Anyone trawling through the latest statistics for hints on where the housing market is going would have to conclude that there’s no end in sight to the cycle’s current upswing.
Take this week’s employment figures which showed unemployment fell to 4.9% by the end of 2002, its lowest level in 15 years. Those out of work dropped 7.5% from September.
Having a job is obviously a key factor in being able to afford a mortgage.
Pay rises don’t hurt either. One measure, the labour cost index, shows salary and wage rates rose 0.5% in the December quarter following a 0.7% rise in the September quarter and were up 2.1% from a year earlier.
The other measure, the quarterly employment survey, shows gross earnings rose 1.7% in the three months ended November and were up 7.7% on a year earlier.
Then there’s immigration. The latest figures show a net inflow of 38,200 people in 2002, up from a net gain of 9,700, and all needing somewhere to live.
Interest rates also look favourable. The Reserve Bank’s Official Cash Rate’s (OCR) current level of 5.75% is the peak of the current cycle so far, well under its previous peak at 6.5% between May 2000 and January 2001. And current floating mortgage rates at about 7.85% are a far cry from the double-digit rates of recent memory.
Nobody is expecting a rate hike anytime soon; indeed, even after the robust jobs numbers, the wholesale market is still pricing in an OCR cut to 5.5% by June.
Alliance Capital Management investment strategist Darryl Briggs says although many people have picked that the building cycle has peaked and that migration will slow, there isn’t any evidence of either yet.
While some have thought the government’s move to toughen its points system for new migrants would slow the flow, Briggs suggests "there was so much in the pipeline that they needed to constrain it."
"At the moment, New Zealand’s on a bit of a roll. The domestic economy’s going gangbusters with no prospect of it slowing down," he says.
Kieran Trass at Hybrid Property Consulting’s Auckland Property Clock is currently in boom territory.
He notes that while the Auckland market slowed in November, the indications of buyer interest since the Christmas holidays has been strong and should shortly translate into increased sales.
"Very soon there will be the re-appearance of stubborn vendors (holding out for their asking price) on the back of the increasing demand for supply," Trass says
"I’m of the opinion Auckland still has quite some way to go through the cycle, but it could all be over by the end of the year."
While the fundamentals all look positive currently, the picture could change dramatically, he warns. "It wouldn’t take too much to turn the market."
