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How Does New Zealand’s Current Property Market Compare with Previous Cycles?

Nick Goodall    |    International


We are in a very interesting time for the property market with varying factors indicating differing directions, and there is no shortage of anecdotes supporting all sorts of theories. 

One of the themes that has caught my eye has been when comparing the last time annual growth was this strong. In many parts of the country, this was back before the last peak in 2007/08. 

The latest monthly QV House Price Index shows Auckland’s latest annual change is 24.4 percent - the highest since the peak-before-last, in December 1994, so greater than at any stage during the 2000s. Auckland’s peak growth then was 21.3 percent in December 2003; meanwhile Hamilton peaked at 27.7 percent in December 2005 and Tauranga at 32.5 percent in March 2004.  This illustrates that the growth in New Zealand’s property market leading into 2007/08 and subsequent global financial crisis (GFC) was actually more significant in the regions – Auckland’s greatest growth phase was in the ‘90s, something not often recognized.

For what it’s worth Dunedin’s peak growth during that cycle was a whopping 49.8 percent in December 2003, Christchurch was 33.6 percent in the same month and so was Wellington’s, although the Capital has always enjoyed more moderate increases, with its value growth peaking at 16.0 percent.

So it is safe to say we’re already in different territory to the ‘noughties’ – especially when you see the gap between Auckland and the other major centres now. 

Since the middle of 2005, when Tauranga’s average value was almost equal to Auckland at roughly $435k, Auckland has drawn away from each of the regions to now be over  70 percent more expensive than each of them. The gap has never been so great, and it’s unlikely it’ll be reduced too much over the coming years. This is because, put simply, the fundamentals supporting Auckland’s growth are too strong. 

What are the fundamentals, and how do they compare to previously then?

Mortgage interest rates are far lower now. In 2008 mortgage rates for standard terms (1-3 years) were hovering under the 10 percent mark, nothing like the levels we’re seeing now – below 5 percent.

Unemployment was at historical lows before the GFC hit – below 4 percent, but of course through the GFC it increased - to roughly 6.7 percent and we’re now at 6 percent with forecasts for that to increase.

Net migration was relatively low throughout the mid-late 2000s with mini peaks of about 1,200 net migrants in a month – a figure that is dwarfed by our current levels of 5,500 per month, and there’s no change on the horizon.

Our household debt levels, as a percentage of nominal disposable income, is very similar to those in the late 00’s. However due mostly to falling interest rates the percent of disposable income used to service the debt has reduced from over 14 percent to under 10 percent - meaning people are paying less of their debt and therefore are potentially less at risk of default in the event of loss of income.

So what does all that mean? My take is that we’re really in unprecedented times. There is still strong demand in our largest City – while there may not be the buyers who were willing and able to pay well over the odds, there are still all those left who previously missed out but want (they believe need) to get into the market. That pipeline won’t be cleared any time soon and we haven’t even mentioned the fact the supply side is still well behind in Auckland. 

And outside Auckland? No doubt there are some attractive returns for investors, but that won’t continue as prices increase in the regions and investors become more cautious with their offers. Mortgage interest rates obviously benefit borrowing across the whole country so that increases competition for properties as well, but other factors such as net migration and low supply aren’t as significant outside Auckland, so it’s unlikely the impressive growth we’re seeing in places like Hamilton will be able to be sustained.

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