It seems that the way forward for New Zealand’s property market is not down, but up – although on a slow, steady trajectory rather than a giddy, skyrocketing one. Commentators have long been saying they don’t expect the market to crash, that they think the odds are an orderly rebalance.

And now there are increasing signs of a market resurgence, with the latest data turning in decidedly positive results. So, in this month’s commentary, we take a look at five of these promising signs and what it could all mean for the market going forward.

1 Prices On Form

All those who have been waiting for major price falls are out of luck. Overall, prices are trucking along solidly. The September data from both REINZ and Realestate.co.nz revealed decent price growth nationally and in markets around the country.

REINZ had median house prices nationwide up by 6.6% year-on-year and by 2.9% month-on-month in September to a record high of $597,000. Median prices rose in 13 out of 16 regions and four regions turned in record median prices in September. They were Manawatu Whanganui, Southland, Taranaki and Hawke’s Bay. Additionally, Waikato’s median price hit a record equal high.

Realestate.co.nz’s data also had provincial regions performing strongly. Gisborne, Bay of Plenty, Nelson, Manawatu/Whanganui, and Northland all hit record average asking prices. They helped lift the national average asking price by 1.2% to $685,746, from August.

In both data sets, price growth in the major cities remained flat or subdued, with Wellington being the strongest

among them. QV’s September data tells a similar story, with it putting the average national value up by just 0.6% over the past quarter to $691,460. While it has limited value growth in many markets, 15 of the 18 main urban areas did see a lift in September. And the national rate of annual growth has picked up pace of late.

2 Sales Pick-Up

Providing support to the strong price growth, the REINZ data shows that sales volumes across the country increased by 3.3% in September (to 5,896 sales), as compared to September last year (when there were 5,708 sales). REINZ chief executive Bindi Norwell says that after a quiet few months over the winter, the number of properties sold for the month of September was the highest in three years.

“This suggests that more confidence is starting to creep back into the market. Looking around the country, the Bay of Plenty, Hawke’s Bay, Tasman, Canterbury, West Coast and Otago all saw the highest sales volumes for the month of September in three years.”

However, some regions didn’t fare so well in the sales stakes which means the results have been quite varied depending on where you look around the country, she adds.

3 Supercity Resurgence

Of particular note is a bit of a resurgence in the Auckland market. The REINZ data has median house prices in Auckland up by 0.2% to $848,000 in September, as compared to $846,000 at the same time last year.

This is the first annual increase in median prices for the Auckland region in 11 months. Additionally, after many months of struggling sales activity, REINZ has the number of properties sold in September up by 6.3% year-on-year (to 1,823).

Likewise, Barfoot & Thompson’ September data also suggests improvement in the Auckland market. It records an increase in activity with both new listings and sales up on August, by 14.4% and 3.4% respectively.

The agency sold the highest number of homes (771) they have sold in September for three years. In line with this, their median sale price was up by 2.4% from August and by 3% year-on- year, which left it at $830,000.

While QV’s data was not as positive, CoreLogic head of research Nick Goodall says it does show signs of new life for Auckland values, with the quarterly percentage change moving out of negatives for the first time in 2019.

But CoreLogic’s mapping does highlight pronounced geographic trends across the Auckland region, he says. “The weakness was greater in the North Shore and some of the more expensive suburbs closer to the CBD, while, at the other end of the scale, there are parts of the city, particularly down south, where values have actually increased over the last year.”

4 Affordability Improves

Affordability has long been an issue. But the latest Massey University Home Affordability Report records further improvement in national affordability, due to declining house prices in many areas and falls in mortgage interest rates.

Report author Arshad Javed says that, atnthe aggregate level, affordability improved by 2.6% in the most recent quarter after two quarters of small improvements.

However, there were mixed results on a regional level, with half of the 16 regions showing improved affordability and theother half showing declines. “Most of this is being driven by house price fluctuations, including in Auckland where the median house price declined by $40,000, resulting in an 8% improvement in affordability for the region.”

Gisborne also saw a particularly significant improvement in affordability with a 12.2% improvement.

Despite improving, Auckland remains the country’s least affordable region. Similarly, despite a 16.2% increase in median house price, West Coast is still the country’s most affordable region.

5 Investors Return

Meanwhile, CoreLogic has reported that the third quarter of the year has seen an increase in the number of investors taking out mortgages. Mortgaged investors’ share of property purchases

came in at 25%, which is the highest level since late 2016. Further, the number of investor purchases has increased too.

CoreLogic senior property economist Kelvin Davidson says the rise in mortgaged investors’ market share has been seen across the country and in Dunedin cash investment has also bounced back. “It’s an appreciable rise for investors and is likely to reflect higher yields (4.0%), worsening returns on other assets – and in Dunedin’s case, still strong capital gains. Another breakdown of the data shows that it’s the smaller players that have boosted the investor market share in Dunedin.”

This means the purple patch for first home buyers may now be ending, with investors returning to the market.

The Verdict

So what do commentators make of the current market conditions? Overall, they take a pretty positive view, with many pointing to the ongoing lack of listings as a contributor to price pressures. Kiwibank senior economist Jeremy Couchman sees real signs of strength in the housing market in September, with REINZ data showing house prices growing in most regions. “What’s more, strength was seen in Auckland’s market, a market that has been dragging headline indicators down.”

They are optimistic about the outlook for the housing market heading into 2020, he says. “New Zealand still faces a severe shortage of affordable homes, and population growth remains well above average. Moreover, policy uncertainty has abated, and mortgage rates are heading lower.

“We think the housing market will continue to strengthen heading into next year, and we expect aggregated price gains to pick up towards 5-6% year-onyear in 2020.”

This will be driven by modest rises in Auckland, after over three years of either flat or falling prices. “But the regions that have experienced significant house price appreciation in recent years are likely to see gains slow as the current rally in prices runs out of steam.”

Westpac chief economist Dominick Stephens goes further. In his view, the last two months’ worth of data strongly suggest the housing market is picking up. A third month of similar data will seal the case and will be important for the Reserve Bank, he says. “The Reserve Bank would be more likely to conclude that it has lowered interest rates far enough – that’s why we are forecasting one further OCR reduction and no more.”

Westpac’s expectation remains that low interest rates will help to lift house price inflation to 7% per annum over 2020, Stephens adds. ■

Green shoots?

During the global financial crisis, eternal optimists always looked for green shoots. There’s no better time to look for green shoots than Spring, so what’s going on?

Nothing’s really changed. House prices are high, interest rates are very low, and Donald Trump is still causing chaos around the world. Central banks have pumped the world with unprecedented stimulus and yet nothing has changed.

It’s natural that humans can only stay pessimistic for short periods of time and that history is very quickly forgotten and past sins rationalized away. Housing is fundamentally driven by confidence and people needing to get on with life.

Since the GFC, we’ve seen fairly wild fluctuations in confidence with buyers often sitting on the fence for extended periods of time only to eventually come back to the party when the world doesn’t come to an end. Auckland in particular has had a very slow housing market for the past two years with house sales on a per capita basis around anemic GFC levels.

A couple of years of fairly stable house prices, and now very low interest rates, has seen buyer sentiment improve. At 3.30% there’s $634 of weekly interest on a loan of $1 million. Conversely, if you had $1 million sitting in the bank, you’d be lucky to earn $345 per week in net interest.

As long as there is little risk of house prices falling, then this market will gradually warm up. The rest of New Zealand never really got as heated as Auckland, so I think it’s still got room to increase. I’m still of the view that Auckland has done its dash, but at the very least might start moving again.