Limited supply biggest market driver

The national median sales price dropped by 3% to $492,000 in August, as compared to a record high of $505,000 in July.

August’s median price was still up by 5.8% year-on-year.

While the national median price slipped off its former pace, Auckland’s median price was on the rise again.

The Super City’s median price hit a new record high of $842,500 – which was up 2% on July ($825,000) and up 13.9% year-on-year.

Markets around the country returned a mixed bag of median price results.

But Central Otago Lakes (41%), Waikato/Bay of Plenty (23%) and Manawatu/Wanganui (15%) all experienced major year-on-year jumps in their median prices.

Nationwide sales activity was up by 3% on July, although it was down 3% year-on-year.

In Auckland, there was a significant year-on-year decline of 20% in sales activity.

However, it is severely restricted supply which is the biggest determinant in market results around the country.

The REINZ data shows that Wellington has just seven weeks of supply, closely followed by Otago with 10 weeks of supply and Auckland, Waikato/Bay of Plenty and Hawke’s Bay with 12 weeks of supply.

REINZ spokesperson Bryan Thomson said the underlying trends indicate the struggle for stock is the single biggest factor driving market behaviour and price expectations across the country.

“We have been highlighting the lack of inventory for some time, and it continues to be a major contributing factor in the volume of sales across all regions.”

This was particularly so in Auckland, where inventory levels are at historic lows, he said.

“The continued shortage of listings, coupled with the impact of the LVR changes on investors, is seeing sales volumes more muted than expected at this time of year.”

It was not just Auckland which saw some impact from the looming LVR changes, REINZ regional directors from around the country commented on a decline in investor activity.

But while the REINZ data provided some evidence the new LVR rules have slowed investor activity, economists said it was not as much as they had expected.

Westpac acting chief economist Michael Gordon said it was likely that some of the strength in house prices in recent months was due to buyers getting in ahead of new regulations.

“The 2.2% seasonally adjusted decline in prices in August seems quite mild - not even reversing the increase seen in July.

“By comparison, prices fell by 4.2% last October after the government imposed a 'bright line' test for capital gains tax on property investors – although that decline proved to be a one-off, with a strong rebound in subsequent months.”

He said the ongoing decline in supply and another drop in the average time to sell, suggest tight supply, rather than suppressed demand, may be having the greater effect on housing turnover.

“We had expected to see a temporary easing in house prices after the tighter LVR restrictions, but today's figures give us no reason to change our views.”

ASB economist Kim Mundy said the pick-up in sales activity in August suggested that demand remains healthy, despite the new LVR rules.

While a lack of housing stock across the country continues to be a dominant theme, they were expecting the market to slow.

“Over the next few months we continue to expect to see activity soften, as investors around the country are required to have a 40% deposit.”