This year, Auckland was relatively insulated, supported by strong international migration and better economic growth when compared to the rest of the country. But the global economic outlook is deteriorating sharply, which will slow the economy, and with it, the housing market. We predict that, at best, the housing market will remain in a holding pattern in the next year. In the case of a darker global scenario, the housing market would sink again.
Looking at the year, the housing market recovered through the first half of 2011, from bleak to only terrible. But even this modest recovery has faded in recent months. The number of house sales now is still lower than the low point in previous recessions. The problem is that the fundamentals of housing are weak. The two main sources of housing demand - new people coming to the country and investors - are both negative.
Population growth has slowed sharply over the past year. International migration, a key driver of new housing demand, has turned negative in six of the past seven months. This weakness is widespread across all regions except Auckland, which continues to be the favoured destination for migrants, so it will have better demand for housing than the rest of the country. Canterbury, meanwhile, faces an exodus of people, due to widespread job losses and post-earthquake disruption.
For investors, there is little incentive to buy. House prices have been broadly flat since the peak in mid-2007. House prices remain high relative to rents, meaning the rental income is not enough to cover interest and other costs such as insurance and maintenance.
House prices are unlikely to rise as they remain very expensive, not only for investors, but also for first-home owners. Incomes haven't grown much in recent years, so the first home still remains out of reach for many. With little prospect of strong house price gains and negative cash earning from a rental property, investors will remain on the sidelines for some time to come.