Money – Property predictions

Over the holidays, around the BBQ, the talk inevitably turns to property and what will happen to prices in 2017. Will there be a crash or correction or will they keep going up? When is a good time to buy? Should we wait as they will get cheaper? I always listen intently to the various opinions, mostly swayed by what they hear and see in various papers on the news and online. I am often asked my opinion on what I think will happen and usually I am happy to add my two cents worth. It is interesting to hear the differing opinions, the doomsayers who think it’s all gone too far and think we are about to have a property crash or those that think it’s going to keep going up and up forever.

In my 28 years working in the finance industry, I have seen three clear property cycles in the Auckland market. Firstly, after the 1987-share market event, we had a period where prices dropped and there were many people who ended up with negative equity, where they had to sell they still had money to repay after the house was sold. This lasted about two years and then prices slowly began to climb again. The next downturn was between 1998 and 2001 where there was very little growth and some values went down, the market remained stagnant for some time. Then in 2002 the market experienced a major lift which saw median prices rise 27% between 2002 and 2004, and then a gradual lift each year right through to the global financial crisis in 2007. The GFC didn’t have as much effect on property as some commentators thought it would and only affected prices for a short period. Those who had to sell may have taken a small loss, but those who didn’t and rode it out didn’t have to wait long for the market to improve.

In 2009, against all predictions, the market started increasing again albeit slowly. It had a couple of hiccups here and there right though to 2011 when, suddenly, the turbo charger kicked in and away it went to where we are now where the average house prices have increased 85% in the past four years. All these downturns were the result of major international events or where we had population decline (the brain drain to Australia).

So where will 2017 take us? Auckland property is driven largely by supply and demand, and the Auckland population is growing rapidly. The Auckland population is increasing by some 40,000 people per annum. In June 2014, we had 1.5 million people in Auckland, by 2030 this will be 2 million. The problem is we are simply not building enough houses. Last year, figures estimated 10,000 consents for new houses were issued (not all built), but we need to build 13,000 just to keep up with population growth and estimates are that we need 40,000 houses now just to catch up on previous years!

So, demand is far outstripping supply, hence the pressure on prices. I believe we will see much of the same for some time yet, until we can supply the market with what it needs there will be upward pressure. This will start to slow as new development land is released and houses are built. The main issue from here on is affordability of mortgages, with average house prices so high we can’t afford the repayments on the large mortgages or meet bank lending criteria that easily anymore. The answer I believe lies in building more affordable housing stock where people can afford the payments and only need a smaller deposit. As always, everyone’s situation is different.