- 31 January, 2018
- CoreLogic, Real Estate 2018
Consumer confidence held up quite well through 2017 but is looking like its feelings are a little bit hurt as we move into 2018. The weakness in the property market will be affecting that, but the strength of the labour market is holding it up, and that should remain relatively strong in 2018.
A major influencer on property values is mortgage interest rates. As has been well covered, a key part of those is the official cash rate which is tipped to stay on hold for 2018, but many economists are picking some upward pressure on mortgage rates due to the cost of funding for the banks.
So, plenty of macro-economic factors pointing to property demand remaining relatively constrained in 2018, but of course significant constraints on the construction industry remain, so supply will still lag. While there are ambitious Government targets to improve overall supply, particularly in Auckland, it’s unlikely that things will happen fast enough to massively improve the current demand/supply imbalance.
And don’t forget the CoreLogic research released in the middle of 2017 which exposed that the actual increase in stock (6,000 units in 2016) is far behind those being consented (9,000 units in 2016). This is partly because the demolition of old properties to clear space for new properties isn’t taken into account with the ‘building consents issued’ measure.
So, while building consents provide a high level health check of the construction industry, and they are trending upwards, they’re not always telling the whole story.
In Auckland we’ll probably see values remain relatively flat for most of 2018, barring a local or global economic shock. With more properties available, the fear of missing out has been removed - taking with it the previous upwards price pressure. People can once again save faster than the growth in property values (so waiting can actually pay off), plus it’s harder to secure funding…all adding up to constrained demand.
Elsewhere we may see value growth continue a bit longer, particularly in Wellington and Dunedin where there remains a shortage of available listings and where the growth phase took a little longer to kick in than places like Hamilton and Tauranga. These centres will also likely see a period of consolidation as unaffordability starts to bite.
Christchurch is a city all on its own in terms of where it’s at in the property market cycle. It’s been more subdued throughout the last few years as it matures from the earthquake rebuild. There is still substantial development in the region, despite passing the residential construction peak. There are concerns of over-supply in some parts of the region but it doesn’t appear to be wide-spread, which should mean relative stability for 2018.
In our smaller centres, debate remains as to whether the strong growth of 2016/17 was actually warranted. Some areas have benefitted from being in close proximity to larger centres, while others had stronger local economies to justify growth. Local knowledge is unbeatable in every case. But on the whole, migration to these areas has slowed: jobs drying up and value growth made property less affordable. So, with the upwards pressure on mortgage interest rates having the same effect as anywhere in the country, it’s unlikely the strong recent growth will be sustained.
So long story short, NZ’s property market may very well have concluded that it’s time to settle down for a year of re-evaluation and reflection, after a few spent living it up like a 20-something on their OE.