Property Institute releases its 2018 NZ predictions
In early 2017 the Property Institute of New Zealand made predictions about what would occur in the property market over the coming year. The company said long-term mortgage rates would rise along with house prices, that investors would be constrained by LVR measures and that property would be the number one election issue.
In total the Property Institute made seven predictions and all of them have turned out to be 100 per cent correct. This impressive feat lends credibility to institute most recent property forecasts, which have just been released. Let’s look a little closer at the predictions for 2018 and discuss what they might mean for the average New Zealander if they prove accurate.
Investors jumping ship could mean a decrease in buyer demand.
1. Some property investors will abandon the market
When prices begin to stagnate, less experienced property investors sometimes panic and sell, or decide not to invest more. The Property Institute expects that this phenomenon will occur over 2018 and that it will exacerbate existing shortages in rental markets around New Zealand.
This could place upward pressure on rent prices and make it more difficult to secure rental properties. If this does occur it will disadvantage younger and lower-income New Zealanders disproportionately.
However, investors jumping ship could mean a decrease in buyer demand, which could place downward pressure on property prices that are already fairly flat.
2. The cost of renting will continue rising
In addition to the above point, a number of events will coincide to push rent up over 2018. This includes unusually high inward migration, loan to value restrictions pushing investors out of the market, as well as Labour passing capital gains taxes and ring fencing property losses.
Labour’s laws are intentioned to protect fledgling home buyers and vulnerable renters, and to reign in investors. They may well succeed on those fronts, but increasing rents are likely to be an unintended side effect of their legislation.
The much lauded market crash will not happen, according to Property Institute.
3. House prices will continue to flatten – not crash
The much lauded market crash will not happen, according to Property Institute. Instead what we’ll see is a gradual flattening out of dwelling prices, followed by small movements upward and downward over the year.
Valocity data used by the Property Institute supports this claim, showing a 0.6 per cent increase in prices year on year to December. However, the Real Estate Institute of New Zealand’s data tells a different story, putting median price increases at 5.8 per cent over the same period.
Whoever you believe it’s likely that property prices will grow at a more measured rate in the near future. This means home buyers may be able to save faster than house prices increase, making it easier for them to buy their first property.
4. Long term interest rates will keep rising
Interest rates are on their way up, and banks will respond by raising long term mortgage rates by up to 0.5 percentage points this year. This claim is a gimme for the Property Institute, as this is a continuing trend rather than a new phenomenon.
Forecasts from the New Zealand Treasury are similar to those of the Property Institute’s, predicting little change in variable interest rates over the short term, but an increase in long term rates. However, the Treasury’s predictions made the point that monetary policy could begin tightening in 2019 or 2020 which would serve to push interest rates even higher in the long run.
5. New home construction in Auckland to increase
LVR changes could mean more first home buyers are able to get into the market.
New Zealand doesn’t have enough homes and Statistics NZ analysis tells us the problem has been getting worse. In fact, over 2016 and 2017 they estimated we built 6,000 and 9,000 too few homes, respectively.
Our biggest city is the epicentre of the problem, so luckily according to the Property Council, 2018 will see more homes being built in Auckland. However, unfortunately these will fall far short of what’s required to fix the shortage and comprise mainly owner occupiers, not investors.
6. Loan to value ratios to be further relaxed
With house prices beginning to level out the Reserve Bank will feel confident enough to keep dialing back the loan to value ratio (LVR) rules over 2018. The LVR for investors will drop to just 30 per cent, and the LVR for first home buyers could go as low as 10 per cent.
This will make it considerably easier for home buyers and investors to purchase property, as usually accumulating a deposit is one of the largest challenges of buying a home. When coupled with stagnating prices, these LVR changes could mean more first home buyers are able to get into the market, having been previously locked out by higher LVR restrictions and skyrocketing prices.
Whatever happens in 2018, always do your research and seek expert advice from a local agent you can trust before making any property decisions. With a little care and some expert guidance, 2018 could be a great year to buy your first home or expand your investment portfolio.