Property Institute Hits 100% on 2017 Housing Predictions
Property Institute Hits 100% on 2017 Housing Predictions
Property Institute of New Zealand Chief Executive Ashley Church has released the results of the Institutes 2017 Property Market predictions noting that all seven predictions subsequently proved to be correct.
Mr Church says that he is releasing the results because it is important that Property Market commentators be held accountable for the statements that they make.
“Frankly, there’s a lot of nonsense talked about the property market – and there are a few people making some pretty silly predictions which get great headlines but on which they’re never called to account”.
Mr Church says that the most obvious example of this is the frequent headlines predicting a property market crash.
“It’s very easy to predict a housing market crash – and there are plenty of media organisations that will jump on such claims and publish them. But unfortunately for those commentators, neither the facts, nor the history, support that claim. Instead, the market is now doing exactly what we’ve been consistently predicting for over two years – settling into much lower house price growth before it slows down to virtually zero price growth for the next 3 to 5 years”
“That has nothing to do with anything that either National or Labour have done – it’s simply how the kiwi residential property market works”.
Mr Church says that he would like to see media organisations holding commentators more accountable for their predictions.
“It’s very easy to be Jeane Dixon – getting the odd prediction right but most wrong, or Nostradamus – where your predictions are so vague that they can apply to anything – but it would be great to see an annual wrap up of this stuff so that people can see who actually has a handle on the market”.
Mr Church says that people should be getting expert financial advice rather than relying on information provided by commentators to make important financial decisions – but says that there’s no doubt that media commentary provides a back drop to some of those decisions.
“Of course people are swayed by what they see, hear and read – and the consequences of that influence can be huge”.
The Institutes predictions for 2017 were as follows:
1. The Prediction: Longer term mortgage interest rates will rise
“The general consensus is that interest rates are on their way up – partly because of international events, and partly because NZ Banks will need to pay more to attract a diminishing fund of investment from kiwi depositors. Expect to see little change in 6 month to two year mortgage rates – but a jump of up to 1% in longer term rates as Banks try and woo borrowers into shorter terms in anticipation of further funding increases over the next 2 or 3 years”.
The Outcome: As predicted – longer term rates went up. Average 3 year rates went from 4.86% to 5.06% over the course of the year. Average 4 year rates went from 5.24% to 5.63%. Average 5 year rates went from 5.35% to 5.8%. Shorter term rates were largely unchanged (Source: Interest.co.nz) Prediction correct
2. The Prediction: House prices will keep rising
“The current lull in the Auckland market is partly the result of the 40% LVR restriction on property investors put in place in October – and it can’t last. The continuing gap between demand and supply means that further price inflation is inevitable for the foreseeable future”.
The Outcome: As predicted – house prices continued to go up – albeit, more slowly. According to one industry source house prices rose 6.4%, nationwide, in the year to November 2017. Auckland house prices rose .4% over the same period. Prediction correct
3. The Prediction: Investors will be constrained for a while
“That 40% hurdle is a tough one and investors who were highly geared will need to wait a while before they have enough new equity in their properties to get back into the market. Those investors who had lower debt gearings are still buying – but are being constrained by tighter lending rules which are acting as a brake on runaway house prices. That means that it’s unlikely that we’ll see a return to the heady 20%+ levels of annual price growth experienced in the last couple of years”.
The Outcome: According to the Property Institute / Valocity Regional Insight Report new mortgages to Investors had dropped by 33.5% in the year to October 2017. Prediction correct
4. The Prediction: New home construction will start catching up
“Depending on your source, Auckland either needs 40,000 new homes ‘right now’ or 10,000 per year for the foreseeable future. Either way the market will finally start to make some inroads on this target in 2017. The houses built through the combination of Government building initiatives and private sector construction of apartments and free-standing homes will, for the first time in years, exceed the number of homes actually required just to stand still – although we’ll still be a very long way short of the number required to ensure that supply matches demand”.
The Outcome: According to figures from MBIE, 31,423 new dwellings will be consented in 2017 – an increase of around 1,500 over 2016. Around a third of these are in Auckland. Unfortunately, there are no reliable figures on which to measure actual construction. Prediction anecdotally correct but difficult to verify due to lack of specific data
5. The Prediction: The cost of renting will start to rise
“Renters in Auckland would probably disagree – but they’ve been renting in a relatively benign environment for the past two or three years. This is because many Landlords have chosen to forgo big rent increases while the capital growth on those properties has been so strong. This is likely to change in 2017 as Landlords look to offset lower capital growth with higher rental returns”.
The Outcome: According to the Property Institute / Valocity Regional Insight Report the cost of renting is now steadily increasing in almost all parts of the country. Increases are as high as 9.2% for a 1-2 bedroom dwelling in Hamilton, 13.2% for a 3-4 bedroom dwelling in Dunedin, and 26.8% for a 5+ bedroom dwelling in Christchurch – and Auckland rents are also starting to climb quickly. Prediction correct
6. The Prediction: Debt-to-income measures are off the agenda – for now
“The Reserve Bank talked a lot about debt-to-income restrictions on mortgage lending during the latter half of 2016 – but is unlikely to act on them this year. This is partly because it will take a wait-and-see approach on developments in the world economy – but more specifically because the measures are politically unpalatable to either major Party. While the Reserve Bank is independent – it’s not completely blind to the politics of such a move”.
The Outcome: Prediction correct
7. The Prediction: Property will be the #1 Election Issue
“Expect to see a string of announcements, from the Government, spelling out what it is doing to fix the Auckland housing crisis and outlining new ideas to speed this process up. In particular – it’s possible, even likely, that the Government will offer a more generous response to the plight of first home buyers in a pre-election budget surplus splurge”.
The Outcome: Both National Labour spent the campaign trying to ‘outbid’ each other on their housing promises – with National increasing the amounts available to first home buyers under KiwiSaver and Labour proposing to build 100,000 new homes under ‘KiwiBuild’ with a significant proportion of those being ‘affordable’. Both parties talked up reforms to planning and consent procedures. Prediction correct