HOUSING COMMENTARY

By Miriam Bell Cooling HALO SPREADS

The Auckand market’s slowdown is now clearly spreading round the country, but Miriam Bell finds the consensus indicates the market is normalising rather than priming for a crash.

Not too long ago it was hard

to see an end in sight for New Zealand’s booming property market. But the latest wave of data leaves little room for doubt. The heady days of phenomenal price growth are slipping into the past.

Not only has Auckland’s formerly over-heated market hit a much slower pace, but cooler times and reduced sales activity now characterise other major markets around the country.

Don’t think this development is neccessarily bad news though. Growth has slowed, rather than stopped. Some regional markets continue to do well. In fact, experts say that markets are normalising and becoming more balanced and buyer friendly.

STOCK UP, DEMAND DOWN Just a couple of months ago, Auckland was alone in seeing an increase in the number of properties coming onto the market. That has now changed, according to the May data from realestate.co.nz data.

Realestate.co.nz spokesperson Vanessa Taylor says the last time their data recorded an increase in total housing stock in a region outside of Auckland was back in October 2015. But their latest data shows that four other regions saw a lift in total housing stock in May, as compared to the same time last year.

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Housing stock in the Waikato was up by 18.9% while the Bay of Plenty saw a 5.1% increase in stock. Both Wellington and Canterbury also saw growth in the amount of stock on market, with increases of 13.2% and 4.1% respectively.

While the remaining 14 regions all experienced a fall in housing stock in May, nationally the total number of homes for sale went up by 4% as compared to May 2016. With a 50.8% year-on-year increase in housing stock, Auckland probably contributed to the national rise.

However, the rise in stock in Wellington, Waikato and the Bay of Plenty also coincided with a fall in demand in those regions, Taylor says. Of New Zealand’s 19 regions, these three – plus – Auckland sit at the bottom of the demand table and are the only areas which show a drop in demand.

“Demand for housing in Auckland fell the most. It is down by 28.7%. But in Wellington demand has fallen by 14.1%, in the Waikato region it is down by 13.3% and in the Bay of Plenty it has dropped by 8.7%.”

MARKET FRENZY LIFTS The May data from both QV and REINZ backs up Realestate.co.nz’s tale of reduced activity and cooling demand spreading to markets other than Auckland.

According to the latest QV House Price Index, value growth has slowed dramatically. Annual value growth has now dropped to below 10% – both nationally and in Auckland. Once adjusted for inflation, the national average value was up by 7.4% year-on-year, leaving it at $634,018. That is the slowest rate of annual growth in two years.

Likewise, in Auckland, value growth remained flat, with the average value coming in at $1,044,561 in May as compared to $1,045,362 in April. Once adjusted for inflation

they were up by 7% year-on-year. This rate of growth is the slowest annual rate Auckland has seen since November 2014.

QV national spokesperson Andrea Rush says that nationwide value growth continues to ease back. This is due to lower demand in the housing market caused by the latest round of LVRs and tougher lending criteria from the banks as the market heads into the winter period.

“Sales volumes are lower than they were this time last year, particularly in Auckland, and its possible market activity may now remain more subdued until after the election. Auckland, Hamilton and Christchurch are all relatively flat markets, while value growth in Wellington and Dunedin is also starting to ease back a little.

“Values in Tauranga are showing stronger quarterly growth than last month,” she says. “But it appears much of the frenzy has come out of the housing market there and have returned to more normal levels of activity and demand.”

CAUTION EVIDENT Meanwhile, the May REINZ data suggests that Auckland’s housing market slowdown is spreading, with flat prices and declining sales nationally.

The national median house price stayed flat on $540,000, which was the same as April – although, once seasonally adjusted, it was up by 6.2% year-on-year. At the same time, seasonally adjusted sales volumes nationwide were down by 22.2% year-on-year. While Auckland’s much slower market will have had some impact on the national data, seasonally adjusted sales volumes excluding the Super City declined by 17.4% year-on-year.

The Super City’s median price actually increased slightly in May as compared to April. It came in at $865,000 which was a 1.6% increase on April’s median of $854,500. But, once seasonally adjusted, Auckland sales volumes were down by 31.2% year-on-year and the number of properties for sale in the region was up by 47% year-on-year.

REINZ chief executive Bindi Norwell says, overall, the data shows continued buoyant activity across a number of regions which contrasts with the continuing stability of the Auckland region. “We are seeing a continuing trend of strong median house price growth in many of the regions year- on-year, although a lack of inventory continues.”

But, in her view, buyers are being more cautious. “We’re heading into winter which traditionally sees a slowdown in activity, we’re in an election year, and first-time buyers are finding access to capital more difficult.

RETURN TO NORMAL While the heat may have come off the market in the bigger centres, the changed market does not equate to bad news. Not only are a number of regional markets still firing, but experts believe that the market is returning to a more balanced and normal state.

QV’s data shows that many regional centres are seeing the strongest value growth. For example, Rotorua values were up by 23.9% year-on-year, while Whangarei values increased by 19.4% year-on-year and Napier values rose by 19.3% year-on-year.

At the same time, the REINZ data had four of the 14 regions turning in record median prices in May. They were Northland ($450,000), Manawatu/ Wanganui ($269,000), Nelson/Marlborough ($483,250) and Southland ($238,000).

Additionally, Norwell says that price growth, particularly in Auckland, may have slowed but it is continuing. This can be explained by looking at the wider fundamentals currently at play in New Zealand, she says.

“Given the considerable mismatch between population growth, increasing immigration figures, low interest rates, high housing demand and low building consents and housing supply, it’s clear why prices are still rising, although at single rather than doubledigit growth levels.”

What the slowdown does mean is better opportunities for buyers. In many markets, there is a greater, or growing, number of properties for sale along with less competitive pressure when looking to buy. This is particularly the case in Auckland.

QV Auckland homevalue manager James Steele says Auckland’s market is currently seeing a return to more “normal” market conditions. “Some of the heat has come out of the market and buyers are being pickier about what they buy. Properties with undesirable features or maintenance issues are sitting on the market for longer and many sellers may have to accept a lower price than they would have achieved mid-last year.”

SUBDUED BALANCE The more subdued market, particularly in Auckland, was noted by many economists – but there were different views of what this might represent.

For ASB economist Kim Mundy, the data suggests a more balanced market. While sales activity, both nationally and in Auckland, increased in May it remains subdued compared to the same time last year, she says.

“The fact that the median days to sell figure continues to tick higher suggests that buyers are losing the sense of urgency they had this time last year. Indeed, the REINZ HPI reflects the fact that the imbalance in the market has lessened lately, with house prices dipping slightly in many regions over the month.”

She says ASB expects to see activity and price growth slow over the remainder of 2017, especially in Auckland where prices are most stretched.

However, Westpac’s acting chief economist Michael Gordon says the decline in Auckland house prices seems strange given the city’s large supply shortage, and that higher mortgage rates and tighter LVRs can’t account for it.

“Our view is that much of the rise in Auckland property values over recent years was driven by the land component, which in turn reflects the value of the homes that could be built on that land in the future. It may be that the slow pace of building and rising construction costs are now undermining the perceived development value of land.” ✚ REINZ SALES: DOWN Once seasonally adjusted, sales volumes were again down around the country, and particularly in Auckland, in May.

INTEREST RATES: UP Interest rates remain low, but banks are now announcing increases on a regular basis.

OCR: DOWN The Reserve Bank left the OCR on hold at the record low of 1.75% in June.

IMMIGRATION: DOWN Migration eased slightly in April. Monthly net migration was down on March, while the annual net migration gain did not change between March and April.

BUILDING CONSENTS: DOWN Once seasonally adjusted, building consents were down again in April. But Statistics NZ says the overall consent trend is on the increase.

MORTGAGE APPROVALS: DOWN Reserve Bank data shows that mortgage lending overall was down in April – after rising in March. New lending to investors was also down in April.

RENTS: UP The average national rent remained unchanged in April but rents were up in many markets – notably Auckland, Wellington and the Bay of Plenty.