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Changing The Guard

Changing The Guard

The tide may have turned for Auckland’s recently booming market, but the story is different for other markets, writes Miriam Bell.

By: Miriam Bell

1 January 2016

It seems the auckland market’s wild ride upward has finally come to an end. Months of eye-popping price rises created an expectation the ride would never end. But a market will always reach its peak and a growing body of evidence suggests those heady days are over.

The last two months’ worth of data leaves little doubt SuperCity price growth is slowing down. While Auckland’s market might be settling, the news is more positive for markets around the rest of New Zealand.

The release of November’s Quotable Value (QV) data is confirmation the tide has turned. Before November, QV’s data told a different story to that of other data. It consistently showed strongly increasing values, while other data indicated slowing price growth. This has changed.

Slower rate

QV national spokeswoman Andrea Rush says while Auckland values increased in November, they did so at a much slower rate than in October. “It appears new rules to curb investors, along with restrictions on the capital flow out of China, have led to an easing in the market,” Rush says.

According to the QV data, in November the average residential property value in the Auckland region rose to $931,807. This was up from $918,153 in October. Once adjusted for inflation, values went up by 23.9% over the past year and are now 44.9% higher than in 2007.

Anecdotal evidence suggests value levels among some categories of housing, in particular investment housing stock, may have fallen – James Wilson

QV’s Auckland valuer James Wilson says he thinks investors are waiting to see how
the market reacts to the recent measures. “The decrease in rental yields achievable in the city also appears to be further fuelling the more cautious mentality prevalent among buyers,” Wilson says.

A drastic price easing in the statistics is not noticeable, but he can tell that activity is well down on previous months, he says. “Whether this will correlate to values decreasing across the board remains to be seen. But anecdotal evidence suggests value levels among some categories of housing, in particular investment housing stock, may have fallen.”

Decreased Market Activity

Hot on the heels of the QV data, comes the November data from Realestate.co.nz and Barfoot & Thompson – both indicate a slower market. Realestate.co.nz’s data shows Auckland’s average asking price was $849,882 in November. While this was up from $832,713 in October, it was down on September’s record high of $851,531.

Listings were also down.

The Barfoot & Thompson data is less straightforward. It shows Auckland’s average sale price jumped by 4.2% to $876,075 in November, from $840,402 in October. The city’s median price went up by 1.9% to $795,000 from $780,000 in October. Barfoot & Thompson director Kiri Barfoot says it is necessary to go back to March 2014 to find a bigger monthly increase in the average sales price. “But we have seen a lot of properties in the over $1 million price category selling in November,
and that tends to skew the price figures,” Barfoot says.

While prices seem to have ignored Government and Reserve Bank measures designed to cool prices, market activity has measurably decreased, she says. November sales were down by 7.7% on October, while new listings were down 7.5% on October. Barfoot says it remained to be seen if November’s prices were the last remnants of momentum that built in the lead up to the introduction of the tighter measures.

“The indicators are there that the market has slowed, but if people are waiting for a crash in prices, that’s not likely to happen.”

Low Sales Volume

Further evidence the heat has started to come out of the Auckland market came in November’s Real Estate Institute of New Zealand (REINZ) data. It shows Auckland had its lowest sales volume since 2011. This was down on October by a seasonally adjusted 11.5%.

At the same time, once seasonally adjusted, Auckland’s house prices were up just 0.2% on October – although they were up 14% year-on-year. Within Auckland, performance was mixed: North Shore’s median price was down, but Waitakere, Manukau and Rodney all reported increases.

REINZ chief executive Colleen Milne says the Auckland market continues to be challenged by the lack of supply. This is evident in the low number of sales for November and an increase, once again, in the median price.

In Milne’s view, the new tax and LVR measures have slowed down some purchase decisions while the implications of the new rules are absorbed.

“The situation should revert as the market adjusts to the new operating environment and restrictions.”

The Auckland REINZ data is much weaker than the national average. It confirms Auckland’s previously hot market has slowed sharply, according to Westpac chief economist Dominick Stephens.

He says the November Barfoot & Thompson data should have sealed the deal for the doubters who thought October’s data was just a blip. “It showed a drop of 16% in sales activity in November. This followed a drop of 20% in October and left market activity at levels similar to those before the 2014 election – which was slow.”

Economics 101

BNZ chief economist Tony Alexander, however, recently expressed a contrary view. In a newsletter, he says Auckland house prices are unlikely to fall because the city’s population growth last year was about 3% which means an extra 15,000 houses are needed.

Despite the small pause in the market, Auckland’s housing shortage is getting worse, he says. “But the economics 101 of the situation will shine through again, in an environment of sustained low interest rates, and prices will rise,” Alexander says.

“They are probably still rising, though at a slightly slower pace than before.” Currently, the real action is in the regions, bar Christchurch, with buyers snapping up anything they can find, Alexander says. “They have a price range in their minds reflecting what they are used to in Auckland. Faced with much lower prices elsewhere, their willingness to buy easily exceeds that of the locals.”

He says he doubts the Auckland market will see an “end” of the type seen in the past – instead it will have periods when some buyers back off for a while. “In the absence of any serious interest rates threat, the cycle is only likely to definitively head downward if we get a combination of booming supply, imposition of much tougher finance access rules, and a reasonable-sized economic shock right after tighter rules have been introduced.”

The Rest of NZ

Around the rest of New Zealand the picture is somewhat rosier. The REINZ data shows (excluding the impact of the Auckland region) the national median price rose $15,000 to $375,000 compared with November 2014 to reach a new record high. Also, excluding the SuperCity there was a pick-up in activity, with turnover lifting more than 23%. Milne says some, but not all regions, are seeing strong growth in sales volumes and prices, with Northland, Waikato/Bay of Plenty, Wellington, Otago and Central Otago Lakes all experiencing either or both effects.

“Demand is being driven by low interest rates and the relaxation of the LVR rules for these regions. Increase in listings is also improving choice for buyers,” Milne says.

Trade Me Property’s data also backs up this trend. It has the national average asking price, excluding Auckland, up by 22.6% over the last five years. The rate of growth is the highest level in seven years.

Head of Trade Me Property Nigel Jeffries says this is a different story to two years ago – in November 2013 the five-year growth rate was just 2.1%. “Sometimes it’s important to remove the impossible Auckland yardstick and look objectively at what’s been going on around the country," Jeffries says. “The rate of growth we’re seeing for typical properties around the country is excellent.”

Thirteen regions had an increase in year-on-year average asking prices during November. In the North Island: Northland (10.4%), Hawke’s Bay (13%), Bay of Plenty (12.6%) and Auckland (16.9%) led the way with their double-digit growth. The South Island saw growth across the board, led by a strong 14.4% increase on the West Coast. Jeffries says this is impressive growth across the country compared with November last year. “It’s pretty unusual for us to see growth almost everywhere.”