Don't hold out hope for a Sydney-style house price slump
Tuesday, 4 December 2018
New Zealand's property market is probably in for a slow few years - but prices won't plummet simply because Australia's are, commentators say.
Sydney and Melbourne in particular are suffering weakness in their housing markets.
Melbourne's are down 5.8 per cent from their peak.
**READ MORE:
* Most property sellers still making a healthy gain
* It will soon become easier to get a mortgage
* ASB survey shows house price expectations are at a five-and-a-half-year low**
Meanwhile, the latest Real Estate Institute figures show Auckland prices's are up 1.8 per cent, Wellington's 14.3 per cent and Canterbury's 3.3 per cent, year-on-year.
ASB chief economist Nick Tuffley said New Zealand house prices had tended to broadly track Australia's, reflecting similar demand and supply side drivers.
The closest link was between Sydney and Auckland, he said. Ripple effects from Australia were usually seen in Auckland with a lag of about six months but the impact tended to be short-lived, he said.
Local factors had a bigger and more lasting effect.
Interest rates
While Australia has seen some tightening of interest rates, New Zealand's are still near record lows.
Even when rates rise, most New Zealanders are insulated from the effect because of our preference for fixed interest rates. While 80 per cent of home loan borrowing in New Zealand is on fixed terms, 80 per cent of Australia's is on floating, so they feel any changes more quickly.
Tuffley said Australian banks had also been moving people from interest-only terms to principle-and-interest which sometimes deterred investors, and were tightening their lending criteria.
In New Zealand, meanwhile, the Reserve Bank is relaxing its lending restrictions on low-deposit borrowers.
Supply
While Sydney and Melbourne have seen construction activity increase a lot in recent years, New Zealand's rate of building has struggled to keep up with demand. 'Construction supply is so much more responsive in Australia,' Tuffley said. 'The amount of building per capital in Australia is much stronger.'
By comparison, Infometrics economist Mieke Welvaert said it was estimated that Auckland was still short 45,000 houses. 'If we're entertaining the idea of property prices falling there's only so far they can go down if there is that unmet demand waiting in the wings.'
As soon as prices started to drift down, those waiting buyers would start to purchase and would limit the falls, she said.
CoreLogic head of research Nick Goodall said parts of Australia now had too much supply. 'People have gone to purchase and when they go to settle on an apartment it's worth less than they paid so they walk away. We're at no risk of any oversupply happening in Auckland or most of the rest of the country.'
Population
Tuffley said immigration net inflows were still strong, although they are declining.
City Sales managing director Martin Dunn pointed to council predictions of Auckland's population rising to two million in under nine years. 'The maths on that is 50,000 a year and if you're going to say three people per dwelling that's about 16,000 or 17,000 new dwellings we need a year.'
Tuffley said it was hard to see a downturn like Australia's happening in New Zealand. Auckland was seen to be the riskiest market because of the extent of price increases in there, but that was on a path of gradual adjustment rather than a steep drop, he said.
'We do have the Government making the market less appealing to property investors but at the same time the slack is being picked up by first-home buyers who are facing less competition and benefit disproportionately from the easing of lending standards as well.'
Outside Auckland, house prices compared to incomes were 'quite contained', he said.
Goodall said there was always a risk of values dropping in New Zealand. 'But not for the same reasons we're seeing in Australia at the moment.'