Over the years that I’ve been commentating on the New Zealand property market my primary message has always been consistent – ‘focus on the data’.
Why? Because, amid a cacophony of opinions and an avalanche of views from commentators telling you what they ‘think’ the market will do, only the data can be trusted to tell you the real story.
Of course, taking that stance isn’t always popular and, in my own case, following the data has led me to express views that are often at odds with the prevailing narrative. At various times over the past few years I’ve been on record as claiming that there is no housing shortage, that houses are more affordable than they used to be, that our home ownership rates aren’t dropping, and that the foreign buyers ban didn’t work. These views might be ‘factually’ correct – but they’re not popular.
So it’s with a bemused interest that I’ve been watching the various commentary about the plight of the New Zealand property market over the past 9 months. A casual observer could be excused for believing that the market is in some sort of freefall and that the sky is (finally) falling in after decades of consistent increases in house prices.
But is that really true? The answer to that question really depends on your perspective.
Consider the following analogy: If you’re sitting in a plane and it unexpectedly drops 30 feet, that’s probably going to seem quite dramatic. But to someone flying in a plane behind you, who has just watched your plane climb 150 feet before dropping by 30, that last fall is going to appear a lot less dramatic. And to someone on the ground who can see that your plane is now 32,000 feet in the air – that last 30 feet is negligible.
That may sound like a strange analogy – but it’s actually a very good illustration of what’s currently happening within the property market. To understand what the market is doing you need good data and enough perspective to see what’s happening, in context.
For the data, let’s use the recent One Roof House Price Report which is produced by Property Data Company, Valocity, and which provides information right up to September 2022.
This report tells us that, over the past three months, house prices across New Zealand have dropped, on average, by 3.7%. In other words, on average, a house bought 3 months ago is now worth less than it was on the day that it was purchased.
So surely that’s cumulative? Houses prices have been dropping for longer than three months so the annual figure must now look frightening, right?
Well no. If, like the guy in the plane behind you in my illustration, you stand further back and look at housing market prices over the past twelve months the average house price across New Zealand is actually UP by 4.7%! Yes, you read that correctly – although average New Zealand house prices have come back a bit over the past few months, they’re still actually up on where they were this time twelve months ago. But wait, it gets better. If – like the guy on the ground watching your plane – you go back two years from September, you’ll find that, on average, New Zealand house prices have actually increased by 33.6% over that time!
But how can this be? How can the real numbers be so much at odds with the media narrative? To answer that you’d need to ask the other commentators – I can only call it as I see it.
Of course, New Zealand isn’t ‘one’ property market and the numbers are different in different parts of the country. In Auckland, house prices dropped, on average, by 4.3% over the last quarter – but are still up 2.3% on this time last year and up a massive 29.1% on the same month two years ago.
To be fair, the news isn’t so good if you’re in Wellington, where house prices have dropped, on average, by 9.1% over the past quarter and 5.9% over the past 12 months – but even in that region house prices are still up, on average, by 26.5% over where they were two years ago.
Check out the numbers for yourself. You’ll find that, in almost every case, the reality simply doesn’t match the narrative and that talk of big house price decreases and even a property market crash are more wishful thinking than empirical reality.
That, coupled with a settling of mortgage interest rates and a slow but definite easing in credit restrictions (the two things which caused the current downturn) and there’s reason to be cautiously optimistic about where the market is headed.
DISCLAIMER: The opinions expressed in this article are the author’s and shouldn’t be taken as financial advice, or a recommendation of any financial product.