Low supply fuels wild ride in 2009

If 2008 was the year many New Zealand homeowners discovered they shouldn't believe the fairy tales of ever-increasing values, 2009 found them peering out of the bunker and questioning that new-found wisdom.

The year was surprisingly resilient, with rising median sales prices heading back to boom levels as feeble listings hammered the books of real estate agencies.

Residential property is all about supply and demand, and there are big problems when both are limited by sagging confidence fuelled by a wobbly economy with worries over job security and growth.

But when even meagre supply struggles to meet demand, price knows only one direction, especially when the cost of borrowing is low.

So the wider property market - and certainly in Auckland, which tends to lead the way - gave a rude sign to the pessimists who saw a flat 2009 as the best the country could hope for.

By year's end, QV's residential price movement index had house values up by 2.8 per cent over the country (after being in decline for the first few months of the year) - down just 4.9 per cent from the market peaks.

The main centres did even better - with Auckland up 5.1 per cent over the year and ending just 3.9 per cent down on the highs of 2007.

In defence of the pessimists, it could be that all they got wrong was the year. Economic uncertainty, rising interest rates, cautious banks and a lack of clarity over the Government's taxation plans hardly provide the ideal platform for an explosion in sales and prices.

Sales volumes seem likely to stay low, though perhaps not at the awful levels of January, when the Real Estate Institute reported a record low of 3666 sales. But the same rules of supply and demand should keep prices up, even if present values are way above what other countries would see as sustainable on existing income levels.

The May budget will be the big test and the real estate market will take its lead from the Government's prescription.

Meanwhile, uncertainty is doing nothing for consumer confidence, which has a strong bearing on the property market. But, in Auckland anyway, pessimism isn't the word you'd use to describe the present state of play.

"I'm not seeing the doom and gloom that I felt two years ago," says Glenda Whitehead, QV Valuation Manager, Auckland. "There is a degree of caution, healthy caution, but there is no negativity."

Like real estate agents, Whitehead sees opportunity for first home buyers and no issues for people who choose to buy and sell in the same market.

But the immediate future is uncertain and for pointers on where we're heading, take a look at that last quarter of 2009 (which the tables on the centre pages explore) and how prices went in all Auckland suburbs and right across the North Island.

To start with, treat median and average sales statistics with caution. They are a crude measure of overall house price movement unless spread across a very wide area. Even then, though, the results can be wildly misleading for the unwary, and an example in the Herald last month on Barfoot & Thompson's January sales illustrates the point.

The story was accurate: the city's biggest real estate operator reported its average sale price was down by nearly $48,000 in the month. But that doesn't mean the average Auckland house dropped $48,000 in value in the month. It simply meant there were fewer sales in the upper bracket, pulling down the average.

That story was on the basis of 583 sales, so imagine the potential for distortion when the base is just a dozen or two.

The tables published in the centre of Property Report today give some real eye-openers - a median price increase of 75.6 per cent in Takapuna in the three months to December 31, for example. That's accurate, but no one should be imagining general prices in the suburb have shot up by that amount over the quarter.

The data shows that, of the miserly 12 houses sold in Takapuna last quarter, the median price was $1.3m-plus - a dramatic jump from the low-$750,000 base of the previous quarter.That probably means the three months to September 30, 2009, featured more lower- and middle-market sales in the suburb, dragging down the median - a dip which was turned around last quarter with a small number of big-ticket deals.

Because medians are so difficult to read for signs of what's happening across suburbs, Property Report is using QV's E-Valuer system (explained in the guide to the tables) to see where prices have gone over the last quarter of 2009. A close look at that indicator shows positive movement right across greater Auckland over the three months, with good price growth in Rodney, North Shore, Waitakere, Auckland City and Papakura/Franklin. Some parts of Manukau struggled, but others moved ahead strongly.

Sales levels were about the same as for the previous quarter, and well up on a year earlier - but dramatically down on the market highs of three and four years earlier.

There were pockets of price decline in blue-collar suburbs like Kelston, Otahuhu, Mangere and Clendon Park, which can probably be put down to pressured sales flowing on to general property prices.

In the higher-value suburbs, prices held up well. The East Coast Bays, east Auckland, the eastern bays and the city-fringe suburbs shifted up in value across the board, and "Middle Auckland" - from Northcote (4.8 per cent), Swanson (5.3 per cent), and Orakei (5.7 per cent) to Sandringham (9.1 per cent), Onehunga (5.1 per cent) and Sunnyhills (6.8 per cent) - captured some of the best performers. Things also seemed to be humming along quite nicely out Papakura/Franklin way.