ANALYSIS: Data released this week by REINZ tell us that after falling by 1.5% in December and 1.3% in January, average NZ house prices rose by 0.5% in February. The key point to take from this is that prices are not unremittingly falling. But when you strip out the month to month volatility by comparing the entire three months to February with the three months to November, we see that the price change was exactly 0%.
This compares with a 6.6% rise three months earlier and 3.8% in the three months to August. So, we can say that house price inflation has ended in New Zealand for now and it is reasonable to expect declines on average for much of this year.
The question of course is how much will prices fall. Most of us forecasters think about 10% - which is exactly what we predicted two years ago, and we all know how accurate those forecasts proved to be.
If you are a buyer who has been frustrated in your purchase attempts over the past one or two years, you might be thinking that you are now incentivised to sit back, wait until prices bottom out, then make a purchase. I’d think twice before adopting that particular strategy, for two main reasons.
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First, none of us knows when the price cycle for any asset reaches a peak or hits a trough except by looking in the rear view mirror. No model allows us to pick when prices in Auckland will bottom out and how far they will fall from the November peak, let alone any individual suburb, and certainly not any property you might be keeping an eye on.
So, don’t try to be clever and think you know the optimal month to buy to get the lowest purchase price. I don’t.
Second, price is only one factor in your purchase decision. More important is the ability of the property you buy to deliver the specific things which you want. Think about the list you drew up when you started your property search many months if not years ago. Did you want three bedrooms but you have compromised on that and been searching only for a two-bedroom property?
Did you want a dwelling within walking distance of your kids’ school, your church, local shops, or a train station? Did you cross those attributes off the list some months back?
If I were in the market searching for a property now, I would go back to my original list of desired property attributes and start again – particularly if I were in Auckland rather than virtually anywhere else around the country.
Economist Tony Alexander: “Buyers will increasingly be feeling that time is on their side.” Photo / Fiona Goodall
That is because Auckland has experienced the biggest increase in dwelling supply of any of our cities. The number and range of new properties hitting the market either as presales or finished product is very high. Also, Auckland experienced a 0.1% population decline in the year to June 2021 while the rest of the country grew by 1%. Similar numbers are likely this June year, though eventually superior population growth will return.
Rising supply but falling demand will already be leading some property owners who have been holding out for very high prices to capitulate and put their property on the market. Buyers in contrast will increasingly be feeling that time is on their side. FOMO has collapsed.
The range of properties becoming available for sale is growing and vendors are becoming more willing to accept conditional contracts. Buyers should focus on this boost in listed volumes and increasing vendor acceptance of terms rather than trying to eke out the last 5% of the average price decline whenever that might occur.
- Tony Alexander is an economics commentator and former chief economist for BNZ. Additional commentary from him can be found at www.tonyalexander.nz
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