ANALYSIS: If you want to get a feel for how much your house price might have changed over the past year then there is no shortage of places you can look to for insights.

But if what you’re really interested in is what is happening right now in response to the credit crunch underway, hikes in interest rates etc. then you’ve got to be more discriminating with the things you look at. Some organisations base their calculations on changes in legal property ownership. That means their numbers can reflect what was happening with real estate sales three months ago. Their data are best avoided for this purpose as they are out of date.

The Real Estate Institute of New Zealand (REINZ), however, base all its calculations on confirmed property sales and these can occur six weeks and more in advance of title transfers. So, when people like myself are speaking and writing about where things are going right now it is the REINZ data we look at.

Doing that this week tells us that average New Zealand house prices fell by 1.5% in January after falling 1.1% in December. In Auckland average prices fell by 2.6% after falling 2.4% in December. Nationwide house prices may be 20% ahead of a year ago and Auckland ahead 18%, but at the coalface a period of price decline has set in.

For the moment, unless you follow my surveys of agents and mortgage advisers, or dig into the detail of REINZ’s monthly release, you’ll probably be concentrating on the way prices are about 20% ahead of a year ago and will do so for a few months longer as the organisations using title transfer data stay in the headlines. But the ground has shifted under the feet of all of us and the house price boom is over. But now, having seen this before in the various cycles since the 1980s, I can say that things are about to get interesting.

One thing about to happen is what I call “clutching at straws”. Many people won’t accept that the boom is over and will give excessive weight to some factors which will help insulate the market against the dominant negatives (see below). One straw is the belief that 165,000 migrants eligible for residency visas will immediately rush off and buy houses. Some will. But most in my observation are not in a financial position to do so and the overall boost to house prices from this effect will be small.

Another is a view that opening the borders will bring a flood of cash-heavy Kiwis looking to buy houses. Some will. But there will be a potentially bigger flow out of our country and agents in my survey overwhelmingly report falling offshore interest in our property market. Another is the likely easing of the stringent CCCFA rules. But that won’t change the tightened loan to value restrictions or restraint from banks implementing debt to income rules.

FOMO (fear of missing out) has collapsed, FOOP is up (fear of over-paying), supply of new builds is booming, and interest rates are up and about to be sent higher through all 2022 into 2023 by the Reserve Bank fighting increasingly entrenched high inflation.

Sound bad? Be careful. Having seen many cycles before the thing I expect to eventually appear is excessive pessimism about price movements. But it pays to remember that our population is still growing, construction costs are rising rapidly, and of high importance is this. The labour market is very tight and we Kiwis have yet to allow themselves to feel high job security.

Once the Omicron wave passes we probably will and that will be a big factor generating more of a flattening in house prices from perhaps mid-year rather than a continuing period of monthly price declines.

- Tony Alexander is an economics commentator and former chief economist for BNZ

Source: NZ Herald

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