Too soon to say boom is coming back
In 2011 I predicted that the Auckland house prices, which had been in the doldrums since 2008, would start picking up and would roughly double by 2016/17.
Responders called me na¨ıve, delusional and irresponsible for raising the hopes of people who had seen the value of their homes languish for several years. My prediction proved to be accurate — but the initial hostility was understandable. Even in 2011 there were still suggestions that the market was about to crash.
It’s against that background
Buyers and sellers shouldn't get too excited over predictions of house price rises in 2020
that I’m treating the latest predictions with caution. These have mainly been based on reports of Westpac’s prediction that house prices will rise by 7 per cent in 2020.
To be fair, Westpac isn’t using the word boom. That suggestion is coming from other quarters who point to seasonal sales figures, lower interest rates, relaxed Reserve Bank rules and the ongoing shortage of housing as evidence that the next property boom is at hand. In my opinion, it’s simply too soon to be making that call.
First, lower interest rates and a reported shortage of housing have been with us for quite some time, yet the market has been flat in Auckland since around 2017. So these factors, on their own, haven’t been enough to boost activity.
Yes, there’s evidence investors are back in the market and taking advantage of the Reserve Bank relaxation in the deposit required to purchase an investment property — but that activity is nothing like the volumes during the height of the last boom. It’s also worth noting that, despite claims to the contrary, property investors don’t typically drive house prices up — they’re generally looking to pay as little as possible so as to maximise the value of their investment.
Most tellingly, the projected annual increase of around 7 per cent needs to be reviewed more critically. Firstly, it’s almost exactly the uniform annual rate of growth which would be required if house prices were to double over 10 years (the "rule of 72" tells us that the value of something will double in 10 years at an annual growth rate of 7.2 percent). And since we know that house prices don’t increase uniformly, it’s more likely to be a statistical blip than a pattern.
The current lift in activity is seasonal If I’m right, Auckland house prices will start a sustained period of growth in mid to late 2021 or early 2022, increasing until around 2026-27, at which time house prices will be between 70 per cent and 100 per cent higher than they are now.
- Ashley Church is the former CEO of the Property Institute of New Zealand and is now a property commentator for Oneroof.co.nz. Email him at ashley@nzemail.com