Don’t count on the housing market recovery

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Thursday 15 February 2018

Westpac chief economist Dominick Stephens

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Falling prices and tepid sales characterise the January data from REINZ – and that leaves economists warning the current market resurgence won’t last.

By Miriam Bell

It was a rocky road for median prices in markets around the country in the first month of 2018, with many seeing significant drops on December 2017.

The national median price was down by 5.5% to $520,000 in January, as compared to $550,000 in December.

Despite this fall, once seasonally adjusted, it was still up by 7.0% on the national median price of $485,500 recorded in January 2017.

Auckland’s median price was down by 4.8% to $820,000 in January, as compared to $861,000 in December.

Once seasonally adjusted, it was down by 1.8% on January 2017’s median price of $830,000. It is also well down on its March 2017 peak of $905,000.

Of the other major centres, Wellington’s median price dropped to $500,000 in January from $560,000 in December – although it was up by 26.7% year-on-year.

Christchurch’s median price continued to flat-line on $439,000, which was a fall from December and exactly the same as January 2017.

Likewise, Hamilton’s median price saw a significant drop to $500,000 in January, as compared to December and it crept up by just 1.% on January 2017’s price.

In contrast, several regions did see strong year-on-year price growth – with Otago (up 32.9% to $475,000) and Hawke’s Bay (up 18.4% to $438,000) leading the way.

Sales activity around the country has plummeted in recent months and January’s sales volumes indicate an ongoing struggle.

Nationally, there was a 3.0% decline in sales (once seasonally adjusted) in January, as compared to December.

Both Auckland and Wellington saw sales drop in January as compared to December, by 8.2% and 12.1% respectively, once seasonally adjusted.

However, REINZ chief executive Bindi Norwell says sales activity was up year-on-year both nationally and in many regions around the country.

Nationally, sales volumes were up by 2.7% year-on-year, although once seasonally adjusted they were down by 0.6%.

Norwell says January’s warmer weather helped sales, as it’s the first time they’ve seen a positive year-on-year sales increase in 19 months.

“There were some really positive figures from around the country, with 11 out of 16 regions experiencing an increase in sales when compared to the same time last year.”

The REINZ HPI shows the housing market is in a strong position for the month of January, she says.

“While people are taking more time to purchase, listings are still low compared to previous years highlighting that buyers are still facing a shortage of choice – particularly in areas such as the Hawke’s Bay and Wellington.”

Westpac chief economist Dominick Stephens says the January data is a little softer than the preceding three months.

But housing market data can be choppy on a month to month basis, particularly around the holiday season, so he is reading little into this.

Stephens says the housing market is enjoying a slight resurgence and recent falls in mortgages rates plus the easing of the LVRs mean the buoyancy is likely to continue for a few more months.

“However, later this year we would expect fixed mortgage rates to start increasing, and the government's policy program of cooling the housing market will bear on the market.

“We expect the housing market to slow later in the year and prices to fall slightly at that time.”

For ASB economist Kim Mundy, the data highlights that the housing market has yet to stage a convincing comeback and is likely to continue to move in fits and starts for a while longer.

“The opposing forces of legislative changes vs. still-strong population growth and low housing supply means that the market is likely to continue to be buffeted around for some time,” she says.

“Looking forward, we continue to expect housing shortfalls and population growth to provide a floor to house prices over 2018.”

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