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Average Hamilton property values have posted a 21 per cent rise in three-yearly council revaluations. There has been a significant increase in market activity over the past 12 month period, with an increase in prices being paid. The figures confirm rises in every suburb and come on the back of Auckland house hunters and investors priced out of their local market looking to buy more affordable properties further south.
On the other hand, the low number of new listings in July has meant that the number of houses sold in New Zealand during September decreased by -3.0% year-on-year. This was the lowest level number of properties sold since January this year, according to the latest data from the Real Estate Institute of New Zealand (REINZ), source of the most complete and accurate real estate data in New Zealand.
Waikato Regional Commentary released from REINZ this month:
Compared to September 2017
• Median Price up 8.3%
• Sales Count up 9.1%
• Days to Sell increased 4 days
Compared to August 2018
• Median Price down 1.0%
• Seasonally adjusted median price down 1.9%
• Sales Count down 7.4%
• Seasonally adjusted sales count up 4.0%
• Days to Sell decreased 2 days
Our seasonally adjusted results tell us that, compared to what we expect when moving from August to September, the observed decrease in median price was in contrast to the expected small increase and the observed decrease in sales count was not as large as expected. The current Days to Sell of 38 days is less than the 10-year average for September which is 44 days. The level of inventory available for sale currently sits at 18 weeks, one and a half weeks more than in September 2017.
“The Waikato market saw a buoyant start to spring, continuing in the same pace it has been for the whole of winter with no signs of slowing down. There was a 9% increase in the number of properties sold compared to 12 months ago and auctions are still doing well, contributing to a higher number of cash buyers and they are spread across the market. September showed a more balanced demand across all price ranges and finance is being approved in most cases. There are still plenty of multiple offers with first home buyers trying to secure good properties. There has been an increase of local buyers compared to last month and it is good to see more listings coming on as the demand is still strong. Taupo’s affordability continues to attract investors and they are competing with first home buyers, which has caused the prices to go up. Other areas to record strong price rises during September were the Turangi-Tongariro, Putaruru and Otorohanga Wards. The Thames and Coromandel District, particularly in Mercury Bay, Whangamata and Pauanui have all started to show signs of coming into the more active period with spring. Overall, the Waikato market will likely have a very busy spring as interest in the region remains strong.”
NZ’s residential property market continues to negotiate a series of headwinds, but also has some supportive factors looking ahead.
In the macro-economy, GDP growth was strong in the second quarter, but is generally on a slowing trend, with falling net migration a factor. Both these things will dampen property market activity and values. However, the labour market is strong, wage growth is tipped to improve slightly, and the official cash rate doesn’t look likely to rise until mid-2020. This will help mortgage rates to stay low, and with people still able to pay the mortgage, a downturn in the property market remains less likely. Of course, there are always uncertain risks that can’t be ignored – e.g. another global financial shock (although this is definitely not our central assumption).
In the property market itself, high values, low affordability and restrictions on credit availability have been limiting activity levels. However, there are signs that sales volumes have found a floor and our expectation is that they’ll stay pretty steady into 2019. Indeed, gross lending flows to both investors and owner-occupiers have picked up in the past 3-6 months, suggesting that the worst for sales activity is now behind us. A potential relaxation of the LVR rules by the Reserve Bank later in the year (or next year) could provide some extra impetus too.
Values are holding up around the country, with stability in Auckland and Christchurch, continued growth in the other main centres (especially Dunedin and Wellington), as well as in many of the main regional towns and cities. This controlled “soft landing” for values seems set to continue. The latest figure for NZ-wide average values was $676,427, which is 4.6% ($30,049) higher than a year ago.
Our proprietary buyer classification data shows that first home buyers (FHBs) and multiple property owners (MPOs) with a mortgage continue to be the key players of interest in the market. In particular, FHBs accounted for 24% of residential property purchases across NZ in Q3 2018. Not only that, they now have the same share as mortgaged multiple property owners – something that’s not been seen before. Despite high prices, first home buyers are still managing to find a way to buy, with access to KiwiSaver deposits a key factor. Christchurch and Wellington are current favourites at present for FHBs.
Meanwhile also a 24%, the high share of purchases accounted for by mortgaged MPOs shows that investors still see value the market even despite extra pressures such as the looming removal of negative gearing and a potential long-term tax on capital gains/income. Although rents are rising, the historical evidence suggests that landlords don’t profiteer by raising rents at exorbitant rates, not least because a good tenant is too valuable to lose.
There are future risks to the market in both directions. For example, the foreign buyer ban is yet to play out to its full effect and could dent values in areas like Queenstown and Auckland. On the flipside, however, NZ is generally undersupplied for property (particularly in Auckland) and the current high levels of building consents need to continue for some time yet. In the meantime, shortages of property will support values.