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What to expect from the housing market in 2020

The fizz that had leaked out of the housing market in 2019 is back with a bang. Milford Asset Management Portfolio Manager Mark Riggall is expecting a stronger housing market performance in 2020, with prices to rise more steeply as supply continues to under-deliver.

“As we approach the key selling months of February and March, we are starting to see improvement in house prices from a weak year last year, especially in Auckland. The key bit of data we look at is the house price inventory – that is, how many houses are available for sale in the market. We’ve seen a dramatic fall in the inventory for sale and that generally precedes a rise in prices. Furthermore, many of the drivers of house price inflation are still in place and actually strengthening. It’s all supportive of higher prices as we move through 2020.”

The 2017 election put a dampener on the housing market. Mark Riggall says ‘not this time’.

“If you cast your mind back to the last election, there was a big issue for housing because there was potentially a change of government and we knew that might go hand in hand with a review of Capital Gains Tax. That depressed activity in the housing market and that’s really when the slowdown started. This time round there is less uncertainty, so I think the election’s impact on the housing market will be much more muted than last time round.”

Investors have been sitting on their hands to some extent over the past two years. But they look to be getting a second wind.

“I think we could see investors rush back into the housing market this year. We’re seeing rental yields start to improve (though, of course, if prices go up, those rental yields will start to come back down). Capital gains, as always, drive the housing market in New Zealand and the prospects there could lure more investors back in.”

As the market heats up, Milford is moving to re-position its own funds.

“For us there are two key takeaways from an improved housing market. The first is more direct – and the way for us to play that in the share market is to increase our exposure to the retirement (village) sector and we’ve been doing that over the past three months. The other is our view of the local economy. An improved housing market likely means improved confidence and, therefore, more spending. GDP is likely to improve. That should be beneficial for the New Zealand dollar and we’ve increased our position there as well.”

You can also view Mark’s interview, discussing these issues as well as his view of why investing in shares is often a better bet than investing in property, here.

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