28/04/2016 | Investigate Autumn 2016 Issue
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Autumn 2016


Housing markets around New Zealand are increasing nicely and being driven by Auckland buyers who are looking for: yield and lower mortgages outside of our biggest city. In addition to this, locals in the smaller centres are jumping on the bandwagon now that they see outsiders buying in, low interest rates set to go lower and record net migration inflows. Adding to this, the foreign buyers who had previously postponed their purchases in order to get IRD numbers now have those IRD numbers and are back in the market again.

This latter effect explains why Auckland saw a lull in sales, prices, and lengthening of days taken to sell a dwelling from October last year. The period of a “paused” Auckland housing market responding to regulatory changes has ended and young buyers who did not take advantage of this window of opportunity to go to auctions and face fewer competing buyers have missed out. Again.

Auckland

In Auckland in March the average sales price adjusted for changes in the mix of properties sold jumped by 4.3% after rising 5.5% in February. That price measure fell in total by 3.3% between September and January. The latest measure represents a rise of 13.3% from a year ago or 12% when comparing the March quarter with March quarter 2015. On average in March it took 31 days to sell a house in Auckland which was 1.4 days faster than average, slightly less strong than February’s 3.7 days faster than average outcome, but the second strongest result since September.

Regions

In Wellington prices in March were 12.8% ahead of a year ago and for the entire March quarter (a better measure) were up 10% from March quarter last year. Prices are now 19% above early-2009 levels versus a 92% rise for Auckland and 44% rise for Christchurch.

Wellington is in the huge catch-up phase written about here last year. Houses sold 8.3 days faster than average compared with slower than average sales days for most months since the end of 2007.

In Waikato/Bay of Plenty price changes for the month and quarter on a year ago respectively were 22% and 17.2%, Hawkes Bay 12.7% and 13%, Nelson etc. 15.1% and 10.3%, Central Otago Lakes 26.5% and 17.4%.

Going forwards

Last housing cycle we saw a lot of people lose money as minimally regulated finance companies raised money and lent it for large developments which failed to produce the returns promised. With interest rates low and headed lower, and an increasing number of people searching for extra yield, one would expect more and more people to be actively searching out the new version of those finance companies so they can get higher promised returns.

But such vehicles for gathering little investors’ funds and advancing them on grandiose projects are not there this time around and look unlikely to appear. The Reserve Bank has sharply extended its supervision of such businesses since failing to adequately monitor finance companies, and there are so many requirements which such companies need to meet now that setting up and running something akin to those 2000s enterprises is almost impossible. This means that the rise in dwelling construction this time around will be more spread out than last cycle, and the risk of a correction caused by excess physical supply a lot less. This is a positive thing because when the cycle turns there will be harm to fewer uninformed investors chasing risks they have not properly priced.

Credit: Tony Alexander, BNZ overview regular publicaitons.


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