It could take some years before prices take off again, he says
It could take years before house prices really take off again, a property guru said, as he reminded people that the property market is a long game.
Olly Newland (pictured above), author of The Day The Bubble Bursts, a book published in 2004 that spells out the reasons for the coming property downturn, prices will likely stay flat for some years.
“It could be three, four, five years before we see another boom,” Newland told Stuff. “People are better not to expect to make a lot of money in the property market in the next few years. You have to have a long-time horizon.”
House prices skyrocketed by about 30% in 2021 alone but were now down by around 18% from their peaks.
Newland predicted that the market would flatten from here.
“I’m nervous that after the election the truth will come out about the economy,” he said. “I think the powers that be are trying to keep everybody happy, but the reality of the situation may bite after Christmas. I’m going to sit and wait and see.”
Newland said it was important for property investors to be patient and willing to wait.
Prices have plunged at the top end of the market. One couple he had worked with, he said, was able to purchase a house that was valued at $3.2 million for $2.2m.
“Good properties are still selling but for lower prices – and there are some bargains that make your hair stand on end,” Newland said.
In his book, Newland identified several factors that would signal more weakness in the property market.
One sign would be more properties being advertised for rent although the market was still tight in this regard “but who knows where that goes,” he said.
Another sign would be more properties being quoted with prices rather than for tender or auction.
According to Trade Me, there had been a considerable shift in this over the past couple of years although that had started to change again.
Other signs of weakness included incentives or free gifts offered for signing up for a new house, and intensive advertising by “get-rich-quick” artists.
Newland said new house prices were impacting that of the surrounding existing homes – although 15% of the sale price was GST.
Kieran Trass, property commentator and author of Grow Rich with the Property Cycle, also published in 2004, said volatility was not over yet and that prices would rise again next year.
“I think the most underestimated impact on the market is the power of emotion,” Tass told Stuff. “Emotion creates motion, and we are emerging from a highly emotionally charged few years, first the panic buying – some call it greed – of 2020 to 21 then the panicked pause or 'fear-driven paradigm' that stopped the market in its tracks in 2021 to 23.”
He believed there would be another round of panic buying, not driven so much by cheap interest rates but by fundamentals.
“Historically, volumes lead values, so when sales volumes rise from their current extremely low levels, as they inevitably will before long, then we can expect the herd to panic-buy for a time,” Tass said.
He said the market was emerging from a crisis of confidence caused by the battle against inflation, and that the supply-and-demand equation had much differed in the last 18 months.
“With the sharp dropoff in new builds commenced in the last 18 months – due to higher construction costs, the credit crunch, and higher interest rates – combined with the more recent tidal wave of net migrants this is placing pressure on housing supply,” Tass said.
“This reduction of supply combined with surge in demand is yet to be fully appreciated as many new builds are still being completed but that pipeline of supply will soon fall away delivering a vacuum of supply whilst the demand is likely to remain relatively high.
“Even if net migration doesn’t continue at current levels, it is still expected to be strong for some time because usually net migration trends are ‘sticky.’ We don't typically see the volume trend reverse suddenly, unless there is a global crisis which stifles the ability to emigrate.”
He said prices could be justified for a number of reasons even if they seemed too high.
In Auckland, the Unitary Plan had driven the number of homes that could be built on sections, altering the value of many plots.
“The large property value increase over the next five years from 2017 to 2022 was fully justified in many cases and still the price per site of land decreased, which was the intention of the Unitary Plan in the first place,” Newland told Stuff. “Confusion reigns about the true value of properties because scant regard is often given to simple facts such as this.”
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