Minister’s warning on housing
Finance Minister Steven Joyce says three of the key recent drivers of house prices are all set to change in the near future.
Joyce, who took the finance minister role in December when Bill English became Prime Minister, said interest rates at 50-year lows, a supply shortage, and economic weakness overseas boosting net migration had all combined to help drive up house prices.
But he said the tide for all three was turning.
By the end of February, nationwide house prices were 52 per cent above the previous peak in the market in 2007, according to figures from QV.
Price rises appear to be tapering off, rising just 1.1 per cent in the three months to February 28, with falls in Auckland and Hamilton.
While he stopped short of predicting a correction, Joyce said changing dynamics would undoubtedly affect the market.
‘‘Interest rates are going to go up at some point. Bond rates are about 1 [percentage point] up on where they were a year ago,’’ Joyce said, echoing warnings of economists in recent weeks.
Joyce also pointed to an all-time high in work in progress in the construction sector.
‘‘There’s undoubtedly a big [housing] supply response.
‘‘We can debate about the size of it but it’s the biggest thing we’ve seen in this country in real dollars.’’
New Zealand’s economy was still expected to grow, but the relative outperformance against other economies, such as Britain, Canada and especially Australia, could diminish.
‘‘And these other economies are starting to lift,’’ Joyce said.
‘‘So all three things are going to change over the next little while, maybe not massively, but they are going to change and that will have an impact on the housing market.’’
The changes would have different impacts on different regions.
While Wellington – which has seen a boom in house prices much more recently than Auckland – was still ‘‘catching up’’, there were signs that the Auckland market was ‘‘softening’’, with prices now about the same as they were nine months ago.
‘‘While you can never pick the turn of the market, [people would] be mistaken to think they [house prices] will keep going up the way they have.’’
Meanwhile Joyce predicted factors which were making it difficult for some people to get into the housing market would protect the construction and finance sectors in the event of a downturn.
Tighter controls on the banking sector by the Reserve Bank had limited the role of mezzanine finance, and constrained lending growth generally by the banks.
‘‘You’re seeing a more measured expansion, which makes it a bit tough for some people getting into housing and so on [but] it’s a sustained construction response,’’ Joyce said.
‘‘I doubt you’ll see the same boom-bust cycle which you’ve generally seen in the construction sector [in past cycles].
‘‘The banks are being a bit more cautious than perhaps they would have been this time in the last cycle.’’