Most of the talk around the property market at the moment is about Auckland, which gets a bit tiring if you live south of the Bombay Hills. Auckland is definitely worth discussion at the moment, but so too is the difference between it and the rest of the country.
The latest house price index published by QV a couple of weeks ago confirm that values in Auckland are once again racing ahead.
Cast your mind back to 2013 at which time nationwide values were on the way up, driven mainly by Auckland and the post-earthquake rebuild activity in Canterbury. The Reserve Bank became increasingly nervous about the increase in values and subsequently we saw the introduction of the Loan to Value (LVR) speed limits in October 2013. These restrictions on bank lending to customers with low deposits then led to values slowing their rise through the middle of 2014. The rate of value increase in Auckland halved, and it appeared as if values were dropping across the rest of the main centres also.
LVR speed limits – job done it would seem.
But then from late last year values began to take off again in Auckland. If you look at the increase in values over the past 3 months in Auckland, they increased 5.1% which equates to over 20% when annualised. We have to go back to the beginning of the previous boom in 2003 to find a 3 month period when values rose that quickly.
Incidentally, 1995 and 1996 saw Auckland values rise much faster than that. So this current rate of increase is fast, but not unusually fast.
This time though it is really only Auckland that is increasing in value. Christchurch, the other previous protagonist in the rising values drama, has stayed relatively subdued over the past few months. The other main centres which appeared to be set to drop late last year have rallied in recent months. But rather than accelerating like Auckland they instead seem to have re-settled into the slow rate of increase that has characterised the last few years.
What’s so different about Auckland?
The things fuelling the property market such as low interest rates, strong net migration, and consumer confidence are impacting the whole country. Are they impacting Auckland more? Possibly. Migrants are tending to end up in Auckland more than many other parts of the country while consumer confidence and employment prospects are also generally better in Auckland.
But it’s the lack of supply that is most unusual about Auckland. That lack of supply takes 2 forms. One is an outright lack of houses for the number of people. While difficult to put an exact number on it, this shortage is at least 15,000 houses.
The other lack of supply is in properties listed for sale. This dropped throughout 2014 and a surge of sales activity over November and December ate through more of the stock on the market, meaning that we started 2014 with pretty poor choice for Auckland buyers.
What then of the rest of the country outside Auckland?
Well for a start the supply generally isn’t an issue. The housing stock in Christchurch is now back to pre-earthquake levels, as is the population. In Wellington the choice for buyers has improved in the New Year with a seasonal surge of new listings. In many of the smaller centres there is if anything an oversupply of stock.
One of the differences between the Auckland and the rest of the country is the urgency or desperation to buy. Outside Auckland there are still plenty of people who have been searching for houses for a long time, but they are prepared to walk away if the property isn’t just right.
In Auckland there is more a feeling that with rapidly increasing values that I might miss out so I better jump in now. This urgency is only going to lead to further price increases.
There are also a couple of other things that could explain what is speeding up the Auckland market again. According to our buyer classification analysis, first home buyers and people moving house are increasingly active in the market. During mid-2014 it was more investor dominated.
The activity within value segments has also changed significantly. The lower 30% of properties based on value has been selling much more actively, and at the same time activity in the upper 30% has significantly dropped.
Furthermore, the value of the lower 30% of properties has increased much more than the top 30%. So we’ve got increased activity in the part of the market that is increasing more quickly in value. That change in activity within Auckland has not happened across the rest of the country.
So what’s the likely outlook for the coming months?
I’m expecting Auckland to keep increasing in value as the things pushing it up aren’t about to change in a hurry. However I don’t expect the rest of the country to follow, and values there will remain largely steady with only modest increases.
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