Property Institute Tells Homeowners What to Expect

Property Institute of New Zealand Chief Executive Ashley Church has moved to reassure kiwi homeowners about what to expect from the property market over the next two or three years saying that what lies ahead is ‘mostly predictable’.

Mr Church was responding to recent reports that property sales volumes have fallen by 24%, nationally, over the past 12 months and that house prices are levelling off in most parts of the country.

Mr Church says that this is largely the result of the Reserve Bank Loan-to-Value restrictions which were first introduced in 2014 and subsequently increased in 2015. He says the restrictions are an ‘artificial constraint’ and that there is still some question over whether they have ended the boom or merely temporarily slowed it – but he says his advice for homeowners is the same either way.

“We’ve been here before, many times – and we know what happens next”.

Mr Church’s advice to homeowners is threefold:

1. Don’t panic – house prices aren’t going to collapse. While there may be small pockets of the country where prices drop a bit more dramatically - history shows that kiwi house prices tend to settle, rather than drop, at the end of each boom. You need to go back to the mid 70s to find the last serious collapse in kiwi house prices – and that was driven by a series of factors that simply aren’t present in the current housing market.

2. If you don’t need to move anytime soon - current market prices are largely meaningless to you. Typically there can be as few as three years and as many as five years between kiwi property booms – so if you’re not moving house you can safely ignore the next few years and wait it out until the next one comes along. Which it will.

3. If you do need to sell soon - try and time the sale of your home to coincide with the purchase of your next one. Unless you bought your current home in the last six months you’ve probably done better out of capital growth than any small variation in value caused by the softening market – but you can further minimise this by buying and selling at the same time. If you’re selling for a little less – you’ll also be buying for a little less.

Mr Church says the speed at which the market takes off again will be determined by decisions of the incoming Government, the Reserve Bank, Trading Banks, and Councils - and he predicts the following:

• Changes to immigration targets won’t solve the housing crisis. Regardless of who wins the election – immigration targets are probably going to be lowered. If Nationals wins, lowering those targets will be part of the price of a coalition with NZ First. If Labour wins, the same applies – and they’re also wedded to their own campaign commitments to lower targets. This will slow down the pressure on housing – but it won’t solve it as the backlog is already around 40,000 homes in Auckland alone.

• The LVR restrictions will come off at some stage over the next 12 to 18 months. The incoming Governor of the Reserve Bank will probably ease, or drop, the restrictions on home buyers – but will be ready to clamp them back on if prices look to be getting out of hand again.

• Bank Mortgage Lending restrictions are here for a while. The current ‘rationing’ of mortgage lending, by Banks, is being driven by a mix of Australian Banking regulations and a desire to create a more ‘sustainable’ mortgage market where lending matches the availability of funds from New Zealand depositors. Expect this to continue for a while – although it would only take a change in policy by one Bank deciding to aggressively chase market share and this could quickly change.

• Mortgage interest rates are still on the way up – but not as quickly. While there is still an expectation that mortgage interest rates will increase – the consensus on the trajectory of that increase is longer.