Rising house prices reflect community confidence

Peter Thompson, Managing Director, Barfoot & Thompson
Rising house prices reflect community confidence

Auckland house prices are a topic of great interest, and as managing director of the real estate company selling the highest number of properties in the City, a question that is often put to me is, ‘How much more can Auckland house prices increase?’.

It is a question I never answer directly.

While some may see that as fence sitting, I feel speculating about what may happen to house prices in the future is not constructive.

It is crystal ball gazing, and it is not possible to predict where house prices will settle. I leave that type of comment to others.

SEE ALSO: It’s still a good time to buy in Auckland

What I am more than happy to do, however, is to discuss the factors and trends that are influencing house prices, and leave people to draw their own conclusions.

Based on our records, which go back many decades, we have a very good understanding of the extent to which house prices are moving.

In the last 2 years the average price of the properties we sell has risen by 23% (11% in 2013 followed by a further 10% in 2014). Based on the fact that the combination of factors driving prices remains, there is every reason to anticipate prices will continue to rise.

Early sales data for this year reinforces that, with the average price of homes sold in the first quarter of 2015 being higher than for the same period last year.

While Auckland is alone in experiencing year-on-year price increases (with the exception of Christchurch for very different reasons), it is not an Auckland-alone phenomenon internationally.

Selected cities in countries with like economies to ours are experiencing the same growth in house prices. One only has to look at the price increases being experienced in Sydney and Melbourne to see the same trend.

It seems more and more people are being drawn to the bigger cities for lifestyle and work opportunities.

Peter Thompson, Managing Director Barfoot & Thompson

Peter Thompson, Managing Director Barfoot & Thompson

Pragmatism says that prices will not continue to rise forever, and particularly at the same rate as over the past 2 years. There will come a time when some of the factors responsible for the increases will change, and the price momentum will start to come back.

When that will be is open to conjecture. It may be caused by an increase in mortgage rates, a loss of confidence in the economy, or some economic event happening external to New Zealand.

When it happens it will not signal that prices are about to fall.

When the last period of sustained price increases stalled following the onset of the global financial crisis in late 2007, prices fell by 5% over 12 months, and then gradually started to increase again after about 18 months.

For the majority, home buying is a long-term commitment, and modest price movement over the short term has limited impact on people’s perception of the value of their home.

My view is that rather than being too focused on price, the main consideration should be ‘Can I afford the mortgage repayments in 12 to 18 months if there is a rise in interest rates?’

The other major risk, which is losing your job and your ability to service your mortgage, can be protected against through mortgage protection insurance.

Some seek to place the reason for price increases on investors and non-New Zealand buyers, but this ignores the fact that by far the majority of buyers are owner occupiers. As property managers we look after in excess of 11,000 properties on behalf of landlords, and less than 10% of these landlords own more than one property.

A factor that is often overlooked when discussing price increases is our changing lifestyle, and expectations.

Older homes are being remodelled to compete with the modern facilities incorporated within new homes. ‘Must haves’ now cover greater indoor/outdoor living, 2 and 3 bathrooms, open plan family living space, and entertainment areas.

Premiums are being paid for access to certain school zones, proximity to public transport and transportation routes, coastal areas, and entertainment zones.

While prices are rising across the entire City, the increase is not the same everywhere. The increases have been greater in what are seen as the more desirable areas, and also those areas seen as the ‘up and comers’. 

We should not be apprehensive about rising house prices. They are a reflection of a community’s collective confidence in the economy, and an individual family’s decision as to how and where they want to live their life, and invest their wealth.

As our City grows, more people will embrace living in terrace and town houses, and apartments.

It will create greater choice, and that in turn will contribute to housing affordability staying within the means of a greater number of people.  

SEE ALSO: It’s still a good time to buy in Auckland

Peter is the Managing Director of Barfoot & Thompson.

 

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