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BusinessDesk: Price expectations subdued outside of Auckland and Christchurch

Posted in Property

House price inflation expectations were greatest in Christchurch at the end of last year, according to an ACNielsen poll for ASB’s monthly Housing Confidence Index.

While a net 27 percent nationwide expect higher house prices in the year ahead, that number was a net 56 percent in Christchurch, where expectations of rising interest rates are also highest, at a net 55 percent.

However, the survey was taken before last month’s monetary policy update from the Reserve Bank, which indicated the official cash rate would remain at its historic low of 2.5 percent at least for all of 2012.

The ASB index showed a slight easing in residential real estate confidence, although the general trend of recent months is intact, the bank’s economists say. Auckland leads the way, with subdued listings pushing up prices for those houses that are being offered.

“The Auckland housing market remains tighter relative to other regions in New Zealand,” they say.

A net 40 percent of Aucklanders in December thought house prices would rise in the year ahead, and a net 18 percent thought it was a good time to buy a house. In Christchurch, a net 2 percent thought now was a bad time to buy.

Price expectations are more subdued in the North Island outside Auckland, with only a net 15 percent expecting higher prices in 2012, while a net 24 percent of South Islanders outside of Christchurch think they’ll be on the rise this year.

(BusinessDesk)

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1 Comments

There is definitely demand in

There is definitely demand in ChCh for undamaged or cosmetically damaged properties in particularly western areas which has pushed prices in those areas up, however demand is unlikely to persist once as more insurance settlements are made and more houses are repaired.
 
Consider the numbers, 4400 houses sold in ChCh and Kaiapoi in the 12 months to Dec 2011, only about 2000 sales since the "Red Zone" buyout was announced.
 
This is significantly less than 10 or 11,000 selling on average each year between 2003 and 2007.  It's also significantly less than the 6,000 or so selling in the bad years just prior to the quakes.
 
Consider that there are 6,000 red zoned, with cash available you would have expected many to have bought existing homes, however with still fewer than the historical average number of houses selling (even compared to the worst point in the market in 2008/9) it appears that for every red zoner buying in ChCh someone else is leaving town.
 
So you might think that there is a rush for sections, well:
In the 6 months to Dec 2011 (since red zone announced) just 110 sections sold in Christchurch and Kaiapoi and I know that many of these were actually sections which contained demolished houses being sold for very low prices because that were unlikely to be able to be built on for some time.  I would suggest that only 70 odd (haven't checked the individual sales) are for sections likely to be built on soon.
 
So let's compare that to the boom years of 2003/2006 - ChCh had up to 1200 sections selling in a 6 month period back then.  Well over 10 times the sales rate.
 
Yes there are more sections selling in rural Canterbury close to ChCh (actually 273 in the 6 mths to Dec 2011), and perhaps the incomplete off plan sales in new developments add a few hundred more (at a real stretch you might say 150 have genuinely sold off plan - not just allocated to building companies etc to make it look like there have been sales like Pegasus and others have done), but in all honesty if perhaps 500 all up have chosen to buy sections since the red zone was announced (70+273+150) then we subtract the normal rate of section sales in bad times which was 500 in 6 months, then we see we have absolutely no new section demand.
 
Now if we consider that in the ChCh area perhaps 1200 sections were selling in a 6 mth period in the boom years (mid 2000s) then we are still having sections selling at less than half of the rate as during the good times!
 
So where have the 6000 cashed up red zoners gone?  Most are just picking up the slack of those leaving town, and others are non committal (just renting), while many red zoners themselves have packed up and left.
 
Stats NZ puts the number of working age adults as down 30,000 since the quakes, so that's a population decline of at least 37,000 or so.  The phone book has at least 10,000 fewer listings (mid 2011) so that's an estimated 30,000 less people (likely more as most younger and transient people didn't have landlines and they are the ones who have found it easier to leave).
 
Clearly many have left.  Hence prices will absolutely collapse in the damaged eastern areas once a flood of houses come to the market "as is where is" once insurance settlements have been made.
 
Already I attended a mortgage last week where a freehold character villa on the edge of the Heathcote River, with no land damage and some cosmetic damage sold for $116,000 freehold.  Another sold for half the price it previously sold for ($161k for a villa which previously sold over $300k, modest liquefaction house ok but rough anyway).
 
Prices may rise in the western areas, but ChCh is rapidly becoming the cheaper than cheap for "land value" type sales on the eastern side of town.