the reach of their own government, how likely are they to want to engage with our legal authorities?
Similarly, is there likely to be any significant resistance to families squatting in some of the many vacant foreign owned properties in Auckland? In similar circumstances, in England, the right to do this was legally allowed,- Squatters rights.
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