Regional Insights report: Auckland market cools most

During the March quarter average house prices outside of Auckland increased at an annualised pace of 37%. In the June quarter they have risen at a pace of 15%.

But in Auckland the rate of gain has slowed from 35% to just 2%.

Just before the lockdown, independent economist Tony Alexander with First Mortgage Trust pulled together a Regional Property Insights report looking at housing market indicators from the range of surveys. It shows the Auckland market has cooled the most after the Government’s March tax changes were announced.

Alexander says the Auckland turnaround could be because the stock of listings is better in Auckland than elsewhere.

However, just because Auckland’s June listings were “just” 48% down from 10 years ago, whereas elsewhere in the country they were down 79%, does not mean the most recent trend in Auckland’s new listings differs from the rest of New Zealand.

“New listings numbers in seasonally adjusted terms are dropping.”

“Perhaps the near cessation of price increases in Auckland can be put down to the generally greater role which investors play in the market? Not really.

“In late June a net 3% of Auckland real estate agents said they were seeing fewer investors stepping forward to sell.

“But late in April a net 18% said more investors were selling, and perhaps that earlier rise in their selling has injected caution on the part of buyers,” says Alexander.

“With regard to the pace of growth in dwelling sales, a decline is underway in Auckland. The 16% fall over the June quarter exceeds the sales decline in the rest of the country of just 4%.

“On both prices and sales measures Auckland is showing greater weakness than elsewhere on average.”

Only one strong factor appears to be at work potentially justifying this greater easing off in Auckland than elsewhere – supply growth.

The number of consents being issued for new dwellings to be built over the past year stands at 19,000, some 5.5 times greater than 10 years ago.

For the rest of New Zealand the total is near 25,000, just 2.5 times construction numbers a decade earlier, Alexander says. 

Alexander doubts Auckland will continue to display a relatively weaker path than outside the city, given prices are well below their long-term trend compared to the rest of the country.

“For now, the city has cooled more following the LVR and tax policy changes.” 

Northland

Over the three months since the Government announced tax policy changes, average dwelling sales prices in the Northland region have risen at an annualised pace of 11%.

This is down from growth rates of 32% in the March quarter and 39% in the December quarter. Such extreme rates of price increase could never continue, but there was no slowing in the pace of rise evident before the end of March.

“As such, it can be reasonably said house price inflation has been slowed in Northland because of the tax (and LVR) changes,” says Alexander.

In common with the rest of New Zealand, the rolling three-month rate of growth in dwelling sales (adjusted for seasonal factors) fell away during lockdown, boomed afterward, and recently has been negative once again.

In the June quarter sales numbers were down by 15% from the March quarter.

Alexander says as yet, the pace of easing in sales growth is showing no sign of lessening and on this basis it seems reasonable to expect some further decline in sales. This might be especially so with expectations building of interest rates rising.

Having said that, it is possible that anticipation of higher interest rates could cause some buyers to accelerate their property hunt in order to try and lock in a fixed interest rate before monetary policy is tightened.

Making the immediate sales outlook less clear perhaps in Northland than other parts of the country is the interruption in June to the downward trend in the number of new listings.

Will the lift in new listings received in June be repeated?

One argument in favour comes from the REINZ & Tony Alexander Real Estate Survey which showed late in June a net 14% of Northland agents felt there were more investors stepping forward to sell.

“But if more investors are looking to sell, their properties may be snapped up relatively quickly.

“In late-June a gross 71% of agents reported they were seeing FOMO (fear of missing out) on the part of buyers. This was above the New Zealand-wide reading of 60%.”

Bay of Plenty

During the March quarter Bay of Plenty average house prices increased at an annualised pace of 15%.

This was down from 38% in the March quarter when prices soared at an unsustainable pace everywhere around the country.

The latest increase of 15% exactly matches the rate for all regions outside of Auckland.

Sales fell 6% seasonally adjusted during the June quarter while they fell 4% for all regions excluding Auckland. So far, the region is displaying nothing out of the ordinary.

On the three measures looked at for each of the regions there is nothing divergent about the Bay of Plenty.

Perhaps one point of difference is this: The REINZ & Tony Alexander Real Estate Survey shows Bay of Plenty agents are noticing a far greater presence of first home buyers than the country as a whole.

The flow of new property listings being placed with realestate.co.nz shows there is no decline underway.

Waikato 

In the Waikato region the annualised pace of increase in house prices slowed to 20% in the June quarter from a huge 48% in the March quarter.

While the slowing coincides with the period after the tax announcement, the sheer magnitude of the jump in prices early this year suggests an easing was coming anyway.

The June quarter annualised price rise was the third fastest in the country, only just behind Nelson and Manawatū-Whanganui, says Alexander.

“Sales have not been similarly strong, falling by a seasonally adjusted 13% in the June quarter whereas the nationwide decline was 8% and the decline excluding Auckland was just 4%.”

A lack of listings is not causing sales to fall.

“In fact, during the June quarter the number of new property listings in the Waikato region was up slightly by 4% from the March quarter whereas nationwide there was a decline of 4%,” says Alexander.

“There is no more FOMO in Waikato than elsewhere. The gross proportion of agents reporting they were seeing it in June in the REINZ & Tony Alexander Real Estate Survey was 52% as compared with 60% nationwide.

“However, in the July Tony’s View Spending Plans Survey a net 3% of Waikato respondents said they plan on buying more investment property compared with a net 1% nationwide still saying they plan to sell.

“Perhaps in the Waikato the affordability of property as compared with Auckland continues to attract some buyers,” says Alexander.

Nothing obvious explains the high pace of growth in Waikato average house prices. “Perhaps a lot of the gains have been momentum and catch-up after some earlier below-trend growth.”

Gisborne

Because Gisborne is a small region extreme movements can be seen in indicators which tend not to be so volatile in larger regions. This has been the case recently for the annualised pace of change in house prices.

Over the three months to December last year Gisborne house prices jumped at an annualised pace of 80%. Since then things have eased off and prices fell at an 8% pace in the June quarter.

The high degree of FOMO nationwide over the second half of last year coincided with publicity regarding people – including expats – shifting to Gisborne, a shortage of listings, and poor availability of sections amid a construction boom.

In the three months to January dwelling consents issued in Gisborne were ahead 60% from a year earlier compared with 22% growth nationwide.

Listings are not improving, says Alexander.

“Having said that, there is perhaps a broader upward trend since a year ago and it would be understandable if more people were stepping forward to sell given the extreme distance which average house prices in the region have now moved above their trend versus the entire country.”

“While housing markets tend to move in cycles and Gisborne’s recent upward leg has been strong. It looks due for some flattening out.”

Hawke’s Bay

The pace of house price increases in the Hawke’s Bay region has been exceptionally high in recent times. The annualised rate of increase hit an astounding 60% in the three months to January, driven up by a shortage of listings, a scramble for sections, and much focus on people moving into the region from elsewhere.

The pace of price rise has now slowed to an annualised 10% in the June quarter.

But as this slowing was underway before the March 23 tax change and restoration of LVRs it is probably best interpreted as a simple easing back from an unsustainable pace.

For new listings of properties for sale there is a small upward trend. But the numbers of listings remain below levels not just of a year ago but from very early in 2020 before Covid-19 struck.

Although there is no surge in listings, the REINZ & Tony Alexander Real Estate Survey does show a firm lift in the net proportion of agents in Hawke’s Bay region feeling there are more investors stepping forward to sell.

“After such a strong surge in prices this is perhaps not surprising. But it is in strong contrast to the reluctance of investors to sell in the rest of the country,” says Alexander.

Manawatū-Whanganui

In the Manawatū-Whanganui region house price inflation has slowed recently to an annualised pace of 20% a year from more than 80% late last year.

The late-2020 price boom was the highest for all regions around the country.

Unlike the next strongest region of Gisborne, where house price inflation is now -8%, prices in Manawatū-Whanganui still rose at a 20% annualised pace during the June quarter.

The region continues to display high strength.

New listings are showing an upward trend, this has been underway since the end of 2020 and is likely to continue as some investors take advantage of the still strong market.

However, sales are weakening. This was already underway in advance of March 23, so no conclusion can be drawn that the tax announcement had any decisive impact on sales activity.

Similarly, because house price inflation was slowing ahead of the changes, no conclusion can be drawn that the announcement had any price impact either.

In cyclical terms the region is looking highly priced compared with its trend price ratio compared to the country as a whole.

Some give back of price gains is perhaps more likely in this and similar regions when the restraining effect of interest rate rises kicks in than will be the case for regions which are below trend – such as Canterbury, Auckland and Taranaki.

Taranaki

In neighbouring Manawatū-Whanganui the annualised pace of house price increases hit more than 80% late in 2020. But in Taranaki the peak was about equal to the nationwide gain of nearly 40%.

Since then the pace of house price gains has been easing off, but at 15% is above the New Zealand average of 10% (though equal to the pace excluding Auckland where the rate of price rise has slowed to below 2% annualised).

There was only a mild easing off in the rate of price gain ahead of March 23, so maybe the tax announcement has had a slightly restraining effect on prices which buyers are willing to pay.

There is no trend increase or decrease in the number of properties being freshly listed for sale.

The number of listings is running about 75% down from 10 years ago which near matches the decline of 72% for the country as a whole.

In common with most other regions, there has been a declining trend in sales activity since late last year.

But Taranaki is one of only five regions to record a gain in sales levels, seasonally adjusted over the past three months.

On this basis, it would be hard to conclude the March 23 tax announcement has had much of a depressing impact.

Unlike neighbouring Manawatū-Whanganui and Waikato, prices in Taranaki are below their long-term trend.

The position of the region’s prices, relative to the rest of the country, suggests that as price restraint appears over the coming three years – from rising interest rates, a structural decline in underlying net migration flows, and higher house supply, the region may out-perform.

Wellington

In the Wellington region average house prices increased at an annualised pace of almost 60% in the three months to November.

People scrambled for property following the ending of the lockdown, introduction of record low interest rates, removal of loan to value ratio rules, general surge in the economy, and expectation of an expat-driven population surge.

Sales were up, in seasonally adjusted terms, by 12% in the June quarter. This rise stands in contrast to the 8% fall nationwide and has been exceeded only by the small Marlborough and Tasman regions.

Can this strong performance continue?

The REINZ & Tony Alexander Real Estate Survey shows that late in June a net 73% of real estate agents were noticing fewer people attending open homes compared with 20% nationwide.

But a net 8% said they were seeing fewer investors looking to sell versus 3% New Zealand-wide. There is little indication listings will rise soon amid an ongoing focus on housing shortages in Wellington City.

For now, momentum favours continued Wellington strength.

But prices are well above long-term trends, and this suggests as the country’s overall housing market slows in response to interest rate rises, there is scope in the next three years for an eventual greater degree of slowing in Wellington – but probably not yet.

There is no evidence of a rise being underway for new listings in Wellington.

Nelson, Tasman, Marlborough

As occurred in other regions, the pace of house price inflation at the top of the South Island jumped late last year to hit 41% in Tasman, 30% in Nelson, and 52% in Marlborough.

At 21% Nelson’s June quarter annualised pace of house price increase is the strongest for all regions (Tasman 9%, Marlborough 3%).

This lack of price adjustment in Nelson is a substantial challenge to the view the March 23 tax announcement and LVR reintroduction have had a big impact on New Zealand’s housing market.

While there is listings growth in Marlborough, it is not the same in the Nelson/Tasman region.

Sales are interesting. In the June quarter sales weakened by 9% in Nelson, but they rose by 20% in Tasman and 34% in Marlborough.

The Tasman strength, in the absence of an obvious listings surge, suggests this region of firm population growth and house construction has capacity to hold up well as rising interest rates affect housing activity nationwide in the next three years.

West Coast

A lot of excitement was expressed in the media a few months back when one or two dwellings on the West Coast sold for twice what they were valued at about a year earlier.

But the annualised pace of growth in average house prices on the Coast peaked at 35% early this year, well below other peaks such as 51% in Bay of Plenty, 60% in Hawke’s Bay and 59% in Wellington.

One characteristic of the property market is the high willingness of Kiwis to consider purchases in smaller regions – even those like the West Coast which experiences almost no population growth.

The pace of price rises on the Coast has slowed but remains firmly positive at an annualised 15% in the June quarter.

The price surge has not brought forth a surge of listings on the West Coast, suggesting that if strong demand continues, prices will remain on an upward track.

However, after a burst of sales activity around the turn of the year (summer), things have cooled off considerably on the Coast.

With listings on the West Coast just as short as everywhere else on average outside of Auckland (that is, 79% down from 10 years earlier), and with an outlook for population shrinkage, it would seem optimistic to expect strong price performance in the near future.

Having said that, prices are not out of line with their long-term trend.

Canterbury

The annualised pace of house price gains in Canterbury peaked at 37% in the three months to April, and since then has slowed to 19%.

This is above the nationwide gain recently of 10% annualised, but this could be the region engaging in a catch-up with the rest of the country.

One sign may be a worsening shortage of listings as people grow confident of price gains and hold on to their assets.

Interestingly, in contrast with many other regions there is an indication of a downward trend in fresh listings numbers.

In common with most other regions sales have been pulling back since the surge in activity over the second half of last year.

There is no specific conclusion the March 23 tax announcement and reintroduction of LVRs have contributed to any special slowing in the Canterbury residential real estate market as yet.

The latest REINZ & Tony Alexander Real Estate Survey does show a lift in the proportion of agents noticing more first home buyers in the Canterbury market.

One month’s out-performance does not a surge make. As yet, there is no turning of Canterbury towards relative price out-performance.

Dunedin City

Dunedin City has been on somewhat of a prices tear in recent times with the annualised pace of increase hitting almost 60% late last year.

The pace has since slowed to 10% over the June quarter which matches the nationwide average. The period of out-performance by Dunedin, at least by this measure, has ended.

There is no obvious change in pace resulting from the March 23 and LVR changes.

The number of sales in Dunedin has fallen in seasonally adjusted terms by 11% over the June quarter after falling 13% in the March quarter and rising 5% in the December quarter.

This does feel like more than a simple pullback in sales after the surge post-lockdown, especially as the Dunedin surge was small by New Zealand standards. The nationwide three-month pace of change in sales hit 35% in October.

Dunedin prices on average are now pulling back towards a closer long-term relationship with the rest of the country than has been the case for a while.

The website realestate.co.nz provides a listings aggregate for Otago and another for Central Otago/Queenstown Lakes, and while the former may not exactly match Dunedin, it likely comes close to it.

There is no upward trend in listings numbers and instead a slight decline can be spotted.

This perhaps best tells us that the tax changes and reintroduction of LVRs have not scared people into reducing their property holdings to any great degree.

Queenstown Lakes

Average house prices in the Queenstown Lakes area rose at an annualised pace of 10% in the June quarter after rising 14% in the March quarter and 30% in the December quarter.

There is surprisingly little difference between the price track for the region and for the country as a whole, apart from some far greater weakness initially during the pandemic when Queenstown’s prices fell at an annualised pace of 40% in the June quarter of last year versus 9% nationwide.

Much to the undoubted disappointment of many people hoping for a real estate collapse in the region – which would allow purchase of a cheap holiday home – the prices window of opportunity was short.

There has also been no surge in new listings of property on the market. Apart from April last year flows have been surprisingly consistent.

With regard to the pace of growth in sales for the region, the decline of 1% in the June quarter is less than the NZ-wide pullback in activity of 8%.

But given the March quarter fall of 25% easily exceeded the New Zealand fall of 15%, this recent out-performance is possibly best viewed as a simple offset to that earlier weakness.

There is nothing to suggest extra weakness following March 23 or the early-February re-imposition of LVRs by the Reserve Bank.

The strong outlook for the economy is going to substantially offset the effects of rising interest rates perhaps more in the region than in other parts of the country where investors have found purchases somewhat more affordable – but nonetheless financed with debt which is getting increasingly expensive.

Based on a long-term trend analysis, the Queenstown Lakes District shows itself as having prices which sit below trend. But with the cycle for the moment still understandably kicking downward amid still compromised tourist flows.

Southland

In Southland the pace of prices growth on an annualised basis reached 40% towards the end of 2020, which is only slightly higher than for the country as a whole.

Unlike neighbouring Queenstown Lakes there was no annualised decline of nearly 35% during and immediately after the lockdown.

The most recent pace of prices growth is 8% which near matches the nationwide rate of price change for the June quarter.

As such, there is only mild evidence of some extra easing following the LVR and tax changes of February and March. Certainly there is no sign of any extra special weakness.

For new listings there is no upward or downward trend. That means as with almost all other regions, the policy changes have not brought forth a wave of sellers.

Sales were down by 15% during the June quarter after adjustment for seasonal factors. This is more than the nationwide decline of 8% and especially the 4% drop for all regions outside of Auckland.

Activity has eased off more in Southland than average.

This is not an early indicator of price change, merely consistent with the track the region now appears to be on of prices heading slowly back towards their three decade average trend relationship with the rest of the country.

There has been a prices boom, now things are settling down.