COMMENT: Over the years that I’ve been commentating on the New Zealand property market my primary message has always been consistent – focus on the data.
Why? Because, amid a cacophony of opinions and an avalanche of views from commentators telling you what they think the market will do, only the data can be trusted to tell you the real story.
Doing so has led me to express views that are often at odds with the prevailing narrative. At various times over the past few years I’ve written that there is no housing shortage, that houses are more affordable than they used to be, that our home ownership rates aren’t dropping, and that the foreign buyers ban didn’t work – analysis that has not always found favour.
So it’s with a bemused interest that I’ve been watching the various commentary about the plight of the New Zealand property market over the past nine months. A casual observer could be excused for believing that the market is in some sort of freefall and that the sky is (finally) falling after decades of consistent increases in house prices.
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But is that really true?
If you’re sitting in a plane and it unexpectedly drops 30 feet, that’s probably going to seem quite dramatic. But to someone flying in a plane behind you, who has just watched your plane climb 100 feet before dropping by 30, that last fall is going to appear a lot less dramatic. And to someone viewing the spectacle from the ground, the fall is negligible.
That may sound like a strange analogy, but it’s actually a very good illustration of what’s currently happening within the property market. To understand what the market is doing you need good data and enough perspective to see what’s happening, in context.
For the data, let’s use the recent OneRoof House Price Report.
This report tells us that in three months to the end of August, New Zealand’s average property value dropped 3.7%. In other words, a house bought at the start of June is now worth less than it was on the day that it was purchased.
So surely that’s cumulative? Houses prices have been dropping for longer than three months so the annual figure must now look frightening, right?
Well no. If you stand further back and look at housing market prices over the past 12 months, you’ll see that New Zealand’s average property value across has actually gone UP by 4.7%! Yes, you read that correctly. But wait, it gets better. If you look at the housing market over the past two years, you’ll find that New Zealand’s average property value has actually increased by 33.6% over that time.
But how can this be? How can the real numbers be so much at odds with the media narrative? To answer that you’d need to ask the other commentators – I can only call it as I see it.
Of course, New Zealand isn’t “one” property market and the numbers are different in different parts of the country. In Auckland, the average property value fell 4.3% in the three months to the end of August, but is still up 2.3% year on year and a massive 29.1% on the same month two years ago.
To be fair, the news isn’t so good if you’re in Wellington, where the average property value has declined 9.1% over the past quarter and 5.9% over the past 12 months, but even in that region house prices are still up, on average, by 26.5% over the past two years.
Check out the numbers for yourself. You’ll find that, in almost every case, the reality simply doesn’t match the narrative and that talk of big house price decreases and even a property market crash are more wishful thinking than empirical reality.
That, coupled with a settling of mortgage interest rates and a slow but definite easing in credit restrictions (the two things which caused the current downturn) and there’s reason to be cautiously optimistic about where the market is headed.
