Housing correction ‘cocktail’ stirring
New Zealand’s housing market is ripe for a double-digit correction over the next four years, but relief is less likely in Auckland despite its lack of affordable property.
The latest forecast from Wellingtonbased economics consultancy Infometrics warns the ‘‘cocktail’’ of falling migration and increasing interest rates could be a catalyst for a housing market correction.
As well as ‘‘stresses’’ on the Auckland housing market, chief forecaster Gareth Kiernan said underlying demand in other regions meant current prices were not justified. ‘‘[W]e see scope for a 12 per cent drop in property values by the end of 2020.’’
Kiernan said that Auckland, despite being ‘‘very, very unaffordable’’, was being held up by a shortage of supply.
‘‘Auckland is the most unaffordable market in the country at the moment, but it’s also one where I’d be less concerned about a correction in house prices than some other parts of the country,’’ he said. ‘‘A lot of regions aren’t starting from the [same] position.
‘‘Yes, they’ve had strong population growth, so demand pressures at the moment do justify a lift in building. But if you do get population growth easing and interest rates pushing up over the next couple of years, at the same time that construction growth is still rising … you get to a position of oversupply.’’
Kiernan said rural areas and parts of the South Island could be vulnerable to a correction.
‘‘Even somewhere like Waikato, where demand conditions are really good at the moment, there’s not the same constraints on land as you’ve got in Auckland and if the market continues to rise for the next 12 or 24 months, it could get a bit far ahead of itself.’’
A correction of 12 per cent by the end of 2020 represented Infometrics’ central view, and while it was possible the fall could be larger, Kiernan said house price falls tended to be modest.
‘‘House prices do tend to be sticky downwards. If people don’t have to sell at a lower price they tend to just sit on it and the market goes sideways for a long period.’’
While Auckland could hold up, Auckland mortgage holders appeared to be ‘‘particularly vulnerable to even modest interest rate rises’’, which appeared likely over the next three years.
‘‘A future rise of 1.5 to 2.0 percentage points … would clearly stretch many borrowers in Auckland and squeeze potential buyers out of the market.’’ –Fairfax NZ