Welcome to the first newsletter of the New Year. It has been great to get your comments about the contents of this publication and your positive comments. The newsletter is copied to our Blog and it too has a strong following. If you want to see older issues check archives on this site.
Warren Ellis the English comic book writer famously said ” I try not to get involved in the business of prediction. Its a quick way to look like an Idiot ”
With this quote in mind we are going to do our best to risk looking like idiots as this issue is entirely dedicated to what to expect this year . To date our predictions have been remarkably accurate with us picking a 10 % property rise for 2015. (the actual was 12.9%) and our predicting a 17.5%-22.5% growth rate for 2016 . (The actual was 24%)
The predictions are based on Diana and my collective 50 plus year of selling Real estate, gut feeling, some statistics and a lot of analysing market trends based on what we know about previous years.
Market Predictions for 2017
We have long argued that we are in fact in a correction cycle rather than a boom. Events happen that suppress the market, such as interest rate hikes and global financial crisis’s but these are temporary brakes on the markets and a catch up cycle will always occur. Over time property values have historically grown by around 8% a year. We have tracked the Whangarei market from 1992 to help predict where prices will be at the end of 2017. We use one set of figures supplied by REINZ and the other by Corelogic. We base the amount of growth in the graph below purely on the REINZ figures as we can access these back to 1992. However during the year we will use the Corelogic figures as these give us a more accurate figure of the average home in Whangarei. For example the REINZ have the Median price in Whangarei as $390,000 as of January this year while “Corelogic” have the Average Whangarei price at $463,000. The difference of around $70,000 is in the way the information is analysed. Medians against Averages. While Median prices are considered more accurate, we note that if you wanted to buy the average house in Whangarei you would have to spend $460,000 plus. $390,000 will only get you the better of the cheapies therefore we use the Corelogic figures as a better reflection of what most people understand as the average.
The graph below is based on House prices rising by an average of 8% per year. The graph shows where these prices should be at the end of the year to fully catch up with the 8% compounding growth . (Red line $517,745) The green line is where prices are at January 2017. This means we are measuring the growth for the full year, but as we only have the first month of the years actual figures so there will be a big gap between the red and green line which will close as the new months data comes in. If we compare Januarys predicted growth against actual January figures then we are $92,000 below the line. The December 2017 figure currently has us $127,745 below where we should be at the end of the year.
The question is “Do we see $127,745 in catch-up growth this year. The answer “Probably not! “ There are definite signs the market has peaked in, that the rate of growth has slowed some. However Corelogic have the rate of growth for Whangarei running at 19.8% for January. If that rate of growth continues then we will see over $90,000 catch up this year . The media are hammering the public with messages that the property market has tanked but that’s not what is showing in our activity levels. Far from it.
The next question is will that rate of growth at 19.8% continue for this year ? . Again. “Probably not”. The first half of the year is the busiest time for property sales. It is more likely the rate of growth will climb back over 20% for a few months and then drop in the latter half of the year .
From what we are seeing locally and in other regional centers close to Auckland we have to be at the top of the growth curve, so just like gravity it has to be heading down. We expect this to be a gradual slowdown with the rate of growth slowing to around 12% by the end of the year . Keep in mind this is still a faster growth rate than in 2015. The big change from last year’s predictions is that we see the slowdown taking a lot longer to kick in, and growth won’t slow to anything close to the inflation rate until 2018 at the earliest. The correction cycle is going to be longer than expected going well into 2018.
Specifically in Whangarei we are anticipating an average growth of 19.8 for the first six months then a slower average of 14% in the second half of the year. We would expect Whangarei prices to be around $70,000 to $80,000 higher than they were last year. That’s an average growth rate in the 16% range. The final catch up to the red line won’t happen until late 2018.
Something to think about is that 16% average growth this year will be close to the same dollar amount of 24% last year . 16% growth on a start line of $464,000 this year is $74,000 while last years record 24% growth on a start line of $380,000 was $91,200. A difference of just over $17,000
Putting our money where our mouth is: – This means the REINZ median price will be around $465,000 by December and the Corelogic Average will be around $540,000 in December 2018.
- Has the Auckland market stopped growing . January showed a drop in Auckland prices according to REINZ figures . This is almost certainly an aberration caused by the holiday season. A lot of people choose not to sell over this period and they are usually the wealthier people in the more expensive homes. Economists such as Tony Alexander ( BNZ) continues to argue that until the supply catches up with the demand there is only one way Auckland prices can go and that is up. While is seems absurd that Auckland prices could go any higher, until there is sufficient supply, the logic is on Tony’s side and as long as their prices rise so will ours.
- We are an increasingly attractive proposition for the increasingly larger numbers of Auckland retirees. Lovely beaches and lovely people. You only need to drive around town and experience the increasing traffic congestion in Whangarei to know the population has grown over the last year and fast. Parking has become harder to find and there is traffic congestion in areas that never had it before. We have more Auckland buyers than we have properties so that will continue to drive prices up. • Interest rates are still at an all time low . We are getting small changes in fixed rates in an upward direction but you can still fix your rate for three year for around 5.5% . That is super low historically with some of us old timers remembering 22.5%. As long as the rest of the world is struggling we cant afford higher NZ interest rates as this pushes up our dollar and that’s bad for the exporters and the economy . • The number of people coming into the country versus those going out is at an all time high with over 70,000 net gain. Sure most of those go into Auckland , but they then buy the houses of those who are trying to get out of Auckland , so the housing boom continues to spread out of Auckland. • The rest of the world ( most of it anyway ) is still in dire straights . NZ is one of the few countries genuinely doing well. It is away from most of the global trouble and is a very beautiful country . Why wouldn’t it be a destination point for people overseas. At home we have just had over 50 days of overseas visitors. One of the visitors sitting in the front seat of my car , while simply driving the what to me is the very mundane State Highway 1 to Auckland said “ At every turn of the road the landscape is just so beautiful” . As Fred Dagg once sung . “ We don’t know how lucky we are “ • We have a very low unemployment rate . There is pressure now to fill vacancies so wages are going to go up. • The Reserve Bank has predicted 1.3% inflation for March this year, 1.6% for March next year and 2.1 for March 2018. Their target is 1-3% . So inflation is very much under control and within the target range and predicted to stay there. • Housing prices love low inflation. Low inflation equals low bank deposit rates, equals alternative investment strategies with housing being the most stable and secure of these strategies. Its sad but true. A low inflation environment is a high house price environment
- Rental demand in Whangarei is at an all time high. We are getting to the stage that we have a chronic shortage of homes and people are scrambling to find a rental. Harcourts Just rentals said rents went up by 15% across all price ranges last year, but they don’t see that happening this year, as the average rental of around $400 pw, is becoming unaffordable for many wage earners, resulting in the current catch-up phase slowing down. However they also note that they have rented out properties recently at $550 pw, which is in excess of the previous years glass ceiling of $500pw
- Building costs just keep rising and as long as they do , existing house prices will keep up.
Sorry if its a bit of a dry newsletter. Lots of the three “F’s” Facts , Figures, and Foughts. We hope the information will help you with your property planning for the year. We live in a changing environment and our reasoning is just as fallible as anyone else’s, so please seek alternative advice and opinions before acting on our predictions .
Someone famous once said “When everyone is thinking alike, no one is actually thinking”