And it's back... Auckland's housing market has roared back into contention – with a vengeance. It turns out those who said the city’s slowdown was simply a recouping period were right. March’s data shows prices and sales are on the rise again.

Evidence of the SuperCity’s resurgent housing market kept coming throughout the month and it has left many worried. Once again, there is talk of affordability and the potential threat to financial stability. This, in turn, has prompted renewed debate on whether intervention will, again, be needed.

Supply Driver

Barfoot & Thompson’s data was first off the blocks. It shows that both Auckland’s average sales price and median sales price climbed in March.

The average sales price rose by 5.4%, from $822,024 in February to $866,782 in March. At the same time, the median sales price increased by 8.1%, from $738,000 in February to $798,000 in March. Both these prices were close to the respective record highs.

Sales volumes also jumped significantly, although March is traditionally a busy sales month. The number of houses sold in March was up by 92.1%, from 698 sales in February to 1341 sales in March.

Barfoot & Thompson managing director Peter Thompson says lack of supply continues to be the main price driver – and, at the end of March, listings were down by 6.8% on February. “Although a record number of consents are being issued and building activity is high, Auckland is simply not building homes fast enough to keep up with the growing population.”

Temporary Trend

At first glance, the latest Quotable Value (QV) data provides a contrary view. It shows Auckland’s values went against the national grain of rising values in March and were down for the third consecutive month.

Over the past three months, the city’s values have decreased by 0.2%, leaving the average value at $931,061. Year-on-year, Auckland’s values rose by 16.9%, which left them 70.4% above the 2007 market peak. Once adjusted for inflation, Auckland values were up 16.8% year-on-year and are 45.5% higher than in 2007.

However, that trend is unlikely to last, QV national spokesperson Andrea Rush suggests.

She says that over the past few weeks, activity and demand have begun to pick up again across the SuperCity. “Values have actually risen again over the past month by 0.6%, so it appears the downward trend may be coming to an end.”

Further, QV’s Auckland valuer, James Wilson, says the “wait and see” approach, which entered the market following the introduction of new tax and LVR rules, is now subsiding. “Agents are reporting a shortage of listings and that well-presented, quality homes are selling well with strong prices being achieved.”

Rebound Shock

Both the Real Estate Institute of New Zealand (REINZ) and the Trade Me Property data also recorded significant jumps in Auckland’s house prices in March. But it was the REINZ data which provides authorative proof the city is firmly in recovery mode.

It shows Auckland’s median price rose by 7.7% in March to hit a new record high of $820,000. On top of this, sales volumes were also up by 66.8% on February, although they were down by 21% on March 2015.

REINZ chief executive Colleen Milne says the rebound of Auckland’s prices in March indicate recent fears of the market cooling off have been overstated. “The slow-down in sales volumes after the introduction of tax and LVR changes last year appears to be coming to an end, with a significant lift in sales for March and a further uplift in the median price.”

The strength of the REINZ data was a surprise to Westpac chief economist Dominick Stephens. He says that while other data sources and anecdotal evidence had foreshadowed the upturn in the Auckland market, the REINZ data is more positive for Auckland than anticipated

“The fact that the Auckland housing market has rebounded is not particularly surprising – the tax and LVR regulations introduced last year were always expected to have a temporary effect on the trajectory of house prices. But the power and extent of the rebound in March has taken us by surprise. Seasonally adjusted housing market turnover was up 11.3% in Auckland, and seasonally adjusted prices were up 3.4%.”

National Strength

Meanwhile, many property markets around the country continue to display strong growth. This, in turn, impacts positively on nationwide values, prices and sales.

The March QV data shows nationwide values were up by 0.2% over the past three months and by 11.4% year-on-year, which left the national average value at $559,492. This means they are now 35% above the 2007 market peak. Once adjusted for inflation, national values were up by 11.3% year-on-year and are 15.4% higher than in 2007.

According to the REINZ data, regions around the country hit new record median house prices, while the national median house price rose to $495,000. This was a 10% increase on February’s national median price (of $450,000) and a 4.2% increase on the March 2015 national median price.

Right across the country regional markets have been strong with a large number of record medians and the strongest sales for nine years for most regions - Colleen Milne

Sales volumes were up nationwide too. March saw 9,527 sales, which was up 30.7% on February and up 8.2% on March 2015. Ten regions saw increases in sales volumes, as compared to February, while ten regions saw increases as compared to March 2015.

SuperCity Influence

Buyers looking for lower deposit requirements and better rental returns continue to look away from Auckland, QV’s Rush says.

This is contributing to the heat of the property markets in Hamilton (up 3.7% over the past three months and 23.3% year-on-year) and Tauranga (up 5.5% over the past three months and 22.6% year-on-year). Further, regional areas within commuting distance to Auckland, Tauranga and Hamilton continue to show significant value rises.

Values in the Wellington and Dunedin markets are rising at a steady pace while, in comparison, the Christchurch market remains relatively flat, Rush says. “Many provincial centres are experiencing the fastest rate of home value growth since before the previous peak of 2007 - including Whangarei, Napier, Rotorua, Taupo, and the Central Otago and Queenstown Lakes Districts.”

Restrictions To Come?

Auckland’s resurgent market, combined with the ongoing strength of regional markets, has left economists speculating over whether more Reserve Bank restrictions are on the cards.

Stephens says the situation, which has led Westpac to upgrade their forecast for 2016 house price inflation from 6% to 11.5%, is due to the big drop in mortgage rates over the past year. This, in turn, is leading to households taking on more debt and banks extending more mortgage credit.

In the long run, the “borrow-to-spend facilitated- by-rising-house-prices” dynamic poses economic risks, he says. “Specifically, if interest rates rise materially then today’s house prices will start to look less supportable, and today’s debt levels will be harder to service.”

This leaves him wondering how the Reserve Bank will respond – given that, ultimately, it has to adhere to its inflation targets. “The more likely reaction lies in macroprudential policy. If house prices continue on their current trajectory much longer, the RBNZ will start thinking about another round of mortgage lending restrictions.”

ANZ chief economist Cameron Bagrie agrees that with regional housing markets booming and Auckland coming back to the boil, the odds of more macro-prudential measures are growing by the day.

A logical first step would be to make the current Auckland LVR restrictions for investors a nationwide policy, he says. “In other words, all residential property investors, no matter where they were buying, would be required to have a 30% deposit. It’s tweaking something already in place, and hence easy to do.”

“Macro-prudential measures won’t be a panacea for housing market strength amidst supply shortages. Yet housing exuberance at present is becoming increasingly difficult to ignore.”