COMMENT: I’m always extremely uncomfortable at being introduced as a “property expert” and prefer to be described as a “property commentator” – a term which more accurately reflects that my views are simply opinions. That’s important because, as much as some of us have been observing the market for a long time, we’re all always at risk at being influenced by our own beliefs and worldview and allowing these to colour our judgement.
In my own case, while I’m proud of the high degree of accuracy of my annual predictions going back many years – I’m also conscious that, occasionally, the views expressed in some of my regular columns turn out to be wrong. For example, in an article I wrote back in October 2020 I made the argument that, while mortgage interest rates would eventually increase from their historically low levels, they would take a long time to do so and that we would have plenty of warning. As predicted, they’re now starting to rise, but at a much more rapid rate than I suggested. As a result they’ve impacted on market confidence which, to a large degree, is why we’re seeing the current uncertainty in the property market.
But as much as I’m cautious about predictions of where the market will go in the future, I’m much more bullish about the views I express regarding what the market has done in the past. Why? Because historical market behaviour provides a rich reservoir of data and knowledge from which we can learn and, while past market performance doesn’t guarantee future performance, it can absolutely provide a valuable guide from which we can draw useful parallels.
All of which is why I was surprised to see a recent article on OneRoof in which readers were advised not to count on prices doubling again over the next 10 years.
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The commentator was referring to a well-known view, among Kiwi property stalwarts, that New Zealand house prices broadly double every 10 years. It’s a view I happen to agree with – albeit with some pretty strong caveats. Firstly, it’s not an exact science. While some parts of New Zealand have, indeed, doubled every decade since the 1980s – others have increased in value much more quickly, while others have grown in value at a slower pace – so the observation is a generalisation.
Ashley Church: “Historical market behaviour provides a rich reservoir of data and knowledge from which we can learn.” Photo / Ted Baghurst
But general or not, the trend is real. House prices in New Zealand have, indeed, increased strongly since the 1980s despite the economic conditions underlying those increases having almost nothing in common over those decades. In contrast to the suggestion, in the recent article, that house prices rose due to a unique set of circumstances – the opposite is true. The doubling of house prices in the 1980s happened during a time of very high inflation and mortgage interest rates (both were over 20%) and high outward migration – whereas the economic environment in which they doubled, in the 90s, was much more benign with inflation down to 4% and mortgage interest rates down to around 12%.
By the time we hit the 21st century interest rates had dropped even further and the immigration outflow was starting to turn into an inflow – and, of course, over the last ten years, inflation has been extremely low, mortgage interest rates have dropped to historically low levels, and inward migration has turned into a torrent. Yet, despite these very different conditions, house prices have continued to broadly double every seven to ten years – a fact which was overlooked in the article because it only focused on the period since the early 2000s.
So will this trend continue? Will house prices continue to rise strongly in the future or have we seen our last doubling?
No one knows for sure. Certainly, if steadily reducing mortgage interest rates have been the main driver of house price growth over the past 40 years (a view I agree with) then the current OCR rises, by the Reserve Bank, will act as an inhibitor of house price growth for a while. But we’ve seen spikes in mortgage interest rates before and we know that these didn’t hold back house price growth – so I’m still of the view that what we’re experiencing right now is a reaction to specific events rather than a fundamental realignment of the market.
If I’m right, the regional markets will stay flat for another two to three years – but the Auckland market will show signs of life, again, well before that.
Only time will tell.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
