Property Report: Untangling the intricacies of a varied market

By Bruce Morris

Bruce Morris digs beneath the headlines and reports that, despite increased sales and some amazing auction results over the last few weeks, prices generally are stable rather than racing away. But where we go from here will depend on events elsewhere in the world

New Zealand has myriad property markets fuelled by a vast range of dynamics. Big cities, especially Auckland distort broad statistics. Photo / Herald on Sunday
New Zealand has myriad property markets fuelled by a vast range of dynamics. Big cities, especially Auckland distort broad statistics. Photo / Herald on Sunday

Comfortable in a world of sound bites and headlines, the unwary could be excused - certainly in Auckland - for believing the residential property market knows no bounds.

Homeowners always like to believe that anyway and, after a discouraging few years, their conviction may have grown over recent months with a series of stories on amazing prices paid at auction.

Backing up those splashes has been the monthly data dumps from the Real Estate Institute, QV and the big agencies, gently reinforcing the impression that things are starting to move out there in brick and tile (if not monolithic) land.

There's more than an element of truth in that and the surveys, spurred by the latest round of mortgage cuts and the chance rates will go even lower, show a returning confidence in residential property after the pits of 2008 and 2009.

But the economic confusion which continues to pickle Europe and the doubts that remain over China and the United States mean there's no certainty that the worst is behind us.

The progress in New Zealand residential property over the past six or nine months has been from low bases of confidence and volume. While activity across the country has risen and overall sales have reached their highest levels for five years, these are not boom times and prices are not running away.

The dead spell that followed the 2002-2007 boom helped to bring some sense to the unyielding belief of many New Zealanders that house prices go only one way. But now that the weight of mortgagee sales has eased and jobs are a little more secure, back comes the talk, the headlines and sound clips of runaway prices... and the feeling values may be getting ahead of themselves, especially in the inner-Auckland suburbs.

People with an eye on the wider world and with reasonable memories might wonder if it's time for perspective, and for greater understanding that New Zealand does not have a single residential property market.

It has hundreds of different markets fuelled by a vast range of dynamics, and the big cities, especially Auckland, give a distorted weighting to the broad statistics.

Don't get too excited if you live in Kaikohe, Frankton or Gate Pa and catch a headline like "Property prices reach new high"; and leave the champagne corked for the moment if home is Wellsford, Snells Beach, Clendon Park or Manurewa East and you spot an online tempter like "Auckland house values soar".

The fact is that, despite the impression given at times by news stories and statistics-in-a-nutshell, there is no uniformity in price performance today.

Particular houses in pockets of Auckland continue to do well, but other parts of the city remain relatively subdued. Unlike the boom years when even a lot of rubbish sold well, unfancied properties, wherever they are, will stay unfancied if the price is optimistic rather than rational. In the end, the buyer decides what's rational, not the seller.

Enthusiastic agents may be tweeting news of great auction results, but the leadership of Auckland's biggest agency offers a more measured analysis.

Barfoot & Thompson handles one third of all Auckland sales and its managing director, Peter Thompson, noted last month: "Prices are not running hot and prices being achieved above realistic valuations are the exception and not the norm." Most parts of Auckland are now comfortably above the 2007 peaks, but that may partly be because city prices did not rise as much as other places in the boom.

When the bubble was expanding, the "herd instinct" kicked in - sending masses to the provinces with easy finance to buy investment houses. They couldn't afford Auckland prices, so took their money to provincial towns and cities in search of capital gain, pushing up values.

It didn't all happen at the same time, with some towns and cities standing still as others moved, but every area had its moment in the sun.

In the end the result was the same: it all turned to custard. Prices fell as quickly as they had risen and the drift became more pronounced as the economy soured, giving the "if we don't get in we'll miss the boat" investors an enduring lesson. Now the relativities are being restored as Auckland moves ahead.

Beyond the Big Smoke the rural towns today continue to stay flat, probably reflecting true value without the influence of investors.

While some of the provincial cities have moved out of stagnation, none is bouncing along. Prices may be inching up in some areas, but they are still 10 to 20 per cent lower now than they were at the overall market high - nearly five years going backwards and, in real terms, a gouging of personal wealth.

The statistics show house prices across the country have recouped at least some of the losses of 2008 and 2009, and QV reported last month that overall values were up 3.1 per cent over the past year and, after a March hiccup, are gently rising.

But beyond those Auckland pockets (where 13 inner suburbs have shown rises of between 10 and 19 per cent since the peak) and the aberration of post-quake Christchurch, any lift has been fairly tentative and the winter months will hardly increase momentum.

There will be no great pleasure in being a homeowner in places such as Kaikohe (where average prices are down nearly 30 per cent since the peaks), Kaitaia (down 24.5 per cent), Taumarunui (down 24.4 per cent) and Kawerau (down 23.3 per cent) when it's time to sell - unless you love the place and are buying up the road. Centres like that were pushed far above logical value in the boom.

Looking at countries such as the United States (where values have dipped 30 per cent) and Ireland (down as much as 40 and 50 per cent), New Zealand residential property has come out of the global financial crisis pretty well. However, our shores will not be immune if there is further upheaval and it remains a time for caution rather than blind faith in never-ending capital gain.

In Auckland, the lack of listings is certainly having an impact on values. It is pure supply and demand and, especially in the inner-city suburbs, multiple bids and offers are pushing up prices as buyers compete for the prize. But not every home is regarded as a prize and many of the outer suburbs are fairly quiet.

Is it a good time to buy? It will depend on location, but if a home to live in and enjoy is the objective - and the job is secure, the mortgage easily managed and the research thorough - there may be no especially bad time to buy a house. Over time the price will rise and staying put for the long term and getting lucky enough to enjoy a spurt beyond inflation will grow wealth.

But the extent of the 2002-2007 boom was amazing, and imagining the country is on the cusp of similar growth is naïve.

The lack of building in Auckland over the past five or six years has combined with the city's ever-growing population, cheap mortgage money and limited listings to slowly lift prices since the post-boom dip. The latest round of mortgage cuts will be an added fillip, and while some big building projects are starting to emerge there are to date not enough to swallow demand.

A brighter international economy in two or three years may see immigration climb back to the levels of the mid-2000s, helping to underpin values, even if the constant flight across the Tasman erodes that impact.

But a steady rise in real-term values and the chance of a new bubble are unlikely, surely.

To start with, present house values are high by useful measures - among the world's most expensive when set against annual average household income, with Auckland just ahead of Christchurch using that indicator, and Tauranga and Western Bay of Plenty not much further behind.

Houses are like any other commodity. Even with mortgage rates as low as they are now - making properties more affordable than they have been - property prices cannot keep rising out of kilter to wages. It is difficult to see a future of consistent strong growth from a platform of high prices and muted pay rises.

The five-year boom that began in 2002 sprouted from a much tighter ratio between income and house prices and it will take many years of decent wage rises and flattish house values before that environment is recreated.

Adding to the dampening effect is a more cautious banking sector, the inevitability of higher mortgage rates from next year and guarded New Zealanders focused on reducing debt and building savings.

Then there is the lack of appeal for investors, the breed that contributed as much as anyone to the mid-2000s spurt, shoving up prices in the more modest Auckland suburbs and the provinces.

While rents in some areas have increased after staying flat for two or three years, the unattractive yields they offer should continue to deter a new generation of investors. The Government tax changes and the inevitability, in time, of a tax on capital gain are hardly encouraging signals to people with money to spend.

The Reserve Bank last month signalled the possibility of tougher lending criteria - perhaps forcing banks to require bigger deposits before granting loans - and the Government will have no quarrel with that if it forces a long-term investment shift away from residential housing. Depending on the ratios imposed, such a strategy has the potential to really stifle prices.

If international events don't get in the way and another world-wide recession is dodged, listings should rise as our economy becomes stronger over the next year or two, pushing supply ahead of demand.

That may not translate to a fall in prices, but with higher interest rates likely next year and the influence of the Reserve Bank it could mean a general flattening and perhaps a continued drop in real terms in the near future.

But in the end, it's all crystal ball stuff: the demand for your house and the price it attracts in the medium term may have more to do with events in Europe and elsewhere than anything closer to home.

"What's happening in the market?" is a question real estate agents and valuers are endlessly asked, and you'd need a lot of time to hear the complete answer in a city as varied and widely spread as Auckland.

QV valuer Glenda Whitehead noted in her May commentary: "Property values are performing quite differently across what is a very large urban area. The financial position of buyers appears to be a key driver for whether prices in suburbs are rising or remaining more stable."

She says $800,000-plus properties in the inner leafy suburbs, including the old Auckland City Council, continue to be in strong demand, with plenty of buyers chasing a relatively low number of listings.

"This imbalance continues to see sale prices climb with buyers seemingly less financially restricted and keen to outbid each other, typically at auction or through pre-auction offers. Some of this activity is a counter-balance to a long period of inactivity which has caused pent-up demand."

Whitehead says values have also been rising in Te Atatu Peninsula, New Lynn and Titirangi, where demand has outstripped listing levels in recent months for properties in the $400,000 to $550,000 bracket.

But in other suburbs there is a better balance of supply and demand "with most buyers under stricter financial constraint," she says. There's steady turnover in areas where family homes can be bought for less than $400,000, such as Papatoetoe, Glen Eden, Ranui and Massey, with prices either firm or increasing marginally.

Values in Hillsborough and One Tree Hill, where sizeable family homes on full sites fetch $500,000 to $600,000, have appeared stable in recent months.

Whitehead says demand on the North Shore is varied, with Hillcrest and Forrest Hill remaining popular. Properties in the $500,000 to $750,000 bracket are in strong demand and values are now slightly increasing. Sunnynook, with family homes in the $450,000 to $600,000 bracket, saw a big jump in values late last year but prices have now eased.

In Hamilton, QV valuer Richard Allan has noted renewed interest from people who have been holding off, resulting in best sales in the middle and lower end of the market. The lift has cut the number of properties for sale and may lead to a shortage if demand stays at present levels.

But Allan adds: "Mixed economic signals on the home front, including increasing unemployment and a reduced dairy payout as well as a challenging global backdrop, may mean that the market flattens over the winter months."

Across in the Bay of Plenty, things are not quite so promising, and values have gradually trended down over the past few months.

Outside the lower end properties where the Welcome Home loans programme is helping first-home buyers, QV's Paul Thomas says things are "ticking over, but really no more."

1 Kingsland 10.1%
2 Mangere East 8.3%
3 Pt England 7.6% 
4 Glen Innes 7.6%
5 Mangere 7.5%
6 Mt Eden 5.8%
7 Helensville 5.5%
8 Red Beach 4.8%
9 Opaheke 4.4%
10 St Marys Bay 4.4%

1 Burswood -3.8%
2 Manurewa East -3.5%
3 Takapuna -2.8%
4 Beachlands -2.7%
5 Gulf Harbour -2.7%
6 Milford -1.4%
7 Omaha -1.0%
8 Waiuku -1.0%
9 Sunnyval -0.9%
10 Orakei -0.8%


1 Putaruru 7.3%
2 Fordlands 6.9%
3 Maungatapu 4.6%
4 Pukehina 3.4%
5 Fairfield 2.9%
6 Whau Valley 2.9%
7 Tikipunga 2.9%
8 St Andrews 2.8%
9 Enderley 2.6%
10 Bethlehem 2.6%

1 Tokoroa -6.0%
2 Kawerau -5.8%
3 Kaitaia -3.5%
4 Hillcrest -3.3%
5 Kihikihi -3.3%
6 Taumarunui -3.0%
7 Edgecumbe -2.9%
8 Greerton -2.7%
9 Waihi Beach -2.6%
10 Kaikohe -2.6%

* Lists show the areas recording the biggest house price rises - and drops - in the three months to March 31, 2012. Source: QV's E-Valuer

- NZ Herald

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