Why you should be wary of banking on your new CV

November 28, 2017

Auckland and Queenstown CV rises were sky high, but with more than a dozen other councils reviewing valuations over the next few months they provide a timely reminder. 

It doesn’t matter how often we’re told that Council Valuations are not actual valuations and often bear little resemblance to the sale price, every three years there’s intense interest in what the latest figures say, and an acknowledgment that the banks pay attention to the values, even if a future buyer may not.

When the Auckland council last published them 2014, interest from property owners was so immense the council’s website crashed under the weight of a million page impressions in a single day.

The council’s server might be more robust these days, but our fascination has not changed.

Back in 2014 the average value of properties in the Auckland region rose 34% to put the total value of Auckland property at an astounding $474 billion dollars.

But given sales data shows average house prices in Auckland have surged north of a million dollars in the ensuing three years, the 2017 update was always going to show a significant leap and it did not disappoint. Average values surged a whopping 45%.

Values in Queenstown were similarly startling, and more than a dozen other councils from around the country are revaluing their housing stock over the next few months.

The response this tends to provoke is we all think we’re 45% richer.  Consumer spending has a very established pattern of mirroring what happens to house prices. When house prices cool, so does our enthusiasm at the till but when house prices boom, the banks lend more, meaning people borrow more and consequently spend more.

However, there are a number of reasons why you should be wary about taking your CV as gospel and planning your next home renovation. Obviously, you should always be a little wary of the CV, as it’s a mass assessment of property values and the council does not and could not inspect every house. But this time around you should be even more wary because there are other factors affecting the property market to be considered.

 

Why you should be extra wary of CVs in 2017

For a start – house prices are currently off the boil and have been for much of the year. While back in 2014 prices were in the midst of a phenomenal climb, they’re now falling on an annual basis for the first time since 2007. Then, there’s the fact immigration is likely to be limited under the new Labour/NZ First Coalition Government. Without a doubt, the fact an extra 140,000 people made Auckland home in the past three years without being met with a corresponding rise in new housing supply has pushed prices up further. Supply still has an awful lot of catching up to do, but a change in the number of arrivals will change the dynamics. The impact of the impending ban on foreign buyers is more difficult to quantify, as the data suggests foreign buyers might make up to 3.1% of sales nationally, and 4.9% in Auckland. That data, however, counts trusts, corporations and those on student and work visas as local tax residents so doesn’t give a complete picture. Record low interest rates have also played a major role in boosting house prices, and while the Reserve Bank doesn’t envisage raising the OCR until 2019, bank interest rates have started to creep up regardless. While it’s only incremental, given the size of Auckland mortgages small increases can still result in material changes to your repayments. Which brings me to my final note of caution – debt. Household debt peaked this year at 167% of household income, the highest it’s ever been. Many households could not withstand even more debt, whatever the supposed ‘value’ of their house.

So, when you get your letter from the council in your mailbox, consider – what does your CV actually mean – other than a likely hike in next year’s rates bill?

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