The Coming Property Price Growth Tsunami - May 2024
Tsunamis by their very nature arrive largely unannounced apart from the unusually low ‘tide’ that precedes them. In today’s soft property market that unusually low tide is obvious based on the record low property sales volumes.
The backdrop for the coming property price growth tsunami includes the current crisis of confidence in the property market. A crisis that was engineered with a somewhat misguided goal to reduce the value of every property in New Zealand in the name of making house prices ‘affordable and sustainable’ for all, forever. A goal that failed to account for the fact that when a manufactured property crisis ends, a boom in property values follows. A goal that failed to account for the long-term natural cyclical nature of the housing market.
The last four New Zealand property cycles have provided a rich source of valuable insights that indicate what is beyond the property market ‘event horizon’ for property values. For example, whenever there is a financial crisis, crisis of confidence, or credit crunch then values stall/fall. However, once the crisis dissipates sales volumes, and prices always bounce-back. Property market recoveries are usually rapid and the stampeding herd of potential property buyers, driven in part by ‘animal spirits’, is always difficult to curb once it takes a firm direction. At the moment the herd is still restricted by the current credit crunch and lack of confidence.
The ‘Law of the vital few’ however implies house price growth rates are based on very few sales compared to the total number of properties in any given location. That means a relatively small shift in demand in a suburb, or city, can suddenly inspire a significant movement in property values for an entire suburb or even a city.
Today the tide that drives the property cycle is turning. The incoming tide when it does arrive looks likely to be more of a tsunami and it’s arrival may well be sooner than you think.
- Written by Kieran Trass
Director of TELL ME THE TIME