Mark Lister, 22 February 2017

The recent pause in the housing market will, in all likelihood, turn out to be a blip rather than the start of our housing bubble deflating.

To make a genuine dent in it I think you need to see at least two of the following three things occur – a rise in interest rates, a sizeable turnaround in migration or a recession.

Real Estate Institute numbers for January had the Auckland median price down about 4 per cent, following small declines in November and December.

January is always a weak month because of the holiday period, but the last time we saw three consecutive monthly falls was back in 2012, five years ago. The rest of the country has come off the boil as well, with median prices falling the most in three years.

However, while our economy is growing strongly, people are moving here in droves and interest rates are the lowest on record, the housing behemoth is likely to keep rolling on.

The good news, for those in the first-home buyers camp, is that one of those three things is likely to change in 2017. Mortgage rates should drift upward over the coming months, regardless of what the Reserve Bank does.

I doubt they’ll return to the double-digit levels of 2008, but even a modest rise should take some of the heat out of the market. The other two ingredients in the recipe might take a little longer.

Annual net migration is currently 70,000 – almost five times the average of 15,000 from the previous 25 years.

I’m not holding my breath for that to reverse substantially. With all of the political drama and instability taking place around the world, New Zealand is in the right place at the right time.

That leaves the “R” word. I can say with certainty the next one is just around the corner, although none of us can pinpoint just how big the corner is.

There’s no warning signs at the moment, so I would say we’ve got a few more prosperous years ahead. If we did run into trouble, it would probably be caused by something we don’t see coming, and could well be triggered from offshore.

Recessions aren’t fun, even if you’re a prospective homeowner rubbing your hands at the thought of a fall in prices. In late 2007 the unemployment rate was 3.8 per cent, but two years later it hit a decade high of 6.8 per cent.

Not only does being out of a job make it harder to buy that house, but banks tend to tighten up their lending during recessions as well.

Many would argue that with prices so stretched, household debt so high and our reckless belief in the housing get-rich-quick scheme, a good old-fashioned shake-out is just what we need.

New Zealand has suffered 13 recessions during the last 100 years, by my count. That’s one every eight years, on average.

Sometimes the gap between them is short, and sometimes it’s much longer.

Our last recession finished in mid-2009, almost eight years ago.

I see nothing on the horizon to cause alarm bells at present, but sooner or later the cycle will catch up with us.

This article was published in The New Zealand Herald on 21 February 2017.