Where to for the New Zealand and Auckland housing markets? Experts give their views on what’s ahead in 2017.

ANZ chief economist Cameron Bagrie

It's midnight at the bar. We've had a good time. Do we go home or stay out until 4am? History says the housing market stays out and binges. The end result is an economic hangover as a bust follows the boom. Warning signs are starting to flash with regard to leverage (credit expansion relative to incomes) and asset valuations. The term "this time is different" is a phrase that can come back to haunt an economist but there are some key differences now. We have a housing boom but not a consumption equivalent as households show more restraint, which in combination with the high New Zealand dollar and other deflationary forces is keeping inflation (and the Reserve Bank) at bay. Housing supply is still not keeping pace with demand so we don't have a surfeit of stock that could pressure prices. We don't have a shadow banking sector. The regulator (the Reserve Bank) is playing bouncer at the door through loan-to-value restrictions and banks, the responsible bar-tender, are tightening up the availability of credit. This will help dampen the extent of excesses built up at the top, which will lessen the pressure for an adjustment on the other side.

BNZ's chief economist Tony Alexander

We have received more information showing the housing market slowing down. But it is not yet certain this slowing will be sustained in the context of continued low interest rates, rising incomes, strong population growth and insufficient construction. Watch for market activity come February. And try to get your head around this important point. You don't need any trade happening for the price of something to go up. Consider for instance if during a weekend shipping gets disrupted in the Persian Gulf. Come Monday when the markets open the price of oil will be much higher in the first transaction than in the last on Friday. Instant price change. We mention this because it is relevant with regard to Auckland housing. Finance is harder to get for people buying properties. That means less demand. That means less upward pressure on prices and less turnover. But, finance is getting harder for people building houses. That means less supply. That means more upward pressure on prices and less turnover. In a market where there is a recognised shortage, the simultaneous withdrawal of both some buyers and some sellers is more likely to lead to sustained upward pressure on prices than downward. Low turnover - yet prices still rising.

Economist Rodney Dickens

[There is] still is a case for a little upside in Auckland once investors start to find ways around [bank lending] restrictions while in the rest of the country on average there could be close to 10 per cent upside in prices in 2017. While the number of sales in Auckland is down and the number of for sale listings is up, the demand-supply balance is still moderately positive. As happened after the previous two rounds of lending restrictions, investors should start to find ways around the latest restrictions this year, which at face value will mean a stronger Auckland demand-supply balance. But I expect this to be largely offset by the negative impact of rising interest rates. In the case of Auckland, the demand-supply balance should still be supportive of some upside in prices in 2017, helped a little by an extremely strong labour market. In the rest of the country on average, even after the impact of the latest lending restrictions, demand or sales are still well above average while there has only be a small increase in the number of for sale listings meaning a shortage of supply is still a major factor. In the rest of New Zealand, the demand-supply balance is still supportive of 10 per cent-plus annual house price inflation. Again, as investors return, it should improve but I expect interest rates to increase more than most next year and for this to mean maybe less than 10 per cent upside in house prices on average outside of Auckland next year. Focusing on the demand-supply balance like we do in our pay-to-view reports is much more useful than taking much if any notice of the reported monthly median prices that are highly subject to random variation due to changes in the composition of sales. For now, the demand-supply balances in Auckland - and more so the rest of the country - remain supportive of rising prices.

New Zealand Institute of Economic Research's Christina Leung

Housing market activity has dampened slightly in the wake of the new macro-prudential measures requiring property investors to have a 40 percent deposit taking effect. There has been an element of wait and see among potential house buyers. However, with strong population growth still underpinning housing demand, the effects are likely to be short-lived, with the loan-to-value restrictions likely to change the composition of house buyers towards those with higher equity rather than dampen overall demand which is likely to recover as buyers get around the restrictions.

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