By Bernard Hickey
Auckland's largest real estate agency group, Barfoot and Thompson, has reported it handled 1,070 sales in March, which it said was its highest monthly sales figure in nearly four years.
Volumes rose 75.7% from February and were up 15.4% from March a year ago.
The average sale price of NZ$581,190 was up 11.4% from the NZ$521,887 reported in February and was up 6.6% from March 2010.
“It was a month’s trading that came out of the blue, and exceeded anything we have ever experienced,” said Peter Thompson, Managing Director of Barfoot & Thompson.
“Buyers in the over NZ$500,000 category appear to have simultaneously reached the decision that now was the right time to buy," Thompson said, adding that this rise in the number of sales of more expensive properties had helped lift the average price sharply.
“What March’s sales activity confirms for us is that the Aucklandmarket is reacting in a different way to the rest of New Zealand," he said.
“The formation of the Auckland region into one city has brought home to people the dynamic growth projected for the region, and the looming shortage of dwellings to house a future population in excess of 2 million people.
“Combined with buyers reaching the conclusion that values are at the bottom of the price cycle, the economy looking likely to rebound in the next 12 months and interest rates at historically low levels, and you have the perfect conditions for people to commit to buying.”
The Reserve Bank cut the Official Cash Rate by 50 basis points to 2.5% on March 10 after the February 22 earthquake in Christchurch. It has pledged to wait before reversing that cut until rebuilding starts in earnest. Most economists expect the Reserve Bank to start increasing the OCR from early next year. Banks cut their floating rates for new borrowers by the full 50 basis points to around 5.75% immediately after the March 10 cut. See all mortgage rates here.
Thompson warned against dismissing the leap in prices as simply multimillion dollar homes distorting the average price.
“While in March we sold 14 homes with values in excess of NZ$2 million, compared to 4 in March last year, if we remove the NZ$2 million homes from the figures totally, the average selling price would still have increased to in excess of NZ$560,000," he said.
“I do not believe we are seeing the start of another housing price bubble."
March may show confidence returning to the Auckland housing market with values stabilising, Thompson said.
“I would expect sales in April will follow the normal seasonal trend of the past few years and be lower in volume and average value than those achieved in March.”
New listings flat, rents up
Barfoot and Thompson said it listed 1,551 new properties in March, in line with the number for February and down 7.2% on March last year.
At the end of March the company had 5,807 properties on its books, down 4.2% from February and 7.3% down from a year ago.
Barfoot said average weekly rentals in March rose NZ$32/week to NZ$434/week, the highest on record.
“When you combine the increase in weekly rents with the rise in property prices, it flags that accommodation availability in Auckland is in short supply," Thomspon said.
“The rental increase also coincides with landlords reacting to the new taxation rules around investment property, and firmly fixing their focus on improving the operating return from rents."
Barfoot and Thompson rented 816 new properties, which was in line with the number rented in February and in March last year.
Regional detail provided by Barfoots here show volumes in the central suburbs and North Shore rose 24% to 489 in March from 395 a year ago. Sales elsewhere in Auckland rose 9.2% to 581 from 532 a year ago.
The number of sales of properties for NZ$800,000 and more was 186, which was up 37% from a year ago.
What this shows is the tax cuts for the wealthy are being reinvested with leverage into expensive homes in and around central Auckland and the North Shore.
Is this what John Key means when he says he wants to transform the economy into an exporting powerhouse by cutting income taxes?
Here's reaction from ASB economist Chris Tennent Brown
March data were unequivocally strong, with seasonally-adjusted turnover lifting 11.4% on February, and in doing so recording the strongest turnover in 15 months.
· New listings lifted a seasonally-adjusted 5.5% in the month, following a 12.3% lift in February.
· Seasonally-adjusted total listings declined 2.7%, from February, and are down 7.3% on year-ago levels.
· Average rents rose to the highest level recorded, gaining 4.7% in seasonally-adjusted terms on the prior month, to be up 8.2% on year-ago levels.
· The average sales price rose to the strongest level recorded, though with the data skewed by a relatively high volume of very expensive property sales.
A lift in RBNZ mortgage approvals data over March had hinted that the property market was showing signs of picking up, and B&T data have confirmed that the market in Auckland was quite buoyant last month.
The average sales price in March rose to a record $581,190. However, the B&T average sales price has always been a volatile price measure, and is skewed by the composition of sales. A high number of very expensive properties boosted the number in March. B&T sold 14 homes valued at more than $2 million in the month, which compares with 4 in March 2010. Furthermore, there were 89 sales over $1 million (unadjusted), which is the highest level since March 2007.
The pool of total listings is actually contracting, and seasonally-adjusted total listings are at the lowest level in six months. This comes despite two strong months of new listings that exceeded the volumes of sales. This supports anecdotes that sellers are withdrawing their property from the market if they cannot get the price they want.
We expect the Auckland property market will tighten further over the year ahead, as the mix of a low level of construction affects supply, and ongoing population growth continues to boost demand. Thecontained level of inventory, as well as the recent drop in interest rates, are also positive for the property market over the year ahead.
The big lift in average rent shows that demand for property to rent is high. The number of properties B&T have let remains high (816 dwellings). The letting figures are steady on February’s level (817 units), and down 0.9% on year-ago levels. We expect that rents will remain high over the year ahead, as demand remains high, and the low level of construction over recent years limits the overall housing stock.
Implications
We expect nationwide prices are troughing out now, and should increase by around 3% over the year ahead. Behind this lift will be a range of experiences, from stronger price appreciation in Auckland, and ongoing weakness in areas where population and income growth are less supportive. REINZ nationwide figures for March are due next week. We expect that the nationwide data will also show a lift in turnover, although we expect a more muted pick-up than the B&T Auckland data have shown.
Here is reaction from Goldman Sachs economist Philip Borkin.
We believe the Auckland housing market is outperforming the rest of the coutnry, with demographic pressures the key driver. Given the housing market's track record as a leading indicator in New Zealand, and the fact that Auckland is more reliant on household consumption than other areas, this could signal the beginnings of an improvement in the consumer spending backdrop.
However, we think it is too early to make a call on this yet given that household behaviour remains one of caution and deleveraging.
While the recent reductions in mortgage rates will be supporting activity and sentiment, we believe the outperformance is more fundamental in nautre. With historically low levels of new building and net migration (while not at strong levels) likely to be more supportive of Auckland housing demand than other parts of the country, we suspect demographic pressures are slowly beginning to surface.
These pressures will be more pronounced in Auckland than elsewhere.
(Adds picture, interactive chart, more detail, quotes from Peter Thompson, ASB comment, Goldman Sachs comment, Interview with Peter Thompson, regional detail)
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