Starting today on OneRoof, a new monthly column on New Zealand's property market by BNZ chief economist Tony Alexander.
Each month we receive data on house price movements around New Zealand from three different sources.
Before 2008 there was really just the one source. So these days discussion of house price inflation is never long out of the media.
The most accurate price data comes from REINZ. They tell us that average Auckland sale prices in January fell 0.8 per cent but rose 0.7 per cent elsewhere. Changes from a year ago were 2 per cent down and 8 per cent up respectively.
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Cast your mind back three to five years, when Auckland prices were soaring and the regions were near stagnant.
This generated much angst in the regions and talk of the need to redirect migrants away from Auckland and create regional economic development strategies.
Such talk is far quieter now and no one speaks in terms of Auckland falling behind and needing special assistance.
For Auckland, the housing cycle peaked late in 2016. Since then there’s been a 20 per cent fall in sales and near 3 per cent fall in prices, attributable to net migration flows peaking mid-2016, the 40 per cent investor deposit rule from July 2016, and Auckland simply reaching the end of its cycle.
Since late 2015, however, the regions have been embarking on a lagged catch-up to what happened in Auckland, with driving forces being investors looking for yield and locations where they can manage a 40 per cent (now 30 per cent) deposit, young buyers seeking an affordable home, and Auckland retirees freeing up cash.
With the ban on foreign buying since October, investors wary of potential new rules about ring-fencing of cash losses, and a slight chance of a capital gains tax, Auckland’s market is likely to remain steady-ish until perhaps three years from now.
After that time or thereabouts a new upward cycle of lesser magnitude than the last one is likely to start.
What might be the trigger? Not interest rates being cut after rising between now and then, because the global rates cycle looks like it has already peaked and our own central bank sees mild rises here come 2021.
There might be some support from the migration cycle eventually turning upward, but before then there are further declines in flows to be experienced — and that is something important people need to take on board.
Statistics NZ nowadays calculates the net population boost from migration flows, using estimated outcomes rather than what people write on arrival and departure cards — because the latter no longer exist.
Some people have become excited about new data suggesting a net migration flow in the past year to just over 40,000, versus just above 60,000 using the old numbers. Does this imply Auckland’s shortage is less than thought? No.
Sometimes the new numbers are above the old. In fact, since the start of 2001 the old numbers show a total population gain for NZ from migration flows of 486,000 people. The new method shows 506,000. Bigger, not smaller.
Eventually, population growth pressures, offset against a construction sector unable to deliver the number of houses people want, will be the main reason prices start rising again — eventually.
As for the regions, momentum remains strong. But we can see early signs of the heat starting to ease off when looking at changes in house price inflation rates.
Over the past three months the number of days taken to sell a dwelling outside Auckland was 1.3 times longer than a year ago.
Sales growth has eased recently in Northland, Waikato, Manawatu-Wanganui, Taranaki, Wellington, Nelson, Canterbury, Otago, and Southland. The changes so far are minor so there is no basis for arguing regional weakness.
But as the year progresses we expect the regional prices surge will slowly fade. But then things get interesting.
After the regional flattening we expect the old relationship between Auckland and the regions to re-establish itself.
That is, Auckland rising coinciding with the regions rising, Auckland weakening correlating also with regional weakening.
That means, whenever the next upward leg of the cycle arrives, less divergence between Auckland and the regions than the unusual pattern over the post-Global Financial Crisis when Auckland surged but the regions barely budged initially.
- Tony Alexander is chief economist for BNZ.
