Peter Thompson: Ignore current uncertainty in favour of medium term housing outlook

Peter Thompson, Managing Director, Barfoot & Thompson
Peter Thompson: Ignore current uncertainty in favour of medium term housing outlook
For the next four to five months there will be uncertainty around housing.

The sentiment likely to dominate thinking around housing for the next four to five months will be uncertainty.

It will be a sentiment driven by uncertainty as to how the international economy will recover from the disruption caused by the Covid-19 pandemic;  uncertainty as to how the local economy will recover from the damage already done; uncertainty around just how bad unemployment might become; and the general uncertainty that always occurs in a run up to a General Election.

Towards the end of the month the NZ Herald reported rating agency S&P as saying that it expected New Zealand house prices to fall around 10%. It is an assessment with which many local economists agree.

Countering that is Barfoot & Thompson’s and the Real Estate Institute’s real-time sales data, which shows that through April and May house prices have remained stable, and close to all-time highs.

What has declined significantly is the number of homes sold, but this has not affected the prices paid.

Neither the economists’ forecasts or the sales data is right, or wrong, for the simple reason that we have not had enough time elapse since the easing of sales restrictions for a true trend to develop.

The forced lockdown during Covid-19 stopped a dominant Auckland market in terms of sales and prices.

It froze transactions in progress, and people’s intent. When market activity was permitted again there was a burst of catch up activity, which saw healthy trading in May.

In the next few weeks June’s trading results will be released, and my feeling is these too will be positive. Regardless, the concern is that these figures may still partly be influenced by the catch-up surge.

They may give a false signal to those that are looking to see a trend before they act on their housing intentions.

Rather than look for trends, a more pragmatic approach is to take a medium term view – say over the next 3 to 5 years. Based on this time frame, the outlook for Auckland from an economic and growth perspective is rosy, and so is home ownership.

The infrastructure already under construction – let alone that planned – will totally transform Auckland in coming years.

This infrastructure includes the underground City Rail Link, the strategic road network, the rejuvenation of social housing and the new suburbs planned to the north, south and west. All these are actual works in progress.

Auckland’s population will continue to grow, even through the pace of immigration is likely to slow, and the City’s appeal as a place to live will continue to be enhanced.

What has to be navigated is the relatively short period of uncertainty until inevitable economic growth takes place.

When it comes to housing trying to ‘guess’ where the market is heading so you can act ahead of the pack to achieve immediate gain (or avoid future loss) is never a good strategy.

Rather than reacting to rumour, hunches or forecasts, it is better to make considered decisions based on a medium term time horizon.

When talking about house price sales trends a point often made, but often ignored, is that regional variations can make a big difference when trying to assess what direction prices are travelling. (And in the case of Auckland, because of its sheer size, location variations).

For example, REINZ’s national medium sale price for property nation-wide showed an increase from May 2019 to May 2020 of 6.9%. Yet on a regional basis the movement was a high of 22.8% for Southland to a low of -5.7% for Gisborne.

In Auckland, the year-on-year growth was 7.1%. Yet the location growth went from a high of 12.8% for Manukau to a low of -1.6% for Rodney.

When it comes to price, national or regional trends are only a broad pointer and a far more accurate picture is gained by looking at local trends.

Ultimately, the price at which a house sells is a combination of marketing that attracts to right potential buyers; the property appealing to buyers and meets their requirements and price limitations; and a price that meets the vendor’s expectations.  

It means each sale will always be a unique transaction.

 

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