TelferYoung (Taranaki) Limited

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Taranaki Newsletter - April 2008

24 April 2008

Most of us have read, and been alarmed at, recent national commentary on the current and future directions of the housing market. There is the choice of believing that now is a great time to buy and the market is little changed, or that falls of 30% or more will be seen during the next few years.

Residential Market Review

The majority of property news is angled from the ‘big' markets - particularly Auckland - but is the Taranaki property market driven by the same market factors?

Both house values and sales volume are affected by a range of factors, both tangible and intangible. Current factors driving the market include interest rates, job security, home affordability, inflation (living costs), and perception.

National Market

Between 1999 and mid 2004 the Official Cash Rate (OCR) ranged between 5.0% and 6.0%, but has then steadily moved upwards to reach 8.25% in March 2008. This has forced floating interest rates to rise and put pressure on fixed rates. In the US, banks and other lenders suffered big losses in 2007 in the so-called ‘sub prime' market, and worldwide the full fallout of this is yet to be determined.  It is clear that international interest rates are on the increase due to the sub prime debacle, and as New Zealand banks source funds for fixed interest rates from overseas markets the current level of fixed rates is unlikely to reduce in the short term.

Over the last seven years home affordability declined as values rose, and more and more of our income is needed to service mortgage payments. This has been accepted by purchasers as long as property prices have continued to increase. The financial stress of maintaining high mortgage payments may not be so palatable in the longer term if there is no perceived benefit in value gain. The impact of higher mortgage interest rates, tightening lending standards, and higher living costs (particularly food and petrol prices) is affecting some property owners. Job security is currently good and the high levels of employment will help ensure that most New Zealanders are financially secure although some belt tightening may be needed. Since 2003 a sustained upward trend in terms of overseas trade has assisted many business sectors, and despite this season's drought the dairy price boom will flow into the provincial urban areas. Population growth has certainly been a driver in markets such as Auckland. Housing stocks there have struggled to keep up with demand, but growth is now minimal.

Investment Market

From 2001 the advent of the residential property investor has had a marked effect on the property market. Investors have competed with homeowners for the available housing stock pushing values higher in both provincial and rural centres. As values have grown and interest rates increased, returns on residential investments have declined to the point where the reverse is starting to become evident - the number of active investors has decreased and the reduction in demand could soften prices.

Public perception of the market is derived from what is heard and read and is often far from reality. Extreme events make the headlines, not the everyday mundane routine. National media in recent months have carried a number of alarming property stories which are portrayed as reflective of the total New Zealand market as a whole. This is not the case.  However people's view of reality can be influenced and this affects the property market. Uncertainty in the residential market slows sales volumes until a clear direction is seen, and this uncertainty, as much as any other factor, impacts on our market. Nationally sales volumes rose from 5186 in January 2008 to 6356 in February 2008, but still a long way behind 9357 in February 2007.

Valuer commentary from throughout the country indicates an overall flat market, but considerable variances on a region by region basis, some seeing little change and others a significant downturn.

Taranaki Market

So where does this leave the Taranaki residential market?

Times are changing. For many years the vendor has been king, but since late 2006 the market has turned in the buyers' favour. The gap between vendors' price expectations and that of purchasers has widened. This is in spite of New Plymouth seeing 3.9% growth in the average house sale price from February 2007 to February 2008.

The New Plymouth average sale price for residential homes amply illustrates growth in recent years, following a plateau during the 1990's. In 2002 the average was $139,000 moving to $342,600 in 2007. Is another plateau likely?

Taranaki Market - Drivers

Many of the national market drivers are having an impact here especially the level of interest rates and home affordability. We have the benefit of a strong dairy sector plus ongoing energy sector activity which continue to underpin the local economy and help local property markets. Our market has not seen the highs of cities such as Auckland, where values and sale volumes have been driven by population growth and speculation. The heat in our market has been at a medium level rather than high, and has not boiled over, resulting in a simmering rather than a cooling. But this does not apply to all properties or locations. International trends show that in a flat or recessionary market buyers become more picky and take longer to make up their minds, while in a booming property market even poor purchasing decisions can seem like good ones. Our residential market is now flat, causing longer selling periods, choosy buyers, bargain hunting, and in some cases reductions in value. Some properties continue to sell well, but others are suffering.

Taranaki sales volume has reduced from a peak in 2005, but is still higher than the years leading up to 2002. This does not follow the national trend which has seen a larger decline.

The increasing number of advertised open homes shows the greater choice in our market. It is evident buyers continue to pay good money for the better properties (irrespective of value), but do discount properties with adverse features. Residential investors have backed out of the market at present which could have more of an impact on smaller townships in Taranaki where they have previously had a major influence.

Conclusion

Section sales appear to have slowed considerably and are unlikely to increase in value for some time, while poorer sites will reduce in value.

Don't believe the national gloom, it doesn't fully apply to Taranaki. Be cautious and do not be forced into buying or selling under short time frames. Investigate the market carefully and the property you are considering in particular. In other words look before you leap!

When dealing in property it is particularly important at this time to take as much advice as possible. This should include obtaining a registered valuer's report.

Experience + Expertise = our residential team.  Mike Myers, Adam Boon, Mike Drew and David Luxton operate throughout the Taranaki market, providing local knowledge and advice, backed up by the national service and skills of TelferYoung.

Back issues of the newsletter can be obtained from TelferYoung (Taranaki) Ltd
143 Powderham Street,
P O Box 713,
New Plymouth,
New Zealand.
email: telferyoung@taranaki.telferyoung.com

+ John Larmer + Mike Myers + Ian Baker + Mike Drew + Adam Boon + Dave Luxton