Property sales volumes in March and April dropped but market indicators suggest that sales activity may now have found its floor.
The CoreLogic NZ April 2018 market update results out today showed a 2 percent year-on-year sales volume growth - a markedly better performance than last April's 30 percent drop.
But performance across the regions is mixed. Some areas are experiencing an upwards lift in property sales volumes year-on-year and of the main centres, Dunedin’s 8 percent increase is a stand-out.
Auckland, however, is subdued, down 3 percent on last year while Wellington’s performance over the last few months is definitely softening.
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Autumn also made its seasonal presence felt on new listings, which have generally eased over the past month but are still up 7 percent on the same period last year. That’s largely due to the performance of Auckland, Waikato and the Bay of Plenty. Canterbury and Wellington, on the other hand, have suffered drops in new listings.
Meanwhile, New Zealand’s mini-revival in property value growth continued in April, with the annual national growth rate rising to 7.6 percent, representing the strongest rate of growth since last June, when it was 8.1 percent. The national average property value now stands at $678,856: an increase in the last 12 months of over $47,700.
The continued growth in property values is assisted by low mortgage interest rates. Fixed mortgage rates are generally flat (even dropping slightly in recent weeks) and with the OCR set to remain on hold until late 2019, the lending environment looks stable for the foreseeable future.
Such a stable mortgage rate backdrop will reassure the 90 percent of New Zealand borrowers (on a floating rate or have their fixed rate review due) who are exposed to rate rises over the next two years. The "best borrowers" - generally those tested by the banks as able to meet their repayments at a mortgage rate of at least 7 percent - continue to enjoy strong competition from the banks.
Another contributor to the solid property value performance is New Zealand's strong labour market, one in which the unemployment rate fell even further in the first three months of 2018, to just 4.4 percent.
Buyer analysis indicates that "movers" aren’t particularly active in the market, but multiple property owners have filled that gap, and they’re now responsible for 38 percent of sales.
Investors don’t appear to be at all put off by increased costs or regulatory pressures, only being held back by tougher bank lending criteria.
First-home buyers are enjoying their highest level of market share in over a decade, at 23 percent. They’ve benefitted from their willingness to compromise on location/quality and ability to access KiwiSaver funds and potentially even a First Home Grant for their deposit.
Residential building consents continue to lift in Auckland, where although consents are 14.9 percent higher than this time last year, much more is needed to respond to the supply shortfall.
There’s no doubt that capacity constraints faced by the construction sector drove budget assumptions to cut in half the amount of KiwiBuild related housing investment that will be completed over the next five years: from $5 billion to $2.5 billion. The KiwiBuild programme hasn’t been reduced in size, but the delayed timing for full delivery does highlight how the property market will continue to face supply shortfalls for some time yet.
Another factor we’ll continue to watch closely is the short-term path for migration. Net migration continues to drift lower, but the pace of decline just hasn’t been as fast as might have been expected. It’s also important to note that the level remains very high.
Based on the latest property statistics, the CoreLogic research team predicts the property market is likely to stay broadly stable for the rest of 2018, with sales ticking over and property values continuing to rise, just at a relatively slow pace.
- Nick Goodall is head of research at CoreLogic NZ
