A fact which has escaped the notice of most commentators is that in the first five months of this year the pace at which Auckland residential house prices have risen has slowed considerably.
It is evident across both the average and median price.
In the period January to May, the average price increased at 8.7%, which was close to a third lower than the rise in the same five month’s last year.
Median price data shows the rate of at which prices increased declined was even more marked. This year’s increase of 9% was 43% lower than in the first five months of 2015.
A look at the accompanying table shows that the 2016 comparison with 2015 is not the result of a ‘statistical blip’ that occurred in 2015. The rates of increase this year are also well below what they were in 2014 and 2013.
Auckland House Price Increases 2013 - 2016
|Average Price Increase, Full Year||+14%||+10.3%||+11.1%|
|Average Price Increase January to May||+8.7%||+12.8%||+10.3%||+12.6%|
|Median Price Increase, Full Year||+17.4%||+11.1%||+12.7%|
|Median Piece Increase January to May||+9%||+15.7%||+12.4%||+14%|
This data is based on Barfoot & Thompson’s sales. These sales represent between 35-40% of all the residential properties sold in Auckland.
There has been no economic or policy changes since the start of the year that would contribute to this development, so it has to be market forces at work.
It shows that those who claim that prices have surged since the start of the year are not basing their claims on fact.
Based on our data, the last time the rate of increase in the January to May period was lower than it is in 2016, was in 2012.
What is not disputed is that prices are still increasing, and that the average price increase of 8.7% over five months, and the median price increase of 9%, are significant. Especially on top of the increases we have seen in the past few years.
I would not want anyone to infer I’m suggesting that prices have been tamed. They have not.
Nor is it clear where prices will go from here. Traditionally prices edge down in winter, before starting to stir again in spring, so potentially we are in for a few months of modest price rises.
In mid-June the Governor of the Reserve Bank made it clear that there were more measures in the pipeline to tackle rising Auckland house prices. He is on record as saying the areas being looked at are further restrictions on investors, and a possible income to loan ratio.
Based on those statements, and the prospect that price increases may be declining naturally, a reasonable question is ‘what is an acceptable level of price increase for real estate in Auckland in 2016’?
For example, if by year-end the increases were half what they were in 2015 (say 7% for the average price and 9% for the median) would we accept that as representing progress?
If not, then would a 3% increase be acceptable, being the upper limit the Government gives the Reserve Bank for inflation over the medium term?
There are some that would argue that only a significant fall in price is what is required.
However, such a development would have dire consequences for a great many recent home buyers.
It is hard to see the Reserve Bank seeking to create a situation where those that have purchased in the past few years might find themselves in a negative equity position, or others witnessing a significant fall in the paper value of their key asset.
The least painful development is a gradual easing of price increases to the point where they are in line with other economic movements.
This is why I totally support initiatives that will see more houses built in the shortest possible time.
The proposed National Policy Statement on Urban Development Capacity should prove a significant tool in helping achieve this. Over time it will help tame prices, and keep them under control in the future.
Reaction to the Policy Statement has been muted to date. However, it is a far sighted document, and offers long term ‘answers’.
It, along with the many other initiatives that have taken place over the past few years, represent the best chance for a soft price landing that does the least damage to the financial affairs of the owners of the 475,000 houses that make up Auckland.
Managing Director, Barfoot & Thompson