8 April 2009
OPINION: Tony Alexander*
Regular readers of this column or my Weekly Overview publication should be aware that my view on the NZ housing market has been quite at odds with the generally very pessimistic views expressed by other commentators â€“ not only for the past year but also since the June quarter of 2004.
Many people have been gleefully predicting 40 percent falls in house prices believing that events have been conspiring to produce greater house price declines here than in even the United States.
Over there they have â€œonlyâ€ fallen 29 percent in spite of massive over-building, huge excess lending and borrowing when mortgage rates when down near 2 percent, and now the biggest credit crunch in the US since the 1930s Great depression when the Federal Reserve shrank the US money supply about 30 percent.
Here in New Zealand the fundamentals have never added up to large declines in average house prices and it appears there are literally tens of thousands of people who share this less than apocalyptic view.
For a start we have accelerating population growth courtesy of rising net migration inflows.
When times get tough overseas ex-pats come home, foreigners shift here, and fewer Kiwis leave to seek their fortunes elsewhere.
Between June 2001 and June 2002 our net flow went from -9,000 to +33,000.
So far we have gone from +3,500 in November to +6,200 in February and a total between 15,000 and 30,000 within a year seems an easy call.
We have low interest rates by NZ standards with the two year fixed rate around 1.6 percent below its average for the past five years and our one year rate at 5.49 percent some 2.8 percent below average.
We have a fundamental shortage of accommodation as evidenced by official efforts in the past two years to find ways to speed up construction â€“ the Commerce Committee investigation.
We now however have collapsing construction with the number of consents issued at the lowest levels in perhaps half a century near 12,500 per annum.
We need about 24,000 a year just to meet population growth â€“ let alone house above average migration-driven growth.
The most up to date data show the housing market â€“ letâ€™s say stabilising rather than rising.
Barfoot and Thompson data for Auckland show their sales ahead 46 percent in March from a year ago.
Our own monthly survey has shown a sharp turnaround in real estate comments over the past two months.
Anecdotes bespeak of a rush of investor enquiries, multiple bidders on properties, and shortages of listings appearing in some areas.
There is undoubtedly a short term bounce effect in the data caused by people rushing purchases to take advantage of low interest rates and because they have put their lives on holds too long and simply want to move on.
That is why we think it is only appropriate to speak in terms of the market stabilising rather than rising.
But it will be interesting to see how prices go this year as an existing housing shortage combined with the worst construction levels in living memory for practically all builders runs up against accelerating population growth. You do the math.
Speaking of maths, investors are increasingly finding they can make their properties cash flow positive.
Imagine what the numbers will look like as the accommodation shortage worsens and rents start rising.
After all, even the unemployed need somewhere to live.
So I maintain the position written here at some stage last year.
If I were looking to make a canny purchase in the housing market â€“ whether as an investor or owner-occupier â€“ I would want to do it before the middle of this year.
This is not to say the listings will completely dry up, just that the best bargains will have been well and truly snapped up by then.
Plus, going by the way things are turning overseas, sentiment about the world and NZ economies is likely to be a lot better.
In fact our latest monthly business survey has found a firm lift in sentiment over the past month â€“ as has consumer confidence measured in the Colmar Brunton poll just out.
*Tony Alexander is BNZâ€™s chief economist.