He says new house construction is about to undergo a substantial decline and because residential building has a large multiplier impact throughout the economy the falling away of activity leaves the risk of recession on the table. “It also implies downside risks to interest rates which could produce rapid falls through next year.”
Of significance, however, is the combination of falling house building at a time of accelerating population growth.
“There will be upward pressures on rents, and we can expect substantial debate soon, possibly pre-election, regarding the supply of rental property in the context of the government actively taking moves to discourage its provision by individuals.”
Alexander says there will also be house price implications – especially once the migration boom enters the majority of people’s consciousness.
“At some stage something will come along, and people will look through the existing level of interest rates and choose to take short-term financing pain in order to secure a property before the horde returns.”
He says economists have proved they cannot accurately forecast how the ‘great unwashed’ sweep into and out of the housing market, but with the stack of delayed buyers getting higher every week, this risk of a dam bursting one day is growing.
“To repeat my main housing point of the past six to nine months – if I were a buyer and the bank mortgage calculations allowed, I would take advantage of the absence of investors and lower prices to secure a property. I would not be trying to pick the bottom of the house price cycle.”
Another point to consider, Alexander says is the coming enhanced upward pressure on rents will act eventually to encourage more people to buy than sell.
“It will also encourage investors whose model is not highly reliant on debt financing to look at lifting their purchases because of the coming better returns.”
"If I were a buyer and the bank mortgage calculations allowed, I would take advantage of the absence of investors and lower prices to secure a property." Tony Alexander
Migration flows are of particular relevance to the Auckland housing market.
New Zealand’s population has been boosted by almost 1% in the year to February through net migration soaring from a loss of 20,000 a year ago to a net gain of 52,000.
This turnaround of 72,000 over a 12 month period is the biggest on record, though the biggest downward move was an annual change of 93,000 in March 2021. The pandemic effect has been massive on our migration flows.
Alexander says net migration inflows disproportionately favour Auckland. This surge is happening after Auckland retirees fled to the regions during the pandemic and now some are looking at moving back.
He says the Auckland-specific population boosts will come at a time when by long-run standards Auckland is under-priced.
“This does not mean Auckland housing is cheap, just that it is cheaper than expected if the long-term trends had continued.”
And then, says Alexander we get the final kicker. “Auckland’s house prices have fallen more than average since late-2021 partly because of the surge in townhouse construction.
“Now that construction is set to fall away quite firmly, the interaction of rising awareness of increasing demand and rising awareness of dropping supply growth will produce a price response.”
He says nobody cannot predict when awareness levels become critical, but if homebuyers are trying to delay their purchase until they think the bottom has been reached, they may want to increase the frequency of monitoring of whatever media or indicators they use to gauge underlying sentiment.
Houses selling for $39k less than asked
Meanwhile, residential properties are selling for on average $39,500 less than asking price, data from CoreLogic show.
CoreLogic head of research Nick Goodall says the difference between what sellers wanted, and what they got, was greater in the most expensive areas of the country, where house price falls have also been the greatest.
In Auckland, the median selling price was $69,000 below the median asking price, and in Wellington, the median selling price was $55,000 below.
Goodall says understanding the local market and how recent sales have performed can help guide buyers.
Nationally, the discrepancy between asking prices and sale prices equated to about a 5% saving for buyers.