Making sense of current house prices

It seems like we are into another round of mindless predictions about how low the housing market is going to fall.

There is no doubt the housing market is going to remain soft and subdued for a period of time – just as the Reserve Bank governor Alan Bollard wants.

Two pieces of information came out recently which make a lot of sense around what will happen.

One comes from the ASB in its quarterly confidence survey. Most people agree that there is an issue with affordability. That is when you look at the economics globally it appears New Zealand house prices are expensive relative to income levels.

However that doesn’t mean, as some have wrongly argued, house prices will fall to “where they should be”. Rather, as ASB says, house prices won’t go anywhere fast and they will wait for incomes and earnings to rise and meet them.

The other point, and one which annoys me somewhat, is that many commentators talk of the New Zealand housing market as one big homogenous market. This is rubbish.

QV provided some excellent graphs with its monthly commentary yesterday which show what has happened to houses in the main centres over the past few years. If you haven’t seen them you can find them here.

They are fascinating as they show that each market has its own characteristics. For instance Hamilton and Tauranga show similar trends, but they are different to Auckland.

It seems Auckland is far more bullish than other centres and again this comes through in the ASB survey which shows Aucklanders think their house prices will rise more than other centres.

When it comes to factors driving the market I am not sure house buyers and investors give a single thought to factors like what is happening in international markets.

They think of interest rates, rents and prices.

The one economic factor which does stand out in this market is immigration.

It is here we have seen a big change recently – more people are leaving this country – which will undoubtedly impact on the overall housing market.

This is the week of market data, which is probably why the headline hunters are out. A recurring message is that the market is slow and subdued.

What interests me is why it is like this. Investors appear to be staying in the market, some of the pressure has come off interest rates and it is considered a buyers’ market. Why then is there not more action?