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The New Normal

Regional strength means the market is in the twilight of its boom, but don’t expect a crash to follow – it’s simply that quieter times lie ahead, explains Miriam Bell.

By: Miriam Bell

30 April 2018

Batten down the hatches, stop the clocks ... the bell is tolling for the runaway market the country has seen in recent years. But while the predictions that the market would return to its former heat seem wrong, so too do the prophecies of impending doom.

Overall the picture painted by this month’s data is of a subdued market. This is particularly true of the main centres, where price growth is either muted, or slowing. Ongoing strength in the regional market clouds the picture somewhat.

But although the experts do have some differences of opinion on the outlook for the market, most don’t expect a dramatic crash. Rather there’s a consensus that despite uncertainties around policy, the way forward will be along a more moderate, less volatile path.

Activity Indicators

Uncertainty seems to be impacting both buyers and sellers – with data providing evidence that both new listings and demand are down overall. This is contributing to a quieter, less active market, particularly in the main centres.

Realestate.co.nz’s March data shows new property listings have taken a tumble in the main centres. Year-on-year, they fell in Auckland (by 11.3%), Wellington (by 13.3%), Canterbury (by 2.0%), Central Otago/Lakes (by 1.5%) and the Waikato (by 0.9%).

In contrast, regional markets including Gisborne, Northland, Marlborough, Coromandel and Hawke’s Bay saw big increases in new listings in March. But it was Northland that led the new listings pack with an 11.6% year-on-year increase.

More specific data on Auckland from Barfoot & Thompson shows new listings in March were lower than at the same time last year and that housing stock on the market is creeping up. At month’s end, there were 4,814 available listings which is the highest in four months.

While sellers appear to be holding back on listing properties, the March Trade Me Property data suggests buyer demand is also cooling nationwide.

Head of Trade Me Property Nigel Jeffries says the average number of views on property listings was down 1.6% on March 2017. “This drop in demand may be an indication that buyers are retreating as growing prices push them out of the market.”

Sales Low But Steady

The most telling illustration of reduced market activity came in the form of the March sales data from REINZ. It shows that, once seasonally adjusted, sales volumes nationwide were down by 6.1% on February and by 7.8% on March 2017. This is significant, March is traditionally considered one of the busier months in the real estate year.

Auckland’s formerly hot market is now staggering along with sales volumes down by 8.9% on February and, once seasonally adjusted, by 9.9% on March 2017. Likewise, in Wellington sales volumes were down by 14% on February, and once seasonally adjusted by 18% on March 2017.

‘The biggest change in Auckland is the decreasing investor numbers with an estimated 50% fewer investors in the market when compared to March last year’ BINDI NORWELL

Once again some regional markets went against the trend seen in the main centres, with strong increases in the number of properties sold year-on-year. These markets included the West Coast, Gisborne, Nelson, Taranaki and Marlborough. QV national spokesperson Andrea Rush says that while there was a seasonal pick-up in sales volumes and activity in March, overall sales volumes were still lower than usual for this time of year.

In Auckland, Barfoot & Thompson’s data also provided evidence of this. While sales rebounded to their highest in a year in March, the total was still the lowest for a March since 2010. The agency saw 1,064 sales, which was the first time in 12 months that monthly sales have been above 1,000. This was up by 60% on February’s 665 sales, but down by 4.1% on March 2017.

Barfoot & Thompson managing director Peter Thompson says it is no surprise that March sales numbers and prices were significantly higher than in the first two holiday-affected trading months of the year. “What the sales figures underline is that prices remain rock steady and that buyers have re-entered the market.”

‘The Government might go cold on some of its proposed policies if prices started to fall sharply – after all, the only thing less popular than rising house prices is falling house prices’ DOMINICK STEPHENS

Price Confusion

It might be clear that listings and demand are down while sales are low, but house prices are far harder to read. The various data sets present a mixed tale of ups and downs in which the regions are firmly in the driving seat.

According to the latest QV House Price Index, nationwide property values increased by 5.6% over the past year, once adjusted for inflation, and by 1.2% over the past three months. This left the national average value at $677,618 in March, as compared to $631,432 in March 2017.

But Rush says that value growth in all the main centres – excluding Dunedin – also slowed. “Auckland and Christchurch have seen little value movement over the past year and the rate of annual growth has also slowed in the Wellington region. The Tauranga and Hamilton markets are still rising, but again at much slower rates than the previous two years.”

Napier (up 17.6%) and Hastings (up 14.7%) and Invercargill (up 10.4%) saw the highest annual value growth, she says. “In the regions that saw the highest value growth it was driven by demand from people looking for more affordable homes or for investment properties outside of the main centres.”

The REINZ data paints a rosier picture. New Zealand’s median house price rose by 1.9% (once seasonally adjusted) in March to reach a new record high of $560,000, as compared to $550,000 in March 2017. It was up by 5.7% on February’s median price of $530,000.

REINZ chief executive Bindi Norwell says March also saw record prices achieved in Gisborne (up 17.9% to $330,000), Hawke’s Bay (up 11.7% to $445,000) and Wellington (up 10.0% to $583,000). “Looking at the whole country, median house prices increased in 13 out of 16 regions – the only regions not to experience an increase were Northland, Auckland and Taranaki.”

But while REINZ has Auckland’s median creeping up by 2.9% to $880,000 in March from February, it was down by 2.4% (once seasonally adjusted) on March 2017’s median of $900,000. Norwell says the Auckland market remains steady, with prices holding up, but at a more moderated level with less peaks and troughs.

“The biggest change in Auckland is the decreasing investor numbers with an estimated 50% fewer investors in the market when compared to March last year. Many are cautious about investing due to the uncertainty of the impact of new governmental rules.”

Barfoot & Thompson’s March data also shows Auckland’s prices holding steady, but Trade Me Property’s data has the city’s average asking price taking a fall (of 0.7% year-on-year to $912,500) for the first time in a long time.

Jeffries says Auckland’s dip has muted the national figure which rose by just 1.7% to $636,650 in March, as compared to February. “But while the dip in the Auckland housing market has been making headlines, the property market is still very strong outside the overheated market in the Super City.”

“Almost all the regions have seen excellent growth in the last 12 months – and many hit record asking prices in March. But Hawke’s Bay led the way with 15.1% annual growth which left its average asking price at a record high of $519,950.”

Subdued Outlook

Current regional strength aside, commentators tend to agree that the housing market has levelled out overall, but particularly in Auckland, and that more moderate times lie ahead.

ANZ chief economist Sharon Zollner says they expect the housing market to remain stable, with prices rising at a moderate pace. “A key headwind is affordability – particularly in Auckland, where eyewatering prices are holding the market back from resurgence. But this is not true everywhere.”

She says now that the Auckland market has cooled, the rest of the country is playing catch up. “While there are reasons to expect Auckland house prices to rise faster than elsewhere on average over time, a large and unsustainable divide was created by Auckland’s recent astronomical rise.”

Going forward, this catch-up dynamic is expected to support the rate of house price inflation outside Auckland, Zollner says. “But with the steam taken out of the Auckland market and affordability at its limits, we expect price pressures there to remain subdued.”

Westpac chief economist Dominick Stephens believes the “good times” for the market are going to end very soon. He is forecasting a small decline in house prices for the second half of 2018.

Looking through the factors that might affect prices over the coming year, there is a lot lined up on the negative side of the ledger (including tax policy changes and the likelihood mortgage rates will rise) and not much at all on the positive side, he says.

“But for a few reasons, we are forecasting only slight house price decline, rather than anything dramatic. First, the labour market is expected to stay in pretty good shape – sharp house price declines usually occur when unemployment rises, and that is not something we anticipate.

“Second, the Reserve Bank is ready and able to relax its LVR mortgage lending restrictions, particularly if the market were to turn very negative. And finally, the Government might go cold on some of its proposed policies if prices started to fall sharply – after all, the only thing less popular than rising house prices is falling house prices.”


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