The state, or fate, of the New Zealand property market appears almost to depend on the view of the most recently quoted economist, analyst or even real estate agent.
But on a couple of points there is pretty much universal agreement; the impact of the so-called credit crunch and the ensuing global recession, the demise of the second-tier lending market (Finance companies) locally and a reaction-driven fall in the value of property, all add up to a bumpy and uncertain ride ahead.
Westpac chief economist, Brendon O’Donovan for one, reckons the local property market is only about half-way through a period of correction.
Ordinarily, that would suggest a current, downward, trend in values would continue well into next year, easing in its decline only towards the end of the 2009 and settling at a new, lower, pricing benchmark.
But against that is his consideration that New Zealand has no great stock of unsold residential property and any new residential property development is grinding to a halt through lack of development finance. O’Donovan is indicating that residential construction will be down around 20percent this year with a predicted smaller fall in 2009.
That so, he says, we may well see a shortage of residential housing stock availability sometime next year. If that happens, and the supply:demand ratio changes – even slightly- then we could expect to see some upwards pressure on house prices.
But that may be an ‘upside’ scenario.
The Real Estate Institute reports that national house sales are down by a near 50percent on the corresponding period for last year, and so far any recovery in sales that may have been predicated on falling interest rates, even the October tax cut, have not eventuated.
Part of the reason for this, industry commentators say, could be the lag time between cuts in the Official Cash Rate (OCR) being announced and the major lenders reflecting the effects of those cuts in their mortgage lending rates. That, together with a bout of falling market and consumer confidence.
But with average bank fixed rates moving from 9.22percent in July to around 7.5 percent as at [1 December], and the prospect of further cuts in the not too distant future, buyer interest could be piqued and in consequence some modest rebound in house sales numbers could be seen over the traditionally buoyant ‘summer-selling season’.
If that rebound occurs and is strong enough – and some Real Estate agents consider that only small increases in sales numbers are enough to influence it in today’s market – then that could be enough to halt the downward pressure on house prices and could even be enough to see a modest rise in selling prices. At least in the short term.
National house sales over the last few months have averaged around 4000. Just 1000 to 1500 more a month could make the critical difference, and at that level, some upward pressure on prices could well emerge.
While a reasonably consistent immigration flow has provided a good deal of momentum for new building and house prices over the last few years, that influence is likely now to diminish further.
While some see immigration as a tool that could stimulate domestic demand in housing and in the economy, it is not likely to be one used to any great extent by the new National-led Government.
The unemployment rate is already rising here and is predicted in some quarters to reach higher than 7percent in the first quarter of next year. One of National’s policy priorities is to retain skilled workers and attract overseas Kiwis back to New Zealand. That just doesn’t mesh with opening the immigration door wholesale.
However, with further tax cuts booked in for April next year, the prospect of rising unemployment in Australia and, given the global recession, Kiwis looking at uncertain prospects in other countries, we may well see both National’s policy fulfilled and in consequence, housing demand increase.
With no, or very little, new housing stock coming to market over this period any increase in demand will have a corresponding impact on both sales volumes and prices.