A friend chatted to me over dinner recently. He was concerned that property values were falling and even more distressed about the thought of selling his home in the near future. As I listened, I wondered how many other New Zealanders were sitting with this same fear?
For starters, and not to continue on this apprehensive note, I believe we are very fortunate to live in a safe and stable country. Comparatively to the rest of the world, we are fortunate in regards to national security, food and water supply, power supply, a relatively benign climate, and a government and rule of law that is visibly supportive of its patrons.
Yes, things like housing in some areas is comparatively expensive, and there are some infrastructure challenges throughout our major cities. But the reality is that these are first world problems and are fundamentally a function of our country's positive growth, success, and ongoing desirability.
We have a stable and growing economy overall; one that is supporting a highly employed workforce. Wages are growing at twice the rate of inflation (currently 1.7%), and a strong taxation take for the government allows the country to reduce debt, invest in societal issues, and address national infrastructure issues.
What does this mean for the real estate economy specifically, and how is our current healthy economy going to affect you in the long term in regards to your property and financial goals?
There are five variables which drive the New Zealand real estate economy:
1-Average home prices in New Zealand:
The REINZ house price index (HPI) is the change of house values overtime, measured as a percent change. The HPI does not simply take into account home prices, but activity and trends in relation to house and land size, number of bedrooms etc, to accurately represent true price movements.
The most recently published report by REINZ, indicates that over the past 12 month period, the national HPI has increased by 1.5%. The current median house price is sitting at $575,000.
Canterbury’s HPI over the same period is sitting at a meagre .7%, and the median house price is still hovering at $446,000.
Narrowing this down to real estate market in Christchurch specifically, the current house value growth rate is sitting at 1% (June 2018 compared to June 2019), and the median house price is $499,934.
A healthy real estate industry is one in which homes are appreciating at a constant and affordable rate, up to 4%. Christchurch housing is well within this range, and I project this growth to be stable and secure, mostly benefitting long term investment plans.
2 - Number of annual home sales:
The number of residential properties sold across New Zealand in July increased by 3.7% from the same time last year, which is the highest for the month of July in 3 years. Canterbury itself was up 14.6%.
3 – Supply of Inventory:
The amount of homes on the market over time impacts prices through Supply and Demand.
The total number of properties available for sale nationally increased by 2.6% compared to 12 months ago.
As more properties become available, it is a natural movement towards greater competition within the marketplace. If you’re thinking of selling, be aware that purchasers now have many more options to choose from then they have historically. Meaning you may need to be prepared to accept a lower value for your home than you wish.
With this said, it’s not necessarily a negative to be selling in an oversupplied market. Chances are you are also buying in the same market, therefore you may gain back the monetary value you perceived to have lost when you sold.
4 - Mortgage rate fluctuations:
We are currently seeing historically low interest rates, which have on a very good note has helped affordability for buyers.
When interest rates decrease by 1%, this translates to about 10% decrease as well in the monthly cost of a home, therefore increasing affordability for buyers.
5 – Affordability:
According to the 15th Annual Demographia International Housing Affordability Survey: 2019,New Zealand was ranked the second most unaffordable major housing market for 2018. Using a median multiple, which measures house prices in relation to household income, New Zealand was deemed second most severely unaffordable. The only country more unaffordable than us? China.
With this said, specifically in Christchurch and for all stages of home ownership, home mortgages are well within the affordable range. Mortgage payments are considered affordable when they take up no more than 40% of a households take home pay.
The most affordable mortgages in Christchurch are those for older families (16.1% - 19.5%), assuming median incomes and median house prices. Following close behind are first home buyers (18.7% – 24.2%), assuming median incomes and first quartile homes in their area.
The least affordable mortgages are those for young families, where one partner works full time and one works half time. Assuming median incomes and a median priced home in their area, up to 33.3% of take home pay is allocated to the mortgage. Still within the 40% range, however this is statistically when families really needed to tighten their wallets!
The unemployment rate nationwide is currently 3.9%, which equates to 109,000 people. The unemployment rate has been continually dropping since late 2012. When unemployment rates are this low, there is a natural fight for talent which ensues, therefore allowing for wage growth, and increasing affordability for homes.
With all of this said, my preference is for a smooth, steady, and healthy growth overtime. This would ensure first home buyers, second home buyers, investors and developers all reap the rewards of a reliable and trusted property market.