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Market Contradictions

The housing market may have seen a pre-Christmas pick up, but don’t get too relaxed - there are contradictory market forces at play, writes Miriam Bell.

By: Miriam Bell

1 February 2018

In the last months of 2017, there were clear signs that – after the long cold freeze of winter – the housing market had picked up a bit. More activity was reported and prices rose in many markets around the country.

But a look behind the headlines reveals a more complex picture. There is a growing amount of stock on market, sales have declined significantly, and house price growth remains soft.

Yet demand remains high and, with the easing of the LVRs and interest rates still low, that’s unlikely to change. Add to the mix government policy changes likely to impact on investors. And you get contradicting messages.

It is this which could well turn out to be the theme of the year for the market: disparate data results which overlay a flatter but more settled market.

Stock On Market Builds

Lack of housing supply has long been one of the drivers of markets around New Zealand, particularly Auckland. The new government plans to fast track its KiwiBuild programme in a bid to boost available supply but it seems that, currently, the number of houses for sale is growing.

According to Realestate.co.nz’s latest data, the total amount of housing stock on the market is on the rise. It was up by 9.3% in December, as compared to December 2016.

Further, big year-on-year stock increases were recorded in all the major centres in December. Auckland’s housing stock was up by 26.1% on December 2016 to 8,497, while Wellington’s stock was up by 21% to 971 and Canterbury’s stock was up by 18.6% to 3,642.

However, the data also shows that new listings have slumped. They were down by 6.2% to a record low of 7,133 in December 2017, as compared to 7,606 in December 2016. This is the lowest level on record. The drop in new listings was widespread, with 13 of the country’s 19 regions experiencing a drop.

Auckland was a significant contributor to this, with only 1,908 new houses listed which was down by 7.8% on December 2016’s 2,070 new listings. But the biggest fall was in the Wairarapa, which was down by 32.9% to 98 year-on-year.

For the Auckland market, Barfoot & Thompson’s December data provided further evidence of this trend. The agency saw just 571 new listings in December, which it acknowledged as low.

Sales Slump

At the same time, data across the board shows that sales activity plummeted throughout 2017 – although there was a slight lift at the end of the year.

QV’s December data has national sales volumes down on 2016 for every month during the year and between February and October they were in excess of 20% below 2016 levels. While sales picked up in November in a post-election late spring surge, they still finished the year 10% lower than the year before.

In Auckland, sales volumes continue to decline with another drop in December, according to Barfoot & Thompson’s data. The agency sold 674 properties in December, as compared to 757 in November and 721 in December 2016.

Barfoot & Thompson managing director Peter Thompson says one of the significant market changes in 2017 was the number of homes sold. They fell by more than a quarter on the numbers sold in each of the previous three years.

Meanwhile, the most recent REINZ data shows that, once seasonally adjusted, there was a 4.5% increase in sales nationally from October to November. Sales volumes in 15 out of 16 regions were up, with sales in Auckland rising by 1.5% in November.

But year-on-year, once seasonally adjusted, they were down by 9.2% nationally and by 16.1% in Auckland. Further, over the January - November 2017 period, there was an 18.1% decrease in national sales and a 23.2% decrease in Auckland sales on the same period last year.

❝One of the significant market changes in 2017 was the number of homes sold. They fell by more than a quarter on the numbers sold in each of the previous three years❞ Peter Thompson

Soft Price Growth

Stock on market might be growing while sales activity remains at reduced levels, but prices continue to creep up – albeit at a crawl rather than a sprint.

QV’s latest House Price Index records that the nationwide average value rose by 6.6% year-on-year to $669,565 in December 2017. In the final three months of 2017 the average national value increased by 3.6%. But this means that by October nationwide annual value growth had slowed to 3.9%, which was the lowest rate of growth seen in five years.

In the Auckland region annual value growth slowed to -0.6%, which was the slowest annual rate of growth seen since March 2011. It saw value growth of just 0.4% over the 2017 year and of 1.2% over the last three months, which left the region’s average value at $1,051,762 in December.

Looking around the country, there was a mixed bag of results. Many areas, including Christchurch (down 0.1%), experienced property value decreases over the year. But the Wellington region saw value growth of 9.4% over the year and 3.6% over the last three months, leaving its average value at $628,450 in December.

In contrast, the latest Trade Me Property Price Index has 13 of New Zealand’s 15 regions hitting record average asking prices in December.

Wellington led the way with a 12.8% year-on-year increase to reach a record $568,100 in December. Otago followed close behind with 13.3% year-on-year growth which left the region’s average asking price at $525,300.

Many regions may have seen strong price growth in December, but the rate of growth was decidedly slower than that seen in 2015 and 2016. The national average asking price was up by just 0.2% on November and by 3.4% year-on-year to $640,450. Auckland’s average asking price rose by 3.6% to reach $941,850 in December.

Realestate.co.nz and Barfoot & Thompson also both recorded increases in average asking prices. But, when it comes to Auckland, Thompson says that while prices have continued to rise, the region’s market has been reined in from rapid price increases and has settled into a more stable trading environment.

❝We expect the market will continue to slow over the coming year in response to concerns about changes in government policy and pressure on borrowing rates❞ Satish Ranchhod

Market Landscape

While the data throws up some apparently contradictory themes, most commentators are of the view that, although price growth continues, the market has flattened and normalised.

For QV national spokesperson Andrea Rush, the general trend is a slow-down in the rate of value growth. “The frenzy in the market of the previous three years induced by high numbers of investors in the market subsided and we saw a return to more normal levels of activity in housing markets around the country.”

The slight easing in LVR restrictions is likely to improve activity and demand, while low interest rates, relatively high migration and lack of supply remain as market drivers, she says. That means values are likely to hold for the most part during 2018 in the main centres.

“But the trend of lower rates of growth is likely to continue. Areas where investors were previously very active may continue to see values drop back where prices remain too high for first home buyers particularly in Auckland, Hamilton and surrounding districts.”

Some regional areas might continue to see stronger value growth than the main centres during the coming year, Rush adds.

When it comes to the former bull market of Auckland, Westpac senior economist Satish Ranchhod says the data points to a firming in the Auckland housing market in late 2017. But he expects that this will be temporary.

Looking at the longer-term trends in the housing market, a softening in conditions over the past year remains apparent, he says. “Despite their recent firming, sales are still well down on levels seen over the past year. Price growth has flattened off. And the stock of available listings continues to climb.

“We expect the market will continue to slow over the coming year in response to concerns about changes in government policy and pressure on borrowing rates.”

Meanwhile, Squirrel managing director John Bolton believes the new-build market looks vulnerable. Developers and builders will have to face lower profits as they will struggle to sell at current prices in a softer market.

“Unlike existing stock, developers and builders must meet the market eventually and you’ll see that reflected in prices. I wouldn’t be surprised to see a 10% drop in valuations on completed product and a 20% drop in land values. The same applies for sub-divisible inner city sites where speculators have paid too much. But inner-city properties in popular suburbs will hold up.”

The market will continue to see ongoing soft sales volumes for the next two to three years, he says. “Overall, reported house prices will come back 5-10%, but will otherwise remain static. It will come down to simple supply and demand. 2018 will be a buyer’s market – just don’t expect vendors to be overly negotiable.”

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