Regions to be bit by stagnant property values and falling sales: Report

By Andrea Milner

With interest rates and net migration taking the heat out of the housing market, sales volumes are forecast to drop from 105,532 for the June 2007 year to 78,447 by June 2009.  

Findings released from the PMI Outlook for the New Zealand Property Market 2007 - 2010 show house price growth is forecast to drop to a 10-year low of -2.7% in March 2009, before recovering slightly to -1.1% in June 2009.
 
“The housing market is showing the strongest signs of a downturn since the extended period of growth began in 2001, and some house price falls are expected throughout 2008/2009,” PMI chief executive Ian Graham.

Report author Gareth Kiernan of economics firm Infometrics says: “Some regions are faring better than others, but provincial areas outside the major centres are already showing signs of being more sensitive to the increased interest rates.”

The catalyst that will slow the market going forward, Kiernan says, is that demand from investor buyers is definitely “drying up”. He cites high finance costs, low rental yields and rising interest rates combining to make it a lot more difficult to make buying an investment property stack up.

Investors have fuelled a lot of the price growth in regions like Taranaki/ Manawatu/ Wanganui, he says. “Eighteen months ago Australians were putting money over here because the rental yields looked much better and the Australian market was already in a slowdown. Those yields have been crunched with strong price growth over the last couple of years and with weak population growth and investor demand already drying up there are too many houses in the area to justify what’s been going on, so we would expect some correction in that market.”

By June 2010, average prices for the Taranaki/ Manawatu/Wanganui region are forecast to have taken an 11.4% drop.

Kiernan says most of the region struggles with shrinking population. “They’ve had very strong building activity over the last five years and it’s still rising even now, whereas you look at New Zealand overall – the peak was back in 2004 in construction, so its hard to reconcile the increase in the size of the dwelling stock that we’ve seen during that time with what population numbers have been doing.

“For investors the big question is whether they will still have tenants in the houses in that region.”

The problems facing Taranaki/ Manawatu/Wanganui are widespread. Building activity in every region except Northland indicates oversupply developing across the country. Falling immigration is also an issue across the whole country.

House price growth is forecast to recover only modestly in 2010. Property is still likely to be well above the long-term trend line in terms of real value even by then, Kiernan says, so he wouldn’t expect a great recovery given property will still be relatively unaffordable at that stage.