December 2012 has arrived and, with it, warnings of impending Armageddon. Yes, some real estate commentators are doing their best Mayan impressions as they beat the drums of doom ever louder.
We are pleased to announce to homebuyers and sellers that, while the property market in Auckland is still hot, the world is not about to end.
House prices and inventory: Apocalypse no
November’s NZ Property Report from Realestate.co.nz suggests there is no flood of properties on the horizon.
Listings were up slightly on last November, and a whole lot on October, but it was still no match for buyer demand. The end result: inventory levels nationwide have dropped to 28.7 weeks – its lowest point in five years. The pool in Auckland is especially shallow with a new low of 15.5 weeks.
Some good news for buyers however: the mean asking price dropped in Auckland (by 2.5%), Wellington (4.2%) and Christchurch (2%). Overall the nationwide mean rose by just 0.2%. Auckland flies well above the average at $596,759, which reinforces what we’ve been saying for a long time – it’s a two-speed property market.
Auckland and the rest: galactic misalignment
QV’s Property Report liftout, in last Monday’s New Zealand Herald, is further proof that the market outside Auckland is not about to explode.
Median sales prices in the third quarter of 2012 in the North Island show increases in eight of the 17 regions – four of those are in the Auckland area – while another eight have dropped. One of those is Manukau City, which is down 5.6 percent compared to the second quarter. Tauranga remained unchanged.
But the market’s now hotter than it was in during the peak, some claim. This nifty excel-created graph (click for a closer look) says it all about that:
Yes, nationwide values are up 1.1% on 2007, but one look at the graph makes it pretty obvious where the upward pressure is happening.
REINZ statistics out today show 40% of real estate activity last month occurred in the Auckland region, with a median price 40% above the nationwide level. Other than Auckland, Otago and Wellington are the only regions above this line.
Might other provinces feel some trickle down? Said Bruce Norris in the Herald: “in the last boom, investors took their money to the provinces when Auckland began to get out of reach… [but] there are no signs in 2012 of a similar pattern.” Perhaps investors haven’t had quite their fill of Auckland just yet.
Another difference between the boom period and now is the number of houses being sold. In 2007 over 10,000 houses were being bought every month; today we’re seeing around 6000 sold, which is still better than the roughly 3000 each month in the dark period that was 2008.
Interest rates: down for the Long Count
We feel homebuyers need some defending. The Auckland problems are an issue of supply, not demand.
Our floating rates of around 5.7 percent compare most favourably to the double figures buyers were paying just four years ago. Would it not be the rational thing to do, when presented with such a deal, to at least look at buying a home? If banks are fighting for your love, why wouldn’t you enjoy the attention and the resulting great deal?
Loan to Value Ratio limits, as raised by others, would punish first home buyers for something that is clearly not their fault. Philip Macalister in last Sunday’s Herald agrees.
The inevitable rise in interest rates will dampen the Auckland market eventually. When, and by how much, remains to be seen. The Reserve Bank Governor has to reconcile housing inflation in Auckland and the lack of life in the rest of the economy.
Graeme Wheeler kept the Official Cash Rate at 2.5% last week, but included in the December policy statement was this possible hint of a warning:
“Higher house price inflation and increased household expenditure would likely lead to higher inflationary pressures than is currently projected… All else equal, such a development could necessitate a higher OCR.”
Most economists suspect the OCR will stay where it is for at least a year, but it’s clearly Auckland’s housing inflation has not gone unnoticed by the powers that be. We will be watching Dr Wheeler very closely for any blink, head movement, muscle spasm, or anything else that might indicate a looming OCR change.
A calendar you can trust
We take hundreds of thousands of photos every year here at Open2view. Each December we take a dozen of our favourites and make them into a house-shaped desk calendar.
Unlike the Mayan calendar, our one actually makes it all the way to New Year’s Eve – and right now we’re giving away 31 of them. If you live in New Zealand, send an email to email@example.com with your name and address by Monday, and you’re in the draw.
So what do you think – is Auckland a growing bubble that will doom us all? Or is this about as likely to hurt us as the Y2K bug? Share your prophecies in the comments or on Facebook.