Property Institute housing predictions for 2018
Following a 100% ‘hit rate’ on its housing market predictions for 2017 – the Property Institute has now released its predictions for 2018.
According to Institute CEO, Ashley Church, the cost of renting will replace the price of housing as the #1 housing issue in 2018 – and the housing polices of the new Government, combined with uncertainty around housing investment over the next few years, will ‘scare’ some property investors out of the market - creating a growing crisis in the number of dwellings available for rental.
The full list of predictions are as follows:
- Some Property Investors will abandon the market and the impact of this, on the availability of rentals, will start to become a problem in the second half of 2018
“While the cycles of property investment are largely predictable – there are always a number of less experienced property investors who panic, and sell, when a market flattens - or who decide not to invest further during downturns. This means that an increasing number of rentals will convert to owner occupied dwellings – putting pressure on the rental market at a time when the demand for housing (rental and owner occupied) is already acute. This trend is already noticeable in the dramatic reduction in new investor mortgages observed in the Monthly Property Institute / Valocity Regional Trends reports in the latter half of 2017”.
- The cost of renting will continue to rise and this will replace the cost of housing as the number one housing issue in 2018
“While it’s normal to see rent increases in the period following a property boom – the environment in which they will take place in 2018 will be made worse as a result of the combined effect of unusually high inward migration (which has exacerbated rental demand), loan to value restrictions (which have closed investors out of the market) and Labour’s plans for Capital Gains taxes, ring-fenced tax losses and significant new compliance costs (which will cause many property investors to increase rents to offset new costs - real or feared). As a result, we’re in for big rent increases in some parts of the country over the next couple of years – with those increases already showing up in the Property Institute Regional Insights Report”.
- House prices will continue to flatten through 2018 – but there will be no ‘crash’ in property prices
“The latest Property Institute / Valocity Regional Insights report shows that median house price growth across the country is down to 0.6% year on year. This is consistent with the end of a property cycle and overall prices (particularly in Auckland) will now ‘see-saw’ between small increases and small decreases throughout 2018. There will be isolated exceptions to this trend (both up and down) around the country – but the much hyped ‘property crash’ isn’t going to happen. We also note that the latest Property Institute / Valocity data shows expensive houses continuing to sell and hold up the median house price numbers – and we don’t see that trend changing much”.
- Longer term Mortgage interest rates will continue to rise. Expect further increases of up to 0.5% or more
“As was the case in 2017, the general consensus is that interest rates are on their way up – partly because of uncertainty around international events, and partly because NZ banks will need to pay more to attract a diminishing fund of investment from kiwi depositors. Expect to see little change in six-month to two-year mortgage rates – but a jump of up to 0.5% (or more) in longer term rates as banks try and woo borrowers into shorter terms in anticipation of further increases in the cost of funding over the next two or three years”.
- New home construction in Auckland will slowly increase – but most of it will be for owner occupiers
“Depending on your source, Auckland either needs 40,000 new homes ‘right now’ or 10,000 per year for the foreseeable future. Either way, the market will continue to make further progress on this target in 2018 but will still fall a long way short of the number of dwellings required to ‘fix’ the shortage. These houses will be built through a combination of Government building initiatives and private sector construction of apartments and free-standing homes. Most of these dwellings will end up in the hands of owner occupiers with very few becoming rentals for the reasons outlined in the previous predictions”.
- The Loan-to-Value rules will be further relaxed
“The cyclic flattening in house prices will give the Reserve Bank confidence to further relax the LVR deposit rules on Investors and also give relief to Home Buyers in 2018. The LVR for Investors will drop to 30% during 2018 – while the LVR for Home Buyers will either be dropped to 10% or 15% (although this may be limited to First Home Buyers) or the ‘speed limit’ (the extent to which trading banks can have clients who exceed this limit) will be significantly increased”.
Property Institute / Valocity Regional Insights Report
Meanwhile – the New Zealand housing market has continued to maintain a holding pattern according to
the latest results of the Property Institute / Valocity Regional Insights report.
According to the report, the median sales price across New Zealand strengthened marginally to $503k in December (up from $483k in November) while sales volumes, nationwide, continue to track down with 4,942 properties sold in December 2017 – a 44% drop on the same period last year.
Mr Church also notes that, according to Valocity data, first home buyers are still accounting for around 28% of all new mortgages across the country – while ‘refinanciers’ now represent 22% of all new lending.
OTHER HEADLINE RESULTS FROM THE REPORT
- The National median sales price has strengthened slightly since last month, however the rate of annual growth remains flat (currently sitting at 0.6%)
- Wellington experienced the biggest year-on-year growth (3.8%) while Auckland went backwards with median sales prices dipping by 1.2%
- Nationwide value levels appear to be supported at present by strong proportions of ‘high value’ properties (27.2% of sales transacted above $800,000) – having the effect of ‘propping’ up the median statistic.
- First home buyers still account for the majority of new mortgage registrations, (27.7% during the period). Interestingly ‘Refinancers’ comprise the second largest proportion accounting for 22.5%, suggesting that people are opting to capitalise on equity growth and ‘lock in’ interest rates, fueled by speculation of possible rates rises (although this figure has been fairly consistent for most of the past year).
- In terms of total sales, small investors (those with 3-5 properties) make up 10.3% of property buyers, large investors (those with more than six properties) make up 9.1% of property buyers while first home buyers account for 41.1% of total buyers.
- Sales volumes continue their downwards trend, significantly below the same period last year – down from the lofty peaks of May 2016 (11,249 sales) to fewer than 5,000 (4,942 sales) in this latest data set. (Since May 2016 - sales volumes have more than halved).