SUMMER SLOWDOWN CONTINUES

The trends seen at the end of 2008 appear to have continued into 2009. Residential market figures show further downward movement in the median sale price for residential dwellings throughout New Zealand, with the median now 7.7% below the peak at November 2007 according to latest Real Estate Institute of New Zealand (REINZ) figures. Furthermore, a reduction in the number of sales was recorded, bearing in mind that January is typically a quieter month in terms of market activity.

 

 

Short term forecasts for the residential market aren’t ideal, with median prices likely to soften further through the first half of 2009. However, factors which influence the medium term outlook for the market are more positive, including housing inventory and migration trends.

Construction has been hit hard over recent months as the investment in new buildings slowed considerably. This is represented in the number of building consents issued, as recorded by Statistics New Zealand (StatsNZ). The below graph shows the number of consents issued for residential units per month nationwide, which includes apartments. As shown by the annual average trend, residential consents dropped sharply during the second half of 2008, as confidence in the property market waned. As a result of reduced demand, the construction industry has shrunk with trades people pursuing employment in other industries or offshore. This will ultimately limit New Zealand’s future capacity to increase the supply of housing, a situation which is already an issue.

 

 

Permanent and long term migration increased marginally in the year to December 2008 with a net 3,814 people entering the country, which is around the average annual level of migration over 2008. As it stands in the short term, net migration is at a neutral level, so not providing much stimulus to the residential property market. However, that is likely to change as the medium term outlook of net migration should increase.

With global economies and labour markets deteriorating abroad, the number of expatriates returning to the green pastures of home will increase as will the number of foreigners coming to New Zealand. Furthermore, outward migration has been declining and is likely to continue throughout 2009. This means that net migration should continue to increase over the next 12 months, with a possibility of reaching 15,000 per annum according to the BNZ and exceeding the ten year average of 10,000 per annum. While net migration is not expected to reach the heights experienced through 2002 and 2003, it will be at a level that will inject new buyers into in the residential market.

 

 

In the short term, housing supply and migration are at neutral levels, therefore not providing stimulus to the residential property market. However, with the reduction of residential building consents issued as well as the predicted increase in net migration, we should expect to see this imbalance in supply and increase in purchaser enquiry curtail the extent of house price deflation in the medium term.