Mid Year Market Commentary
Auckland’s residential property market is continuing to show confidence and heightened activity, 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. April 2013 sales volumes have increased across the Auckland region by 30% compared to the April 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 April were at 30, easing by one day compared to March. Over the last 10 years the average number of days to sell for April in the Auckland region is 33.
These trends are continuing, reflecting the underlying supply and demand characteristics of the Auckland market. Any increase in listing volumes has been quickly absorbed by sales. 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 may 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 57.4% of the median income to service a loan on the March 2013 median house price. This is up 2.5% from February, the largest monthly rise since October 2009. 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 acting as the headwind in the upturn of the housing Market. A net gain of 1,200 migrants in March is the highest monthly net gain since January 2010. Auckland was one of only 3 regions in the country with a net gain. While net migration has fluctuated over the past year, there has been an increase in recent months due to fewer New Zealand citizens departing permanently for Australia. This has also been helped by a gradual increase during the past year in the number of long term arrivals from Australia.
- 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 price expectations reach a new high according to the ASB NZ Housing Confidence Survey for the April 2013 quarter. 63% of the respondents expect house prices to rise over the next 12 months. In Auckland the low levels of listings and strong buyer competition is being met with an increasing number of respondents who believe it is no longer a good time to buy. Interest rate expectations have nudged higher with more respondents expecting interest rates to increase in the next 12 months. The RBNZ’s growing concern around housing market pressures is likely to be the key driver behind the lift in interest rate expectations.
Published on Tuesday, July 30th, 2013, under Directors Market Commentary