Talk about making waves! The Reserve Bank sent shockwaves through the country in August when it slashed the OCR by 50 basis points to take it to an all-time low of 1.0%. The move, which Westpac chief economist Dominick Stephens described as “stunning”, sent financial commentators into overdrive.

The focus of most of the commentary has been on what the cut means for the economy, both now and going forward, but it’s agreed the goal of the cut is to jumpstart spending and growth. Banks started to drop their interest rates immediately, with all the major banks announcing cuts to their home loan rates.

This has left many in the property world speculating on just what it might mean for the housing market going forward. While some believe it could contribute to a stronger pick-up in house price inflation, others take a different view and doubt it will have a significant impact on the market.

However, this month’s data has confused matters further. It turned in some stronger than expected results, particularly in the case of Auckland, and contained hints of renewed confidence in the market.

Auckland’s market remains a shadow of its former supercharged self while other markets are slowing from the pace set at their peak, yet the data is encouraging enough to quell the rhetoric of those predicting doom.

Sales Pick Up

It was the sales data from REINZ that surprised the most. After months of decline in sales volumes nationwide, July saw the highest number of sales nationwide for a July in three years. There were 6,118 sales which was a 3.7% annual rise on the 5,897 sold in the same month last year.

Even more positively, Auckland – where sales activity has been subdued for a long time – saw an increase in sales in July. They were up both annually (by 6.6% on July 2018) and as compared to June (by 1.2%).

Overall, nine out of the 16 regions saw annual increases in sales volumes and a number of regional markets saw doubledigit annual growth in sales. They were Nelson (up 25%), Gisborne (up 14.9%), Canterbury (up 14.6%), and Marlborough (up 13.7%).

REINZ chief executive Bindi Norwell says it’s the first time in eight months that sales around the country have gone up on an annual basis and it’s a good sign, particularly for the Auckland market.

“It is an indication there’s renewed confidence in the market and that we’re starting to see some early signs of growth. Some of the improvement can be attributed to more certainty after the ditching of the capital gains tax, but it’s also about parts of the market finding their new normal in terms of pricing.”

The REINZ sales data for Auckland was not a one-off. Barfoot & Thompson’s latest data also shows a surge in sales volumes.

Their July sales were their highest in the month of July for three years. They recorded 879 sales which was 11.8% up on June, 16% ahead of the average for the previous three months and 5.9% up on sales in July last year.

Interestingly, Barfoot & Thompson saw a higher number of sales at the lower end of the price spectrum. The under $500,000 price category accounted for 15.9% of sales in July.

Meanwhile, the amount of housing stock on the market looks to have gone up nationwide.

REINZ has the total number of properties available for sale in July increasing by 2.6% to 21,843 from 21,288 at the same time last year. Likewise, Realestate.co.nz has total housing stock on market nationwide up by 2.5% from July last year – although new listings nationwide were down by 2.8% annually.

Price Trends Continue

At the same time, prices continue to defy expectations and hold up well overall.

In fact, the data from both Realestate. co.nz and REINZ shows prices are up nationally and in many markets around the country. And QV’s House Price Index has values still growing, albeit at a slower pace, with some stand-out areas.

According to REINZ, median prices nationwide were up annually. It has them rising by 4.5% to $575,000 in July. These results are in line with the REINZ House Price Index which saw property values increase 1.5% annually.

While median house prices in Auckland remained flat at $830,000, which was the same price as July last year, record median prices were recorded in 10 out of the 16 regions. Two markets hit record median prices in July. They were Otago (up 21.7% year-on-year to $505,000), and Southland (up 20.0% to $300,000).

QV has national values staying firm in July but value growth remaining subdued. Quarterly value growth came in at 0.1% although annual growth increased slightly from 2.0% in June to 2.2% in July. This left the average national value at $687,683.

Auckland’s value growth continued along a now familiar trajectory. It decreased by 0.8% over the quarter and by 2.6% year-on-year, leaving the region’s average value at $1,025,389. In contrast, many regional areas including the Western Bay of Plenty, Hutt Valley and Porirua are still seeing strong value growth, supported by healthy regional economies.

QV general manager David Nagel says the data shows a continuation of recent trends: sluggish value growth and low supply overall mixed in with pockets of strong growth.

“Regions seeing strong value growth are those with more affordable property and a local economy with job prospects nearby. The slower rate of growth across most areas is due to a combination of factors. A key driver is affordability constraints.”

Looking Ahead

Given the latest data covers the period before the Reserve Bank’s OCR call, there’s been much analysis devoted to what the impact of that cut, and even lower mortgage rates, on the housing market could be.

For Kiwibank senior economist Jeremy Crouchman, there’s some encouraging signs for the market, particularly in Auckland. One sign is REINZ’s stronger sales data as housing market activity tends to lead house price movements.

“We don’t know if this is a true turning point in the Auckland market, but investors now have less policy uncertainty to contend with. Moreover, mortgage rates have drifted lower since the start of the year and the OCR cut and the signalled desire to do more by the Reserve Bank is likely to keep rates heading lower.”

Crouchman’s general outlook for the housing market is unchanged. “Across the nation, prices will rise a little this year. And we expect aggregated price gains to pick up towards 5-6% into 2021.”

Westpac chief economist Dominick Stephens is of the camp picking a housing market upturn on the back of the recent cut, along with the cancellation of capital gains tax, tumbling interest rates and the fact that New Zealand is in the grip of a search for yield environment.

He says the latest housing market data is far from clear. “We think it shows there are straws in the wind supporting our view that the market is going to pick up, so we are sticking to our forecast of 7% house price inflation next year.”

But the evidence is by no means conclusive so more data will be required before it is possible to draw any real conclusions about which way the market is heading, Stephens adds.

It’s also worth noting that access to funding remains tight and both Norwell and CoreLogic’s Kelvin Davidson have suggested this will work as a constraint on the market.