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Defying Predictions

International experts are making crash predictions, but local commentators disagree. Miriam Bell takes a close look at the situation.

By: Miriam Bell

1 August 2019

The Economist thinks that New Zealand’s property market is over-valued and in bubble territory similar to that seen in other countries before the GFC. So does Bloomberg Economics. Both think the market is vulnerable to a 30-40% crash like that seen in Ireland and the US between 2007 and 2010.

They are not the only global authorities to weigh in on the property market in recent weeks. In its latest report on New Zealand, the OECD pointed to the housing market as the biggest potential issue for the economy.

New Zealanders tend to take great heed of what international heavyweights have to say. Hence the “crash” talk has taken off again. But local property commentators – from across the spectrum – don’t believe the overseas experts are right. They say the market won’t crash, rather that it will gradually correct.

And the latest data tends to support this view. It tells the story of a national market that is slowing, despite ongoing heat in some smaller regional markets. But not of one teetering on the edge of a freefall.

Super City Driver

As ever, Auckland is a key part of the national puzzle and this month’s price data highlights that.

Take QV’s House Price Index: it shows the annual rate of national value growth dropping to 2.0% in June from 3.5% at the same time last year. The quarterly rate of growth is down to 0.1%, leaving the average national value at $687,021.

Weakness in the Auckland region is a major factor in this. Auckland’s values growth decreased by 2.7% year-on-year and by 1.2% over the past quarter, leaving its average value at $1,027,113.

The latest REINZ House Price Index also has national property values falling with the rate of annual growth dropping from 3.8% in June 2018 to 1.7% in June 2019. But out of the 12 regions, the only one not to experience an increase was Auckland, which saw an annual decrease of 3.5%.

When it comes to the figures, REINZ has the national median house price at $585,000 in June, which is actually up by 4.5% year-on-year and by 0.9% on May. It is Auckland that throws a spanner in the works: its median house price was $850,000 in June. And that’s exactly the same as in June last year, as well as in May.

REINZ chief executive Bindi Norwell says that Auckland’s price result was predictable as there has been no move in its median price for some time now.

Rounding off the Super City story, Barfoot & Thompson’s latest data has Auckland’s prices holding steady in June. They put the average sales price in June at $939,945, which was a marginal increase of 1.2% on June last year. But the median price of $845,000 was up by 4.3% year-on-year.

Reginal Hot Spots

Auckland is not just a driver for the national property market, it is also leader of the pack. So while some regions may still be turning in strong results, it’s the tail end of the boom and they too will peak.

In fact, QV’s June data reveals that the Super City’s subdued value growth is spreading, with annual value growth performance mixed across the main provincial centres. Half saw a decrease in the annual rate of change and the other half held firm or increased.

Of the main urban centres, Dunedin saw the highest rate of annual growth (up 12.2% to $460,448). In the smaller centres, Kawerau saw a hefty 27.5% annual growth and Invercargill recorded 13.3% growth (leaving it with an average value of $300,130).

In a similar vein, the REINZ index also shows that values largely remain in positive territory, with some regions still seeing strong value growth.

The Southland region had the strongest value growth in the country, with a 20.2% increase to a new record high index level. It was followed by the Manawatu/ Whanganui region with an annual growth rate of 18.3% and the Gisborne/Hawke’s Bay region with a 9.1% annual increase.

But the June data shows median prices increasing annually in 12 out of 16 regions. Record median prices were recorded in Manawatu/Whanganui which hit $370,000, and Tasman which reached $642,000.

Slump In Sales

Prices might be holding up in many markets round the country, despite slowing growth, but sales activity has slumped. The number of properties sold across New Zealand in June fell by 3.8% from the same time last year to 5,978 (down from 6,213), according to the latest REINZ data.

In Auckland, the number of properties sold in June fell by 3.2% year-on-year (from 1,879 to 1,819). But most regions recorded a drop in annual sales. Hawke’s Bay led the way with a 26.8% decline (from 287 to 210), followed by Taranaki which saw a 24.9% fall (from 185 to 139).

Norwell says the number of properties sold nationally during June was the lowest for the month of June in five years. “However, with new listings down 7.3% on the same time last year, and record new listing lows set for Northland, Taranaki, West Coast, Southland and parts of the Waikato, it’s not entirely surprising.”

Barfoot & Thompson’s latest data has new listings in Auckland down (by 16.4% year-on-year). At the end of June it had 4,085 properties on its books, which is the lowest in 10 months. The agency’s managing director, Peter Thompson, says the shortage of housing stock and new listings is impacting on sales activity.

They saw just 786 sales in June, a decrease of 13% on the 903 sales in June last year. But, despite the modest sales volumes, Thompson remains positive about buyer activity in the Auckland urban area, which he says has increased.

Expert Interpretations

So with the latest data showing a flatlining market, what do local experts make of the outlook for it, especially in light of the international predictions?

BNZ chief economist Tony Alexander says forecasts of a collapse in New Zealand house prices have been made repeatedly since the 1980s and were most prevalent during and immediately after the GFC.

“None of these forecasts have proved correct. Average prices fell only 11% between 2007 and 2009 and have risen 88% since then. Nonetheless, New Zealand does rank as one of the world’s least affordable housing markets.”

Looking to comparisons with Australia’s declining prices, he says there’s many reasons why it is not valid to extrapolate those declines into the New Zealand scene. A major one is that New Zealand has a housing shortage which is getting worse, whereas in Australia there is a (temporary) oversupply.

Kiwibank chief economist Jarrod Kerr also points to New Zealand’s shortage of around 130,000 homes as a significant reason that material house price falls are unlikely. He is cautiously optimistic about the market, he says.

“We expect Auckland to experience further price declines of another 3-5% into 2020. But given the chronic shortage, continued population growth, and slow supply, prices should stabilise next year. Affordability issues will keep an anchor under future price gains thereafter.
“Across the fast-paced regions, we expect a significant loss in momentum into 2020/21. Across the nation, prices will rise a little this year. And we expect aggregated price gains to pick up towards 5-6% into 2021. It’s a mixed picture, as it was this time last year. And as it will still be this time next year.”

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