Depending on who you listen to or read about, there is an increasing amount of 'noise' that we are at the end of a current housing property cycle. I recently read an article where the writer contended that the last three property cycles peaked in 1987, 1997 and 2007 (or close to it in my view).
It's certainly becoming hard to argue against the next peak also ending in a year with a 7 in it. Normally the reason we see property prices flatten out or decrease is through the Reserve Bank increasing interest rates. But that tool in the Reserve Bank's armoury is not being used. nor is it affecting the end of the cycle.
What appears to be having a significant affect are the recent LVR rules, that now apply NZ wide. Investors are now required to have a 40% deposit to purchase residential property in order to be able to borrow the rest from their bank.
Many investors are finding when they go to their banks with the intention of purchasing another investment property, the bank won't lend as their current lending is outside the new LVR rules. So the demand and appetite for residential property is decreasing as a result. Credit supply has reduced so the banks have effectively weeded out those investors who are too highly geared.
Some more statistics I've seen recently also paint a similar picture. Recently housing affordability surveys put Sydney as the 2nd least affordable place to buy a house in the world for cities with a population of over one million. Hong Kong was 1st and Vancouver was 3rd. The ratio of median house price to median household income was 12.2 in Sydney, 11.8 in Vancouver. Auckland was 4th with a ratio of 10, that's 4th in the world! Houses are just getting too expensive to buy as well.
At least it's not as bad in Christchurch! We don't tend to get the exaggerated peaks and troughs that occur in Auckland. We can rest easy that there won't be a major drop in house prices here.
The graph below shows the cycle of house price peaks and troughs in Auckland. The last 3 times that average house prices dropped to negative territory occured after a peak in 1987, 1997 and 2007. Will 2017 be the next year cycle? Only time will tell!
