It’s been interesting skimming through the various property reports over the last few months as the property market (and Auckland property in particular) keep heading sideways and Australia keeps sliding backwards. It’s pretty important to a lot of people in this country, given how overweight a lot of people are in property, either via rental or investment properties or just due to the level of equity they have in their home. I’m hearing more and more people asking (encouragingly): what else is there to invest in now beside property?
I admit I do find it quite funny reading commentary published by a range of different media outlets (the comments sections are even better), often taking a wildly different perspective on the same set of data. For example, OneRoof carried this piece last week, with a headline highlighting the doubling of Auckland sales from 474 in February to 963 in March. Interest.co.nz on the other hand, took a rather more bearish view, focusing on the fact that March sales were at the their lowest level since 2010. (and check out the heading from Barfoot – “Auckland Property Market Regains Momentum“). Caveat lector.
Right now though, I’m more interested in a few of the stats ANZ shared in their March Property Focus report. Now, this report does start off talking about the importance of credit availability, which is undeniably true, although the cynical reader might see that as a little self-serving given the current Reserve Bank capital requirements proposal. And yes, my view is that if fully implemented as tabled, they are likely to lift interest rates from their currently historic lows. But that’s by the by for now – I was more interested in the trends in mortgage rates, house price indexes, and price to income ratio.
Take a look – starting with interest rates (the ANZ report opens with a tight-lipped discussion on the cost and impact of the capital requirements, although does acknowledge that credit is actually pretty unconstrained at the moment), and just how low they are right now by historical standards:
Since the GFC, rates have drifted persistently lower, culminating with the sub 4% headline figures we see now. At the same time, New Zealand house prices, in particular in Auckland, have on average been flat to declining for the last year or more:
And these two factors, accompanied by an extremely tight labour market and rising wage inflation, are helping to bring down the level of price to income and the level of mortgage payments to income:
So, at some level at least, housing is on average looking marginally “cheaper”, particularly in Auckland. Its worth pointing out though, that in Auckland, an average mortgage payment to income ration of 45% or so is still well above what is generally considered to be affordable.
So what’s this all mean? Well, while the situation is improving in aggregate for buyers, the reality is that its still pretty tough out there for anyone looking to jump into a first home right now. I always stress to people that there isn’t really any such thing as “the property market”, and that looking at averages like this can be pretty misleading – they can badly mask some pretty extreme variances that can affect sub-segments and individuals in materially different ways. For example, in the UK there is fairly good academic evidence that says that many households actively choose to spend a high proportion of their income on their mortgages, even though this is correlated to a higher level of stress. Broad trends like this can be useful to give a bigger picture view of where things are heading though. At least when you’re writing a blog post!
I’m always up for a chat about any of this stuff. Would love to hear peoples thoughts, questions, and conspiracy theories! And of course if anyone is thinking about property purchasing, refinancing (particularly with interest rates so low), selling up, or even alternative to property, feel free to hit me up for a coffee.