Look to the regions

ANZ chief economist Cameron Bagrie

The bank has just released its latest Property Focus report and it highlights surging regional housing markets.

ANZ economist Cameron Bagrie said housing market strength is no longer about the Auckland market, which has cooled for a variety of reasons, alone.

It is now regional markets (with the exception of Christchurch) which are booming, he said.

“They are buoyed by low interest rates, cash chasing investment outside of Auckland on a valuation and yield basis, and loan-to-value ratio tweaks that favour the regions over Auckland.”

But, in his view, this strength shouldn’t be surprising.

“The Auckland – non-Auckland rubber band became taut.

"And history shows numerous instances where Auckland strength eventually spills over and regions close the valuation gap.”

While the Auckland market remains in a slower mode, the report predicts that regional lifts in house prices have further to run – and points to the Wellington market as showing notable strength.

It also said that historically low mortgage interest rates, tight dwelling supply and booming net immigration will continue to support the housing market.

Further, lower trend consent issuance in Auckland and Wellington is expected to maintain demand for existing dwellings.

However, the report, which concentrates on the broader economic outlook, also contains several points of caution for investors.

For example, it states that households are exhibiting leveraging-style behaviour, which looks set to continue for a while yet.

Bagrie said this is concerning.

That is due to the broader economic climate – where the mix of growth is not sustainable, inflation is low and a lower OCR is on the cards.

“This will mean more housing largesse at a time of high household leverage,” he said.