Predictions of housing market doom – or at least significant price slumps – have been doing the rounds again in recent weeks. This was prompted, initially, by the June quarter data from Australia which showed house prices had dropped for the first time in six years.

There was immediate speculation that New Zealand’s housing market could be at risk of “contagion” from a marked slowdown in the Australian market. Reserve Bank Governor Adrian Orr then added fuel to the fire when he said house prices could fall by 10 to 15% here as they could in Australia.

Orr said the Reserve Bank was not projecting that. Rather it recently forecast that house price inflation will slow to two to three percent over the next few years – and Orr noted the market could also rise. But this did not stop a flood of commentary on the state of the market.

‘We desperately need to increase the supply of new houses – be that through KiwiBuild or from private developers and builders – in order to fill the significant shortage of properties around the country’ BINDI NORWELL

Could New Zealand’s housing market really be poised on the precipice of a major correction? The reality is that it’s unlikely.

The latest round of data continues to tell the now familiar tale of a slowing market, led by the cool down in the Auckland market. But the ongoing supply shortage is a driver that is not going away and it has now been joined by the prospect that interest rates will remain at historical lows for even longer.

Subdued Growth

There can be no doubt that Auckland price growth has stalled. The July data from QV, REINZ, Trade Me Property and Harcourts all records decreases in house prices – although, in contrast, both Realestate.co.nz and Barfoot & Thompson present slightly more upbeat news.

According to QV, property values in the Auckland region remained largely flat over the last quarter, slipping down by 0.1% to reach $1,050,778 in July. Once adjusted for inflation, average Auckland values dropped by 0.9% year-on-year.

QV Auckland senior consultant James Steele says the return to “normal” market conditions is continuing as values remain stable under depressed levels of activity. “With less demand, sellers are adjusting expectations and are more open to negotiation in order to get their property sold. In general, this has limited the value growth seen over the previous period and kept prices stable with some softening occurring in properties which have issues or are poorly presented.”

The REINZ data had Auckland’s median price down by 1.8% in July to $835,000 as compared to $850,000 in June. It also shows the median price slipping by 0.1% year-on-year to $835,000 from $836,000 in June 2017.

REINZ chief executive Bindi Norwell says Auckland continues on its steady trajectory with only minor changes in median price each month. “The stability of Auckland’s median price will be welcome news for first time buyers struggling with Auckland’s house prices, but time will tell whether the low to mid $800,000 mark is a longer-term trend.”

Where Auckland leads, other markets tend to follow and commentators have long been anticipating that the Super City’s slowdown will eventually spread. This is happening, although many smaller regional markets continue to play catchup and are still seeing strong growth. The upshot is a mixed bag of price results from around the country.

QV has nationwide property values dropping by 0.7% over the past three months but up by 3.5% year-on-year, once adjusted for inflation. This left the national average value at $673,797. Despite this, they note that a trend of flat, or slowing, value growth was evident in regions around the country – particularly in the main centres, apart from Dunedin.

They are seeing a shift in the market across many regions, with most market activity and value growth taking place at the “lower-end” of the market, QV general manager David Nagel says. That’s despite relatively static values around the country and is due to continued demand from first home buyers for affordable properties.

In a similar vein, REINZ has July’s median house price nationwide dipping by 1.8% from June but increasing by 6.2% year-on-year. This left the national median price at $550,000 in July. Further, it has four regions – Northland, Taranaki, Nelson and Marlborough – hitting new record prices in July.

Norwell says the shortage of properties available for sale across the country is continuing to push prices up in all regions across the country except for Auckland. “We desperately need to increase the supply of new houses – be that through KiwiBuild or from private developers and builders – in order to fill the significant shortage of properties around the country.”

Market Trends

House prices may be holding up, but market activity around the country can best be described as quiet with sales taking place at a moderate pace and a lack of new listings.

According to REINZ, 5,661 houses sold nationwide during July. This was an increase of just 0.7%, or 42 properties, from the same period of time last year. Norwell says that July has been a quiet month with many regions experiencing the lowest sales volumes since January this year. “But even though it’s the middle of winter volumes have held up when compared to the same time last year – albeit just.”

‘The market outlook is now a battle between two powerful opposing forces: Government policies, like the foreign buyer ban, that will cool the market versus Reserve Bank policy that will boost it’ DOMINICK STEPHENS

Meanwhile, the amount of stock on the housing market just keeps declining, with new listings continuing to fall in most regions in July.

Realestate.co.nz’s latest data shows the total number of properties available for sale nationally was down by 3.8% (21,288) as compared to July 2017. Nationally, 7,508 new listings came onto the market in July, which indicates a 5.4% year-on-year decline.

Auckland and Wellington both recorded significant falls in new listings (of 7.0% and 16.7% respectively) as compared to July last year. Further, seven of the 19 regions recorded the lowest number of new listings in any July month since Realestate.co.nz started collecting data over 11 years ago.

These market trends are particularly pronounced in Auckland, with Barfoot & Thompson’s July data highlighting the muted sales activity and limited listings.

The real estate agency saw 830 sales in July, which was down by 8.1% on the 903 sales seen in June. But Barfoot & Thompson managing director Peter Thompson says that for the fourth consecutive month sales were in excess of the number for the corresponding month for the previous year.

“This trend is providing the current stability we are seeing in prices. Another pointer to prices remaining stable is that new listings were down to their lowest level this year, and the trend of declining choice for buyers has been growing since April. At month end we have the lowest stock levels for the past 10 months.”

Changing Outlook

Despite the slower price growth and sedate trading patterns evident in markets around the country, and particularly Auckland, most commentators don’t foresee a major market correction. Instead most say the market is stabilising in an orderly way after a period of unusual growth. They expect the market to remain subdued, with the supply shortage providing some support for prices.

For Westpac chief economist Dominick Stephens, the likelihood of further falls in mortgage rates means the housing market outlook has, in fact, improved. He has revised his previous forecasts due to the Reserve Bank signalling they are nearer to the “trigger point” of reducing the OCR.

The game has now changed and the market response could lead to a drop in mortgage rates over the coming months, he says. Further, Reserve Bank comments on the LVRs mean he expects an LVR loosening to be announced later this year, boosting the market early next year.

“The market outlook is now a battle between two powerful opposing forces: Government policies, like the foreign buyer ban, that will cool the market versus Reserve Bank policy that will boost it. That makes the outlook particularly uncertain.”

Yet Stephens says they are now forecasting essentially flat prices over the remainder of 2018, followed by a sharp, but short-lived, rise in prices for early 2019.

“But the Reserve Bank won’t be able to hold interest rates down forever – causing rates to drop now will set us up for a larger increase down the track. We expect mortgage rates will rise in the 2020s, and when that happens house prices will take a hit. We are forecasting a house price decline of almost 3% for 2020.”