House prices to rise 12% - Infometrics

Property

Infometrics forecasts 12% rise in house prices over next three years because of low interest rates and housing shortages; Auckland prices to rise 16%, it says

11th Aug 11, 7:45pm by Bernard Hickey

Economic research group Infometrics has forecast New Zealand house prices will rise 12% over the next three years because of low interest rates and a shortage of housing supply.

Infometrics' annual report for QBE Lenders' Mortgage Insurance (QBE LMI) also forecast a 16% rise in Auckland house prices by June 2014 and a rise in national prices over the next year of 6% despite current uncertainty on global markets.

"Auckland has been at the forefront of the improvement in the housing market since October last year," CEO of QBE LMI Ian Graham said.

“A better than expected economic performance, low mortgage rates and lower building activity continue to underpin prices in this market,” Graham said of Auckland's housing market.

QBE LMI said Infometrics had forecast a rise in building activity across the country as a result of an improving housing market and a predicted recovery in the economy.

"The Christchurch rebuild will drive a significant increase in residential building activity, in 2012 and beyond," it said.

Infometrics forecast in August 2009 that house prices would rise 24% over the next three years. It then forecast Auckland house prices rising 26% by June 2012.

See Alex Tarrant's article from August 2009.

Infometrics said back then that low interest rates and a shortage of supply would drive prices up by the 24% over the next three years.

The interactive REINZ-RBNZ house price index below shows New Zealand house prices have risen 1.1% since August 2009 and are 5.1% below their November 2007 peak.

Meanwhile Auckland house prices have risen 3.1% since August 2009 and are 4.6% below their November 2007 peak. See more here in our earlier article on REINZ house sales figures for July.

Infometrics also forecast in August 2009 that housing consents would run at a rate of 1,800-1,900 a month through 2010 and then grow further through 2011.

Building consents ran at an average of around 1,300 a month through 2010 and have then fallen to below 1,000 a month through 2011. See our interactive building consents chart here.

Westpac's economists are forecasting a 4% rise in house prices this year.

House price index

Select chart tabs

Source: REINZ

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23 Comments

by Simon | 11th Aug 11, 8:17pm 1313050645

So they are set to be wrong by approx 24% on there last prediction (saying +24% by 2012, actual will be close to 0%); so in reality can we expect a 12% fall over next 3 years?

Why do these guys only offer this one report to the public and keep everything else very much to themselves? Obviously isnt to prove they are good at predictions are they are consistently way out;

And this report would of been written before the USA credit downgrade.

by steven | 11th Aug 11, 9:16pm 1313054171

At the rate things are falling apart the chances of Infometrics being anywhere near right is about as good as the chances of Phil Goff being PM this year.....actually a lot worse.

If housing even keeps up with inflation over the next three years I will be gob smacked...only a 12% drop would be lucky IMHO. Given the GD took 3 years to reach bottom then a 12% drop per year for 3 sounds quite possible.

regards

by Matt in Auck | 11th Aug 11, 8:18pm 1313050691

A load of bull

Infometrics forecast in August 2009 that house prices would rise 24% over the next three years. It then forecast Auckland house prices rising 26% by June 2012.

There is the precedence for being horribly wrong

Isn't Gareth Morgan a director of this mob? And isn't he bearish on house prices?

Weird..........................

by Wolly | 12th Aug 11, 6:31am 1313087460

Infoshite would be more apt!

by Gavin Jones | 12th Aug 11, 9:37am 1313098641

I think they are a bit light on there prediction for the Auckland market. Possibly closer to 20% increase.

by Chairman Moa | 12th Aug 11, 10:30am 1313101822

Don't be such a smug. BH predicted on national TV that house prices will drop 30% - sometime later he revised to 15%.

We are just too blimming arrogant sometime...

by laurence | 12th Aug 11, 2:17pm 1313115453

Yep, getting not too far from the BH prediction, prices down 5.1% from Nov 2007 peak and inflation erosion of the money in your house compounded to near 18% since Nov 2007 means that pricing adjustment is occurring and dropping to the long term trend line. Got a few more years to go mind.

by steven | 13th Aug 11, 7:06am 1313175972

Lets look at the prediction,

1) He was and is correct in the change of the trend to negative which is a substantial change from the previous gains, so he was right in the direction and that it is large enough change to take note of.

2) He looked at the fundimentals which are medium and long term which indicate this trend is highly likely to continue, and I for one do not remember a time frame being mentioned.

3) How many of the other "experts" were more correct? Olly? not so far, Infometrics? a 24% gain? laughable frankly....The banks? I dont reall any one of them saying drops, and they have been bullish ever since, and consistantly wrong, estate agents? uh no, wrong plus lame excuses.

So far there is no sign that the market is bottomed, it is proving far more sticky than expected but given interest rates have stayed so unusually low for so long, circumstances/factors, and rents are high, would be sellers can afford to sit and wait.

Circumstances/factors,

4) partially greed or at least the desire not to lose money. All the ppl I talk to how own one of two rentals are highly indebted on them are negative or close to and selling right now would leave them in debt to the bank.....or they can do the fairly logical thing and hang on expecting what the banks and most others are telling them, wait rises will return.

5) Suspicion that the banks are holding back on mortgagee sales to hold the market up.

Present outlook, its worse than 3 years ago and looking worse every month, so I think anyone who sees a reversal back to gains is overly optimistic....what's happening so far is a Japan and on a global scale....but it is on a glbal scale....

6) Loses abroad, the USA should be a warning on what is quite likely here....their drops are beyond 30%.

Once we see a return to gains, which will then show the % drop, sure call BH out.....personally I think we will see a 50% drop at least, but that could take a decade, but it could be as little as 2 years....

regards

by Murray | 14th Aug 11, 9:27am 1313270879

steven - "I for one do not remember a time frame being mentioned"

Let me help jog your memory.

Here is Bernard in April 2009 saying "I am sticking to my forecast for a 30% fall in the REINZ median from its November 2007 peak of NZ$352,000 to around NZ$250,000 within the next couple of years "

He originally said in March 2008 that the median price would fall 30% (and that's nominal, not inflation adjusted terms) by Nov 2009... ....that article is now conveniently not archived.

He later changed it to "20% to 30% over the next couple of years "

then " 30% by the end of 2010 "

then " 15% between the November 2007 peak and a trough in mid 2012 "

and then finally 15% " over a longer period " !!

Note I'm not supporting Infometrics views either though, both lots of predictions have been equally silly and unhelpful.

by laurence | 15th Aug 11, 1:38pm 1313372313

Murray, what was likely underestimated in these predictions is the extraordinary steps governments would take to stave off the inevitable 1) very stimulatory 2.5%OCR 2) bailing out SCF et al 3) borrowing $300 per week per household.

Remove these from the equation and I am sure the 30% adjustment would have happened far faster.

by kiwipete | 12th Aug 11, 11:55am 1313106928

Forecasts are always a mixture of historical behaviour and the current situation. They are always going to be wrong. Who could have predicted that NASDAQ stocks would appreciate by so much between 1990 and 2000, and that they would have suffered such a severe crash in 2001? Could anyone have predicted that the S&P500 in 2011 would still be lower than in 2001?

I don't think that any forecasters have seen a deflationary environment in their lifetimes. We are actually in a situation in NZ now where consumer credit is actually contracting - people are deleveraging. The difference between now and all other prolonged recessions in the past 30 years is that in all prior recessions consumer credit was still expanding - rapidly.

Therefore it is going to be very hard to predict what is going to happen this time round as we don't have a precedent.

by laurence | 12th Aug 11, 4:08pm 1313122094

There does exist a precedent kp, 1870's a 32 year recession over many parts of the globe. Followed the gold boom.

by steven | 12th Aug 11, 6:32pm 1313130769

You are very wrong on that. We have at least two "good" previous events of note, the 1930s depression was a credit driven event combined with a "gilded age" (high inequality) result a 10 year depression that only came out of because of massive Govn spending on war materials, We have the same input today.

The Long depression, which for me looks like this one....bear in mind we have never gone past peak oil before so simply wont have the energy to extract ourselves....so its going to be long.....it could be very long.....easily 30 years....

regards

by steven | 13th Aug 11, 7:21am 1313176917

"Who could have predicted that NASDAQ stocks would appreciate by so much between 1990 and 2000, and that they would have suffered such a severe crash in 2001?

Yes....ppl were.

Could anyone have predicted that the S&P500 in 2011 would still be lower than in 2001?"

At what point in time? Certainly there are some saying this, Steve Keen, most Peak Oil ppl such as myself. ie when you take into account the future of expensive and scarce primary energy into account for the valuations companies they are all (or most anyway) substantially over-valued. Note whats happening to consumerism, its 70~76% of developed economies, fed by debt....collapsed by energy prices...many companies rely on consumerism for profits....the commercial property market is essentially the retail (shops) sector.....and who relies on these? other companies and pension funds. Both expect incomes to pass on to share holders and pensioners.....if that doenst happen spending dips yet more.

There are ppl predicting a severe crash is coming, it could be next week, or it could be 2 or 3 years off.....for me Im going to be surprised if it doesnt happen this year.....but that makes it 6 to 12 months late...I would assume you know full well its very hard to pick tops and bottoms of markets, its not that hard to pick over-valuations...and hence growing risk.

regards

by Vanderlei Luxemburgo | 12th Aug 11, 4:25pm 1313123114

Classic! Here's another one: Q: What's the difference between Croydon and

Fernando Torres? A: Croydon's on fire.

by muzza | 12th Aug 11, 5:34pm 1313127260

Of course prices will rise, by how much remains to be seen, too many on this site have been listening to each other's doom and gloom. NZ's exports are strong and look likely to remain that way for some time, that will provide the basis for NZ to do ok.

by steven | 12th Aug 11, 6:16pm 1313129764

Actually from what I can see its more the PIs listening to each other...and propping themselves up. I dont tend to accept a lot of what ppl on this site write I do read quite a lot of it though. Mainly I so listen to quality URLs they provide and ones I find and draw my own conclusions. I look for quality of data, thought and a track record of being right or close to it.

2 things,

1) We are at or close to the limits that ppl can pay even without the horrendious state of the global economy.

2) The downturn will be very severe and NZs diary exports will nose dive as a result, unemployment could easily double.....

All this really adds up to house price drops....and for a long time....will there be a consistant (slow) drop for a decade or a fast one in 2 or 3 years....I think the latter is more likely and see house prices at least half.

Certainly as an adult make your own call.

regards

by steven | 12th Aug 11, 6:18pm 1313129937

Friday laugh....Riot humour

http://photoshoplooter.tumblr.com/

by andrew111 | 12th Aug 11, 10:42pm 1313145775

on ya muzza 1 year ago i logged on and everyone told me interest rates where going to be around 8 to 9 percent .... tossers they follow bernard hickey without thinking for themselves , to me and its not that hard ,,,just follow what your 3rd form economics teacher taught you - low interest rates = cheap rents , interest rates go up = rents go up , c'mon guys like i said a year ago the bargains are there guys ......go buy them !!i've bought 5 in the last year ...value added and i'm making 8 percent on each -( after no dep for the pesisamists) and lets face it when the intersest rates go up it means prices either have or will .... cause thats inflation !!!!!!!!!!!!!!!!!

by steven | 13th Aug 11, 7:32am 1313177559

I certianly wouldnt have told you that....I was quite clear I was staying floating and expected low for a long while.....

Not inflationary scenario....your economics is frankly poor, deflation or at best stagflation.....consider risk or where you will be financially on a 50% market drop.....

Funny but in here I see the thinkers and the not so much thinkers....the latter are bullish on houses, the former are not....we will see who's right.

regards

by Murray | 14th Aug 11, 7:17am 1313263044

steven, I've seen a lot of intelligent people over the years that think too much and don't end up doing anything and that's a very poor investment strategy!

Academic intelligence does not necessarily equal financial intelligence, and can in fact be a barrier to investment.

A bit of caution is a good thing, too much caution will prevent you doing anything - there is no investment without risk.

One suggestion I would make to you is to start looking at logarithmic charts that investors use and not linear charts that journalists use....

by speckles | 14th Aug 11, 7:53am 1313265187

well said, should be comment of the day.

by andrew111 | 12th Aug 11, 10:42pm 1313145777