HOUSING COMMENTARY

By Miriam Bell

Slower times ahead The housing market has cooled, with some regional exceptions, and, while there is no consensus on the future, some experts predict far more sedate growth moving forward, discovers

Miriam Bell.

It’s a conundrum. Market reports

and data indicate more subdued sales activity and less demand in many markets, around the country. Yet house prices just keep raising.

And the ongoing supply shortage is still far exceeded by demand.

So is the quieter market due to the traditional summer slowdown? Is it a temporary impact from the latest LVRs? Or could it be the start of a turning point for the recently supercharged market?

The latest data is a mixed bag and renders easy assessments difficult. The future is unclear. But the data does highlight one thing consistently:

Auckland’s market has fallen far from its former pace, leaving regional markets to provide the heat.

SUPER CITY SNOOZE There can be little doubt that Auckland’s recently boiling market has slipped into a significantly slower mode. December’s data all tells the same story. And it’s a tale of reduced price growth, declining sales and increasing listings.

After following an upwards trajectory for months, Auckland’s prices dropped in December. REINZ, Trade Me Property and Barfoot & Thompson all recorded a fall in the region’s prices, while QV’s data showed a decline in values. Only Realestate.co.nz had the region’s prices increasing – and it was a marginal increase.

The QV data also showed a significantly slower rate of value growth in Auckland. The average value was up by 1.5% over the past three months (to $1,047,179), as compared to November’s data which showed a 3.7% rise over the past three months.

Further, it has Auckland’s values increasing by 12.2% year-on-year or, once adjusted for inflation, by 11.9%, as compared to 12.6% in November’s data. This was the slowest rate of increase in the city’s annual value since January 2015.

Barfoot & Thompson managing director Peter Thompson says signs that Auckland’s rate of price growth was declining have been there since mid-year and that decline showed in the prices achieved at year end.

His agency’s data showed the average price declined by 2% (to $913,709) and the median price by 1.8% (to $840,000) in December. Year-onyear, the average sales price increased by 8.6%, which was the lowest increase in four years.

LISTINGS UP, SALES DOWN Thompson says new listings were the highest in a December for many years. “At year end we had 3270 properties on our books, which is the highest number at year end for four years, and more than a third higher than it was at the same time last year.”

Realestate.co.nz’s data also showed that listings continue to go up in Auckland, in stark contrast to other parts of the country. It had the total number of properties for sale up by 18.4% year-on-year.

Meanwhile, sales volumes in Auckland were also down – both on November and year-onyear, according to the December REINZ data. Once seasonally adjusted, the region’s sales volumes in December were 2% lower than in November.

However, new REINZ chief executive Bindi Norwell says Auckland’s long-term median price trend has been consistently rising, despite December’s slight easing. “The combination of factors, such as strong underlying population growth and a lack of supply, suggests we may be unlikely to see much change to the upward trend in prices - unless these fundamentals change.”

REPEAT PATTERN? While the Auckland market’s cool down is very real, speculation over how long it will continue remains rife. Many commentators have pointed out that the market has slowed down for a

breather in the past.

QV national spokesperson Andrea Rush says a similar trend of plateauing/decreasing values was seen in the Auckland market over summer last year, following the introduction of 2015’s LVRs.

“The market then picked up in March 2016, which is usually the busiest month of the year, and it’s possible we may see this happen again. However, if interest rates continue to rise during 2017 this may further reduce demand from investors and lead to a longer period of lower value growth.”

Any slow-down will be balanced by the fact the market is still being driven by strong migration, relatively low interest rates and a lack of supply compared to demand, she adds.

Thompson also says that December’s modest price retreat is similar to that which occurred last December. “Then it took until March 2016 for the upward price trend to re-appear.”

THE NATIONAL STORY Analysis of Auckland’s current state has dominated the discourse, but December’s data returned some interesting results for the rest of New Zealand too.

While QV’s data recorded a rise in the average national value to $627,905 in December, it also showed that it was not just Auckland experiencing a decrease in values and rate of value growth.

Rush says December saw a continuation of the trend of a slowing rate of value growth, activity and demand in many of the main centres. The trend has been in evidence since the introduction of the latest investor-focused LVRs.

“This coupled with the annual Christmas holiday period slow-down has led to a decrease in values in Hamilton and Christchurch since November. In Wellington values continue to rise faster than in Auckland - but at a slightly slower rate than prior to the LVRs being introduced.”

The REINZ data also had the national median sale price dropping (to $516,000) in December. But that was from a record high in November. Further, once seasonally adjusted, the national median sale price was up by 0.4% on November and by 11.8% year-on-year.

Additionally, Northland, Hawke’s Bay, Wellington, Otago, and Southland all hit record high median sale prices in December. Many regions also experienced double-digit year-onyear growth. But national sales volumes were down by 11% year-on-year – although, once seasonally adjusted, the fall was less than 1%.

Norwell says the underlying trends they are seeing are of rising prices across New Zealand, with all regions recording year-on-year increases in the median price. “By contrast we are seeing flat or falling sales volumes in many areas of the country.”

Trade Me Property’s December data showed that average asking prices in provincial New Zealand are heating up, with seven of the 15 regions hitting record price highs, while Realestate.co.nz’s data revealed that new listings dropped both nationally and in all major centres apart from Auckland.

STANDOUT MARKETS Several standout markets were highlighted by December’s data. Notably, Wellington’s market appears to have bounced back from November’s earthquake and did particularly well across the data board.

The Capital was Norwell’s pick of the strong performing markets. Not only did it achieve a new record high median sale price of $530,175 in December, but it recorded the largest year-onyear increase in median price.

Norwell says the city has been experiencing strong house price growth. “Median prices in the region have risen nearly $100,000, or 22%, over the past year to hit the new record, even with sales volumes rising since November.”

For Rush, the star market was Dunedin. She says it bucked the overriding market trend with value levels continuing to increase and sales activity remaining strong throughout the Christmas period.

“This is likely to be due to the fact the Dunedin housing market offers a much lower entry level and price point than the other main centres. Thus it’s easier for investors to find a 40% deposit to purchase there and investors have remained active there.”

Head of Trade Me Property Nigel Jeffries gave a shout-out to the Northland region. He says while it has seen average asking prices increase, until recently it was lagging behind the other halo regions of Auckland in terms of growth.

But Northland climbed to a new record average asking price of $521,750 in December, he says. “It’s seen a 20.6% increase during 2016. Over the past five years, the average asking price in Northland has risen by just under $150,000 (40%), with more than half of that increase coming in the last 12 months.”

MUTED GROWTH AHEAD There was agreement among some economists that the market, particularly in Auckland, is more subdued and that house price growth is likely to be more sedate in 2017 than in the recent past.

ASB economist Kim Mundy says that the REINZ data shows sales activity has been weak across many regions in New Zealand, particularly Auckland. “This is weighing on price growth. We expect house price growth to be muted over 2017, but robust demand and limited supply will continue to provide a floor to house prices.”

Westpac acting chief economist Michael Gordon says the REINZ data points to fairly steady market conditions in December. “For the third month in a row, sales fell slightly in seasonally adjusted terms, while prices continued to edge higher, albeit at a slower pace than in the first half of 2016.”

The LVR restrictions limit the number of potential buyers, reducing turnover, but have little bearing on buyers’ willingness to pay, he says. “Mortgage rates have been creeping higher since November, ending a fairly steady downward trend over the past couple of years.

“We think that this turnaround in borrowing costs could have a more meaningful impact on house prices than the LVR restrictions. Recently, we revised down our house price growth forecast for next year to just 5%, compared to an estimated 14% rise over 2016.” ✚ REINZ SALES: DOWN Once seasonally adjusted, sales volumes were down around the country in December. While the national decline was slight, it was pronounced in a number of markets, notably Auckland.

INTEREST RATES: UP Interest rates remain low, but banks have started to increase them.

OCR: DOWN The Reserve Bank cut the OCR to a new record low of 1.75% in November.

IMMIGRATION: UP Annual net migration continued to defy expectations and set a new record in November. Monthly net migration was also up on the average recorded over most of the year. [Stats NZ December data due out round Jan 22.]

BUILDING CONSENTS: NEUTRAL Once seasonally adjusted, building consents were up slightly, both nationwide and in Auckland, in November. However, the overall trend appears to be flattening. [Stats NZ December data due out late Jan].

MORTGAGE APPROVALS: UP Reserve Bank data shows that mortgage lending reversed a five month declining trend and increased noticeably in November. [RBNZ data for December due out Jan 30]

RENTS: UP For the second month in a row, rents were up nationwide in December. Auckland rents dropped slightly, but Wellington rents rose strongly once again.