Date: 25 March 2009

By TONY ALEXANDER - Waikato Times

The housing market has reached an interesting stage in New Zealand. At the same time as a few shrieking individuals continue to forecast price falls up to 40 percent the factors we have been writing about for months are up and running and bringing stabilisation.

First we have record low interest rates on offer for borrowers – and if there is one thing we Kiwis like to do it is borrow.

Offshore many people are working aggressively (if they have jobs) to reduce their debt.

A few people are trying to do that here as well and a few more will do so later this year as the unemployment rate climbs toward 7 percent.

But householders are not really feeling the global recession in our country, and so far the unemployment rate is only back to where it was at the end of 2003 when the economy was growing over 4 percent.

So while willingness to buy houses is definitely the weakest in years, many people are out there looking and in the past five weeks we have seen a wave of investors hit the market at the same time as owner-occupiers have decided the time is right to look more closely.

Second, we started our recession and the global recession with a shortage of houses and not the massive over-supply prevalent in many other countries.

That is why in the United States while meetings have been held for two years to figure out the best way to knock houses down we have had many discussions here about how to ease planning restrictions so more houses can be built cheaper and more quickly.

But thirdly, new construction has fallen to levels not seen since data started in the early 1970s. New supply is drying up.

Fourth, we are a highly migratory people and when times are great offshore we tend to leave the country to have a go elsewhere – especially if things are a bit rough back in New Zealand.

But when things turn sour offshore we flood back and if here already we stay put.

Already the annual net migration inflow has lifted from 3500 in the year to November last year to 6200 in the year to February.

In the past three months emigrant numbers have been down 5.8 percent from a year ago and immigrant numbers ahead 4.8 percent - with both numbers growing.

Within a year the net inflow is likely to lie somewhere between 15,000 and 30,000 and could be more given the terrible developments overseas.

Fifthly, talk to anyone who has had a diversified investment portfolio in New Zealand over the past decade and ask them what has made them money. Forestry? Shares? Finance company debentures? Cash? Residential property?

Apart from those unfortunate people who got involved in many of the large organised residential property investment companies it is a good bet most investors will find vast outperformance by their housing interests (and farms).

The upshot is that the fundamentals in New Zealand have never added up to large house price falls here and already we can see the market stabilising.

The nationwide median dwelling sale price has essentially held steady since August.

Dwelling sales rose firmly in seasonally adjusted terms in February, and the anecdotes are firmly on the side of increased buyer interest.

Will house prices fall further? If they do the decline will almost certainly be less than 5 percent as although part of the improved turnover currently reflects vendors adjusting to the market, buyer activity is definitely up.

Will an upturn now commence? We don’t think so – not with the unemployment rate set to jump and our economy to remain weak until probably well into 2010.

But the worst for the housing market seems well over going by the fundamentals, the statistics, and the anecdotes.

*Tony Alexander is BNZ’s chief economist