House prices nationwide are tipped to soar by 20 per cent over the next four years

Mandy Te and Ripu Bhatia05:00, Jun 16 2019

An ASB survey shows New Zealanders have low expectations of property prices.

After a long overdue pause in the most overheated parts of the market, house prices are again tipped to soar by an average of 18.3 per cent in the next four years.

That is how much Treasury is predicting house prices will rise between now and 2023 – a rise of about $125,000 on the average residential house values cited by Quotable Value for March 2019.

In Auckland that figure is even higher, adding about $190,000 to the average house value of $1.03 million.

For prospective first time buyers like Nelson mother of two Anastazja Fastier, 38, it’s putting the dream of home ownership further out of reach.

Fastier said she and her husband had been saving up for a deposit to buy their first home for the past six years.

They’ve noticed a major increase in house prices in the past three years in the Nelson region where the average house price went from $350,000 to over $500,000.

“We’ve been scratching our heads thinking that maybe if we started saving earlier we would’ve been on the property ladder three years ago.”

She said they are searching for the right house, but noticed that more people are showing up to open homes nowadays.

“I think house prices will increase again when spring comes around. There’s going to be a mad rush and panic.

“We may end up having to wait for a few more years before we find the right place,” Fastier said.

Stricter rules around foreign ownership and loan to value ratios (LVR) have helped slow growth in recent years.

But in this recent Wellbeing Budget, Treasury forecast a return to large increases over the next four years. There is disagreement among property experts on how far and how fast prices will rise.

Senior property economist at property data provider CoreLogic, Kelvin Davidson, said if Treasury’s forecast was correct, it would reflect growth in regional New Zealand.

Property values in some parts of regional New Zealand are already booming – the latest Real Estate Institute report revealed a new record median price in Gisborne, which recorded a staggering 54.4 per cent year-on-year rise to $440,000 up from $285,000 last May. That’s a $155,000 increase, or $2645 a day.

Median house prices across New Zealand increased by 3.2 per cent in May to $578,000, up from $560,000 in May 2018 – and are even stronger once Auckland is excluded, increasing by 7.2 per cent to $487,770 up from $455,000 in May last year,.

CoreLogic said it preferred to use the House Price Index as a comparison, because it measures the value movement of all properties in an area, not only those that happen to have sold in the month.

By that measure the housing market recorded a “slow and steady” rise of 1.8 per cent year on year, but the regions were still outperforming many of the larger centres. Some of that growth is attributed to an exodus of Aucklanders to cheaper locations.

There are signs, however, that the recent fall in Auckland property values may have been arrested, with property values up 0.5 per cent in May, according to CoreLogic.

Davidson is more cautious than Treasury on how fast and how high prices might rise – but agrees that prices are more likely to rise than fall.

“Even if it’s not quite 20 per cent across the mark as a whole, I still anticipate prices rising to some degree,” Davidson said.

“The credit environment isn’t as easy as it has been in the past, so there are still hoops people have to jump through to get those mortgages and that would be the reason I’d be a bit cautious,” Davidson said.

“If you’re a first home buyer or would-be first home buyer who is currently renting and wants to buy – any house price growth is not the greatest for you because it means you’ve got to save that bit more of a deposit.”

“If you’re looking at it from a purely financial point of view, then the incentive is to get in as fast as you can in a rising market.”

However, a house was more than a “financial thing” and other factors had to be taken into account such as budget, location and what felt right for a buyer, he said.

A lot of home owners at the moment were choosing to sit tight and renovate, rather then trade-up, he said.

“Our expectation is that the market ticks along for a year or two, not going too far in any direction – not going down but not going up too strongly.”

Bindi Norwell, chief executive of the Real Estate Institute of New Zealand (REINZ), said Treasury’s forecast was not unreasonable.

The economy was good and despite it being difficult to get funding from the bank, interest rates were low, she said.

With Capital gains tax off the table, people were probably continuing with their purchases, especially investors, she said.

Buying a house was a long term gain so she suggested people took their time and entered the market when it was right for them.

Predicting house prices was extremely difficult, according to Andrew King, executive officer of the New Zealand Property Investors’ Federation.

There were many variables – with human nature being the biggest.

He believed the forecast was on the high side, with properties prices seeming to be stabilising.

King did not think people should panic but suggested it was a good time to get into the market or start looking.

“For people who are investing, there’s not so much competition at the moment,” King said.

People are in different situations and the type of property you buy varies – you have to think about your own circumstances and take into account the political environment.”

First home buyers are being pushed to the rural outskirts of the region by house prices that refuse to budge, according to data from the Real Estate Institute.

Figures released yesterday reveal a 30 percent increase in first home buyer demand in the Franklin region over the last 12 months. Franklin is a predominantly rural area located at the southernmost edge of Auckland.

House prices have meanwhile stagnated, with a median price of $860,000 a slight increase of 1.2 percent from 12 months ago.

More than 30,000 people have already left Auckland for other parts of the country for cheaper housing in the four years to 2017.

Economist Benje Patterson said two thirds of the exodus were to Northland, Waikato and Bay of Plenty, he said after publishing a report on the topic.

Aucklanders heading to the regions caused an increase in property prices in regional New Zealand, but they would also be spending money and adding to the local economy, Patterson said.

A lot of people moving were young and “industrious” with working years ahead of them, he said.

This would keep regional enterprises going in regions where there was an older workforce, he said.

“There is a net benefit for districts even though there is an increase in cost of housing in the short run,” Patterson said.

Patterson encouraged people to not be shortsighted in their decisions and to think about making a “sustainable life choice” instead of just looking at cheaper house prices, he said.