Posts Tagged ‘market update june 2006’
Its been a busy year so far and a year where the property market has continued to surge. Whilst some property commentators are predicting a big crash imminently and selling books on the basis of this, and others are predicting 20% capital each and every year for years to come, I think there is a happy middle ground.
We have had Tony Alexander, the Bank of New Zealand’s Chief Economist present to the Auckland Property Investors’ Association (“APIA”) recently. As Secretary of APIA I am pretty involved and passionate about our association. Our membership has rode the waves of property market growth and has swelled in number to nearly 1300 members currently. So it was fantastic to see nearly half of them present for Tony’s excellent presentation at the Ellerslie Convention Centre.
Distilling the key economic information down to the most relevant parts we have:
- just 33 days as the average sale time to sell a house in New Zealand
- immigration just under 10,000 (down from 43,000 in the 12 months to May 2003)
- floating mortgage rates around 9.5% denting affordability (in February 2004 I had some debt floating at 7.05%)
- low unemployment at just 3.6% (after an impressive 16% jobs growth from 2000 – 2005)
- Affordability is a big pressure, with average house prices to annual household income above a 9:1 now
- March quarter of 2006 house prices rose just 0.8% in NZ, which is the weakest since the October 2002 quarter (although higher growth in Auckland with April 2006 median at $387,250; and $305,000 for NZ in April 2006 as per REINZ statistics that a good agent friend dug up for me 2 weeks ago)
So what this means is that the fundamentals indicate that the market should be easing off, and that the boom is nearly over. However the housing market is built on emotion – the various property programmes, My House My Castle, House Trap, Mitre 10 Dream Home etc are still rating well. Emotions are not always built on common sense, thoughtful and careful analysis of key economic data and such like. In addition there is a flood of credit and it is comparatively easy (compared to 4 years ago) to obtain a home loan. Banks know property is pretty safe. And in America they are lending to pretty much anyone that can write their name and get a good portion of their signature correct!
A colleague over their talks of NINJA loans for people with no income no job and no assets. I personally think these are a house of cards waiting to tip over, and will damage their market, but then again maybe that is my conservative background coming into the mix.
So I predict the rest of of 2006 to have solid growth and the boom to be over early 2007. I think that because of the fact that the housing market is built on emotion that the market may still go up a little bit further once the boom is over, as the shoeshine effect will kick in, and people at summer BBQs to welcome in 2007 will talk property. Sadly some will buy at retail prices in 2007 as the market is on a high, thinking that they will make more money as the property market only ever goes up. They will have forgotten that 1998 and 2000 where actually negative equity years, and 1999 and 2001 were hardly ‘vintage’ property years either. These ‘late’ retail purchasers will lose money and become disillusioned and sell their property in 2008 or 2009 at a significant capital loss.
So lets watch the market closely and see what happens. I don’t want to put you off property with my opinion, I just want to remind you that the market is cyclical and can’t go up forever. It is a good time to buy a property if it is below value and you add further value to it, and of course if you can cashflow it and sleep at night!
David Whitburn LL.B BSc