8 minute read
Ashley Church
Whose view of the housing market can you trust when the experts get it wrong?
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Kiwis are a compliant lot when it comes to doing what we’re told by those perceived to be in authority. When a road on which the speed limit has been 100kph for decades drops to 80kph the vast majority of us will comply with the new limit, despite no other material change taking place on that road. When a council decides that its rule requiring a minimum height of 1.2m for a pool fence is wrong – and that a pool fence should now be 1.5m high – we comply. The examples are endless.
Some of this behaviour can be explained by the spectre of the legislative consequences of non-compliance – but not always. We’re just as likely to exhibit the same behaviour when new rules are imposed by a local club or shop. We might grizzle, but most of us quickly fall into line and obey.
It’s also worth noting that our compliance isn’t necessarily based on respect for those making the rules. Despite growing anger at the Government over its response to Covid, most Kiwis have complied with the rules – even in situations where no one is policing that compliance. Apparently, we have a love/ hate relationship with authority.
As you would expect, we also see this behaviour at play in the housing market – both in respect of the rules governing that market, and in respect of to whom we listen to understand what that market is doing at any given time. The "authority" figures here include the Ministers of Finance and Housing, the Governor of the Reserve Bank, the various bank CEOs, bank chairs and economists, and even some established commentators, yours truly included.
That deference is understandable, to a degree. Authority figures are an accessible source of information and can help us make sense of what the market is doing and how we should respond to it. But that support should never be given uncritically. No authority is infallible, and many readers of this column would be horrified at the extent to which those we look to for guidance on the housing market have just been plain wrong over the past 25 years. Here are some examples: • In September 2003, the then Governor of the Reserve Bank, Alan Bollard, called investors "unsophisticated", and warned that they should expect deflation in house prices after they’d risen by 14% in the previous year. In April 2006 he told central bankers in Switzerland that New Zealand house prices would start falling by the end of that year. Neither happened. • In March 2017, the then Governor of the Reserve Bank, Graeme Wheeler, said Auckland house prices were at risk of a "sharp correction". There was no correction. • During the first Covid lockdown we saw claims, from multiple banks, that house prices would drop by between five and 15% during 2020. We all know how that played out. • As recently as this year we’ve seen claims by the Finance Minister and Treasury that house price growth would drop to just 0.9% per annum, and from the Governor of the Reserve Bank that house price increases would soon drop to "almost zero". Completely wrong.
There are many other examples of such statements, but these should suffice to make the point, which is this: it’s reasonable to take note of the views of housing market authority figures but they all make mistakes. None of them should be treated as the last word in what the market will do. Sometimes these mistakes are inconsequential; for others, the consequences of listening to them could be financially catastrophic (e.g. any first-home buyer who has been waiting for house prices to fall before buying, based on government and Reserve Banks statements).
For this reason I’m very quick to advise my listeners and readers of when I get something wrong and it would be good to see this practice followed by others – in particular, the Reserve Bank.
If you’re looking to buy or sell, and want to know what’s going to happen in the property market in the months and years ahead, read widely and check the facts behind the claims.
Despite our natural Kiwi inclination to defer to "authority", your measure of who to listen to shouldn’t be based on "who’s in charge", but rather "who gets it right most consistently" and "what does my own research tell me?". - Ashley Church is a property commentator for OneRoof.co.nz. Email him at ashley@nzemail.com
Ashley Church.
“It’s reasonable to take note of the views of authority figures but they all make mistakes. None should be treated as the last word in what the market will do.”
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A SHOW OF FAITH IN BRICKS AND MORTAR
Bar foot and Thompson managing director PETER THOMPSON says New Zealanders still back property as a long-term investment despite the challenges created by Covid.
Q: How would you sum up 2021? What were the high points and low points?
The highlight of the year has been that the property market, despite multiple challenges, significant regulatory change and trading restrictions, has retained the public’s backing as a stable, long-term investment.
Rather than seeing price increases in a negative light, an alternative interpretation is that they underline people’s belief in the country’s medium-term economic prospects and the strength of housing as a longterm holder of value.
People have been prepared to invest their future in homeownership and have retained faith that the market, at current prices, is built on a sound foundation.
The low point is undoubtedly the impact of Covid restrictions on individuals and businesses. In many ways, 2021 has turned out to be a repeat of 2020, with the major difference that the real estate, banking and legal professions were be er prepared to deal with restricted face-to-face trading.
strengthen as much as they have?
The strength of house prices going into the end of 2020, combined with continued low interest rates and a shortage of supply, suggested that prices would continue to increase in 2021 but the rate would slow. That started to occur before lockdowns brought uncertainty and restricted trading.
In Auckland, this has led to unprecedented low levels of choice for buyers, creating even greater competition for available properties. Such scarcity invariably leads to an increase in prices and we will need to wait until the market returns to something like normal trading pa erns before we get a true picture of where Auckland prices are at.
Q: Do you think sales for 2021 will catch up with 2020 sales?
The number of sales Barfoot and Thompson completed in 2021 is likely to be similar to those in 2020, which was also restricted by lockdowns.
In 2020, the effects were mainly felt in the first half of the year, while this year it has been in the middle and second half of the year and we were more prepared for the potential disruption.
The reality is that neither have been typical years and there isn’t much relevance to making comparisons between them.
Q: What would your advice be to first home buyers entering the market now?
First-time buyers should put greater emphasis on the level of their regular mortgage repayments than on the price they may have to pay. The price can be daunting, but time will take care of it.
Of far more consequence are the fortnightly or monthly mortgage repayment and the ability to meet that over the next three to five years, especially given inevitable interest rate rises.
No previous generation has found home ownership easy, but few regret making the sacrifices and taking the tough journey it often requires. Today, there are far greater options for first-time buyers such as townhouses, apartments and terraced homes, and all can represent an excellent, lower-cost starting point than a stand-alone property.
Q: What do you think the challenges and opportunities will be in 2022?
Covid is likely to be with us for some time and real estate activity, along with all economic activity, will be influenced by the social and health responses the country goes through. Potentially, there will be periods when sales activity will operate relatively freely, and times when it will be restricted.
As a profession, we are geared up to operating face-toface or online. However, Covid restrictions could constrict the level of property reaching the market for sale – either in the form of new builds or vendors being unable to prepare their property. And despite the pace at which new homes are being built, the number reaching the market in 2022 will not be sufficient to ease supply constraints.
Given the staggered term of home mortgage contracts, the effect of mortgage interest rate increases will be gradual rather than a major hit.
The most likely scenario in 2022 will be a repeat of 2020 and 2021, with stop/go selling, a similar number of properties sold, modest price increases and the rate of price rises declining. The biggest opportunities will fall to those who have a long-term, positive view of where the economy and housing market is heading, and who are prepared act on their plans.
Property values in New Zealand have grown even in the shadow of a pandemic.
Photo / Fiona Goodall
