No property price crash looming

Tuesday 26 July 2016

House prices may start to taper off in the coming years as supply finally starts to meet demand - but no one should be holding out for a huge price correction.

By Susan Edmunds

That is the message from economists, who say the heat is slowly coming out of the property market but supply pressure will limit any fall in values.

Yesterday, Infometrics forecast that building consents would hit record levels by 2018, which would result in house prices falling 11% over two years, from next September.

Nick Tuffley, chief economist at ASB, said he agreed that price growth would slow over time but was not convinced there would be a drop as big as 11%.
He said building activity was not expected to match population growth in Auckland until 2018. "In the meantime there is still a big supply shortage  building up. It won't be 2018 until it starts eating into that. Supply constraints take so long to overcome it does put a floor under prices."

Once an equilibrium was reached there might be a drop in prices of a few percentage points, he said.

There was a slight drop in prices when tighter loan-to-value rules were introduced in Auckland last year, he said, and that could happen again as a result of further tightening from the Reserve Bank.

"We see that as temporary. But momentum will slow because prices are high compared to incomes and that's having an impact on behaviour."

Some commentators are predicting that the new LVR rules will boost interest in new builds, which will boost housing supply but push up prices for newly-constructed homes. Banks are not restricted in their lending to people buying new properties, whether they are investors or homeowners.

Colliers International's director of residential project marketing Jeff Davidson said the long lead-in time to settlement on a new house was seen as a bonus by many buyers.

“We are seeing an increase in interest in off the plan purchases from investors, people looking for a lifestyle change and those trying to make it onto the property ladder.

“The banks and regulatory policies are fuelling this by promoting buying off the plan apartments and homes with lower deposits generally required for investors and owner occupiers."

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