Buying a house these days is turning into quite the luxury. If we dig deeper just into the statistics of Hawke’s Bay, we can see the prices of our properties have skyrocketed. Adding to matters, the Reserve Bank’s just announced the first cash rate rise in 7 years – some retail banks immediately passed this increase on to borrowers, while others are phasing them in slowly.
As of September 2021, the median house price in Hawke’s Bay is $733,600. This is up from $280,000 10 years earlier. This dictates that the median Hawke’s Bay property increased in value by 10% each year, or $45,360 on average. Yes, you read that correctly; it equates to the average wage for an individual over the same period. If we look in terms of suburbs in Hawke’s Bay, Jervoistown is the most expensive suburb. Prices there are 1.59x Hawke’s Bay’s median. In contrast Wairoa is the least expensive with the median house price being 65% cheaper than Hawke’s Bay’s Median.
In comparison to the rest of New Zealand; as of July 2021, Hawke's Bay's median house price (the middle of the range) was 86% of New Zealand’s median house price which is now over $800,000 . That is 7% above its long-term average, which suggests there are likely more buying opportunities outside of the Hawke's Bay region.
In 2018 New Zealand was ranked the most overvalued in the developed world (only behind Hong Kong). In 2021, however, this has changed. Nomad Capitalist states that New Zealand is now the topmost overvalued real estate market[1].
According to the latest QV House Price Index, the average value of New Zealand dwellings was $977,456 at the end of September, up from $963,046 at the end of August. That's an increase of $14,410 in a month (QV's values are based on sales during the previous three-month period).
Tick, tock...
Investors can track the property market cycle using the property clock, which consists of four property cycle phases: recovery, recession, hyper supply, and expansion.
In accordance with the property market cycle New Zealand is in the expansion phase. In this phase, demand for properties and spaces booms, occupancy rates rise, and rental prices surge. Job growth is steady and there are more new property developments.
This is quite evident in the New Zealand population. Zooming into Hawke’s Bay, Scoop states that Hawke’s Bay is continuing to outstrip the rest of the country with the highest annual rate in house prices value. But experts warn an overheated market is fast drying up with what’s being labelled a ‘chronic supply shortage’.
Additionally, there are officially more real estate agents than homes for sale. A snapshot of the situation in September showed 15,503 agents and only 12,250 homes on the market. This is a combination of a massive spike in new agents and extremely low levels of stock – according to REINZ, we currently have the lowest level of inventory they’ve ever seen in NZ. Again, demand for property is exceeding supply.
Consumer behaviour across the country indicates a fear of missing out is driving this property phenomenon. It’s understandable – we ask ourselves, “What if I don’t buy, and the prices just keep going up? Or what if I miss out on the area I want to live?”
In August 2021, ASB released their latest home loan report, which predicts more increase in mortgage rates over the rest of 2021. With a shortage in supply, the interest rate is set to rise and make it pricier for consumers to take out a loan. Inevitably, there will come a tipping point at which supply begins to exceed demand – either from too many houses in the market or because of a sudden shift in the economy through which demand pulls back and lowers interest rates. This shift leads to the next stage of the property cycle, hyper supply.
‘Five to seven years’ to fix the housing supply problem
We can all agree that moves to tackle the housing supply problem won’t show results right away, but experts say the supply-demand equation will improve eventually.
Years of underbuilding, especially following the global financial crisis in 2008, means the housing supply cannot keep up with the growing population, as well as the previous expansion phase in 2015-2017.
The Government has announced a housing package which aims to increase supply and dampen investor demand in a bid to create a more sustainable housing market, as Realestate.co.nz reveals just how tight housing supply is for those looking to buy.
Economist Tony Alexander does not see supply catching up with demand anytime soon. First, we would require a huge supply of new properties to hit the market and that could take around five to seven years.
He carries on saying, “Even then you will only get a price reduction in the market, as happened following the 1970s building boom, if interest rates are also going through the roof at the same time, and I can’t see that happening.”[2]
So, are we jumping the gun if we make the decision to buy our dream house now? Or is it worth waiting for the next phase of the property clock to stop the problem and saddling ourselves with debt? Ultimately, it depends on your personal financial goals and situation whether buying a house is 'worth it’. And if you need help with determining those... knocking on the door of trusted professionals can be your first sure step.
· Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[1] https://nomadcapitalist.com/finance/investing/worlds-overvalued-real-estate-markets/
[2] https://www.stuff.co.nz/life-style/homed/real-estate/125026169/five-to-seven-years-to-fix-housing-supply-problem
