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Property prophets have their say
18.06.05
By Anne Gibson
Back in 2003, housing soothsayers were predicting a slowdown.
Instead, house prices on average rose about 47 per cent between 2002 and 2004 and are still going up, as the latest Quotable Value statistics this week showed.
Real Estate Institute president Howard Morley regularly crows about just how wrong some banking economists got it when they forecast doom two years back. In his desk drawer, he keeps a newspaper article predicting the end of the boom.
The economists were citing lower migration inflows, rising mortgage interest rates and a shortage of construction workers as reasons for a decline. But since then, interest rates have risen considerably, migration has slowed and building has been running at record levels, yet house prices are still rocketing ahead.
Late last year, Britain's The Economist magazine used Quotable Value figures to put New Zealand in third place internationally for the fastest-rising house prices, just behind Hong Kong and South Africa.
Prices took off in the 1980s, fuelled by the overhaul of the economy, the freeing up of credit and rising inflation. Lately rises have been sustained by banks' aggressive lending policies.
Not all economists were calling an end to the boom back in 2003.
BNZ chief economist Tony Alexander said then that the real heat was yet to come in housing. The market was rock-solid and prices would rise.
Also right were the predictions of Infometrics PMI Mortgage Insurance survey, which said in November 2003 that prices would rise 19 per cent within the coming three years.
"The economists were all right - their timing was just a bit out," said John McDermott, chief economist of ANZ, this week. But, he added quickly, his institution was not proved wrong about housing. It had always been bullish about the sector, so he had no regrets about his forecasts.
So where to for housing next?
The general economic outlook is not so bright.
Building consents in April were down a third on a year earlier, unemployment rose in the first quarter - the first rise in 18 months - retail sales have been soft and business confidence has fallen to its lowest level in nearly 17 years.
And in an attempt to cool inflation - including rising house prices - the Reserve Bank raised its official cash rate seven times since early last year. A Reuters poll this month showed a median expectation that interest rates have peaked and will be cut to 6.5 per cent in the first quarter of next year.
Migration, a key driver of demand for houses, continues to slow.
Most of us have the bulk of our assets tied up in residential property - and about half all homeowners have a mortgage, opening them to interest rate fluctuations which have moved up rapidly lately.
We prefer to tie up most of our wealth in housing rather than shares and savings. And with so many of us using the bank's money, we are a nation of mortgage slaves.
So what next? Six experts say.
KIERAN TRASS, Director of investment property experts Hybrid Group
"House prices in Auckland, Wellington and Christchurch will drop about 5 per cent in the next two years because those cities haven't had big value rises lately. But apartment values in Auckland's CBD will fall by about 30 per cent because of an oversupply and coastal property prices could halve in some areas.
"When our economy dips, people start to question why they have so much money tied up in an asset they might use three to four weeks of a year.
"I'm also concerned about rental houses in small towns where lots of Australians have been buying, pushing values to ridiculous levels. You should not be buying in Tokoroa. It's going to suffer when the economy takes a turn by next year."
TONY ALEXANDER, BNZ chief economist
"It is extremely unlikely that house prices will keep rising at 13 per cent annually as they have been in the past four years. The housing market is easing off in the form of buyers not being willing to pay silly prices - but still wanting to buy nonetheless.
"In some parts of the country, there are listings shortages. Prices are flat at worst on average but we see minor falls from later this year as the negatives progressively outweigh the positives. If people start expecting tax cuts soon, this will be a new source of support for the market which will reduce but not prevent the cyclical easing."
MARY HOLM, seminar presenter, author of Investing Made Simple and a Business Herald columnist
"I've vowed not to get into the game of predicting property or share price changes. So often, even the top experts get it wrong. But sometimes people ask me to at least guess.
"I've got a friend who is planning to sell her house and not buy another. She will rent instead. I have another friend who is looking into buying a bach in a place where prices have soared. I'm urging the first one to get her house on the market fast while prices are still holding. I'm urging the second one to wait a year or two because bach prices might fall.
"I could well be wrong. Prices might keep rising for another year or two. If they do, though, it seems to me that only makes it more likely they will eventually fall further.
"Prices have risen so much faster than rents and people's incomes in recent years and logic tells you that that can't continue. Demand from overseas buyers on higher incomes does boost prices. But what proportion of NZ houses are bought by foreigners? It must be tiny."
ANTHONY BYETT, ASB Bank chief economist
"The housing market has rebounded in the March quarter, but the pressures that will slow it continue to mount, particularly the rising interest rate burden that will result from rate changes to date and - as recognised by the ASB confidence survey - by the high risk of even more rate hikes to come. Not surprisingly, the general public continues to express some wariness towards the housing market."
HOWARD MORLEY, Real Estate Institute president
"I would not make predictions and never have done as an agent for 30 years. With high levels of employment, the real estate market is quite firm.
"Interest rates aren't affecting the market and I don't see that changing in the future. Listings are short and there are still a lot of buyers in the market nationally."
BRYAN THOMSON, Harcourts chief executive
"My expectations in the next 12 to 24 months are that we will see a continuation of what we have at present - solid volumes of sales across most marketplaces with stable price levels.
"Blue-chip suburbs and key locations in growth areas will continue to see price rises, although perhaps at a slightly lower rate than the past two years. Sellers will need to be realistic with price expectations.
"Interest rates remain at historically attractive levels and unless a major and unlikely upward movement takes place, rates will have far less impact on the market than the key driver - employment."
18.06.05
By Anne Gibson
Back in 2003, housing soothsayers were predicting a slowdown.
Instead, house prices on average rose about 47 per cent between 2002 and 2004 and are still going up, as the latest Quotable Value statistics this week showed.
Real Estate Institute president Howard Morley regularly crows about just how wrong some banking economists got it when they forecast doom two years back. In his desk drawer, he keeps a newspaper article predicting the end of the boom.
The economists were citing lower migration inflows, rising mortgage interest rates and a shortage of construction workers as reasons for a decline. But since then, interest rates have risen considerably, migration has slowed and building has been running at record levels, yet house prices are still rocketing ahead.
Late last year, Britain's The Economist magazine used Quotable Value figures to put New Zealand in third place internationally for the fastest-rising house prices, just behind Hong Kong and South Africa.
Prices took off in the 1980s, fuelled by the overhaul of the economy, the freeing up of credit and rising inflation. Lately rises have been sustained by banks' aggressive lending policies.
Not all economists were calling an end to the boom back in 2003.
BNZ chief economist Tony Alexander said then that the real heat was yet to come in housing. The market was rock-solid and prices would rise.
Also right were the predictions of Infometrics PMI Mortgage Insurance survey, which said in November 2003 that prices would rise 19 per cent within the coming three years.
"The economists were all right - their timing was just a bit out," said John McDermott, chief economist of ANZ, this week. But, he added quickly, his institution was not proved wrong about housing. It had always been bullish about the sector, so he had no regrets about his forecasts.
So where to for housing next?
The general economic outlook is not so bright.
Building consents in April were down a third on a year earlier, unemployment rose in the first quarter - the first rise in 18 months - retail sales have been soft and business confidence has fallen to its lowest level in nearly 17 years.
And in an attempt to cool inflation - including rising house prices - the Reserve Bank raised its official cash rate seven times since early last year. A Reuters poll this month showed a median expectation that interest rates have peaked and will be cut to 6.5 per cent in the first quarter of next year.
Migration, a key driver of demand for houses, continues to slow.
Most of us have the bulk of our assets tied up in residential property - and about half all homeowners have a mortgage, opening them to interest rate fluctuations which have moved up rapidly lately.
We prefer to tie up most of our wealth in housing rather than shares and savings. And with so many of us using the bank's money, we are a nation of mortgage slaves.
So what next? Six experts say.
KIERAN TRASS, Director of investment property experts Hybrid Group
"House prices in Auckland, Wellington and Christchurch will drop about 5 per cent in the next two years because those cities haven't had big value rises lately. But apartment values in Auckland's CBD will fall by about 30 per cent because of an oversupply and coastal property prices could halve in some areas.
"When our economy dips, people start to question why they have so much money tied up in an asset they might use three to four weeks of a year.
"I'm also concerned about rental houses in small towns where lots of Australians have been buying, pushing values to ridiculous levels. You should not be buying in Tokoroa. It's going to suffer when the economy takes a turn by next year."
TONY ALEXANDER, BNZ chief economist
"It is extremely unlikely that house prices will keep rising at 13 per cent annually as they have been in the past four years. The housing market is easing off in the form of buyers not being willing to pay silly prices - but still wanting to buy nonetheless.
"In some parts of the country, there are listings shortages. Prices are flat at worst on average but we see minor falls from later this year as the negatives progressively outweigh the positives. If people start expecting tax cuts soon, this will be a new source of support for the market which will reduce but not prevent the cyclical easing."
MARY HOLM, seminar presenter, author of Investing Made Simple and a Business Herald columnist
"I've vowed not to get into the game of predicting property or share price changes. So often, even the top experts get it wrong. But sometimes people ask me to at least guess.
"I've got a friend who is planning to sell her house and not buy another. She will rent instead. I have another friend who is looking into buying a bach in a place where prices have soared. I'm urging the first one to get her house on the market fast while prices are still holding. I'm urging the second one to wait a year or two because bach prices might fall.
"I could well be wrong. Prices might keep rising for another year or two. If they do, though, it seems to me that only makes it more likely they will eventually fall further.
"Prices have risen so much faster than rents and people's incomes in recent years and logic tells you that that can't continue. Demand from overseas buyers on higher incomes does boost prices. But what proportion of NZ houses are bought by foreigners? It must be tiny."
ANTHONY BYETT, ASB Bank chief economist
"The housing market has rebounded in the March quarter, but the pressures that will slow it continue to mount, particularly the rising interest rate burden that will result from rate changes to date and - as recognised by the ASB confidence survey - by the high risk of even more rate hikes to come. Not surprisingly, the general public continues to express some wariness towards the housing market."
HOWARD MORLEY, Real Estate Institute president
"I would not make predictions and never have done as an agent for 30 years. With high levels of employment, the real estate market is quite firm.
"Interest rates aren't affecting the market and I don't see that changing in the future. Listings are short and there are still a lot of buyers in the market nationally."
BRYAN THOMSON, Harcourts chief executive
"My expectations in the next 12 to 24 months are that we will see a continuation of what we have at present - solid volumes of sales across most marketplaces with stable price levels.
"Blue-chip suburbs and key locations in growth areas will continue to see price rises, although perhaps at a slightly lower rate than the past two years. Sellers will need to be realistic with price expectations.
"Interest rates remain at historically attractive levels and unless a major and unlikely upward movement takes place, rates will have far less impact on the market than the key driver - employment."
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