Where we are, where we’re going and what this means for you…

  • 10% growth reached

First and foremost I want to wish you all had a Merry Christmas and a Happy New Year. It’s great to look forward to a new year and the challenges it will bring. Diana had a total knee replacement on the 14th December so our break was based around her recovery. She has been back at work three weeks later so good on her for having the heart of a lion and being the model patient!

Looking back on 2015 it was a huge real estate year and the market has moved strongly. Corelogic have released their December figures and there are a few surprises.

Firstly Whangarei has entered double digit property growth with the chart below showing 12.9% growth year on year. The increase is in line with predictions I made earlier in the year at an increase of over 10%. But I have to admit 12.9% is higher than I predicted.

The question for 2016 is, where it will go next? As boom markets are rare it’s hard to predict based on past evidence. What I do predict is that it will continue to rise as prices are still a long way from where they should be (See September newsletter or go to Blog link at bottom of page for reasoning). The average price in Whangarei according to Corelogic is now $380,592. To catch up with the trend line, as Auckland has now done,   prices needs to move to around $500,000.

The figure of $500,000 is based on QVRP figures which show a better average price in my opinion. If you use the REINZ figures then the catch up figure is $450,000. One shows the average price and the other the median price. Both figures show growth.corelogic graph

  • 2106 predictions

So How Fast Will Prices Rise in 2016?

The answer is faster than they are now!   12.9% growth is going to look slow next year. As you can see from the chart Hamilton has hit 19.5% and Tauranga has hit 18.2%.  Auckland is now at 22.5% but may have reached a growth peak as the rate of growth is slowing. All three provincial centres are still accelerating in terms of their growth rate. It seems hard to believe now, and I am reluctant to put it in words for the fear of being wrong, but all the evidence points to a growth rate next year, for the Whangarei market, of 17.5-22.5% possibly higher. It depends on whether the growth happens quickly over a year of slightly less quickly over two years.  My guess is it will take two years, although 2016 will show a greater proportion of that growth. The growth will follow a bell curve hitting a high and then slowing down.  The peak of the bell curve should be towards the end of next year.

By the end of next year I would expect the average house price in Whangarei at 20% growth, to be $456,000 – a price increase of over $76,000.

That will still leave another full year of growth of over $50,000 in 2017 before we hit the natural values line of $500,000. Of course the line will have shifted upwards by 2017 and the natural values line will be higher at $540,000 so there is actually $90,000 of growth left by then.  As in any boom style market the chances are very high that we will overshoot the natural level and 2018 will also be a good year.

To put these figures in perspective, if we take the QV current average house price of $380592 and multiply that by the current growth of 12.9% then we have Whangarei properties currently increasing by $4,091 per month or $944 per week.

However If we look at the predicted range of 17.5-22% ( 20%) then we will see the average property increasing in value  in 2016 by $6343 per month or $1463 per week .

In 2017 average house values will be $459,000 so taking a slightly slower growth rate of 15% will see house prices increases of $5,737 per month or $1324 per week.

It’s a great time to own property.

  • 2017 predictions & Possible road blocks to prices rising

In 2017 average house values will be $459,000 so taking a slightly slower growth rate of 15% will see house prices increases of $5,737 per month or $1324 per week.

It’s a great time to own property.

So what could go wrong?

There are a lot of potential factors that could impact prices over the next few years. I will name a few but there are a lot better sources than me to explore these.

  1. Another Global Financial Crisis, like China or the USA having a meltdown.
  2. Donald Trump getting his finger over the nuclear launch button,
  3. The Reserve Bank whacking interest rates up, a new building technique or material that allows cheaper housing.
  4. A dramatic drop in the fees/ cost of subdividing and building,
  5. A major rise in the price of oil, Increasing tension in the Middle East, Auckland housing prices collapsing as the media have been suggesting for the last 9 months.
  6. All of these are possible scenarios (some are happening), but in my opinion unlikely to dramatically affect our New Zealand market, some events would strengthen it. “Which is more likely …? That Auckland’s prices come down to the levels of the rest of the country? Or that the rest of the country starts to catch up with Auckland?
  7. If the rest of the country continues to chase Auckland’s prices, as is happening now, then the chances of Auckland’s prices dropping, reduces significantly as the gap closes. Based on the Core logic figures Hamilton’s growth rate for December is 19.5%. That’s only 3% lower than Auckland and closing fast. In the past Auckland was growing at 300-500% faster than the same provinces. It is very likely the provinces growth rate will pass Auckland’s this year as they begin the catch up cycle. Auckland prices are not actually dropping, it’s just the rate of growth is slowing as they pass the peak of the bell curve.
  8. The lesson learnt out of Auckland is, not that prices come down as land supply increases but that the builders, developers and suppliers of materials all increase their margins so there is no drop in prices. Until the current housing demand is satisfied prices will continue to rise. Why would prices drop when there are buyers out there willing to pay the money?   I come back to a comment I made at the beginning or the year.

Rotorua

In the last Newsletter I made a note that I thought Rotorua had to be ready for a growth spurt and I see that house price growth has hit 9.3% this Month which is a massive increase on the 2.3% growth a couple of months earlier. It’s not my market, but if I lived in Rotorua I’d be looking for a rental right now.

  • The contribution of the 65+ age group.

happy penioners

Pensioners are adding value to the Country?

From a survey of 8000 people in 2013 NZGSS found the following.

  • One-third of people aged 65 years or over (65+) said they, or their partner, provided support to family members aged under 18year of age who didn’t live with them, according to the 2012 New Zealand General Social Survey (NZGSS).
  • And 15 percent of older people provided support to 18 to 24-year-old family members who didn’t live with them.
  • People aged 65year+ provided money, a place to stay, and help with childcare to younger family members who didn’t live with them (excluding their own children). Money provided to those under 18 was usually spending money or an allowance, while for 18–24-year-olds it included educational costs or text books. For family members aged 25–64 money was given for bills or debt.
  • Just over one-fifth (21 percent) of people aged 65+ provided help with childcare to family members aged under 18 years.
  • 12 percent gave this help to family members aged 25–64.
  • Of all people aged 65+, 6 percent allowed their 18 to 24-year-old family members to stay in their home some of the time; 16 percent provided a place to stay for those under 18.

Tip #1   Goal in life… Live long enough to be one!

  • The risk of going Guarantor

One of the saddest sales I was involved in was a retired couple who helped their grandson set up a business by going guarantor. The grandson went broke, took off to Australia, leaving the Grandparents with an $80,000 loan against their house. What many people don’t know is that a guarantee is not just for the loan amount but includes penalties and any unpaid interest and debt accrued. The amount owed to the bank may be double what was originally guaranteed.

We got involved when this property was being put up for mortgagee sale. Fortunately, with family help, we managed to refinance the grandparents. However this delightful 80 year old couple now has a significant mortgage on their property in their retirement years. You can imagine the strain they are under.

Tip #2 It’s a lovely thing to help out another person, and bless you for having the heart to do it, but if it involves your own home get good independent advice before you commit.

Cats and dogs

 

These are restrictions the Whangarei District council are applying to most subdivisions that include any bush. Basically it means anyone buying the land cannot have a dog or a cat as a pet. It might be a big advantage to the native birds in the bush but it’s a huge disaster for everyone else. Properties with these covenants are very hard to sell and frankly the covenants often get ignored. One of the main reasons the developer of the  “Golf Harbour” subdivision in Maunu went broke was because the “cats and dogs” restriction made the properties very hard to sell and still do today. If you consider that the bush concerned is huge, 1500ha, and is bordered on three sides by Maunu road, Western Hills Road, and Three Mile bush road with a rough guess saying there are around 800 homes with direct access to this bush, then you have to ask what sense does it make to say, “but you 20 people here can’t have the same rights your neighbours do.”

If you lived close you could take your dog for a walk along any of the streets where these covenants exist but if you actually lived in one of the houses then it is “No dogs or cats for you!”

Further towards town if the “Pukenui ‘gated subdivision half way down the Maunu hill is a reasonably new subdivision which also has “no cats and dogs” conditions because they back onto the same Pukenui Forest. Like many of these more unreasonable restrictions, people tended to ignore them. So there were a reasonable number of cats and dogs roaming around the subdivision. The council has decided to enforce the restrictions and these naughty evil pet owners have been given a time lined ultimatum to get rid of their pets or face the consequences.  Guess what!  If you drive through this community today you will find lots and lots of “for sale” signs. Rather than getting rid of their pets these naughty people are getting rid of their houses.

A person I know was considering subdividing their bush block into two. It could be done but both, the new section and the existing section with the existing house on it, would then have Cat and Dog covenants on them. The person currently has both Cats and Dogs. They would have to get rid of them as part of the consent. This is unreasonable and stops growth in the area. The end result is they are not going ahead with the subdivision.

The consequence is that the bush surrounding their place will continue to have no protections. The dogs can roam free through the bush, whereas with a little compromise the bush could be fenced off and these areas could be a dog free at least! Good luck trying to make it cat proof!   Pest plans to eradicate opossums, rats and stoats could go ahead as could plans to eradicate invasive weeds.  So the end result of the WDC policy is that instead of having improved protections for the bush the bush has no protection at all. It’s a good example of where the legislated intention to protect and conserve nature is thwarted by what actually happens in life when the good intentions of the legislators hit the hard realities of practice.

HJR Logo

A New Rental Feature.

Because Harcourt’s have access to such a large database of information through “Harcourt’s Just Rentals”, I want to introduce a new feature to this newsletter. This will be the average rental price paid by tenants to “Just Rentals.” This figure is not a breakdown of rents by bedrooms, just the average paid.  It will give a good indication of where rents are heading, up or down, and how fast.   The figure for the end of November is $346 and December $350.55 which shows a 1.3% increase over just one month. This should be the beginning of a trend as rental prices start to catch property increases. I will start to graph this figure as more of this original data becomes available.