2nd Quarter Commentary – Auckland market remains buoyant
Auckland’s residential property market remains very buoyant, with annual house price inflation at its highest since late 2007. Pent up demand combined with low interest rates, has resulted in many buyers facing a long search to secure a suitable property.
Housing activity indicators have maintained an upward trend since early 2012. February 2013 sales volumes have increased across the Auckland region by almost 16% on the February 2012 volumes. Auckland remains the stronghold for the country’s housing market and continues to have a significantly tighter demand-supply balance to the rest of the country. This can be evidenced through a shorter number of days to sell than the national average. Days to sell in Auckland for February held steady at 33, significantly lower than the 10 year average for February which sits at 40.
These trends are continuing to improve, reflecting the underlying supply and demand characteristics of the Auckland market. Although listing volumes improved in February there are still record low levels of inventory, cementing the path to strong house price appreciation. A recent report issued by Treasury indicated the market is expected to stay strong as they see little potential for supply to respond to demand pressures.
Other factors influencing the housing market include:
- Interest Rates continue to sit at low levels, and most economists expect the status quo to remain at least until middle of the year. The economy has started the year on a positive note, however the labour market remains soft with some rising unemployment. The threat to primary production due to potential drought, fiscal consolidation and the strength of the NZ currency are still strong challenges. The next move in the OCR is still expected to be up, but is likely to stay on hold until 2014.
- In the last decade house prices have increased at a much faster rate than incomes, and despite current low interest rates, this has created a housing affordability concern. According to the Roost Home Loan Affordability Index it now takes 54.9% of the median income to service a loan on the February 2013 median house price. This is down marginally from the end of 2012. House price inflation over most of the last year has been the driving factor in home loan affordability, and has been only partially offset by lower fixed mortgage rates.
- Having been in ‘net loss’ territory for some time, net migration has been the headwind in the upturn of the housing Market. A net gain of 600 (seasonally adjusted) in February, is the highest monthly gain since February 2011. While net migration has fluctuated over the past year there was an average gain of 100 migrants per month. Monthly departures to Australia have been hindering the improvement in net gains for some time, but February 2013 year figures show departures to Australia are down and arrivals from Australia are up. In both directions most migrants are New Zealand citizens.
- Residential building activity grew for the fifth quarter in the final three months of 2012. Activity in Auckland has been lifting in response to the significant shortfall of new building work since the recession in 2008. Dwelling consent numbers continued to increase throughout 2012, but are still approx 25% below historical averages. The lower rates of dwelling construction are a likely contributor to underpinning Auckland house prices.
- Housing confidence remains strong according to the ASB NZ Housing Confidence Survey for the January 2013 quarter. Over half the respondents expect house prices to continue to rise in the coming year, together with a decrease in those who believed ‘now was a good time to buy.’ Confidence is lowest in Auckland, with the decline reflecting the shortage of housing available for sale. This general level of improved confidence was accompanied by a perception that interest rates would remain unchanged over the next 12 months.
Published on Tuesday, May 14th, 2013, under Directors Market Commentary