ASB thinks housing market has stabilised, Westpac thinks it's showing new signs of life

Westpac thinks the latest REINZ housing sales data suggests the market has sprung back into life while ASB has a slightly more cautious view, suggesting it has stabilised.

Commenting on the REINZ's release of median price and sales data for July, Westpac senior economist Michael Gordon said that after adjusting for seasonal patterns, the figures suggested some new signs of life in the housing market.

"Both we and the Reserve Bank have been expecting an upturn in the housing market over the second half of this year," Gordon said.

"Net immigration is approaching record highs, banks are utilising more of the high-LVR loan limit, and some popular mortgage rates are actually lower now than they were before the first OCR hike in March.

"The July figures are consistent with that view, but at this stage it's too soon to tell whether the upturn will resemble our modest expectation (with annual house price growth slowing to 4.5% by year end) or the RBNZ's more bullish view (with prices re-accelerating to 6.5% a year)," Westpac's Gordon said.

ASB senior economist Chris Tennent-Brown said the market had clearly eased considerably since the middle of last year, but the latest data suggested activity had stabilised.

"Overall, we think the data over the last couple of months suggest sales activity has stabilised at a lower level than late last year, rather then being poised to re-accelerate," Tennent-Brown said.

"House price growth is likely to be slower than the RBNZ expected in its June Monetary Policy Statement."

Here's what Gordon said in full

After adjusting for seasonal patterns, the July REINZ figures suggest some new signs of life in the housing market.

House sales were only marginally higher in July, up 0.5%, but that was the second straight month of gains. Prior to this, sales had fallen in every month since October, when the Reserve Bank's cap on high loan-to-value ratio (LVR) home loans came into force. Sales were down in Auckland, as foreshadowed by last week's Barfoot and Thompson figures, but there were solid gains in Canterbury, Wellington and the Waikato.

The stratified price index rose 0.2% in July, following a 0.9% drop in May and a flat outturn in June. Moreover, the regional breakdown was even perkier than this, with all of the five broad regions recording price increases of more than 1%. While the annual rate of house price inflation slowed from 6.2% to 5.9%, that reflects a 'hard' comparison with the same time last year, when house prices were roaring ahead. That comparison will get even tougher over the next few months.

Both we and the Reserve Bank have been expecting an upturn in the housing market over the second half of this year. Net immigration is approaching record highs, banks are utilising more of the high-LVR loan limit, and some popular mortgage rates are actually lower now than they were before the first OCR hike in March. The July figures are consistent with that view, but at this stage it's too soon to tell whether the upturn will resemble our modest expectation (with annual house price growth slowing to 4.5% by year-end) or the RBNZ's more bullish view (with prices re-accelerating to 6.5%yr).

And here's Tennent-Brown

The market has clearly eased considerably since mid-2013, but recent data suggest that housing activity has stabilised. The winter months are typically quieter for real estate. However, when adjusting for this seasonal effect, turnover has actually picked up in July, and days to sell have shortened modestly, from 38 days in June, to 36 days in July.  Over the past five years, the average number of days to sell a property has been 38 days. 

Annual price growth continues to moderate.  In July, the REINZ stratified median house price index was up 5.9% on a year ago. Annual house price growth according to this measure peaked at 9.9% in October last year.   The stratified median house price index rose 0.3%mom in July, according to our seasonally-adjusted estimate.

In terms of regional activity, seasonally-adjusted days to sell were steady in Auckland (33), and shortened in Wellington (40 from 43 in June) and Christchurch (31 from 33 in June).  Out of the 3 main centres the sequential (month-on-month) pick up in seasonally-adjusted turnover was actually weakest in Auckland (but still up 3.7% from June), and strongest in Wellington, with turnover lifting 9% on June in seasonally-adjusted terms.

Looking at the annual change in prices, growth in Auckland and Christchurch remain the strongest regions, with the REINZ stratified median house price up 9.2% in Auckland, and 9.5% in Christchurch (using a Q/Q-4 measure).  This contrasts with Wellington where prices are down 1.5% on a year earlier, North Island (ex-Auckland and Wellington +3.4%), and South Island (ex-CHCH +4.2%).

The latest month’s data suggest some pick up in seasonally-adjusted activity has occurred in July.  But overall, we think the data over the last couple of months suggest sales activity has stabilised at a lower level than late last year, rather than being poised to re-accelerate.  Separate data from realestate.co.nz show the number of homes coming onto the market remains very low.

The next few months are quiet for the real estate industry, with activity levels and listings typically low until around October.  With the RBNZ now signalling a pause in the rate tightening cycle, it will be important to monitor developments in mortgage rates, and housing activity over the Spring period.  We expect the RBNZ will be comfortable with developments in the housing market to date, but won’t want to see credit growth to households and related housing market activity accelerate too much over the coming months.  A reacceleration in the housing market would be one development which could make the RBNZ uncomfortable pausing for too long.

Implications

House price growth is likely to be slower than the RBNZ expected in its June Monetary Policy Statement.  However, the RBNZ is likely to keep a close watch on the still-strong price appreciation in Auckland and Christchurch.  We recently revised our OCR view to incorporate a later start (now March 2015) to the next part of the RBNZ’s tightening cycle, largely reflecting the significant decline in dairy prices and still strong NZD, but also because of the easing housing market and related inflation developments.  Today’s housing data are consistent with our revised OCR view.