Property Report: The house price puzzle - where it's heading

By David Maida

NZ Herald·

8 Dec, 2015 10:24 PM6 mins to read

A real estate signs in central Auckland. The average house price in Auckland has risen by 70 per cent in the last four years. Photo / Getty Images

Following a frantic year of record-breaking price rises, the Super City's real estate market takes a much-needed breather, writes David Maida.

Auckland house prices continue to rise - but figures indicate a slight stalling or plateauing of an otherwise rampant escalation in prices.

ANZ's senior economist Sharon Zollner says changes to the loan to value ratios (LVR) and the requirement of an IRD number for purchasers have clouded the market.

"It's made the data all but impossible to interpret because basically those new measures gave some people an incentive to sell very fast and some people an incentive to buy very fast," Zollner says.

There was a surge in activity just before the new measures came into effect. Now we are seeing a rebound from that activity. Some of the surge would have been activity that people were going to do anyway and just brought forward.

"An actual slowdown in the market is certainly our prediction -- a slowdown in trend terms but we can't quite separate out what timing volatility is really going on."

Overall, Auckland's average house value is now $918,153, according to latest QV/CoreLogic data - a 7.3 per cent rise on the last quarter. Herne Bay remains Auckland's most expensive suburb - the average house value increased 2.4 per cent on the last quarter to $2.12 million. St Mary's Bay is on the verge of becoming the city's second $2m suburb, with average values at $1.94m. The lowest-value area in the Auckland supercity region is Wellsford, where the average house value is $389,700.

Average house values rose in Hamilton (up 10.2 per cent on the last quarter, to $429,829); Tauranga (up 4.8 per cent to $513,325), Whangarei (up 3.7 per cent to $364,728) and Wellington city (up 1.2 per cent to $553,291).

It took 31 days to sell the average Auckland home in October as opposed to 29 days in September. The median house price dipped to 16.8 per cent for the year to October compared with 25.4 per cent in the year to September.

Zollner says Auckland house prices are simply not sustainable the way they've been rising. She doesn't use the term "bubble" because it's too emotive. But she says Auckland has one of the most overvalued housing markets in the world.

With many people taking on as much debt as they possibly can to buy a house, a correction in the market could cause some real pain. If there is a significant jump in the unemployment rate when house prices fall, many people would find themselves in poor financial shape.

Zollner reminds home owners that a high valuation of their home is just paper money.

If you were to sell your overvalued house, you just have to turn around and overpay rent or overpay for another house. It's not real wealth in the sense that we can get rich selling houses.

But Auckland has a strong safeguard against any potential property crash. Zollner says you need an excess supply of housing to have a significant crash in house prices. House price inflation has been modelled in line with interest rate and migration figures which chart it at 25 per cent.

"What that model lacks is any kind of gravity in terms of house price affordability. We do think at some point that has to come into play," Zollner said.

Brendon Skipper, CEO of Realestate.co.nz, says house prices may be easing but he doesn't see them taking a strong hit.

"There are some people who are saying this is the start of the end for Auckland house prices. I think 'plateauing' is actually a good way to sum it up. That rate wasn't going to continue," says Skipper.

"There was always going to be a time where it flattened out."

He says home sales are still strong but are not as strong as they were at the beginning of the year. The market is still tight, he says. But buyers still need to be aggressive to obtain their desired properties.

"The right properties at the right price will always sell quickly."

I think there has been that normalisation where prices aren't going to see the same sort of increases that they had before. It's a matter for the sellers having the understanding that the market isn't on the same projected path that it was a couple of months ago.

Skipper says the LVR changes and IRD number requirements have influenced transactions over the past couple of months. But he doesn't think the changes will influence the behaviour of buyers and sellers in the market in three to six months. The housing market has always attracted international interest but the internet traffic from overseas Asian buyers has eased at Realestate.co.nz.

Skipper believes the long-term outlook for all of New Zealand is for steady increases in prices more aligned with what's normal in a housing market like ours. He says the "crazy numbers" in the Auckland market over the past year in terms of increases was not going to last.

"I don't think anyone in their right mind would think that was sustainable for the long-term. What we see now is normalising and levelling out," Skipper says.

He says there are still plenty of buyers looking for their ideal home or investment property. The market will slow as people go on holiday during December but going into February is normally a big listing and selling month. He doesn't anticipate these market fluctuations will influence these big selling month's coming up next year.

"The sellers are still in a good position," he says.

"However, I think there has been that normalisation where prices aren't going to see the same sort of increases that they had before.

"It's a matter for the sellers having the understanding that the market isn't on the same projected path that it was a couple of months ago."