Momentum starting to build as median prices hit a new high

 

After an encouraging start to spring the signs of momentum building in the housing market are becoming more apparent, especially outside of Auckland. 

Continued record low interest rates, a re-emergence of strong investor demand in response to factors such as low returns on other assets (e.g. term deposits) eased serviceability testing by the banks, and low inventory levels have helped push median house prices over $600,000 for the first time according to the Real Estate Institute of New Zealand (REINZ). 

Volumes

The early spring bounce hasn't been sustained volume wise with sales volumes down on this time last year by 4.0%, however they were up on September which is expected as the market emerges from the cooler months and heads towards the high selling season. 

The drop can be explained in part by the forign buyer restrictions which knocked the share of properties sold to overseas buyers down from around 3% to 0.5% of all property transfers, while  the fact there were 7800 fewer listings than in the first 10 months of this year when compared to 2018 also meant the result was hardly a surprise. 

Looking at the winners and losers volume wise when compared to past year we see, 

Selling more 

• Bay of Plenty up 20.2% on October 2018;
• Tasman up 19.4% on October 2018;
• Nelson up 16.7% on October 2018;

Selling less 

• Marlborough down 28.7% on October 2018;
• Gisbourne down 22.8% on October 2018 to their lowest October in 5 years (after their lowest September in 7 years last month), but seeing very strong price increases;
• Taranaki down 22.8% on October 2018 to their lowest October level in 8 years.

Another factor possibly contributing to lower sales volumes is low inventory levels which decreased by 13.1% in October 2019 to 22,313 - down 3,360 from 25,673 12 months ago. All regions recorded a decrease in total inventory levels with some regions such as Wellington down to only 6 weeks of inventory, according to the REINZ. 

Auction wise things continue to be steady, with the percentage of properties coming to market via auction stable, as are clearance rates according to interest.co.nz.  

Values

Strong increases in both the median house price and the REINZ House Price Index (HPI) saw these hit all time highs in October with house price expectations from both the public and economists also on the rise according to the RNBZ. 

REINZ figures for October show Median house prices across New Zealand were up by 8.2% in October to a new high of $607,500. 

Auckland was flatter than the rest of the country again with an increase of only 0.8% compared to an 8.6% rise outside of our largest city. 

The HPI, increased 3.9% year-on-year, setting a new record high. The HPI for New Zealand excluding Auckland increased 8.2% from last year while the Auckland HPI decreased -0.7% from October last year.  

Notable increases

• Manawatu/Wanganui had a strong 24.1% increase to $397,000- up from $320,000 last year in September; 
• Southland might have been slow volume wise, but values jumped 22.1% from September last year; 
• Taranaki was up 15.9%; 
• Hawke’s Bay was up 13.4%; 

Notable decreases 

• The West Coast continues its downward trend with prices falling 7.5% to $185,000;
• Northland was down 5.5% after a strong showing in August; 
• Nelson dripped 5.4% to $560,000 down from $592,000. 

Days to sell

The trend here continues to be downward with REINZ October data showed a fall month on month, from 36 to 34 days and year on year from 35 to 34 days. 

Southland led the pack with the lowest days to sell of all the regions at 20 days, down 5 days from the same time last year to the lowest median days to sell for 12 years (since August 2007). Meanwhile Northland displaced the West Coast as the region where its taking the longest time to shift a property - up 17 days from October last year to 62 days. 

Rents

Despite continued legislative headwinds facing investors, a period of solid rental price increases has improved yields in many areas which, coupled with lower returns on other investments such as term deposits has seen stronger demand for investment properties. Investors have increased their share of new properties purchased, particularly mum and dad investors with less than 4 properties, according to data from CoreLogic. Rents continue to rise which should further support this trend. 

Octobers Stats NZ numbers showed: 

• The stock measure of rental property prices increased 0.2% from September to October and 2.1% year on year; 
• The flow measure of rental property prices increased 0.7% from September to October and 2.1% year on year. 

Where to now?

The market appears to be moving from a tentative growth phase into what could be a period of stronger growth. This change being supported by increased demand for property is underpinned by low interest rates and the easing of serviceability tests by the banking sector recently as well as the RBNZs loosening of their LVR restrictions earlier in the year. 

Some commentators are also picking 2020 could be the year of the investor. Low-term deposit returns are forcing mum and dad investors away from these traditional safe havens, while solid yields and renewed capital growth in many areas are attracting them to rental property. 

Investors have increased their market share of property purchases and there is strong demand, particularly in regional centres such as Dunedin (driven by the new Hospital build). This trend has a good chance of continuing into the new year. 

There are still headwinds to keep an eye on, one being the pending decision in December by RBNZ around capital adequacy, and the other being very weak business confidence, which is at 10 year lows. 

As always, I will continue to keep a finger on the pulse of the current and future economic climate, to keep you up to date with the things that are impacting the lending landscape so you can better advise your clients. If you’d like more information, on anything I’ve covered, please don’t hesitate to get in touch.