Westpac's chief economist says it's no surprise that the housing market is slowing; predicts Auckland and Queenstown will be most affected by foreign buyer restrictions

Westpac is picking that the recent lift in the housing market is over.

In its latest Home Truths newsletter, Westpac Chief Economist Dominick Stephens said it was no surprise that the housing market was slowing.

"It is now safe to say that the brief market resurgence that began in October last year is over," the newsletter said.

"House sales fell 0.7% in May and the time it to sell a house lengthened.

"In Auckland, house prices have fallen 2% since February and are now back at the same level as they were in August 2016.

"In much of the rest of New Zealand, the pace of house price inflation continues to slow, although it is still above zero.

"We have not been surprised to see the market slow.

"Home Truths predicted this would happen after the Bright Line Test for taxing capital gains on resold properties was extended from two years to five.

"The next hurdle for the market will be the foreign buyer ban."

The newsletter said the restrictions on foreign buyers the Government is introducing would probably have their greatest impact on the Auckland and Queenstown markets, with recent data showing that's where foreign buyers were most active.

It pointed out that house prices in Toronto fell 6% after that city introduced a 15% stamp duty on property sales to foreign buyers.

The introduction of a Capital Gains Tax, something which is being looked at by the Tax Working Group, could also affect house prices, with a 10% CGT likely to reduce prices by 11%, the newsletter said.

You can receive all of our property articles automatically by subscribing to our free email Property Newsletter. This will deliver all of our property-related articles, including auction results and interest rate updates, directly to your in-box 3-5 times a week. We don't share your details with third parties and you can unsubscribe at any time. To subscribe just click on this link, scroll down to "Property email newsletter" and enter your email address.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

42 Comments

It will bounce around for a long while so there is hope yet!

Market is slowing? its been slowing for awhile, now it's picking up the pace rolling down the hill

If foreign buyers are later shown to be 23% or 33%, i guess its still a type of 3%.

Understatement to say that Auckland and Queenstown were the most affected by foreign buyers. For all intents and purposes, they were the only areas affected. And as for Auckland, it was only certain suburbs.

The non-resident Chinese will divert their money into apartments, but investment amount unlikely to change. The next biggest foreign investor group was close behind the Chinese - the Australians. They are exempt and will carry on as usual.

...yes indeed, watch this space. On the ride down, let's see if current foreign based owners are in it for the long term! Foreign based investors invest where there is foreseeable gains. The reverse will occur if losses are anticipated.

Popcorn anyone?

Hi Retired-Poppy,

Popcorn may be your preference.....

But I’d rather have property.

TTP

TTP, copy-paste. Anyhow, here's an investment tip for you. Start a corn farm, invest in property and the next hot commodity at the same time!

Pretty corny comment RP! But have to fully agree with you mate.. you would be stupid to buy at this point in time...

"Popcorn may be your preference.....But I’d rather have property."

Haha, quite funny but actually more true than many realise. RP's popcorn comment shows he's a spectator, the audience if you will, who does nothing himself but criticise the others that actually do something.

Yvil, yes, right now, I'm a spectator watching what unfolds. The difference is, you are awake at 3am worrying about the consequences of what you've done. Making posts at 4:07am inferring I should be greedy like you?..... What a life.

Do I detect a change of attitude from employers? Are working landlords becoming the first to be made redundant?

Hmmm, with the Australian banks pulling the purse strings tighter in the wake of the Royal Commission and falling prices on the Australia market how much will that inflow fall off? Sounds like the Chinese money might be able to keep the apartment market inflated but the standalone housing market is having the rug pulled out from under it.

The problem with apartments - and especially apartments off the plans - is they're often not so great an investment for capital gains. E.g. some buyers of places such as Sugar Tree have been disappointed to find expected capital gains were already built into the price they paid off the plans.

Having foreign money pile into apartments could well significantly boost supply and result in a glut of apartments relative to the population that wants to live in them. Which would be a good thing for NZers.

E.g. look at a city such as Manila with heavy population pressures, foreign investment in apartments (but not land), and prices that have been basically flat for the last decade or so.

.

Do you really think this “Chinese money” will stick around if there are material falls in house prices? I find that very hard to believe. If prices fall materially this new foreign money will dry up and those already on the market will generally look to exist. This “foreign buyers” thing is surely a bull market phenomenon, if prices are falling that money will dry up. Same goes for the Aussie market

Please look to other commonwealth countries for polices outlined by this government. They seem to correlate/copy each other. The condo market is firing on all cylinders in large cities like Toronto and Vancouver fueled by foreign buyers and speculators. Foreign buyers, predominantly asian, are purchasing floors at a time and marketing these same apartments/units to overseas buyers in their country. There is nothing left for the resident buyers. It will not solve housing problems unless the deep pocket demands are filled first or more importantly governments limit the purchases. The developer benefits, the foreign buyers benefit, capital gains are made. I have seen this first hand, having been involved in condo developments for over 20 years. Effectively, in all markets, housing gains come first, foreign buyers are restricted, condo market and prices boom, housing prices fall. Good time to get in to the condo market in large cities and in targeted areas to benefit from the next wave of capital gains undeniably similar to the percentage gains in housing, caused by the same crowd and benefiting the same crowd.

re: your comment above. I once mentioned popcorn in this comments section. Some smart ar*e told me “You know what you can do with your popcorn, I hear butter makes an excellent lubricant”. I’ll pass this tip on to you.

No doubt you prefer it without the butter, though.

Buylowsellhigh, If I recall correctly, it had everything to do with the investment advice you were handing out at the time. Just thought I'd clarify that ;-)

BuyLowSellHigh sounds like a risk taker, you might want to try going dry (i.e without the butter). It will be fun!

Good!!!

Can't remember where I read it but someone asked "If Chinese were white and speak English". Will we bring this restriction?

up
11

The problem is nothing to do with race. It is simply a problem of the enormous disparity in economic power. We are a mouse very correctly concerned that the elephant might roll over us.

Still better than losing money in both shares, commodities, etc. Especially if it's your family home which is a longer term necessity and bonus if you get some gains from it

True, it may better than stock market. But it is not for those who want to make tax free capital gains :)

Don't get me wrong ... house price fluctuations does not bother me at all, but are the views of one man against those of the Treasury, RBNZ , REINZ , B&T boss and many others , which is being bounced around, and now finally picked up by Greg ( old news and report Greg ) , is going to change the market eh?

Have you noticed how Domenique picks up what suits his view from the price curve ? ..lol, pretty much like few we know around here.

funny that he doesn't mention Supply or building consents, or construction prices .... the comments on this report few days back were quite damning as it lacked a lot of sense. Obviously it is reported again to stir the pot ..eh?

Toronto fell 6% when stamp duty was introduced, True .... did anyone check out how much Toronto residential is UP now from there ?! .. lol, again only picking numbers which suit.

To make an informed decisions, we need to follow price curves and trends, not some BS and hot air released every now and then for all sorts of reasons and purposes including self serving or seeking attention. After all its just an opinion and there is no accountability.

Housing Crystal ball gazing has become a sport for some and and a beauty pageant for others .... anything goes.

Echo Bird, It's perfectly understandable you will seek to discredit unbiased journalism to suit your own narrative. This only impresses on others how much you and your "business partner" must have riding on this ponzi.

Hopefully you know, it's a good thing if we have a housing correction (hopefully not a globally driven crash) to clean out the leveraged excesses and greedy expectations over time.

BTW, Toronto imposed a 15% tax 21 April, 2017. Prices actually fell 14% according to this; http://business.financialpost.com/real-estate/toronto-luxury-home-sales-....

It has to be noted that plenty of people here are scathing of bank economists........

But, suddenly, when bank economists say something that aligns with their personal agendas, then bank economists become acceptable - even revered. The endless criticism of them on this blog rapidly disappears.

I'm afraid, naughty people, you can't have it both ways.......

TTP

TTP, for accurately describing your own self, I gave you a thumbs up!

I thought he was talking about eco bird....? So confusing.......

Unbiased journalism?.... from Greg ? ... lol, seriously?

go and see you GP RP , you have started losing it !!

I think it's telling that a BANK economist is so bearish on housing.
For me Dominic has long been the most balanced and objective bank economist. Bagrie was OK too

Westpac are hilarious, last week the CEO suggests that the market will be flat for 30 years and this week we have a little bit more reality but still far from the honest truth. 50% of their Aussie loan book is on high multiples of income interest only lending. Yep that's 50%.. I'd say that between now and that 30 years we may get back to the CEO's zero growth.... There will be a big trough in the middle though! Good old Aunty Westpac always there to lend to the stupid.

Well ... again, Dominique is whistling alone for some mysterious reasons ... yes , he was balanced and reasonable in the past, but apparently he's gone funny!

Read Tony Alexander todays report:
http://tonyalexander.co.nz/wp-content/uploads/2018/06/WO-June-21-2018.pdf

On housing he says today:
" While there is a general view that the housing market will slow down further in response to easing net immigration, an upward bias to interest
rates, and growing supply, price rise expectations still remain strong. This is according to a quarterly survey undertaken by Colliers International of
some 6,000 people.
https://colliersinternationalnewzealand.cmail19.co
m/t/t-l-udkilll-xtririyuk-i/
A net 28% expect higher prices over the next 12 months in Auckland, up from a net 23% in the March quarter survey and 24% a year ago. In
Wellington a net 51% expect rises from 38% last quarter and 42% a year ago. Christchurch 0% from -2% and 0%. For NZ overall a net 36%
expect higher prices from 28% last quarter and 32% a year back.
I have generally not found these sort of price
expectation surveys to precede actual price
changes. But the strength in Auckland in spite of
prices actually sitting flat to slightly lower is
interesting"

Which report sounds more reasonable and backed by data and sentiments (which as you know is a big market driver) huh?

The only problem is that this is what people "believe". Actions speak louder than words. If they don't act on that belief then the belief is a bit pointless.

Additionally have you actually read how the the sample is chosen.

You would think Dominick had just a burst of brilliant insight but:
Veteran property investor and commentator Olly Newland believes the Auckland residential property market could have hit a plateau that could last for 10 years.

Olly Newland 28 March 2017 on Interst.co,:
“I don’t think the bubble has burst. I would say it’s leaking and has become a little bit soft around the edges, said Newland, who is a director of property management and advisory company Newland Burling & Co.
“The Auckland market is choppy, it’s nowhere near as buoyant as it was a year or two ago,” he said.
“I think we’re going into a long flat period which could last for 10 years.”
Newland also believes that provincial property markets, which have remained buoyant while the Auckland market has flattened, will eventually follow Auckland’s lead.
"There’s what I call a grunt factor, where prices reach a point where it doesn’t matter how cheap interest rates are, the rental [income] just doesn’t cover it,” he said..
If that capital gain starts to slow down, where it has here and there, then the people who have been buying will start to think twice about whether they should carry on.”

The “long flat period” of 10 years or 30 years or whatever seems to me the least likeliest of outcomes given where we are on debt levels, interest rates and affordability. I think this “gentle decline” to affordability or towards long terms average ratios is so unlikely, I would say the chance of it happening are pretty close to zero.

welcome back Olly.

Olly is a pretty shrewd observer. And generally quite bullish- so the bulls on this website should note his cautious predictions.
I’m with him - but I will always caveat that an economic shock could pull things down below a relatively flattish trajectory

I think he has been saying that for at least the past 5 years, so only 5 more years of 'plateau'?

Never have so many owed so much to so few.

Yep, we've passed the 'return to normal' / false bear and we all know what happens after that!