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Picking Up The Pace

Picking Up The Pace

Favourable lending conditions and an ongoing supply shortage should continue driving New Zealand markets to a modest resurgence in 2020, finds Miriam Bell.

By: Miriam Bell

31 December 2019

All the property market doom merchants are likely to be feeling a bit disappointed round now. This time last year, the belief that New Zealand would follow in the path of Australia and experience a big decline was firmly held by many. But that view is now outdated.

In the last few months of 2019, the relevant data consistently turned in solid results, which pointed to definite signs of an uptick in the market after a period of quietening. Most notably, this trend included the long dormant Auckland market.

Commentators now expect 2020 to be a stronger, busier year for the property market than 2019 was. So, as is our January tradition, we take a look at the state of play in key markets around the country as we head into the new year.

Auckland Leaves The Doldrums

It looks like the sleeping giant of New Zealand’s housing market could, once again, be stirring. After several years of a flatlining market, Auckland started to turn in some more positive data towards the end of the year.

While November’s QV data has the region’s average values down by 1.2% year-on-year, it has them up by 1.3% over the quarter, leaving the region’s average value at $1,038,477. Given the annual growth rate was down by 1.5% in October and by 2.3% in September, there’s an obvious improvement in pace of growth.

QV senior consultant Rupert Yortt puts the pick-up in momentum down to a lack of listings, coupled with low interest rates. He says this has created a competitive environment and left the market more upbeat.

The November data from both Realestate.co.nz and Barfoot & Thompson backs this up. Realestate. co.nz has new listings down by 7.0% year-on-year, while Barfoot & Thompson only had 3,703 properties on their books at month’s end. That’s close to a quarter lower than at the same time last year.

Barfoot & Thompson director Kiri Barfoot says the declining pool of properties on the market is contributing to price increases. November’s average price of $963,671 was up by 3.5% on the average for the last three months and by 2.8% year-on-year.

Sales activity has continued to improve, with the agency recording 960 sales in November. This was a 16.5% increase on October and a 2% year-on year increase. It was also the highest they have been in a November since 2015.

Barfoot says sales activity has not returned to the heydays experienced at the height of the previous price cycle. “But Auckland sales have certainly shrugged off the modest turnover and price movements experienced over the past two years.”

At the time of going to print, the most recent REINZ data also shows moderate improvement in both sales and prices. It has Auckland’s median house price at $868,000 in October, which is its highest median price in 19 months. Sales are down slightly (by 0.1%) year-on-year to 2,025 in October, but they are up by 8.5% from the month before.

Independent economist Tony Alexander says it is reasonable to feel the worst is over for Auckland. But he told the TMM Better Business conference in November, the rise in house supply is likely to constrain feelings of FOMO in Auckland.

“For that reason, while it now seems reasonable to expect price gains close to and even above 5% for each of the next three years, it would be optimistic to anticipate gains approaching and exceeding 10% per annum. I am not willing to say that Auckland is starting a new cyclical upturn.”

Big City Markets Steady

The other major centre markets continued to truck along solidly as 2019 came to an end. They were also all experiencing a shortage of available housing stock on the market and a year on year decline in new listings.

QV spokesperson Paul McCorry says all of the main centres showed value growth over the three months to November. That included Christchurch which, like Auckland, struggled throughout much of the year.

According to QV’s November data, Christchurch values were up by a modest 1.9% year-on-year. But they also grow by 1.7% in the last three months. This left the city’s average value at $504,952.

The Christchurch market experienced more positive sentiment in recent months, McCorry says. “The expectation is that there will be an increase in sales volumes in the summer months. This is being driven by the low interest rates and the relatively good affordability.”

Meanwhile, Wellington’s market is said to be slowing, but is still steady with strong prices. QV’s data has values across Wellington City rising by 5.2% in the year
to November and by 2.5% over the quarter, leaving the average value at $847,555. The most recent REINZ data has Wellington City experiencing a record median price of $815,000. It also has the Wellington region’s median price up from $598,000 in October 2018 to $640,000 in October 2019.

QV’s senior consultant David Cornford says there continues to be a shortage of quality stock on the capital’s market.

“It’s not just the entry-level end of the market that is strong in Wellington; the mid and upper level is also performing well. Investors continue to be active in the market and are being motivated by low interest rates and the tight rental market, meaning quality tenants can be secured.”

But of the main centres, it is Dunedin that remains the clear star. QV’s data has it seeing quarterly growth of 8.6% and year-on-year growth of 17.1%, which left the city’s average value at $505,461. The most recent REINZ data has it achieving
a record median price of $515,000 in October.

Liz Nidd, who is the REINZ regional commentator on Otago, says new listings have dropped and current stock is still low and this is making the market challenging. “The market will continue to be short on listings during the holiday period, but we expect it to pick up in the new year.”

Strength In The Regions

For most of 2019, it was the smaller regional markets that were the strongest and most consistent performers in terms of price growth. And this trend looks set to continue going forward.

QV’s data shows some stellar annual value growth results in November. In the North Island the Otorohanga and Ruapehu Districts, which both saw a 25.4% value increase, led the way. They were followed by Whanganui District with 19.8% annual growth and Horowhenua District with 19.1%.

In the South Island Invercargill City lead the way with annual growth of 19.3%, which left its average value at $337,284. It also saw the highest quarterly value growth of all the regions with 9.3%. The Southland star was followed by Southland District with 18.9% year-on-year growth.

Realestate.co.nz’s November data has regional New Zealand heating up for summer, with eight regions climbing to the highest asking prices since 2007.

Those regions included Northland ($648,913), Waikato ($647,879), Manawatu-Whanganui ($446,461), and the Bay of Plenty ($715,326) in the North Island. And Nelson and Bays ($701,072), Canterbury ($519,865), and Otago ($483,706) in the South Island.

Realestate.co.nz spokesperson Vanessa Taylor says this reflects the climb in asking prices throughout 2019, along with limited number of properties available for sale.

For Alexander, it seems that, in the regions, low interest rates are comfortably extending a period of catchup price gains which he had expected to be near complete by now.

“But to anticipate a fresh price surge when there are some specific factors hitting the pace of growth in regional economies – a dairying “downturn” driven by environmental concerns, and near cessation of growth in tourist numbers – would be unrealistic.”

Final Verdict

So does the more positive data for most markets around the country, including Auckland, signal a return to the heady days of skyrocketing prices and frenzied activity? Most commentators don’t think so.

Kiwibank senior economist Jeremy Couchman says the data suggests interest is returning to the housing market. But while demand looks to be on the rise, sales and price growth aren’t even close to levels suggestive of a redhot market. “Nevertheless, activity is expected to gather pace. That’s because interest rates remain near historical lows, supply and demand imbalances are still present and population growth remains well above average.”