Heading into 2018, New Zealand’s housing market was enjoying a resurgence of sorts. Some house price growth was noticeable and there was evidence of increasing market activity. However, the question was whether those feel-good summer vibes would keep flowing in the new year.

Now, after much anticipation, January’s housing data is out and it tells a muddled story. It is worth bearing in mind that, traditionally, January is a quiet month due to the holiday period. Yet much of the data suggests that a cooler market characterised the first month of the year.

Commentators are still saying the late 2017 market recovery is likely to continue in the short-term. But, at the same time, there appears to be a consensus that noone should be counting on a long-term market recovery.

Mixed Price Bag

Thanks to attention grabbing headlines about extreme rises and falls, for many people it is house prices that are the measure of the market. Given that’s the case, January’s mixed bag of price data presents a confusing picture.

First cab off the ranks was the Realestate.co.nz data which shows the average national asking price was down by 2.0%, as compared to December, to $647,535. It also reveals that five major regions saw their asking prices either fall or remain flat in January as compared to December.

In Auckland asking prices declined by 4.0% to $943,542, while Otago’s average asking prices were down by 1.3% to $383,800, Central Otago Lakes’ by 10.6% to $880,669 and Canterbury’s by 2.1% to $491,358. Wellington and the Waikato saw their asking prices up by just 0.5% each, leaving them at $596,819 and $549,830 respectively.

The REINZ data presents a slightly more varied price picture but, overall, it depicts a rocky road for median prices around the country in January, with many seeing significant drops on December 2017.

The national median price was down by 5.5% to $520,000 in January, as compared
to $550,000 in December. However, once seasonally adjusted, it was still up by 7.0% year-on-year. Wellington’s median price followed a similar path: it dropped to $500,000 in January from $560,000 in December – although it was up by 26.7% year-on-year.

The news was not so good for other major centres. Auckland’s median price, once seasonally adjusted, fell by 1.8% to $820,000 in January, as compared to $861,000 in December. It is also well down on its March 2017 peak of $905,000.

Christchurch’s median price continued to flatline on $439,000, while Hamilton’s median price saw a significant monthon- month drop to $500,000 and it crept up by just 1.0% year-on-year. But several regions did see strong year-on-year price growth – with Otago (up 32.9%) and Hawke’s Bay (up 18.4%) leading the way.

In contrast, QV’s January price data was slightly more positive, with its House Price Index showing that national and Auckland property values have inched up again.

Nationwide property values increased by 4.7% over the past year (once adjusted for inflation) and by 3.8% over the past three months. This left the national average value at $671,531 in January 2018, as compared to $669,565 in December.

Values in the Auckland region were down by 0.9% (once adjusted for inflation) year-on-year but up by 1.6% over the past three months, leaving its average value at $1,054,974. This represents the highest rate of growth since November 2016. Further, the growth in values was spread across the region with every market area recording increases.

QV general manager David Nagel says January saw values rise in many markets, including Wellington. “But values have dropped in others and in general activity has been slower in many places over the holiday season.”

‘January’s warmer weather clearly helped sales, as it’s the first time we have seen a positive year-on-year sales increase in 19 months’ BINDI NORWELL

State Of The Market

While January’s house price data is mixed, its sales activity and stock on market data is far more consistent. Notably, January’s sales volumes indicate that, after plummeting in recent months, they continue to struggle.

According to the REINZ data, there was a 3.0% decline in national sales (once seasonally adjusted) in January, as compared to December. Both Auckland and Wellington saw sales drop in January as compared to December, by 8.2% and 12.1% respectively, once seasonally adjusted.

However, REINZ chief executive Bindi Norwell says sales activity was up year-on-year both nationally and in many regions around the country.

Nationally, sales volumes were up by 2.7% year-on-year, although once seasonally adjusted they were down by 0.6%. Of the regions, Nelson (up 27.9%), Canterbury (up 18.1%), Tasman (up 15.8%) and Gisborne (up 12.5%) all saw strong growth.

Norwell says January’s warmer weather clearly helped sales, as it’s the first time they’ve seen a positive year-on-year sales increase in 19 months. “There were some really positive figures from around the country, with 11 out of 16 regions experiencing an increase in sales when compared to the same time last year.”

Sales activity seems particularly muted in the formerly super-hot Auckland. Barfoot & Thompson’s January data provides further evidence of this: it shows yet another decline in sales activity.

The agency saw 593 sales in January, as compared to 674 in December 2017. That means they were down by 12% on December, by 13.8% on the average for the previous three months and by 5.7% on January last year.

While sales were down, Barfoot & Thompson recorded an increase in new listings with 1,200 across the month. This was up significantly from the 571 new listings seen in December and was also 5.1% higher than in January last year. At the end of the month there were 4,320 properties on their books, which was the highest number of listings at the end of January for six years.

Meanwhile, Realestate.co.nz’s data reveals that, nationally, housing stock was up by 7.0% in January and that there was a 4.9% decrease in new listings year-on-year.

Total housing stock was up in five major regions as compared to January 2017. In Auckland total stock was up 20.4%, while in the Waikato it was up by 15.2%, in Wellington by 14.0%, in Canterbury by 13.8% and in Otago by 8.5%. But total stock numbers were down in Northland, Central North Island, Bay of Plenty, Gisborne, Hawkes Bay, Wairarapa and Marlborough in January.

Bright Short-Term Outlook

Despite January’s less than stellar results, commentators continue to be positive about the short-term outlook for the market.

QV’s Nagel says market activity across the nation appears to be picking up now that people have returned to work from the holiday season. “The easing of the LVR restrictions, along with continued strong net migration, low interest rates, and a shortage of housing supply means it’s likely we can expect moderate value growth to continue during February and March which are, annually, the busiest months in the housing market.”

At the same time, Barfoot & Thompson managing director Peter Thompson says the outlook for Auckland residential housing for the first half of 2018 is positive. “That’s because prices have plateaued, mortgage interest rates are stable and there is the potential that greater access to mortgage finance will be made available to first time buyers and those on limited income.”

‘The opposing forces of legislative changes vs stillstrong population growth and low housing supply mean that themarket is likely to continue to be buffeted around for some time’ KIM MUNDY

For Westpac, chief economist Dominick Stephens says, “The January data is a little softer than the preceding three months. The housing market data can be choppy on a month-to-month basis, particularly around the holiday season,” so he is reading little into this.

“The housing market is actually enjoying a slight resurgence and recent falls in mortgage rates, plus the easing of the LVRs, mean the buoyancy is likely to continue for a few more months.”

Recovery Won't Last

But here’s the kicker – economists don’t expect the current market resurgence to last and agree the market is unlikely to start booming again any time soon.

Stephens says that, after several positive months, he expects fixed mortgage rates to start increasing. That, along with slowing migration, and the new government’s housing policy programme, will start to have a cooling impact on the market.

“That leads us in one direction: We expect the housing market to slow later in the year. House prices beyond this short-term blip are likely to fall, or will have a rate of growth below zero.”

ASB economist Kim Mundy agrees the market is likely to remain subdued going forward. She says January’s data highlights that the market has yet to stage a convincing comeback and is likely to continue to move in fits and starts for a while longer.

“The opposing forces of legislative changes vs. still-strong population growth and low housing supply mean that the market is likely to continue to be buffeted around for some time. But, looking forward, we continue to expect housing shortfalls and population growth to provide a floor to house prices over 2018.”

Bagrie Economics’ Cameron Bagrie says it’s important to remember that, over the next two to three years, the big story around the housing market will be the wider structural changes prompted by government policy.

That includes changes to migration settings, the tax regime, rental property regulations and the KiwiBuild programme. “There’s a lot of uncertainty about how that might all impact on the market. The direction of the market is certainly not just about the price of money or banks’ willingness to lend now.