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RBNZ sees annual house price inflation hitting 12%, before easing back to 2%
The Reserve Bank of New Zealand has forecast annual house price inflation will hit 12% by the March quarter of next year before easing back as the combined effects of weak credit growth and poor affordability take some heat out of the market. The Reserve Bank said it was relying for now on higher long term market interest rates, the high New Zealand dollar and a tighter government budget to take the steam out of the economy. It held the Official Cash Rate at 2.5% and said it may hike the rate around the middle of 2010, which is marginally earlier than previous pledges to hold it until the second half of 2010. "Recent quarterly rates of house price inflation are expected to continue over the next six months, with annual house prices inflation forecast to reach double digits by March next year," the RBNZ said in its December quarter monetary policy statement. "Credit does not seem to be constraining housing activity by as much as previously assumed," the bank said. "Low mortgage rates and strong population growth, driven by a net inflow of permanent and long term migrants support this near term house price forecast," it said.
"However, we believe this initial recovery in house prices is unlikely to continue with such momentum. Low mortgage rates are likely to be temporary and a recovering Australian economy is expected to cause permanent and long-term departures to increase. Also, the high cost of houses relative to household income will limit price rises," the Reserve Bank said. It forecast annual house price inflation would ease to 2% in 2011.
51 Comments
If this is the case,
If this is the case, then I might as well give up on every getting a property in auckland, and look to buy a property in Tokyo as it will be substancially cheaper than buying anywhere in central Auckland. And it will have the infrastructure around it so it doesn't matter that its smaller, and you have a greater distance to commute, when you can jump on the fast trains and get to work easily.
If your decision on where
If your decision on where you want to live in the world is solely based on the price of your house, then go for it...
I don't live in Auckland. This is not because house prices are higher there, but because Auckland sucks as a place to live...
The RBNZ referring to housing
The RBNZ referring to housing price increases as "inflation" and not "growth" is most helpful. Lets hope economists and property commentators generally follow this responsible lead.
Hugh Pavletich
Well it makes a huge
Well it makes a huge impact on your quality of life, and the reality is that I can only work in my choosen field in Auckland, or overseas.
The reality of buying a entry level house, often means huge commutes which cost both time and money, and end up making the whole exercise too expensive for the value it would provide.
Not sure that I go
Not sure that I go with that , Hugh . Is it just houses or all investments that you'd attribute " inflation " to , if their price rises ? Certainly house price increases add to the CPI . But I balk at the use of " inflation " in this context .
So I assume that's an
So I assume that's an annual comparison on house prices growth will be for the March on March years ie:March 2009 vs March 2010, published in April 2010? Hasn't a lot of that already ocurred? And where does that take the comparison March 2010 vs the high in late 2007, Bernard? And any projections on how the 2% therafter graphs?
@Brodie Yes, it is all
@Brodie
Yes, it is all the central suburbs that has been driving the price rises.
Mt Albert. Epsom etc. the places that have a reasonable commute timewise are in demand by moneyed up expats and immigrants driving higher than average price rises.
I too spend 2 hours per day commuting to affordable housing so are looking to get out of Auckland. Fortunately I have opportunities in the provinces, it just a matter of waiting for one to come up.
Auckland's biggest problem is that it has the worst public transport of any city i have lived in; too slow, too unreliable, and too little coverage. If you work anywhere other than the central CBD forget it.
I see the sudden surge
I see the sudden surge then slowdown as basic human nature from the vendors point of view, whether you want to call it inflation, or just a return to where things were in 2007.
Once back at that point then you may be able to tell the difference between growth & inflation.
I expect the 12% is based on current prices suddenly returning to old prices due to vendors being more confident that the market is recovering somewhat & hence they are more likely to get the price they wanted 2 years ago - is that inflation ?
I'm not sure how you will tell the difference, but high demand for fewer properties is going to continue to maintain upward pressure on what stock there is, and vendors will continue to drip feed stock onto the market for as long as they can afford to hold.
Why is it that little
Why is it that little 'ol Auckland at the bottom of the world has ridiculous house prices...well it's all the investors out there keeping the prices up, trading amongst themselves or expats coming back into the market with wads of forex...when will the powers that be finally put in a tax structure that subdues this "sacred cow" and treat it as a "true business", not as a vehicle to reduce personal tax for the business proprietor ooops investor
I am not holding my breath though......the pollies have too much at stake personally on this one to change these structures.
Just a quick note: from
Just a quick note: from professional advice received, Kiwis based offshore earning in foreign currencies don't benefit from tax concessions when investing in NZ property (Please tell me if this is wrong). Furthermore, if the RB is right, NZ property must be right up there among the best investments in the world (I can already feel the phlegm building in my throat).
@Roger Thompson housing is not
@Roger Thompson
housing is not a part of CPI
12% increase in median house
12% increase in median house sale price from march 2009 to march 2010 I assume he means???
QV index is up only 1% for novemeber year so would be a stretch to say that will go up to 12% by march, although as a measure of 'house price inflation' the QV index would be better as it shows how the value of a particular house changes.
Median values always go up as new houses (or renovated) sell for much more than old, and money is constantly poured into the old to keep them up to par.
Thankie kindly , Gertie .
Thankie kindly , Gertie . I stand corrected , and humbled ..... nyuk nyuk . But the use of the term " inflation " by Big Al , and supported by Hugh , seems errant to me . Houses increase in price . House price inflation ? B'aint good English if 'ee knows wot I mean .
Hi Roger - I think
Hi Roger - I think you might be getting confused between monetary inflation and asset price inflation (houses are assets). Wikiipedia has a lot to say on the subject....:-
"Asset price inflation is a rise in the price of assets"
Fair do . You are
Fair do . You are right . I am wrong . Yet I have the big bag of gummy bears . Who won ? Ahhhhhhhh , sugary sweet gooey goodness ...........hmmmmmmmm
Well its good to see
Well its good to see investors who choose safe real estate are still supplying homes to tenants, still receiving the same rents they received in 2007 and the price of their real asset hasn't changed. Thats certainly good news for property and home owners across the nation. They will be pleased they weren't heavily invested in the NZX or finance companies.
House price inflation feeds through
House price inflation feeds through fairly quickly into the CPI through the wealth effect.
NZers just love to spend those capital gains.
Bollard being saved be imported deflation at the moment.
In fact, fuel price decreases are due to fall out of the inflation figures, so either this quarter or next the figures will not look good.
Non-tradable inflation has been stuck at 3-4% for years now.
Bollard is mad if he
Bollard is mad if he thinks there's going to be a 12% increase in house prices between March 2009 and March 2010 - and even if he does think that will be the case - he most certainly shouldn't be advertising it ... as nothing could be further from the public interest IMO!
Giving people any amount of confidence to borrow more in this day and age is almost criminal. Ask any underwater homeowner in the US.
I think it down right disgusting that Bollard has changed from his precautionary tone associated with the blatent over-indebtedness of this country.
On every economic measure - this country is going backwards, yet the RBG comes out and says "house prices are going up" - who IS he working for?
Bollard's self fulfilling prophecy!
Bollard's self fulfilling prophecy!
yeah, 12%, Bring it on!,
yeah, 12%, Bring it on!, then my equity will be just over 20% :-)
Good on you, greedy, and
Good on you, greedy, and if you've got a mortgage I'd sell and take the gain while you can - and while it's tax free!
:-)
Bernard, time to correct your
Bernard, time to correct your 15% price fall prediction too?
RBNZ now predicts that prices will be back to 2007 levels early 2010 and slowly upward from there.
That 30% fall is way out the window now BH. Weren't median prices meant to be about $245,000 about now? But I guess in March you weren't predicting stocks to be up 15-20% for 2009 calendar year (+60% from March) either, haven't heard much talk of the "greater depression" recently or whatever the catch phrases were at the start of the year.
Time for some end of year concessions?
I came across a nice
I came across a nice quote that sums up Bernard's sticky year!
"The industry quickly forgives a bull who is wrong whereas an erring bear must be hunted down, hung, drawn and quartered."
Chris-J seems to lend truth to that quote.
Kate, we are already virtually
Kate, we are already virtually at the +12%. REINZ medians were down nearly 10% but now are back above their peak, QV numbers have a 2-3 month lag they expect them to be up by a similar amount soon.
Expect a good stable market beyond that (due to credit constraints) but with good demand due to immigration, population growth and two years of restraint.
Nicholas, Bernard did pretty much
Nicholas, Bernard did pretty much tell us the world as we know it was going to end.
"an erring bear must be
"an erring bear must be hunted down, hung, drawn and quartered."
And why not, no one is happy to have a bear attempt to chase down the value of their assets.
Fortunately kiwi home owners cut supply and helped stabilise the economy.
That's a cute quote Nicholas
That's a cute quote Nicholas - and indeed so true - but it says something about human nature - as the bull is the one who will lose you money if you punt wrongly with him; whereas the bear simply prevents you from profiteering along with everyone else.
Chris_J - I attended a mortgagee auction yesterday. New spec home - builder gone under - sold 16% below replacement cost (and there were multiple bidders in the room).
It's not a market in which you want to be in that position. And it's going to get worse as depending on where interest rates go and how tight credit might become next year - that type of auction might only have one bidder and wouyld then have sold for 30% under replacement cost.
Perhaps, Chris_J, but irronically I
Perhaps, Chris_J, but irronically I was corresponding with a friend of mine in London on Monday, the MD of an international bank, who almost used your words! He said:
"The world ended in March, and we just didn't know it"
He's not expecting a good 2010, by the way, but we shall all know in 12 month time.
Further Chris_J, I recall you
Further Chris_J, I recall you are unhappy with Bernard "irresponsibly" (paraphrasing your words, not mine) calling a downwards fall in the property market.
Is it irresponsible for Bollard to call an increase?
I recall sometime last year
I recall sometime last year in a RB monetary statement that house prises were projected to decline 19% (24% in real terms) since their 2007 peak. So much uncertainty and so many varying predictions since the crisis began.
I am one of those
I am one of those who had been waiting for housing market correction for personal benefit ,that was my desire but I did not confuse my desire with reality out there,i never believed that House prices would drop by 30% for various reasons ,primarily because Banks would have lost money, secondly even if land prices drop the cost of contruction is too high and there are too many council levies and fees and council have created land supply restrictions. I had commented on this blog that house prices may fall however Bernard s predictions seemed more like a prophacy , I was pounced on by other bloggers that Bernard speaks on facts and hard data,essentially I was told to shut up. I actually admire him for raising this issue as high prices are a menace for society , and I believe he is doing a good job to mobilise public opinion.
From 20% drop to 12%
From 20% drop to 12% rise, next time will predict 20% increase or so.
Nomad I was one of
Nomad
I was one of the smart people following BH's prediction sold house and trying to buy it back when house prices lower.
Today I want to kill some one who was misleading public.
That’s what happen when listen
That's what happen when listen to speculators.
Did Bollard mention anything about
Did Bollard mention anything about the first of the baby boomers (1946) turning 65 in 2011 and starting to sell up their rentals for retirement and off loading them onto the market? For me this over the next 5 years this will be a key factor in the supply of housing in Auckland especially. I know Bernhard has commented on this in the past but has any other ecnonomist written a paper on the baby boomers retiring and selling up?
Did Bollard mention anything about
Did Bollard mention anything about the first of the baby boomers (1946) turning 65 in 2011 and starting to sell up their rentals for retirement and off loading them onto the market? For me this over the next 5 years this will be a key factor in the supply of housing in Auckland especially. I know Bernhard has commented on this in the past but has any other ecnonomist written a paper on the baby boomers retiring and selling up?
http://www.nzherald.co.nz/nz/news/video.cfm?c_id=1&gal_cid=1
http://www.nzherald.co.nz/nz/news/video.cfm?c_id=1&gal_cid=1502757&galle...
great to see hanover investors having a go at Mark
Kate Please read carefully, Barlard
Kate
Please read carefully, Barlard said the debt is not changed at all. People is not borrowing more money buying houses. Where ia the money come from? Saving?
Hi 28_yr_old, There doesn’t appear
Hi 28_yr_old,
There doesn't appear to be this large exodus of baby boomers shifting from their large inner city suburb houses to retirement homes or downsizing as some have thought.
The baby boomers are fit and healthy and are quite happy to stay in their houses.
The only reason they may need to sell up is because they lost their savings in finance company's and the like.
There seemed to be a
There seemed to be a lot of grey looking baby boomers in the hanover meeting last nite
After 19 months of seraching
After 19 months of seraching - I've managed to buy a house in inner suburb of Auckland. Got it 19.5% below GV, the seller expectation changed dramatically after it was passed in at auction - so I snapped up the opportunity. So with this news I am happy
Good for you gingerman...I chopped
Good for you gingerman...I chopped out the bread because you have handed over so much of it and still have the rates and insurance and on and on to pay for now...
"Dec. 11 (Bloomberg) -- New
"Dec. 11 (Bloomberg) -- New Zealand's central bank may raise its benchmark interest rate as early as March as a surging housing market stokes consumer spending and fans inflation, according to economists and traders."....and that's not all of it!...capital flight as Kiwi savers flip capital across the Tasman to get better rates on deposits where there might be better security as well....I think Bollard will be forced to raise sooner than March and by a half.....the OCR is falling behind the curve...again.
I bought my first rental
I bought my first rental last year, making small profit, but most important tenants are paying off my mortage. Also bought $5000 Beach Petroleum at 1.56/share, it's worth now half of it, and making some $10/annum in dividends. I only regret not buying another property while had a chance/money
So shaun - you have
So shaun - you have an undiversified share portfolio and an undiversified rental.
Don't be harsh on the
Don't be harsh on the lad ensee...at least he's made a start...and the govt does look like running with Labour's housing ponzi policy because it brings in the votes...look at the latest move by the govt to stick its dirty fingers into the takeover rules and change the law so they can have their Auckland local govt remake but still get to keep their bite of the aia cake...what a rort!!!
Friend of mine was laughing
Friend of mine was laughing when me and partner bought first house 9 years ago, which is mortgage free now and worth twice more. He is still renting, paying 350/week. In another 10-15 years will hopefully have another one mortgage free. Bought shares out of curiosity more then anything else. As soon as I can break even will get rid of it
Shaun, is your mate's name
Shaun, is your mate's name Wally?
Doubt it barry...Wally is paying
Doubt it barry...Wally is paying less than $90 a week for a 3br house....we don't all live in the city...
j.s. Most of the baby
j.s.
Most of the baby boomers are still under 60 so of course we haven't seen much downsizing yet, its still a few years away
ALthough I do agree with you that I think the likely impact is a bit exaggerated. Like you I think many will stay in their suburban family houses as long as they can
Bernard Everyone in the media
Bernard
Everyone in the media is pointing towards imigration as a key driver of house price inflation/growth. Any chance for some detailed analysis or comment around this? I think there a lot of questions that haven't been linked together in a cohesive piece of analysis.
Questions that come to mind-
How much does immigration really outstrip emmigration?
Does this immigration issue only really apply to Auckland where something like 3/4 of new arrivals settle?
Where are immigrants comming from (returing expats from the UK vs SE asian immigration etc).
Are immigrants really bringing wads of cash (is there any evidence of this) etc.
Are people just taking out bigger mortgages to keep up with house price inflation or not- suggesting the growth is really driven by borrowing vs new cash comming into the country with immigrants?
How many new houses are being made available vs the number of new home buyers (i.e a measure of housing shortage etc). I.e the demographica theory.
Seems like there are lots of assumptions out there but not much good analysis that pulls together the facts. How about some insight?
Cheers
Steve