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Runaway Market Slows

After weeks of speculation, the relevant data is in and it points to a definite change in the pace of Auckland’s market, reports Miriam Bell.

By: Miriam Bell

1 December 2015

It seems reality has caught up with the rumours for Auckland’s runaway market. CoreLogic’s Jonno Ingerson made a bold call when he said the market had turnedand speculation grew heated as observers waited to see if the latest round of data backed up his statement.

Now, this month’s data is all in – and it tells a reasonably consistent story. Quotable Value’s data aside, there seems little doubt the SuperCity’s skyrocketing price growth has started to slow. However, the jury remains divided on what the signs are for the future.

The only data to run counter to Ingerson’s call was this month’s Quotable Values (QV) data. It shows Auckland’s values continuing on their upward march in October.

Values Increased

The average residential property value in the Auckland region is now $918,153 – up from $896,676 in September. SuperCity values have increased 24.4% year on year, 7.3% over the past three months and they are now 68.0% higher than the 2007 market peak.

QV national spokesperson Andrea Rush says high net migration and record low interest rates are fuelling the ongoing rises. “Anecdotal evidence suggests the market may have cooled somewhat in anticipation of regulatory measures being introduced by the Government and the Reserve Bank,” Rush says. “But there is still no sign that this is having any impact on rising values in the region.”

“It is further evidence Of the ‘halo’ effect Of auckland-based Buyers searching For value in Regional markets” - Colleen Milne

Changing Trends

However, subsequent data from Realestate.co.nz, Barfoot & Thompson, the Real Estate Institute of New Zealand (REINZ) and Trade Me Property tell a very different story. Barfoot & Thompson’s data shows Auckland’s average sale price increased by 0.5% to $840,402 in October, from $836,275 in September. At the same time, Auckland’s median price declined by 1.3% to $780,000 in October, from $790,000 in September.

Barfoot & Thompson managing director Peter Thompson says these figures make for mixed messages in terms of price movements. “What is clear is that the rate of price rise that occurred in September at the start of the spring season has not been sustained,” Thompson says.

While market trends have changed, in his view, it is too soon to tell whether the latest Reserve Bank LVR and Government tax initiatives have permanently halted the rise in Auckland house prices.

Sales, new listings and auction clearance rates are all down, while the stock on market at month’s end has risen. October’s sales numbers are solid, but they are down by 21.4% on those for September and are the lowest in any month this year since February.

“At present, the market is balanced and sales numbers and prices between now and Christmas will determine where prices go in the new year,” Thompson says.

Market Easing

Next off the blocks is the REINZ data, which leaves little doubt Auckland’s market is easing. It shows the Auckland region’s median price fell by 3%, to $784,250 in October, as compared with September. Median prices dropped around the region in October. In Rodney, they fell by 9%, on the North Shore they fell by 4%, and in both Waitakere and Manukau they fell by 3%.

The sales volume around the Auckland region also fell in October, as compared to September. It was down by 19%. However, both median prices and sales are up as compared to this time last year.

REINZ chief executive Colleen Milne says prices and sales are pulling back across the Auckland region after a very strong run through winter and early spring. “The drop in the number of sales in October is the result of a softening of demand over the past few months and the new IRD and bank account rules introduced at the start of October.” Milne says.

But she says the fundamental supply and demand drivers of the Auckland market remain in place. “The result for October is indicative of the market adjustment phase as it adapts to these new requirements.”

Further Evidence

The latest data from Trade Me Property and Realestate.co.nz adds further weight to the theory that Auckland’s market has turned. Realestate.co.nz’s October data shows the city’s average asking price dropped back to $832,713, from September’s record high of $851,531. Similarly, Trade Me Property’s October data reveals the average asking price in Auckland went up by just over 2% to $792,000.

Head of Trade Me Property Nigel Jeffries says he thinks the Auckland market displays clear signs of slowing, despite prices edging toward the $800,000 mark. It now looks like the peak for year-on-year growth was July’s 20% leap, he says.

“Over the past four months we’ve watched that slip back to 18%,” Jeffries says. “But it’s worth noting this adds up to a $121,000 increase in Auckland asking prices since July, so it’s still far from sluggish.”

Hangover Settles

The weakening housing data confirms the heat has come out of Auckland’s market, according to Westpac chief economist Dominick Stephens. It seems the heated activity in the Auckland market in recent months was actually a rush to beat the Government’s new tax rules which came into force in early October, he says. “REINZ’s October data – which was the weakest in many years – proves a hangover from the post changes rush on the market is now settling in,” Stephens says.

While Stephens thinks it is wise to treat a single month’s data with caution, the data is supported by corroborating evidence through a stream of anecdotes, reports of declining auction clearance rates, and notable weakness in mortgage approvals.

“Even if this month’s data overstates the case, there can be no doubting that the Auckland housing market has taken a knock.” Just how long the current market weakness will last remains uncertain. Stephens says experience suggests regulatory changes can have a noticeable short term impact on the market, but the impact diminishes with time – as with the 2013 LVR restrictions.

For this reason, he doesn’t expect Auckland’s data to remain as dire as the current batch for more than a few months. However, he says the global and local economic slowdown, along with uncertainty in Chinese financial markets, is likely to impact on speculator and foreign investor interest in Auckland property. “For now, we are sticking to our forecast that the quarterly rate of increase in Auckland house prices will be zero in the March quarter, compared with 7% in September.”

Out Of Auckland

Meanwhile, growth prospects for a number of markets outside of Auckland are more upbeat. While the different sets of data make for mixed messages on price growth, QV, REINZ and Trade Me Property all note the increasing strength of certain regional markets.

QV’s Andrea Rush says many upper North island centres including Tauranga, Hamilton, the Waikato and Hauraki Districts, Whangarei and Rotorua are continuing to show significant increases in values. For example, in Hamilton, the average value is now $429,829. This is an increase of 10.2% over the past three months and 18.2% year on year, which leaves values 18.9% higher than in 2007.

The Wellington and Dunedin markets are also starting to show a definite upward move, she says. “There continues to be a shortage of listings in some areas while sales activity and demand has picked up in many parts of the country which is usual for the spring season.”

Since October 2014 eight region's average asking price has increased above
5%, according to Trade Me Property. The fastest-growing regions is the Hawke’s Bay up 19.7% to a new peak at $436,350, Waikato is up 11% to $388,500, and Bay of Plenty is up 11% to a new record of $483,000.

Milne says markets outside Auckland are strengthening. New record median prices are recorded in Northland, Manawatu/Wanganui, Wellington and Nelson/Marlborough. Demand and rising prices around the country have increased as buyers of all types emerge to take advantage of low interest rates, she says. “It is further evidence of the ‘halo’ effect of Aucklandbased buyers searching for value in regional markets.”
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