Hamilton's economy predicted to keep growing despite challenges

Predictions are that Hamilton's economy will be resilient even if the national economy slows or enters a recession. Photo / Supplied

A strong pipeline of building activity and a diverse economy are expected to help Hamilton successfully navigate the next three years, according to a Hamilton City Council report.

The council has released its first Growth Outlook Report, providing an in-depth look at how the city's economy may fare over the short term.

The report draws on a series of council models used to forecast house prices, GDP, and numbers of dwellings consented and new homes completed.

Using information collated from the council's data sources, as well as other organisations such as Treasury and the Reserve Bank, the report predicts Hamilton's economy will be resilient even if the national economy slows or enters a recession.

Growth funding and analytics manager Greg Carstens said the report forecasts Hamilton's average annual GDP growth rate to be about 2 per cent through to 2024 - below the 3.6 per cent growth rate seen pre-pandemic.

"Two per cent is okay or slightly below what you'd like for healthy GDP growth. But in today's environment, when you're flirting with a recession, you'd consider 2 per cent strong," Carstens said.

"Rising interest rates, supply chain issues, banks tightening credit and other uncertainties have impacted consumer and business confidence. But Hamilton looks to be in a good position to weather the storm given our diverse economy and how resilient our different productive sectors are."

Hamilton's average annual GDP growth rate is forecast to be about 2 per cent through to 2024. Image / Supplied

Six sectors each make up between 9 per cent to 16 per cent of jobs in Hamilton.
Hamilton house prices are expected to drop 12 per cent from their peak in 2022, before levelling out.

Carstens said the fall in prices can be viewed as a correction following a period of unprecedented growth. He doesn't expect house prices to take off again any time soon.

"We're seeing a house price crunch kick in, the likes of which hasn't happened in the past 20 years. There was a steep price climb in 2021 and now we're coming back to where prices should be. I don't think we'll see house prices power back up to those levels in the next couple of years because there's too much disruption out there."

However, a drop in house prices does not necessarily translate to homes becoming more affordable, Carstens said, with rising interest rates making it more expensive to service home loans.

"The house price drop is symptomatic of a market disruption, it's not really showing the market is fundamentally becoming more affordable. If you have the cash, it's easier and more affordable to get a house. But if you don't have the deposit, and you don't have a particularly high income, it's not really any easier than before. Also, if you are staying in the same market, you are buying low but selling low too."

Following the Global Financial Crisis (GFC), there was a fall in Hamilton house prices followed by a five-year period of little to no price change.

The city's record level of residential consenting in 2021 is expected to drop off in 2023, representing a decline of about 20 per cent. However, the number of new homes being completed is predicted to increase from the end of 2022 and into 2023 as construction

"A pipeline of consented homes will come online next year and that will push those numbers up. One of the real takeaway points is the economic environment doesn't seem to be hurting infill housing developments like it is in the greenfield at this stage," Carstens said.

Hamilton real estate market waking up with renewed activity

Meanwhile, Lodge Real Estate says the number of people attending open homes in Hamilton jumped 35 per cent in August, signalling the real estate market is waking up as first home buyers access finance and gain confidence.

Managing director Jeremy O'Rourke says people have come to terms with the Reserve Bank Official Cash Rate increases and have more confidence in where the Hamilton market is heading.

Moves allowing more lending to first home buyers with a low equity 5 per cent deposit were also flowing through, adding renewed vigour to the market.

"The market is waking up. People have watched the Reserve Bank's moves and the media coverage alongside that over the last few months. Initially, these events caused buyers to pull back and wait, but we are seeing they have come to terms with the changes and are re-entering the market in force."

House prices levelled off a few months ago and are remaining steady now, which is also attractive to that first-home-buyer segment.

Lodge Real Estate managing director Jeremy O'Rourke. Photo / Supplied

"During the last few weeks, Lodge Real Estate sold as many properties as we listed which is an additional sign that activity in the market is beginning to translate into sales," says Jeremy.

The most recent figures from the Real Estate Institute of NZ report Hamilton's median house price is sitting at $785,000, which is the same as August 2021.

"First home buyers are seeing the value that's on offer in the Hamilton market. The most active sector of the local market is that $600,000 to $800,000 price bracket," says Jeremy.

Listings in the city were sitting around 1050 houses which had not fluctuated greatly over the winter months, suggesting homes were still selling and listed properties were not sitting on the market too long. In Hamilton, it's currently averaging 51 days to sell a home.

"Around 85 per cent of home sales at Lodge are families looking to buy again in Hamilton or the outskirts of the city. We are also seeing more buyers who recently moved to Hamilton and chosen to rent, now also seeking out properties to settle in as confidence returns," says Jeremy.

He says as first home buyers get more active in the market, this generates activity across the board as sellers most often look to buy at a higher price bracket.

Jeremy says the market was likely to see the usual spring trend of an upward tick in sales from October when new spring listings normally come through.

Figures released from the REINZ on September 13 show, in total by all agents, 194 houses were sold in Hamilton during August. This is down year on year when compared to August 2021 when 223 houses sold.