Unrealistic price expectations prompt warning
Over-optimistic expectations of house price growth prevail for most New Zealanders, but an investor advocate has pointed out that no cycle lasts forever.
Tuesday, November 8th 2016, 12:30PM
by Miriam Bell
NZPIF executive officer Andrew King
New research from BNZ shows that, overall, New Zealanders expect house prices to increase by 21% over the next year.
Anticipation runs even higher among non-property owners who expect house prices to increase by 25% over the next year.
On average, the research shows that people expect house prices to go up by 43% over the next decade and by 56% over the next 20 years.
House price growth in New Zealand, and particularly in Auckland, has had a stellar run in recent years.
But the latest QV data shows that the national median house price increased by somewhat less than most expect in the BNZ research: it went up by 12.7% between October 2015 and October 2016.
BNZ acting director of retail and marketing David Bullock said it was unlikely that housing will increase in value by as much as 21% in the next year.
“When it comes to rising house prices, people are very optimistic if they are banking on continuous price hikes well above average.”
If New Zealanders are planning their financial futures based on these sorts of predictions it is concerning, he said.
“It’s worth pointing out that rising house prices only make homeowners wealthy on paper.
“If you are selling and buying in the same market, then large profits are unlikely unless downsizing or significantly changing location.”
For these reasons, it is important that people don’t have unrealistic expectations of continuous house price increases, Bullock warned.
Many investors are not exempt from the belief that house price growth will continue on a strong upwards trajectory.
According to ANZ’s recent Residential Property Investment Survey, 84% of investors expect house values to increase over the next year – albeit not at the rate expected in the BNZ research.
NZ Property Investors Federation executive officer Andrew King said there is a widespread belief that things will continue as they have been and prices will just keep going up.
“And they could well do – but not at a rate of 20%.”
Such expectations were driven by the lengthy period of time in which house prices have been steadily increasing, he said.
“But cycles come to an end and Auckland, for one, is probably at the end of its cycle.”
However, King said there is still a shortage of supply compared to demand.
“So the market won’t crash. It’s more likely that prices will revert to a slow creep.”
In an interesting twist, the BNZ research also found that 62% of New Zealanders think house prices in their region are overvalued.
Not surprisingly this belief was most prevalent in Auckland, with 85% of Aucklanders saying house prices were overvalued.
But Bullock said this concept was pervasive throughout the country, even in regions like the West Coast and Wellington.
This is likely to be a major reason why so many people, and particularly Aucklanders, are planning to buy a property in another region.
Bullock said it also helps to explain some of the pricing pressures throughout provincial New Zealand.
“Only six months ago we were talking about the impact Auckland’s housing market was having on neighbouring regions such as Waikato and the Bay of Plenty and now we are seeing this flowing into other regions further afield.”
BNZ’s research shows that 12% of New Zealanders are planning to cash up and sell their house to take advantage of the high prices.
| « Pace of growth slows as LVRs impact - QV | Powerhouse regions continue to rise » |
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