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Two-Speed Market

New Zealand’s property market shows divergent activity between the main centres and the regions, writes Miriam Bell.

By: Miriam Bell

1 June 2018

The days of headline grabbing property news stories are over – for now. That’s because dramatic price rises and falls are simply not on the cards at this point. Rather the market has largely moderated and is trucking along in a stable and settled fashion.

Yet there are still some growth drivers in effect. Many regional markets continue to play catch-up. Additionally, that pesky housing supply shortage is not going anywhere fast and that’s ensuring demand pressure continues to build.

Despite this, commentators believe the market resurgence, which kicked off late last year, is now over. This has left them predicting that punters will see a soft, subdued market as 2018 unfolds.

Tempered Growth

While the news on prices may not be as exciting as it was back in 2015-16, it’s worth noting that it’s not bad news on the price front, particularly in the regions. Prices are still growing in many markets, it’s just that the growth is far more tempered.

According to the latest instalment of QV’s House Price Index, nationwide property values rose by 1.1% over the past three months and, once adjusted for inflation, by 6.4% over the year to April. This leaves the nationwide average value at $678,856 in April, as compared to $677,618 in March and $631,147 in April 2017.

QV general manager David Nagel says nationwide values are rising at a moderate pace with many regional centres continuing to see steady increases. “But the rate of growth is continuing to slow, plateau or even drop slightly in the main centres.”

Values in the country’s biggest market, Auckland, dropped by 0.3% over the past three months and, once adjusted for inflation, by 0.3% over the year to April. This leaves Auckland’s average value at $1,051,687 in April, as compared to $1,055,992 in March and $1,043,830 in April 2017.

Auckland was not alone in its soft value growth, with quarterly value dropping in Wellington, Nagel says. “Annual value growth also remains flat in Christchurch, while the Hamilton, Tauranga and Dunedin markets continue to rise moderately.”

In contrast, the Hawke’s Bay region has been seeing significant value growth in many of its markets, with Napier leading the way. Invercargill has also seen strong value growth, as have a number of smaller provincial markets around the country.

The April data from REINZ told a similar tale. Once seasonally adjusted, the national median house price was up by 2.3% year-on-year to $550,000 in April. But it was down by 1.8% on March’s median price of $560,000.

It also showed that, once seasonally adjusted, Auckland’s median house price was down by 0.1% year-on-year to $850,000 in April. It was also down, by 3.4%, on March’s median price of $880,000. Again, in contrast, many regions around the country saw strong increases in median prices. These included Manawatu/Wanganui, Nelson, Otago, Southland, Gisborne and Hawke’s Bay

‘We expect sales activity and price growth to remain below par over 2018 and that volatility will remain a key theme in the housing market until greater policy clarity emerges’ KIM MUNDY

REINZ chief executive Bindi Norwell says this indicates continued demand for good properties, particularly as listings continue to remain low in many markets. “Auckland was an exception to this and while it is always changing, it is likely that there won’t be any major changes to the Auckland market’s current patterns until spring.”

‘While it is always changing, it is likely that there won’t be any major changes to the Auckland market’s current patterns until spring’ BINDI NORWELL

Trade Me Property’s April data provided further evidence that New Zealand currently has a two-speed property market. It shows prices continue to climb strongly in many regional markets but not in the main centres.

Soft Sales Activity

On the sales front, the REINZ data reveals a bit of a pick-up in activity in April. Nationwide, there were 6,368 properties sold in April, as compared to 5,973 in April 2017. Once seasonally adjusted, this was a 2.3% year-on-year increase. Sales also inched up by 1.6%, once seasonally adjusted, as compared to March, which saw a big drop in activity.

The fact that sales activity in Auckland continues to be subdued impacted on the national sales figures. Auckland saw 1,854 property sales in April which, once seasonally adjusted, equates to a 1.7% year-on-year drop in volume. But sales were up by a tiny 0.3% once seasonally adjusted, on March.

In contrast, many other regions around the country saw big year-on-year increases in sales. These included the West Coast (up 50%), Southland (up 36.1%), Marlborough (up 30.8%), Nelson (up 30.1%) and Manawatu/Wanganui (up 22.7%).

Norwell says the annual increase in the number of properties sold in April was strong. “Across the country, 12 out of 16 regions saw a year-on-year increase in the number of properties sold, with seven of those regions experiencing double digit growth highlighting what a strong month April was.”

While the REINZ sales data was not particularly positive for Auckland, Barfoot & Thompson’s take on April was a bit more upbeat. It suggests that sales activity may have bottomed out and that some confidence is returning to the market.

Barfoot & Thompson managing director Peter Thompson says they sold 731 properties in April. “This was 10.1% higher than April last year. Further, sales numbers for the first four months of 2018 are 3.2% higher than for the comparative period last year.”

At 1,358, new listings for the month were strong and left 4,678 properties on the books at month’s end, he says. “This ensures that buyer choice at the end of April was the second highest it has been for six years.”

Two Speed Market

One of the most conspicuous features of this month’s data is the contrast between the main centre and regional markets. While the main centre markets flatline, there’s still strength in the regions. In part, that’s because regional housing markets are playing catch-up in this cycle.

But Nagel thinks another reason is the continued trend of people seeking a lifestyle change away from the cities. People are purchasing better valued properties in the regions, particularly those that are within commutable distance of major centres, he says.

Yet while regional markets are currently producing strong results, it seems there are signs of weakness ahead.

CoreLogic head of research Nick Goodall says they are starting to see population growth slow in the regional centres. “With extended value growth not matched by wage growth, property is becoming less affordable, especially given a tightening of lending credit policies.”

Further, while there are lots of regional variants, overall there’s a pretty clear slowdown in most areas, he says.

“Based on similar states of market fundamentals in 2017, I’m expecting a similar trend in property transactions to occur this year. If anything there might be a bit more downward pressure due to a tightening of debt serviceability testing plus a more complex and less profitable investment property market.”

But, with strong fundamentals underpinning the market, it is unlikely there will be a significant drop in either volumes or values across the main centres, he adds.

Cooler Days To Come

ASB economist Kim Mundy agrees that a major fall off in the property market is unlikely. In her view, the REINZ data shows that housing market activity continues to be soft although the pace of decline in annual sales activity does appear to be stabilising.

The days to sell remains higher in larger centres which indicates “tightness” in those centres continues to ease and this is being reflected in prices, she says. “On the other hand, smaller regional markets continue to play catch up, following strong price growth in the larger centres over the past years.”

Mundy says the tug-of-war between stretched affordability/legislative changes versus still-strong population growth and low housing supply looks to have continued. “But we expect sales activity and price growth to remain below par over 2018 and that volatility will remain a key theme in the housing market until greater policy clarity emerges.”

For Westpac chief economist Dominick Stephens, it’s clear the housing market is cooling again, after a brief resurgence from around September 2017 until about February 2018.

He says this trend can be seen most clearly in QV’s index. “Price inflation has slipped back into negative territory for Auckland and Christchurch. The slowdown has been most pronounced in Wellington, although prices in the capital are still rising. But the April REINZ data also told a weak story, with weak sales and prices, particularly in the upper North Island.”

Stephens says they have been expecting house prices to fall due to a raft of law changes. These include the extension of the bright-line test, the foreign buyer ban, the changing of rules around negative gearing, and the likely recommendation of further taxes on property by the Tax Working Group.

“These tax changes and regulatory changes are going to have the desired effect, and will cool the housing market and house prices.”

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