Prices and Pressure and Prices
These are strange times to be in Real Estate, generally the country suffers pretty static growth; even the strong 1.1% growth for the last quarter proved largely to be inventory that failed to sell through. We muddle along, bouncing on the verge of zero growth and yet houses zoom ever upward, every day comes news of some recent sale that astonishes.
There is very definite preferences starting to show, the brick and tile, one level, well presented homes on easy care sections are attracting incredible purchaser attention; particularly if they are in the sub $700,000 price range. On a recent weekend we held 2 half-hour open homes on such a home and attracted a phenomenal 72 groups who attended, generating 5 offers, another attracting 50 groups and an astonishing 9 offers! Incredible!
The NZ Herald on 2/7 that for the first time since January 08, an appalling time in real estate, the inventory of homes available for purchase dropped to below 30 weeks, ( some 27% below the long term average of 41 weeks).
Commentators all agree that it is a sellers market, there’s a surprise, comment in the same paper notes “Price surge pushes central city homes out of reach”, it is not just the central city and it is not a recent condition. I do not believe that it will be a short-lived situation either and expect that the causal reasons will be with us for a good 3-4 years.
Tony Alexander opines in his latest newsletter that immigration figures are possibly about to turn positive again. A net loss of 4000+ (to Feb) may well be the peak and see a return to the 15000+ average inflow of the past 10 years. Other than the mining related Aussie market, things are not all rosy in our biggest destination, Europe is ailing and the US growth seems to have stalled. It is probable that our outflow will slow and our inbound numbers will increase as life in our land looks better and better by comparison.
When we look at the causal factors we have:
• An established chronic shortage of homes. Pressure on stock.
• Building consents are at approx. half the levels required to keep pace with organic population growth, and have been since ’07. Pressure on stock.
• Distinct lack of available land to build homes upon. Pressure on stock.
• Sections available are expensive, $300,000+/- is pretty much the base. Pressure on stock sub $750,000
• Building costs have markedly increased driving prices up. Pressure on cheaper homes.
• Mezzanine funders, the primary finance source for developers, have largely disappeared, as have the developers who used to create the new homes and subdivisions. Pressure on stock.
• Weekly rents are on the increase. Attracts new entrants to the rental market, increases pressure and demand for homes.
• Some highly borrowed investors are selling, and have sold; their properties as tax deductions disappear; increasing pressure on stock and rents.
• Mortgage money is cheap – 3 yr. fixed at 5.75%. As long as the Europe shambles continues we will have affordable money. Aussie banks are seen as a safe haven internationally, money will be available. Equally the Reserve Bank evidences no significant inflationary pressure; ergo the base rate is unlikely to go up anytime soon. Pressure on Stock.
• These constrained times have become the new “norm”, adjustments have been made and the population in general is ‘getting on’ with the business of life. Pressure on stock.
• The boomers have adjusted and are in the market for the 3Brm, 1 level little luxury jobbies I alluded to in the previous e-news. Ironically often purchasing homes that have served the identical task for the preceding elders as they wend their way to retirement homes etc. Pressure on stock.
• Immigration is likely to return to long term averages. Pressure on stock.
Feel free to disagree, discount any point you feel does not apply, there is no policy or plan I can see from local or national government to alleviate these pressures on available stock. There is no possibility of cheap sections; the RMA precludes that, no possibility of ‘affordable’ homes – in Auckland anyway.
Prices are open to dropping if supply becomes plentiful, money becomes expensive to borrow or people do not feel secure enough to borrow. Walt Disney based his business on the fact that there is always a new bunch of 5 year olds, every year, and real estate is the same; there are always new people in every price range who can and will buy. The make up of the buyers does, and will continue to, change; different immigrants come to live etc.
I believe that Auckland property will only become more expensive, less affordable. I sincerely suggest that if you do plan to own Auckland property, probably property anywhere, time is not your friend or ally and procrastination will be expensive.
July 13 2012 05:58 pm | Uncategorized
Marc on 19 Jul 2012 at 11:02 pm #
I’ve seen this movie before (USA) and while I don’t want to spoil the ending… RUN RUN GET TO THE EXIT FIRST.. There’s no shortage of land in NZ, there’s a shortage of income to support this madness. How many of you know people who are now living overseas, or how many of you are living on the edge? Short of letting inflation run wild, prices are not realistic. With that said this bull market probably has a bit longer to run as not all the suckers have bought in yet.
Gavin Hamilton on 20 Jul 2012 at 1:12 pm #
Thanks for your thoughts.
The difference between the US and Aussie/NZ markets is the fact that there exists a huge oversupply of homes in the US and further that a large number of homes were constructed geographically where no natural demand existed.Americans generally hold very high levels of debt too.
New Zealand and Australia have significant shortages of homes to live in whether as rental or as owner occupied, there are huge restrictions and limitations on the placement of new dwellings; that will not change in Aus or NZ.
New Zealand homes are inexpensive on a world market and will continue to be, as a country in a world of turmoil we present an ever improving option as a place to live and raise families. Whether or not property is rented or o/o, some one owns it. If Kiwis cant own, foreigners will. As a people we will be saving and taking responsibility for our future or we wont but someone will own whatever we live in.
In the end you pays your money and back your own judgement; so far the property naysayers are living life with omlette on their faces, folk who ignored them, got on with their lives and own property are doing just fine. When I can buy some of the SOE shares, I will and then be very happy with the mix of shares and property.