New Zealand’s property market has experienced a heady few years, with first Auckland and then much of the rest of the country enjoying strong price growth and vibrant market activity. But cycles move in peaks, then troughs and it now looks like the end of the golden weather is approaching.

There can be no doubt that the market, again led by Auckland, is slowing – despite pockets of regional growth. Yet while the spectre of the Sydney and Melbourne market’s ongoing decline continues to grab attention, the consensus view among the experts is that a similar slump is not on the cards for New Zealand.

Sales Take A Tumble

Those looking to February’s sales data could be forgiven for thinking otherwise, however. Bluntly put, it makes for sobering reading.

According to the latest REINZ data, sales nationwide have taken a big tumble. There were 5,954 sales in February, as compared to 6,576 in the same period last year. That equates to a 9.5% decline in sales volumes.

Sales in Auckland were down even more dramatically. The number of properties sold in February fell by 17.9% year-on-year from 1,654 to 1,358. That’s the lowest for a non- January month since October 2010.

Further evidence of Auckland’s sales slump came in Barfoot & Thompson’s latest data. It records 474 sales in February, as compared to 665 in February last year and 653 in January.

That’s a year-on-year drop of 28.7% and a month-on-month drop of 27.4%.

Not only that, but the sales numbers are the lowest in a month since December 2008, which was at the high point of the global financial crisis.

But sales were not just down in Auckland: the REINZ data shows that several other regions also saw significant falls in sales. They were Northland (down by 27.2%), Nelson (down by 20.0%) and Otago (down by 14.9%). In fact, 13 out of 16 regions saw an annual fall in the number of properties sold.

REINZ chief executive Bindi Norwell says the lower level of sales comes at a time of year when sales volumes are normally strong, but that it can be attributed to a number of things.

These include the raft of legislative changes impacting on the housing market, the increasing difficulty in accessing finance and vendors’ pricing expectations. “Salespeople around the country are telling us that vendors and investors alike are now taking a ‘wait and see’ approach to the housing market.”

One factor contributing to the muted sales activity is the tight number of properties available for sale. There was a small annual decrease of 0.3% in inventory on the market nationwide in February, while new listings fell by 6.5% nationwide year-on-year.

Wellington had the lowest amount of inventory, with just eight weeks’ worth available. This was closely followed by Otago and Hawke’s Bay with nine weeks’ inventory each. In contrast, Taranaki, Auckland, and Marlborough all saw an annual increase in their inventory levels.

Ongoing Price Pressures

Norwell says they expect that the ongoing pressure on inventory will result in price increases in affected regions, potentially pushing people to more affordable areas in other regions. And it is this factor which accounts for the continued price growth in many regional markets, at the same time as price growth levels off in the bigger markets.

The REINZ data has median house prices nationwide up by 5.7% to $560,000 in February, as compared to $530,000 in February 2018. That was driven by the fact that 15 of the 16 regions saw an annual increase in their median price, with five regions seeing record median prices.

They were Gisborne (up 25.8% to $390,000), Manawatu/Whanganui (up 23.4% to $352,000), Southland (up 20.8% to $290,000), Wellington (up 16.2% to $640,000) and Hawke’s Bay up 6.4% to $472,500).

Norwell says this highlights the strength of the housing market around much of the country. “With house prices continuing to rise at such a pace, this puts even more of a dampener on any notions of New Zealand following in Australia’s footsteps in the short to medium term.”

Even Auckland saw an increase from January, showing it has returned to the same flat market seen since April 2017, she says. In the Super City, median prices were down by 0.6% to $850,000 in February, as compared to $855,000 last year. But they were up by 5.6% on January’s median price of $805,000.

Meanwhile, the latest QV House Price Index reveals that while values continue to grow in more affordable regions, a great deal of heat has come out of the broader market.

It has property values nationwide up by 3.0% year-on-year and by 0.7% in the three months to February, leaving the average national value at $686,050. But it’s a much slower rate of growth than the 6.5% seen in the year to February 2018 and the 12% seen in the year to February 2017.

Of the bigger centres, the Auckland region’s values were down by 0.9% yearon- year and by 0.6% over the quarter, leaving its average value at $1,044,576. Christchurch also saw its values decline over the last quarter (by -0.1%), but Wellington saw value growth of 2%. Only Dunedin continued to see relatively strong quarterly value growth of 4%.

However, many more affordable regional markets had solid value growth. Hastings saw 9.9% quarterly growth (taking its average value to $511,442) while Napier clocked 5.2% quarterly growth (which left its average value at $549,207).

Rotorua also saw solid growth of 4.2% in the three months to February, while lower North Island provincial areas, like Manawatu, Masterton and Carterton, are experiencing strong annual growth rates.

Summer Fling Over

The ongoing shortage of housing supply is keeping a strong floor under prices for now but, going forward, commentators do expect to see that to change somewhat.

While Auckland’s housing shortage has spread across the country, ASB senior economist Jane Turner says they expect the regional shortfalls to be relatively shortlived as new house building demand has been relatively quick to respond.

“As new housing construction is completed over 2019, we expect the housing supply to catch up to new demand from population growth and reduce some of the upward pressure on house prices outside of Auckland and Christchurch.”

They expect Auckland house prices to remain flat over the next few years, while incomes continue to lift, she says. “This should continue to see the house price-to-income ratio gradually fall, with the Auckland market achieving a ‘soft landing’ as opposed to the more disruptive adjustment seen in Sydney and Melbourne housing markets.”

For Westpac chief economist Dominick Stephens, New Zealand house price inflation did accelerate over the New Year period – thanks to low mortgage rates. But the “summer fling” for house prices was disappointing and will prove brief, he says.

“There are now ever-clearer signs that house price inflation is about to weaken again, at least in northern New Zealand. Measured nationwide and over the whole of 2019, it is starting to look as though house price inflation will fall a bit short of our forecast of 3%.”