NZ Property Market 2018 – Boom, Bust or Correction?

Count the news headlines over 2017 and hundreds will predict the imminent crashing of New Zealand’s property market. And yet here we are. The floor hasn’t fallen out under property and prices are still increasing in most centres outside of Auckland. To that end, we’ve had hard a look at what’s next: boom, bust or correction?

After all the noise over the last year, most signs suggest that there is in fact no crash coming for New Zealand’s property market. The most likely catalyst for such an event is mass mortgage default, and ASB’s January 25 Economic Weekly suggests New Zealanders are still well placed to meet home loan commitments.

In fact, close to four fifths of all households who own or partly own their home spend less that a quarter of their incomes on housing. The 8 per cent of households who pay over 40 per cent of their incomes towards housing tend to be higher income individuals.

While New Zealand’s household debt is high relative to incomes, it would still take a rapid interest rate increase to cause mortgage defaults in a high enough number to derail the market.

PROPERTY PRICES STILL INCREASING

It’s impossible to know what exactly is in the future, but current price trends suggest the only way is up for property. In fact, 13 out of 16 regions around the country experienced price growth over 2017, according to Real Estate Institute of New Zealand data.

Furthermore, New Zealand’s average house price increased by 5.8 per cent, while Auckland’s went up by 1.8 per cent, during the same period. The only regions that experienced average price decreases over the year were Nelson, Otago and Southland, while the Bay of Plenty and Hawkes Bay saw the largest price growth.

On the other hand, one number suggests demand for property is slowly decreasing – sales turnover. In December 2017, 10.1 per cent fewer properties were sold around the country than during December 2016. This lower demand could put downwards pressure on house prices in the future.

RESALE PROFITS WERE LOWER TOWARDS THE END OF 2017

During the third quarter of 2017 4.3 per cent of properties were sold for less than they were bought, according to CoreLogic’s Pain and Gain Report. During the previous period this number was 3.7 per cent – 0.6 percentage points less. This increase in resales at a loss could suggest the market is gradually cooling, and that demand is slowly subsiding.

Interestingly, there was also a higher proportion of short term resales at a loss, which the report suggests could be another sign of market fatigue.

Another valuable takeaway is that throughout New Zealand only 4 per cent of detached homes sold for less than they were bought, while 10.1 per cent of units did. This reinforces the notion that houses are always a better buy if you’re looking for capital gains.

LOAN TO VALUE RESTRICTIONS TO CONTINUE EASING

On 29 November 2017 the Reserve Bank surprised New Zealand by decreasing loan to value restrictions (LVR), making it easier to secure high LVR loans. This was a relatively minor change, however, industry experts, including ASB’s economists, expect that the Reserve Bank will continue to ease LVRs over 2018.

While this will surely make it easier for many to buy property, it’s not expected that it will result in demand-driven price growth in the near future. Instead it’s likely that it will bolster markets like Auckland and Christchurch where price growth has slowed recently.

First home buyers and investors in particular should keep an eye out over 2018, as these are the two groups LVR changes usually affect most.

PREDICTIONS FOR THE FUTURE

Current trends indicate that the New Zealand property market in 2018 will not be the headline grabber it has been. In fact, Nick Goodall, Head of research at CoreLogic, suggested the property market will settle down for a year of evaluation and reflection, after a few years spent living it up.

In fact, Goodall forecasts that prices in most of our smaller regions, as well as Auckland’s, are likely to remain relatively flat. The future for Christchurch is harder predict, however it’s most likely that prices will remain stable here. Wellington and Dunedin, however, are tipped to be the major growth areas in 2018, thanks to a shortage of properties relative to demand.

It’s clear that a property doomsday isn’t around the corner and that New Zealand’s property prices aren’t going to free fall any time soon. What’s more likely is a gradual cooling or price stability that won’t spell disaster, but will help improve affordability in areas where it has been seriously lacking.

Before you make any property decision over 2018, get in touch with a local real estate agent you trust to get specialised local advice from an industry expert.