CoreLogic research analyst Kelvin Davidson writes:
Within the CoreLogic research team, we’ve been travelling the country over the past few weeks delivering property market update presentations to a wide range of audiences from banks through to government departments. So what was the mood like ‘on the ground’?
First and foremost, we didn’t detect any sense of outright pessimism, just an acceptance that volumes and values have slowed, and a healthy dose of caution about the next year or two. Indeed, an outright pessimistic view about the future doesn’t seem particularly justified when you consider that historically it’s taken a very major economic shock (i.e. the GFC) to get NZ’s property values down by any more than 4%. This is illustrated in the first chart.
Second, there was nothing to suggest that the mood amongst investors (a very different group from short-term speculators) has soured dramatically off the back of extra hurdles such as the Brightline Test or the looming removal of negative gearing. Certainly, our buyer classification data (second chart) shows that multiple property owners have retained a decent presence (37%) in terms of buying activity in the past few quarters – albeit a lower share than prior to the third round of LVR restrictions in late 2016.
Any influence of foreign buyers didn’t seem to raise issues of concern for many people either. True, we didn’t visit some of the reported hotspots, such as Queenstown. But in general, the feedback was that Statistics NZ’s upgraded series on foreign activity in the property market - covering both buying and selling - is pretty much spot on in showing only a small presence for NZ as a whole (as per the third chart).
From our side, there are two other factors that warrant close tracking over the coming months. First, the outlook for mortgage rates will obviously be crucial. There’s nothing to suggest that these will start to rise materially anytime soon, but as always they need to be watched closely. Second, we’ve seen the trans-Tasman net migration balance start to turn in Australia’s favour in the past few months. And with the pace of Australia’s economic growth anticipated by some commentators to overtake NZ again within the next year or so, the migration outflows may well continue to gather steam. This would lessen one of the key drivers and supports for property values over the past few years.
On balance, our roadtripping has done nothing to change our expectation that property market volumes will hold steady at close to 80,000 p.a. this year and next. This suggests broad stability for average property values as well, which is a better prospect than the falls currently being seen in Australia. So while NZ’s outlook might seem a bit bland, boring can be good.