Latest REINZ figures show median price climbed $10k to equal record $400k; annual price inflation 9.8%; Auckland price inflation 17.5%

The rate of house price inflation is already very close to 10% peak the Reserve Bank is forecasting for later in the year. 

The heated state of the market has been of concern to the Reserve Bank, which introduced the LVR "speed limits"  in an attempt to protect financial stability and to partially rein in prices - particularly in Auckland. See here for articles on LVRs.

The Government for its part announced new measures aimed at alleviating the politically-loaded situation of first home buyers being potentially locked out of the market by rising prices. In Auckland the Government and the Auckland Council have combined in the Auckland Housing Accord, through which it is aimed to build another 39,000 houses in the Auckland area over the next three years.

Market remained 'tight'

ASB senior economist Jane Turner said the latest monthly REINZ figures suggested the housing market remained tight over September. 

"Turnover was firm, days to sell lower and prices higher.  September could have been affected by a rush of demand from potential buyers with a high LVR preapproval.  Nonetheless, early indications for October suggest momentum has yet to ease," she said.

Turner said that while high LVR restrictions were likely to dent demand, the housing market was "unlikely to cool meaningfully" without either a lift in interest rates or an increase in construction. 

"The recent weakness in dwelling consent issuance [for new houses], particularly in Auckland, is concerning as it suggests supply is not lifting fast enough to meet demand. We expect house prices will continue to increase over the next couple of years, though anticipate that annual price growth will peak in late 2013/early 2014."

ASB is continuing to pick that the RBNZ will start to lift official interest rates from March 2014.

'Continuing themes'

Westpac economists, who last month picked that house market conditions will start to cool from November, said in their latest "Home Truths" publication that the September REINZ data was "just a continuation of themes that were firmly established earlier in the year".

"But we also suspect the market got an extra boost from buyers keen to beat the Reserve Bank’s mortgage restrictions," chief economist Dominick Stephens said.

"That would certainly match the burst of extra mortgage approvals we observed shortly after the restrictions were announced. This “beat the restrictions” dynamic may spill over into the October data, as some people who were given approval to borrow in September may have taken a little longer to actually buy."

Stephens said the regional figures showed there were "changes afoot in some markets".

"First, the Christchurch market is clearly cooling. Over the past three months, seasonally adjusted sales have dropped 4.4% in Canterbury, and the Canterbury price index has fallen 0.9%. There are similar signs that the market is cooling in Dunedin and Wellington. Meanwhile, market turnover has risen sharply in Northland, Waikato, Bay of Plenty, Hawkes Bay and Southland. This is a sign of rising prices to come for these regions," Stephens said. 

REINZ chief executive Helen O'Sullivan said the sales in the month of September were up 18.9% on September last year and up 2.6% compared with August.

Sales volumes 'strong'

"Real estate sales volumes have been strong in the lead up to the introduction of LVR restrictions by the Reserve Bank," she said.

"Sales volumes are ahead of what we would normally expect for this time of the year, with strong growth in sales coming through in several regional centres." See here for regional breakdown.

O'Sullivan said Northland was experiencing a very strong uplift in its sales volume trend, with Taranaki and Nelson/Marlborough also showing positive trends in sales volume and price, although these three regions remain some way behind Auckland and Canterbury/Westland in terms of pure price movements. Waikato/Bay of Plenty is also seeing a noticeable uplift in sales volumes.

"While these regions are seeing the number of sales lifting the same cannot be said for prices outside of Auckland and Canterbury/Westland. Auckland’s median price has increased by $120,000 (+26.7%) since the end of the previous price cycle in November 2007, and Canterbury/Westland’s median price has increased $61,000 (19.4%). However, for the rest of New Zealand combined, the median price has actually fallen $3,000 (-1.1%) over the same time period."

All but two regions recorded increases in sales volume compared with September last year, with Taranaki recording an increase of 50.8%, followed by Northland with 28.0% and Southland with 23.9%. Seven regions recorded an increase in sales volume in September compared with August, with Taranaki recording an increase of 15.3%, followed by Nelson/Marlborough with an increase of 10.8% and Southland with an increase of 10.7%.

O'Sullivan said there was some evidence of the impact of LVR restrictions on first home buyers in Auckland, "but the effect is not uniform".

"Investors are still active, but rising prices are making some more cautious. Vendor expectations are certainly rising across the region and auction activity is robust."