No hope of NZ housing price slowdown

Investors remain in the driver’s seat as Auckland price rate accelerates past 12.5%

BNZ head economist Tony Alexander has extinguished any hopes home buyers may have been harboring that housing prices in Auckland look set to ease up.

Those who have been hoping to key a lower sales price into their mortgage calculator on the back of the latest sales figures released by Barfoot & Thompson (Auckland’s largest real estate firm) only need look back in history to realize that higher listings do not guarantee lower prices.

No one can fault optimistic buyers for snatching at any scrap of news that may suggest the record prices now being asked in Auckland are about to come down – particularly considering that the underlying cause of the price hikes is a severe shortage of supply in the face of mounting demand. More houses going on the market should, in principle, place a cap on higher costs.

Unfortunately, economists are forecasting a hike in the Official Cash Rate (OCR) to come into effect as early as the first quarter of next year, which will likely push prices even further out of reach of most middle income Kiwi families. Compounding this is the fact that long term mortgage rates are likely to rise to as high as 7.5% by 2015, which means those currently on floating rates are going to be left with no wriggle room when it comes time to compare home loans again in a bid to refinance.

History bears repeating

With numbers such as an increase of 29.2% in listings compared to the same time last year dancing on screens before house hunters’ eyes, some may have been anticipating the onset of a trend that could very well bring the momentum of runaway prices to a halt, or at least under some semblance of control. The desperate man it is said to see smoke when there is no fire, but in this case it seems he sees smoke true enough, but from a fire freshly extinguished.

Mr. Alexander was quick to throw cold water on the assumptions that prices would soon drop because this month’s total of 1636 listings was the highest for the month of September since 2,087 in September of 2003. For those able to recollect, although a similar jump in listings occurred from 2002 to 2003, it did nothing to dent the rise in prices at that time either. In fact, the average sales price in September 2003 was actually 18.5% higher than the same time the year before.

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Price rate speeding up, not slowing down

As the Auckland market continues to speed down the high price housing highway, buyers are scanning frantically for any sign of a speed check, but none appear forthcoming. In fact all the signposts on the side of the road are indicating that the pace of housing price gains (currently at 12.5%) is only going to increase.

All of this may spell disaster for the dreams of first home buyers looking to own their home at an affordable price, but only when viewed from the assumption that most kiwi home buyers are looking for a roof over their heads to call their own. There has been a growing clamor for the introduction of a capital gains tax from critics of the governments housing policies. The aim is to reduce the appeal of property investment as they push to gain back lost ground from investors (many of them from overseas) and bring prices back within the average Kiwi home buyers affordability bracket.

The pot calls the kettle black – home buyers are investors at heart

Tony Alexander seems unconvinced that a capital gains tax would garner considerable support because of the fact that the majority of Kiwis consider property to be more than just a place to call your home – it’s the favored vehicle for investment.  Calling investors the devil and proclaiming that they need to be relegated to the sidelines so that average Kiwi families can afford to put a roof over their families’ heads might very well be nothing more than a bizarre case of the pot calling the kettle black.

Perhaps it’s worth noting that most New Zealand home buyers plugging away at a home loan calculator are not purely motivated by realizing the Kiwi dream of owning their own home. The fact remains that many of them are doubtlessly doing the math to see just how much they look to gain when they resell in the future in the hope that prices continue to rise.

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