Issue 52 - Housing Market Update - June 2009

What an interesting time it is in the housing market right now!

For home owners in our area, (Inner West Auckland) the good news is that sales volumes are up (they are certainly up for us!) and that prices are starting to edge up a little.

When we compare volumes, the last four months has certainly seen a change in direction, with sales on the increase. As recent house sales mop-up surplus stock there is going to be an increase too in sales prices. Latest figures from April 2009 indicate that average sales values for that month were at or very close to the 2007 Capital Values.

Recently, at the same time as announcing a lower Official Cash Rate, Reserve Bank Governor Dr. Bollard urged mortgagors (borrowers) not to fix their interest rates too soon, as interest rates were going to remain low well into 2010. I suspect, however, that this message was aimed as much at international investors as local borrowers.

If Dr. Bollard is able to persuade overseas retail investors (notably, the carry-trades) to desist from investing in New Zealand, the demand for New Zealand dollars will remain reasonably muted, leading in turn to the N.Z. dollar exchange rate with the rest of the world, trending lower – or lower than it would have been without any comment.

Hopefully, a lower dollar will have the twin effects of continuing to discourage consumer spending and encouraging our embattled exporters. This is turn would result in increased overseas sales, especially in terms of New Zealand dollars earned.

The downside to all the above, of course, is that with consumer spending down especially on big-ticket items, a number of resellers of such items are going to require reduced numbers of staff, or reduced hours, with the result that total take-home pay for the country is going to be reduced which will, in turn affect total consumer spending.

While lower interest rates are welcome news for borrowers, it will be interesting to see whether those rates remain low should we be faced with increasing volumes and prices for house sales. My personal feeling is that the lower interest rates are likely to be increased early 2010 as house sales volumes burgeon.

There is still an excess of long-term arrivals over long-term departures. Many of the arrivals (as mentioned previously in this column), are returning ex-patriots and they are arriving with funds available for purchasing properties. Given that there is already a perceived shortage of total accommodation, price rises are inevitable – probably sooner rather than later. To stem these price rises, interest rate increases will also be inevitable.

Anecdotal evidence from the construction sector indicates more interest being shown in building instead of buying ready-made. While it may take some time for that to translate into homes being built, it is a welcome indicator. Increased building activity is a key to greater sales being made in the furniture/
furnishings/home appliance sectors. After all, it is difficult to live in a home without any furniture.

At present, there is a certain amount of pent-up demand from sellers who want to sell and re-purchase. The two things that are causing the log-jam are the lack of homes available to purchase and the cost of relinquishing existing mortgages.

For the moment, those wanting to sell and re-purchase, but with an existing fixed home loan face a cost of many thousands of dollars to extinguish their present loans when they sell their existing homes. This second problem will ease with the passing of time, as the likely liability is very much time-based and as fixed loans reach the end of the fixed interest period, that sum will reduce to the point where it is insignificant.

The problem of the shortage of properties on the market is going to take somewhat longer to resolve. Part of it is an outcome of the above problem (penalties for early loan repayment); while another part is the reluctance of some home owners to commit to selling in the present financial situation. There is an understandable reluctance to take any risk and to consolidate present positions. Further, many home-owners wishing to buy are not putting their homes on the market for fear that their homes will sell before they find something suitable to purchase.

As I said at the start of this column – interesting times!