COMMENT: If you’ve been following the headlines telling you what’s happening to the housing market right now, you’d have good cause to be confused because they’re giving some very contradictory messages.
In the same week, I read one headline which stated that the dip in house prices was more severe in Auckland and another that reported that Auckland’s median house price was up 2% in June.
The first headline referred to CoreLogic figures that highlighted a 4.9% fall in Auckland house prices in the three months to the end of June, and a 2.3% fall in house prices nationwide over the same period. However, it’s worth noting that these figures are derived from the Corelogic House Price Index, which is a proprietary system which uses an in-house methodology to arrive at these figures.
The other headline refers to the change in the median price of properties sold by Auckland real estate company Barfoot & Thompson in May and June. While the agency has the largest share of the Auckland market, their figures should be read as an interesting snapshot rather than the final word on house prices.
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So which headline is telling the truth? Strange as it might seem, they both are – and that’s the problem with basing your view of the property market solely on just one headline. The various reports you’re seeing right now typically quote market data from sources which use different methodologies, different datapoints, and different timeframes to arrive at very different conclusions. This is why you’re seeing some headlines telling you that the market is stable or up, while others are telling you that it’s down.
However, one thing that is consistent in all of the various reports is that the rate at which house prices are dropping across the country is significantly less than many of the housing commentators would have had you believe just a few months ago. Consistent with my views back then, the housing market is not experiencing a “crash”, but rather is adjusting to the impact of higher mortgage interest rates and the worst effects of the changes to the CCCFA, both of which will prove to be temporary distractions.
Ashley Church: “The long-term trajectory for house prices is likely to continue to be upward for the foreseeable future.” Photo / Ted Baghurst
Recent changes to the worst aspects of the CCCFA mean that we can expect to see lending ease up over the next few months with more buyers slowly coming back into the market as mortgage approvals start to rise to more normal levels. Likewise, the Governor of the Reserve Bank, Adrian Orr, has indicated that increases to the OCR (which affects mortgage interest rates) are likely to end sooner – possibly by the middle of next year.
The impact of both of these things means that the rate at which house prices are dropping will continue to slow and, in my opinion, the worst of it will be over by the end of this year, with prices flattening off in most parts of the country. This doesn’t mean that we’ll start seeing increases in prices again – climbing mortgage interest rates will act as a natural dampener on any new burst in demand – but I wouldn’t be entirely surprised to see new life in the Auckland market toward the end of 2023 after the OCR increases end.
Meanwhile, how can you know which headlines to believe and which to ignore? There’s no easy answer to that question since they’re all accurate within the constraints of the data that they reference, but, for me, there are basic things that I look for that may be helpful to you, too.
Firstly, look for data that quotes a three-month period, rather than one month. One month figures are too volatile whereas a three-month period will smooth out rogue bumps. Secondly, focus on actual sale price rather than other indicators such as assessed values, listing prices and time-to-sell. These latter measures are interesting, but the sales price is the ultimate barometer of the market. Finally, note whether what you’re reading is quoting the median price or the average price. Both are useful but they can give a different picture of what’s actually happening.
And remember, all of these measures can only ever provide a general guide since they average out data to draw universal conclusions. Unless you’re buying or selling, it’s all largely meaningless in a market where the long-term trajectory for house prices is likely to continue to be upward for the foreseeable future.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
