David Whitburn

Before I jump into my next blog on New Zealand house prices, we have scored a remarkable 1-1 draw against Slovakia.  The highlight for me was the perfect Shane Smeltz cross and then a powerful Winston Reid header to score this vital goal in the World Cup, which meant that the mighty All Whites claimed New Zealand’s first ever FIFA tournament point.  I’m supporting our country in the football World Cup, and know most readers will be doing so too.  Our next game is at 2:00am Monday 21 June against Italy – thank goodness for replays and MySky.

Now it’s time to review what the market has been doing recently.  Here are the latest house prices to May 31 as reported by the Government Valuation agency, Quotable Value.  Over the past 12 months from 1 June 2009 to 31 May 2010, New Zealand’s average house sale price has gone up by 5.6% to $403,070.  This is an interesting statistic as it shows a decline in the rate of annual change, meaning last month nationwide house prices fell.

It was the first decline in the annual change since March 2009, since the rate of annual change was 6.1% to in the 12 months to April 30th.  Nationally, values are now 4.1% below the market peak of late 2007, which is also down from the 3.9% reported from the 30 April 2010 statistics.

Regional Breakdown

My prediction is for a cold winter both temperature wise and house price wise.  The Reserve Bank is raising the OCR which will cause interest rates to eventually rise relatively sharply, and credit criteria with our lenders is very tough, especially when compared to the prevailing conditions of late 2003 – early 2007.  There is a lot of fear and uncertainty around still in light of the continuing global financial crisis, particularly in light of Greece being downgraded to ‘junk bond’ status and fears of defaults by large banks and countries in the Euro zone.

Where are we in the Property Cycle?

I would note that we are in the downturn phase of the property cycle, and there is still much more time to go.  Property market researcher Kieran Trass and Author of Grow Rich with the Property Cycle (whom I worked with and got a lot of advanced property investment mentoring from, in 2003 – 2004), showed me research that every property slump or downturn, laster longer than the boom immediately preceeding it.  Leading economists from ANZ National Bank Ltd – Khoon Goh and Chief Economist Cameron Bagrie have written and spoken in the past comparing the events of the last 15-20 years, including the last two property cycles.  They have predicted this downturn to last for several more quarters.  I am picking the recovery to begin in late 2012, and currently I predict that the next boom will begin in late 2013.

This will happen on the back of house prices reducing very gradually across the country over the next part of the year. Then wage inflation will help, combined with increased immigration (and indeed internal migration will continue to help Auckland), easing bank credit criteria once the global financial crisis is over, simple supply and demand with the under-building of houses (especially in Auckland where the majority of immigration is to), affordability easing in slight of slightly lower house prices & increasingly higher wages, and higher rents.

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