House prices 'about to cool'

Westpac chief economist says falling sales point to slower house price inflation from early next year

Property

Westpac chief economist says falling sales point to slower house price inflation from early next year

13th Dec 13, 3:29pm by David Hargreaves

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Westpac economists say the slump in house sales volumes during the past two months is a "strong signal" that prices are about to cool.

Latest Real Estate Institute figures showed that while the median price surged to a new high of $425,000 in November, the number of sales was down 6.6% compared with November 2012.

Westpac chief economist Dominick Stephens said that on a seasonally-adjusted basis, house sales fell 6% in November. He said that combined with October's decline, housing market turnover had now fallen 10% in the past two months.

In the latest edition of Westpac's Home Truths monthly housing update, Stephens said "the fact is", house sales bear a tight relationship with house price inflation (see chart below).

"Prices may be rising strongly right now, but the drop in house sales is a strong signal that prices are about to cool. We expect the rate of house price inflation will start slowing from early-2014."

Stephens said, however, the Westpac economists were "not suggesting that the sky is about to fall in".

"Our long-standing forecast is that house prices will rise 6.5% next year, compared to almost 10% this year. We have not changed that forecast."

Stephens said Westpac had "always said" that the Resrve Bank's restrictioins on high loan-to-value lending would "cause a short, sharp shock to the market" as the first home buyers dropped out.

"However, in time we expect investors will come into the market, limiting the fallout for prices."

Stephens said that rises in interest rates would eventually "prove a much more potent headwind for house prices".

"But it will take years for mortgage rates to throttle this market. It is not until 2016 that we expect high interest rates to cause house prices to decline."

In the mean time, Stephens said it was expected that the "ever-strengthening economy and inward migration" would remain "offsetting positive forces" for house prices during 2014.

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11 Comments

by Boatman | 13th Dec 13, 3:41pm 1386902517

WARNING Dont trust any predictions for house prices next year. With the RBNZ changing the lending rules every time the wind changes direction, we cannot be sure of anything .

There is now ZERO CERTAINTY in the market , so anything you do is gut feeling only , and quite dangerous.

by Zoltuger | 13th Dec 13, 3:50pm 1386903004

Landowners might decide to "wait and see" in zero certainty environment - could raise prices further

by Happy123 | 13th Dec 13, 4:05pm 1386903917

You can trust me Boatman ;o) Take a look at Happy's predictions one year ago, and the economists, then compare to the reality.

by Chairman Moa | 13th Dec 13, 5:15pm 1386908137

Simple indicator, just jump onto Trademe and check out how many houses for sale with an asking price rather than "By auction" in Ponsonby, Grey Lynn, parnell etc.. used to be none, but now there are quite a few

by JT | 13th Dec 13, 8:22pm 1386919353

Bernard Hickey predicts prices to slump 30%.....

by steven | 13th Dec 13, 9:07pm 1386922025

You failed on numbers 2 and 5.

Its interesting that BH tried to show some long term fundimental drivers ie BBs retiring and expiring and being followed by less able and numerious generations that this would mean less money would therefore = a drop in prices in order to clear has been so poo pooed.

PS I expect 60~75%....BH underestimated

The 10 commandments of logic

1) Thou shall not attack the person's character, but the argument. (Ad hominem)

2) Thou shall not misrepresent or exaggerate a person's argument in order to make them easier to attack. (straw man)

3) Thou shall not make small numbers to represent the whole. (Hasty generalisation)

4) Thou shall not argue thy position by assuming one of the premise is true. (Begging the Q)

5) Thou shall not claim that because something has or has not occured before it must be true or not true (Post Hoc/ false cause)

6) Thou shall not reduce the argument down to two possibilities (false dichomy)

7) Thou shall not argue that because of our ignorance, claim must be true or false. (Ad ignorantum)

8) Thou shall not place the burdoen of proof on those questioning the claim. (Burden of proof reversal)

9) Thou shall not assume this follows that when it has no logical connection.

10) Thou shall not claim that because a premise is popular, therefore it must be true (Bandwagon fallacy)

by PeakEverything | 13th Dec 13, 9:41pm 1386924096

Good, but you missed some. For a full reference see http://i.imgur.com/OOA8QzF.jpg

by PeakEverything | 13th Dec 13, 9:58pm 1386925108

The Stark's are always right eventually "winter is coming".

by BigDaddy | 13th Dec 13, 10:54pm 1386928441

2011 Westpac predicts falling market by 2013:

Westpac forecasts house prices to rise 4% over coming year as interest rates stay low

Westpac economists are forecasting a 4% rise in nominal house prices this year as the housing market stabalises due to low interest rates.

Westpac was previously forecasting flat prices over the year. However, prices are expected to flatten out in 2012 and 2013 as rising interest rates next year dampen the housing market again, with real house prices expected to fall slightly over the three years once inflation is taken into account.

link:

http://www.interest.co.nz/property/53177/westpac-forecasts-house-prices-rise-4-over-coming-year-interest-rates-stay-low

Next prediction please...

by MortgageBelt | 13th Dec 13, 11:21pm 1386930115

I liked the WP prediction of very rapid rate rises in the beginning of 2012.
"When they start it will be sharp & rapid ... etc"

by doublegz | 14th Dec 13, 8:52am 1386964358

What a cooling Auckland average house price would look like in 2015 for top 25 suburbs:

1 Herne Bay $672,700

2 St Marys Bay $437,750

3 Remuera $321,300

4 Stanley Point $267,750

5 Epsom $255,500

6 Westmere $248,850

7 Ponsonby $209,450

8 Orakei $205,750

9 Campbells Bay $202,150

10 Mission Bay $200,000

11 Devonport $195,155

12 St Heliers $185,150

13 Kohimarama $175,150

14 Parnell $175,000

15 Takapuna $172,150

16 Narrow Neck $171,300

17 Castor Bay $163,100

18 Glendowie $155,150

19 Greenlane $150,600

20 Mt Eden $142,700

21 Pt Chev $140,700

22 Freemans Bay $135,150

23 Bayswater $130,650

24 Grey Lynn $125,000

25 Meadowbank $120,150