Getting to grips with the housing market is a matter of looking at a range of different information and then putting it all together, much like a jigsaw. Sales activity, price growth, buyer types: they are all critical pieces in the puzzle.

That’s something most people are aware of, but sometimes an objective expert can throw new light on a mix of well-worn data. At the recent TMM Better Business conference, CoreLogic head of research Nick Goodall did just that in a wide-ranging address.

In this month’s commentary, we report on Goodall’s presentation and examine the pieces of the puzzle he used to present his picture of the housing market at this point in time.

Sales Bottoming Out

The turbulent trajectory of sales activity was the first piece up. It’s well known that over the last few years, sales have dropped off significantly. In fact, Goodall says that sales have fallen by about 20% since 2016.

“But we are starting to see signs that sales activity may have reached a low. Our sales data shows it is levelling out. The same goes for Auckland’s sales. The Super City’s drop in sales activity has been plain to see. But our data indicates that it also appears to have bottomed out.”

His take on this is backed up by latest REINZ data which shows that sales bounced back to life in October. It has the number of sales nationwide up by 15.5% year-on-year to reach the highest level in five months in October.

In the REINZ data, sales were up in 13 out of 16 regions with 10 of those 13 regions seeing double digit increases. Even Auckland recorded a surge in sales with a year-on-year increase of 15.2%, after months of flattening activity.

Further backing came from Barfoot & Thompson’s October data. It shows that Auckland’s sales jumped up by 22.4% from September and by 39.4% on the same time last year. The number of sales were the highest in an October for three years.

Going forward, Goodall says there are also signs that a loosening in credit could further help with sales in the short term. “If not, expect activity to remain constrained.”

Mixed Value Results

While Goodall sees sales activity as likely to have hit a floor, he has a less optimistic take on value growth. Overall, it remains weak, he says, but there is a mixed picture when it comes to value change, particularly in the main centres.

CoreLogic’s latest data has year-on-year value growth persisting in Wellington City and Dunedin. Wellington values continue to strengthen, with growth up 8.5% to an average value of $795,098. Dunedin’s performance is even better: it is up by 10.4% to $420,127.

The fact that both Wellington and Dunedin have demand but a relative lack of listings is a major factor in the strength of their value growth.

In contrast, the data has Auckland’s values up by 0.8% to $1,047,415, while Christchurch’s values remained flat, inching up by just 0.5% to $493,922. Hamilton and Tauranga continue to see moderate growth, up by 4.7% to $572,169 and by 3.3% to $709,339 respectively.

Goodall says there is not much growth in other markets around the country but local complexities are contributing to divergent regional performances.

“For example, Invercargill values are up 13.4% annually, which is the city’s strongest growth rate in 10 years. Elsewhere, Napier is still pretty strong but slowing. Most of the country is slowing, but it’s gradual and happening as a lag.”

As is often the case, Auckland serves as a microcosm of the nation’s mixed results. CoreLogic’s data highlights inconsistent growth patterns across the wider Auckland region. While the region as a whole is flat, some areas are still going up while others are not.

“It is all over the show and it’s hard to pick discernible patterns across the city. There is no consistency. Basically, property values now depend on how well the property is marketed and who turns up on the day.”

It’s likely the reason Auckland prices are holding up is because vendors are holding out for the prices seen in the recent past, he adds. “But Auckland is also seeing a gradual increase of listings and they are now up 45% on two years ago. That is contributing to the weak value growth in the city.”

Supply Struggles

Much attention has been paid to the housing supply shortages plaguing markets around the country, particularly Auckland. Goodall’s message on this is mixed. Despite encouraging numbers in the form of strong building consents, not enough is actually being built yet.

Auckland has a massive undersupply and it’s difficult to change that in a short time, he says. “While consents are up, we are making up for a massive deficit. There are also land restrictions and infrastructure issues. The situation is starting to change but we have a long way to go.”

The situation is complicated further by a gap which is opening up between the number of building consents issued and the number of new builds being built. That’s partly because of the need to regenerate and replace old buildings with new and partly because of construction industry capacity constraints.

However, more terraced and higher density housing is being built and that is good, Goodall says. “As is the fact the situation means that what is currently happening in Australia’s housing market is unlikely to happen here. They have a big risk of an oversupply but in Auckland that is not a risk.”

The undersupply situation is not as bad in Wellington, although there is a problem. In Christchurch, there is a potential oversupply. Goodall says that although consents have flattened off they are still at a higher level than pre-earthquake. “They are still building down there. So it’s important to understand what is happening in different pockets of that market.”

Meanwhile, KiwiBuild is now a reality but, again, there are teething problems. For example, there seem to be some demand limits, and construction industry capacity constraints are an issue here too.

Goodall says KiwiBuild is really about making an impact on the affordability of properties rather than the amount of stock on the market. “The Government will be aware of these issues and will be trying to target them, but there is a long way to go.”

‘Auckland is also seeing a gradual increase in listings and they are now up 45% on two years ago. That is contributing to the weak value growth in the city’

Market Participants

The final piece of the puzzle explored by Goodall involves the market’s participants. And CoreLogic’s latest buyer classification data reveals some interesting trends.

It shows that first home buyers remain active across the country, with a 24% share of the national market and a 25% share of the Auckland market. Rather than staying on the sideline, they have been coming back into the market over a sustained period – despite the rise in prices.

“They are finding ways in and one of them is KiwiSaver,” Goodall says. “But they have also adjusted their expectations in terms of locations and property types (although they still haven’t fully embraced apartments), and they are accepting longer commute times to get into the market.”

Another trend is that mortgaged multiple property owners – ie: investors – are also returning to the market. CoreLogic’s data shows there has been a slight up-tick in investors over the last couple of quarters. They now have a 24% share of the national market and a 27% share of the Auckland market.

Goodall says that means that investor demand is still there and that it has been lending constraints which have held them back from buying. “Despite the looming policy and tax changes, low yields and reduced capital gains, property investment is still attractive. I don’t think investors are planning to sell up en masse and get out of the market.”

Established investors will be looking at the longer horizon, he says. “They have done this for 20 years and have been successful, so are they going to change? No, they are just wanting to find out how to continue acting in the market and being successful. They are not going to get out of it.”

Additionally, he doesn’t believe rents will skyrocket to eye-watering levels as a result of the policy and tax changes. “Rents can only go up so far because they are tied to income. If they rise too much a landlord could lose a good tenant because the tenant won’t be able to afford it. And landlords do put value on good tenants because a bad tenant can cost you more in the long run.”