As capital growth in the residential property market continues to diminish and media reports hypothesise about the likelihood of a downturn, there is a growing need among buyers and sellers for more solid information to understand where the property market is heading next.
The CoreLogic research team has been forming a real estate sales volume prediction model to provide a guide to future market activity.
The data we entered ranged from GDP to unemployment, interest rates, wages and migration. The prediction model indicated that sales volumes would stay at about the same rate they’re at now: roughly 83,500 sales this year and 82,500 in 2019, a drop on the 85,000 sales last year.
Super boring, when we know extreme opinions sell, but that’s what the model tells us.
Start your property search
But now we apply our “adjustments”, or alternative scenarios. The overwhelming potential pressure is downwards, with a number of measures reducing demand, either intentionally or otherwise. We have:
There are a few things which may increase demand, including the possibility of shared equity schemes to help first-home buyers and the potential relaxation of the LVR limits, but it’s unlikely these will do enough to counter the downward impact of those listed earlier.
So, with so much downward pressure, the question is whether there will be a more significant drop in sales volumes (and consequently values).
The good news for those in the industry is that a lack of supply, high migration (despite it reducing), historically low interest rates and an ingrained mentality of property investment all provide a solid floor supporting the market (both volume and value wise).
We can hypothesise different scenarios. For example, we estimate that a gradual lift of 1 percentage point in mortgage interest rates by the end of next year could see a further reduction in volumes of roughly 7000 to 75,000 in 2019.
This would be lower than anything we’ve seen in the past 20-odd years, and then probably be accompanied by further intervention to push things in the other direction (or at least hold things up).
The reality is that almost every day there’s a new announcement or piece of information that could influence the property market, and a lot of people have a stake in it.
Having solid data to help us sift through the conjecture and potential bias is crucial, and our first sales projection model provides a great head-start.
Nick Goodall is head of research at CoreLogic NZ.
