Why history doesn't repeat in the property market

Herald.co.nz today introduces financial commentator and managing editor of financial website interest.co.nz Bernard Hickey as a new blogger .

He will be blogging on a wide range of topics, including property, interest rates, personal finance and the economy.

 

I'm almost ashamed to say it, but I was one of those returning ex-pats that helped fire up the housing boom between 2002 and 2007.

I worked overseas with my family for 10 years until returning in 2004. We sold houses we owned in Sydney and London and used the proceeds to buy into a rapidly inflating Auckland property market. Even with that cash in our pockets, we still had to borrow more to get into the market. Even back in 2005 we thought prices were out of control, but we still paid up because we could and we were desperate to settle down and live in a house we owned.

In the 4 years to March 2006 102,366 New Zealand citizens returned home to live permanently here. Many, like me, had decided post 9/11 to sell their homes in London or New York and return to a house in the suburbs near to the beach, safe from terror attacks on the Tube or the subway and free to raise a family.

A special chill went down my spine the night I was driving home from work in Auckland on July 7, 2005 and heard on the radio about the bombings on the Tube in London. We definitely made the right decision to sell up and move back home.

But it was an easy decision to make. We were able to sell our houses relatively easily into rising markets. I was able to find a job back in New Zealand without too much fuss.

Fast forward 4 years and New Zealand appears to be about to be inundated again by cashed-up ex-pats. The headline figures appear to show another migration surge is starting. Statistics New Zealand released net migration numbers this week showing seasonally adjusted net migration has jumped to 1,720 in March from negative 290 in November last year.

This jump in migration appears to coincide with a return of buyers to the real estate market and a spike in home sales volumes in March. Trade Me reports a big increase in international traffic to its real estate, car and employment sections so far this year. Real estate agents are talking up another influx of cashed up ex-pats helping prices and activity rebound.

"The feels a bit like going 'back to the future', with open home numbers and a buyer pool similar to what we saw in 2005 and 2006," said Custom Residential John Wills in this April 12 article.

"Kiwi professionals are returning home and having to compete with existing local buyers for the best property," Wills said, with the "executive" home buyer demographic being "incredibly active".

But is this true? Is the influx as big as last time? It's worth digging around inside these migration figures. The numbers actually suggest that the biggest sources of the net migration surge are coming from elsewhere: Indian and Chinese students and New Zealanders staying at home.

The number of migrants from Britain, which includes New Zealand citizens returning home, in the three months to March rose 98 or 2.2 per cent to 4,467 from the same period a year ago. Meanwhile, migration from China rose 1,036 or 26.9 per cent to 5,380 and migration from India rose 1,744 or 36.6 per cent to 6,610. Students here for more than 6 months are counted as permanent arrivals, although they often leave after a year. Student arrivals rose 3,000 in the year to March to 16,100, thanks in part to the New Zealand dollar's fall,

Departures of New Zealanders in the three months to March fell 2,258 or 9.7 per cent to 20,951.

The number of New Zealanders returning home from countries other than Australia was 1,125 in March 2003, which was up 35 per cent from 832 in March 2001. Meanwhile, this time around, the rise was 12 per cent from 901 in March 2007 to 1,008 in March 2009.

So why has the influx been smaller this time? It is much harder for ex-pats to sell their houses in Britain and America and it is harder for them to find a job back here. That's stopping some coming back at all, while others are having to come back and aren't in a mood to spend their cash piles on houses when their employment future is not clear.

It's too early to say history will repeat, but the early signs are that we won't see the same boom times of 2003 repeated in 2009. All my old Kiwi mates stuck in London confirm this. They'd love to come home but they can't sell their houses. That's a pity. We need them.

 

Bernard Hickey is the managing editor of interest.co.nz