Auckland house prices almost double in 9 years

[muppet]

Auckland house prices almost double in 9 years
5:00AM Thursday May 17, 2007
By Anne Gibson

Auckland house prices have nearly doubled in the past nine years, leaping from a median $235,000 in 1998 to $452,000 last month.

Prices rose 92 per cent in the Auckland region from April 1998 to last month.

New Real Estate Institute figures yesterday showed Auckland was leading a national house price surge. And in just one month, prices rose by $9000. In March, the region's median house price was $443,000 but that swelled to $452,000 last month.

The country's median house price leaped from $343,5000 to $349,000, even though interest rates have risen sharply this year.

The institute said Auckland prices were up sharply despite the volume of sales falling. Agents sold 3446 Auckland properties in March but just 2559 in April, the institute said, citing Anzac Day and Easter as possible factors suppressing sales numbers.

It takes just 27 days on average to sell an Auckland property, just ahead of the national average of 28 days.

Murray Cleland, the institute's president, said the data from Auckland suggested too many people were chasing too few properties. He hoped today's Budget would help first-home buyers, hit hardest by surging prices.

About 10,000 people were migrating to New Zealand annually, he said, yet the Government's Welcome Home loan scheme to help those most in need of a deposit was limited to just 2000 first-home buyers. The assistance was insignificant and he expected more measures to ease affordability.

Metropolitan Auckland's median sale price rose from $449,000 in March to $459,000 last month. The North Shore's median sale price rose $20,000, from $520,000 to $540,000.

Waitakere's median price stayed static at $380,000, Manukau's rose from $415,000 to $425,000, Papakura's was up from $332,500 to $335,000, Rodney's rose from $450,000 to $459,000 and Franklin's was up from $356,500 to $358,000.

Prices were up in nine out of 11 areas, but fell marginally in the Waikato/Bay of Plenty/Gisborne region and in Otago. Northland prices rose from $306,000 to $320,000. Waikato/Bay of Plenty/Gisborne prices fell from $320,000 to $312,000. Taranaki prices were up from $260,500 to $275,000. Hawkes Bay prices rose from $268,000 to $280,000.

http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10440171

[SuperDad]

This is almost bang on the rule-of-thumb that house prices double roughly once every ten years. (Roughly 7% annual growth.)

Some here have suggested that house prices double once every 7 years (10% annual growth), a figure I have found a bit high. This news item supports my belief.

Personally, I am working on the assumption that the next doubling of house prices will take between 12 and 15 years, and I am planning my investing accordingly.

Paul.

[Dean@Massiveaction]

That will only be true if the entire baby boomer generation drop dead in the next 4 years Paul. A near doubling again in way under ten years is my prediction.

[Tucker]

All my properties in Auckland doubled in about the last 6 years.

[SuperDad]

That will only be true if the entire baby boomer generation drop dead in the next 4 years Paul. A near doubling again in way under ten years is my prediction.

I prefer to plan conservatively, and have a pleasent surprise.

I know that you buy into Ron's "baby boomer" hypothesis. I don't. I think the thesis about population growth is plausible, although by no means a certainty. I do not think that it follows from this that property prices will double much quicker than the historical average (of around 10 years).

Say we do get a lot of imports from overseas. They will not (as Ron acknowledges) be from first-world countries. So it is likely that they won't be flush with cash - they won't be directly forcing house prices up. Instead, they will be renting.

So who will be buying up the properties at such values that would create and sustain the "boom of all booms"? It won't be the immigrants. It won't be the baby boomers, who will likely be selling down their holdings to fund retirement. And the "average" kiwi is already starting to be priced out of the housing market as a result of this boom, and the fact that wages are not increasing particularly fast.

So, who is left to fuel the boom? Investors, of course, looking to buy up accomodation to house the influx of the predicted immigrant labour. However, if wages don't radically increase, thereby supporting a 100% increase in rents, a 100% increase in house prices would represent a radical reduction in rental yields, which are already poor. Why would investors buy for a 3% yield. If the investors leave the market, then who is left to fuel the boom? Dean and Ron?

So I am being as agressive as I can, given conservative expectations about future growth.

Paul.

[Propoholic]

In the last ~30 years peak to peak periods have been:-
1974 - 1981 - 1987 - 1997 - 2007

[cube]

Why would investors buy for a 3% yield.

Ask Sydney!

For the prospect of capital gains.
For the prospect of passive income in the future, when rents have risen and the mortgage is paid off.
For the tax 'benefits' (spend a $ to save 39c!)

In other times of high rents relative to wages, more people live in the same space, increasing wear and tear. The govt responds by either imposing rent controls (investors flee, rents rise) or increasing benefits (tenants want to spread out away from the extended family in cramped conditions, requiring more houses - rents rise!).

cube

[David_W]

There are still plenty of investors in Sydney and Melbourne and London and cities that have sub 3% average gross yields for the reasons that Cube states as many people need somewhere to put their money.

You here in PT has been burned a bit with some shares like me on the share market. The lack of control of your investment with shares, the lack of return for many other equity and debt securities (eg term deposit, bonds, managed funds) means property is the chosen asset. And surveys show investors buy close to where they live in general (yes thousands of exceptions, but millions follow that generalisation).

So look forward to massive capital growth particularly in our country's economic hub and driving force that is the wonderful city of Auckland. Wealthy migrants are coming over and more wealthy will continue to come and buy property.

For those that know Auckland a 21 year old student and client of mine purchased a proeprty in Victoria Avenue, Remuera, Auckland for $1.8 million. (As you do when you are a student). Even better he did not like the home, so he sold it for $50,000 to get shipped off teh site and built a $2.4 million state of the art mansion that directly employed over 80 taxpaying new zealanders. That money all came from China. We live in exciting times friends.

Carpe diem - get investing. Vote out Labour next election for some economic reform, and expect your Auckland properties to double in less than 10 years

[SuperDad]

Olly,

What are your views on the future growth for residential property (over the next, say, 10 years)

Do you still think that the bubble will burst? (Your book on this topic is one of the causes of my conservative approach - I'd like to plan for the worst, and be happy if it does not occur.)

Paul.

[OllyN]

Will the bubble burst?

Superdad- I sincerely hope that what I predicted is wrong
and nothing bad happens. I too have properties, mortgages, personal guarantees etc .
I've been burnt before and it's not a nice place to be.
Although I have predicted a property bust, I will be the first to cheer if it never happens.
If it doesn't happen we will be laughing all the way to the bank in 10 years time.
Olly

[SuperDad]

Thanks Olly.

Paul.

[Realtorman]

Why would the bubble burst. We may get a blip when prices hold or drop slightly but the trend is ever upwards. Why? Simple economics, at a 7% yield prices double every 10 years. The rule of 75. Would you put money in the bank and expect it not to grow by way of interest? Why are people so naieve to expect property does not behave in the same way. We can all think back many years to when properties were a fraction of the price they are today and even then we thought they were expensive and people were saying the prices were getting out of hand but the rule of compounding growth marches on. The factor that drives house prices is demand and affordability. NZ is a sparsly populated country and by word standards our houses are still cheap. Why would the growth not continue?

[Gatekeeper]

Why would the bubble burst. We may get a blip when prices hold or drop slightly but the trend is ever upwards. Why? Simple economics, at a 7% yield prices double every 10 years. The rule of 75. Would you put money in the bank and expect it not to grow by way of interest? Why are people so naieve to expect property does not behave in the same way. We can all think back many years to when properties were a fraction of the price they are today and even then we thought they were expensive and people were saying the prices were getting out of hand but the rule of compounding growth marches on. The factor that drives house prices is demand and affordability. NZ is a sparsly populated country and by word standards our houses are still cheap. Why would the growth not continue?

This works both ways. If you create money out of thin air (monetary inflation) to bid up house prices, down the line somewhere cost price inflation will bite you on the arse. This is yet to come. The house still has the same value, your money has devalued!

[spurner]

With all the new council and government regulations covering construction materials and methods, building levies, service fees, increasing standards, reserve contribution levies and a plethora of other additional costs which have been imposed since Labour came to power I think the real cost and therefore value of propeties are about where they should be. Also remembering that during this time they have undertaken many projects to limit the supply of housing and simultaneously increased the demand through an array of new initiatives.

Basically, that a large amount of the house price increases are based upon actual costs incurred during the process of creating the house.

[k1w1]

Realtorman, how short-sighted are you?

You don't think property value can fall as well as rise?

Do you know what happened in the UK in the late 80's?

As for this comment: "There are still plenty of investors in Sydney and Melbourne and London and cities that have sub 3% average gross yields for the reasons that Cube states as many people need somewhere to put their money."

That's true to an extent, but the UK, for one, does not have 8% earning potential at the bank.

3% (if you're lucky) yield from rents with the hope of capital gain when many are predicting the top of the market has arrived is somewhat risky when risk-free earnings like 8% are available at your local Westpac.