KEY POINTS:
Growth in the New Zealand housing market has dropped dramatically compared with the rest of the world, new figures show.
A survey by the Economist shows New Zealand's market ranks just 12th in an international table measuring value growth over the past 10 years.
New Zealand topped the
same survey in 2002, when the magazine used Quotable Value figures that showed us with the world's fastest-rising house prices, ahead of Denmark and Switzerland. At that time our house prices rose 22 per cent in one quarter.
Market pundits now suspect the long-anticipated slump may already have passed, with even the gloomiest predicting homeowners will continue to reap good gains in 2007.
In fact, a market downturn last winter was so slight that most people missed it. Only during the slow cold months around July did house prices plateau and volumes decline. Spring saw new records in prices and turnover, prompting economists and finance and real estate figures to issue more optimistic forecasts.
As BNZ chief economist Tony Alexander said, "unless something truly appalling comes along", housing's fortunes will do well, buoyed by a tide of migrants and a plentiful supply of secure jobs, meaning people remain extremely confident.
"Our view for the housing market over 2007 is reasonably positive. We don't expect average prices to fall but we do expect house price inflation will slow from 9.8 per cent in October 2006 to below 5 per cent by the end of 2007."
Statistics NZ added strength to his view when last month it said migration was running 5 per cent ahead of 2005, with 82,900 people coming to New Zealand as permanent long-term arrivals. When departures were factored in, the overall net gain was 14,800 people in the November year, up from 6200 in the year to November 2005.
In the United States, the market has already begun to cool, albeit slowly.
But prices in Australia and Britain picked up again late last year. Sydney prices look to be heading back up again, after falling throughout 2004 and 2005.
New Zealand seems to be following Britain and Australia, but has escaped with less of a slump.
Last winter, prices settled into a stable pattern, hovering around the $300,000 median national sale price mark. But a flurry of spring activity boosted prices to a new record $330,000 by November.
Prices and volumes are expected to continue edging ahead here this year.
Murray Cleland, president of the Real Estate Institute with 17,500 agents and residential sales of $35 billion last year, has plenty of confidence.
"I don't see a lot changing this year. Perhaps we will see interest rates rise a bit and I think that might make people more cautious in their buying," he said, although he acknowledged the Reserve Bank's attempt to slow the market had little effect.
Whether the national median will rise from its current $330,000 to reach a landmark $350,000 is not an issue he will speculate on, but he is concerned about the Reserve Bank's discussions on introducing supplementary stabilisation instruments such as a mortgage interest levy.
Alexander had some reservations about landlords' balance sheets, but is generally optimistic about the sector's outlook.
"Our scenario for the next few years is one in which the housing market looks acceptable but investors will need to focus very strongly on yield enhancement rather than buying in the hope of good easy capital gains. And buyers should be aware that every positive surprise we get on the housing market increases its vulnerability further down the track to one of the inevitable shocks that come along to hit the New Zealand economy," Alexander said.
Darren Gibbs, chief economist at Deutsche Bank, cites strong migration as one of the drivers behind what he sees as a buoyant housing market this year.
"There is a strong and unsurprising relationship between net migrant inflows and the housing market. We continue to think that underlying demand for housing as a result of continued solid migrant inflows and broad-based consumer confidence is such that, in the absence of further tightening measures, the market will continue to hold up better than the Reserve Bank would like to see," he said.
UBS New Zealand senior economist Robin Clements also cited the migration figures as a factor pushing property ahead.
"If one is looking for a driver of rising house sales and building consents, look no further," he said.
Auckland mortgage broker and financier Cairns Lockie said a group of factors would unite to hold the sector steady this year, although it expects some softening by 2008.
"Many people were expecting a slowdown last year. This did not occur and there are a number of trends that are likely to give us an indication of what this year will have in store. Unemployment remains low, which will continue to allow first-home buyers to enter the property market. Immigration will continue and this is not only positive for the economy, it is good for the residential property market as well. Last year, interest rates remained essentially unchanged and they appear to have peaked."
Cairns Lockie expected the market to remain firm, butto slow a little in a more subdued economy than 2004-05. "We believe 2007 will be similar to 2006 with a steady demand for well-located properties."
Where we stand
The latest figures show house price indicators as a percentage change between 1997 and 2006*
South Africa 327
Ireland 252
Britain 192
Spain 173
Australia 132
France 127
Sweden 123
Belgium 118
Denmark 115
United States 100
Netherlands 97
New Zealand 94
Italy 88
Canada 69
Switzerland 16
Germany -1
Japan -32
Hong Kong -44
*Source: The Economist