Rest of country will catch up to Auckland: Westpac

In response to yesterday’s REINZ and QV sales price data, which showed that house prices had risen 5.2% over the past year nationwide, Stephens pointed out that there was a big divergence between Auckland and the rest of the country.

“In Auckland, the market is red-hot. Barfoot and Thompson's data last week showed that the number of properties on the market in Auckland amounted to only 4.2 months' worth of sales, which is the tightest the market has been since 2007. House prices in Auckland have risen 9.3% in a year, and there is little sign of let-up. Similarly, prices have risen 6.6% in Christchurch over the past year. But annual price gains in other parts of the country have been far weaker - Wellington +1.4%, North Island ex Wellington and Auckland +2.7%, and South Island excluding Christchurch +2.2%.”

He said that might not be the case permanently, though.

“Many people will remember a period in the 1990s when Auckland house prices rose much more rapidly than prices in other parts of New Zealand. Less well-known is the fact that Auckland house prices rose more slowly than most other parts of New Zealand during the mid-2000s boom.”

He said by 2008 the normal relativities between Auckland the rest of New Zealand had been restored.

“We'd suggest that the Auckland and Christchurch markets have been outperforming due to physical housing shortages in both locations. But shortages can be alleviated by construction activity ramping up. When that happens, price relativities should move back toward more normal levels.”

ASB economist Jane Turner agreed Auckland housing supply levels remained very low.

“Lack of supply, relative to demand, has continued to drive upward pressure on house prices.  The housing market remains tight, particularly in Auckland and Christchurch, with supply low. Gradual improvement in demand for housing is placing upward pressure on house prices, particularly in those regions where supply shortages are most acute. “

She said the bank expected that to continue, because migration was picking up and interest rates remained low.

But she said the weaker-than-expected employment figures released this week highlighted the fragility that existed around New Zealand’s economic outlook.

“We now expect the RBNZ to keep the OCR on hold until June 2013, with the risks from the ongoing Eurozone debt crisis continuing to dominate the economic outlook.”