House prices in Auckland, Canterbury to keep rising due to supply constraints, ASB economists say after figures showing both firm sellers' markets

House prices in Auckland, Canterbury to keep rising due to supply constraints, ASB economists say after figures showing both firm sellers' markets

House prices in supply constrained Auckland and Canterbury will keep rising due to supply constraints, ASB economists say, following figures from Realestate.co.nz showing both remained firm sellers' markets.

Realestate.co.nz's Property Report covering October, shows inventory levels of houses for sale in the two cities remained "well below" long-term averages despite listings in Canterbury rising, while asking prices of houses listed for sale during October hit new highs.

ASB economist Jane Turner noted the number of new house listings nationwide on realestate.co.nz edged slightly up over October, although remained low.

"New listings lifted strongly in Canterbury, which is an encouraging sign as this is one of the regions struggling with low supply. However, new listings in Auckland continued to decline and further exacerbate existing supply constraints," Turner said.

Seasonally adjusted figures showed 1,315 new listings in Canterbury over the month, up from 1,147 in September. Meanwhile, there were 3,618 new listings in Auckland, down from 3,637 in September.

The total number of houses available for sale on the website continued to decline on a national basis, suggesting the small increase in supply over October was insufficient to meet the level of demand.

"Housing inventory remained largely unchanged in Auckland, while inventory edged slightly higher in Canterbury on the back of stronger listings," Turner said.

"With supply remaining low relative to demand we expect house prices will continue to increase, particularly in Auckland and Canterbury, until there is a meaningful increase in the supply of new houses. The building consents figures out on Wednesday suggest that a gradual recovery in residential construction demand is taking place," she said.

"The listings figures demonstrate the housing market remains tight, particularly in Auckland and Canterbury.  We expect house prices to continue to increase in the regions where supply constraints are most acute.

"At present the RBNZ remains relatively relaxed about housing market pressures and the acceleration in house price inflation. For the time being, the RBNZ will remain focussed on offshore uncertainties and near-term weakness in CPI inflation," Turner said.

"As such, we expect the RBNZ will leave the OCR unchanged until September 2013."

New asking price high

The nationwide property market continued to show signs of confidence and heightened activity compared to the past few years, realestate.co.nz said.

"The confidence amongst sellers bringing their properties onto the market has pushed up the (seasonally adjusted) truncated mean asking price to a new high of NZ$445,529 – the highest level since the collection of data began in 2007," it said.

"This rise in asking price was noticeable right across the country, with Auckland reaching a new record high of NZ$611,864, and Canterbury reaching a new high of NZ$414,070."

November also began with a good rise in new listings nationwide (up 12% on October 2011), and this rise had lead to some balancing of the property market in both Wellington and a number of provincial regions.

"While inventory levels across the country balanced in October, the market remains a firm sellers' market across 12 of NZ’s 19 regions. Overall stocks of unsold houses rose slightly to 33 weeks of inventory (long term average = 40 weeks). Both Auckland and Canterbury remain firmly sellers' markets, with overall inventory levels continuing to remain well below long-term averages," realestate.co.nz said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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More evidence that Olly Newland knows what he is talking about- or are they just another bunch of self serving spruikers?

Could an asb economist and a property website possibly be self-serving? Could the mercurial olly be self serving? If they're not self serving, how would we describe them? 

I think it's obvious that in the short term, supply constraints and foreign money are causing upwards pressure on prices, that much is obvious. It's about what happens when the momentum swings the other way.. China and Oz are both cooling rapidly and there's bound to be a flow-on here.
 
I do note that listings are picking up markedly, although still not enough to satisfy demands it would seem.

Very disappointing to see prices continue to rise like this, when NZ housing is already some of the most overvalued in the world. The same phenomenon seems to be happening across the water in Australia, where even Steve Keen is predicting a rise in house prices next year (though he's calling it a Suckers Rally!)
Steve Keen predicts "suckers rally" in housing market over next year due to lower interest rates
Australia seems to be following the path of NZ, with low interest rates leading to revived interest in housing, further inflating the bubble to epic proportions.
What can Australia learn from recent house price movements in New Zealand?
All in all, one can't help feeling this won't end well. The bigger the bubble, the bigger the bust, when it finally comes, right?
Jay.

Houston has higher incomes than New Zealand and a larger and faster-growing economy (and population) but it still manages to have much lower house prices.  People like Hugh point to its land-use policies and lack of urban limits as being the key driver.
 
However, I think it would be fun to play a game where we come up with the most creative excuses as to why New Zealand houses are so expensive our housing stock is worth more than Houston's.  How about:
There are lots of rednecks in Houston who like country music;
Houston is built on a swamp and has lots of mosquitoes;
Wealthy Chinese who are putting all their money into Auckland haven't heard of Houston;
New Zealand's higher interest rates and lower wages leave us with oodles of disposable income relative to cash-strapped Houstonians;
Texas has plentiful oil and gas reserves, a factor which is known to drive down land prices;
Auckland has a large population of wealthy Pacific Islanders to support house prices.
Any other suggestions?

Houston may have achieved cheap housing through unregulated sprawl BUT when transport costs are also taken into account Houston housing is expensive.
 
http://www.nhc.org/media/files/LosingGround_10_2012.pdf
 
Of course this is just research from universities etc. so not as credible as a home made pro-sprawl propoganda website like Demographia.

Safe as houses, right up there next to gold! At any theater next to you, only in Godzone!!
Hevi Groswaite

Indeed Chairman, my appologies! Being new to this medium and clicking the thing way too many times, was the problem!
Live and learn.
Hevi Groswaite

Easy to do, interest.co is a dog of a site to load up. You would die of boredom before it comes up on dial up.

I am, and it is!  I let it load while I'm writing, or it would be too much waste of life.....
 
:)

I would love for my Dad to read some articles here, but his attention span doesn't stretch far enough to accomodate the load up time. I wonder how many potential customers are missed because of this. It is just laziness on the part of the software writer, there is no need for it to be as heavy to use as it is. It is even more noticeable when I am in a nice lightweight OS like Ubuntu.
 
Interestingly I caught something yesterday about dial up making a come back on the US because of the high unemployment levels.

Hevi Groswaite, posted it once - it might be funny but 7 times.. it's called nagging!

I've just deleted the other six :)

Well done Alex! Thank you. 
I tried but couldn't; got to learn that one.
Hevi Groswaite

The biggest problem we face currently is:
"What are we going to do with all these unearned capital gains?"

How ironic...ASB has relaxed (spruiked) its lending criteria for buyers especially investors who are keen to buy apartments. I wonder what happen when the banks are restricted its lending from 95% to 80% of its lending ratio to all properties.."Crash" is the word ? All the flooded money made out of thin air..When the s ** t hits the fan, don't cry mama over spilled honey.

If houses were overpriced then people would be building more new ones becasue they could do it cheaper. The fact remains existing houses are cheaper when compared to building new ones. House prices will keep on increasing until it becomes cheaper to build.
For example, no one is going to build more shoe box apartments until the existing stock is all gone. Then prices will increase to the point where it is economic to build again.
Re Houston. The minimum wage in the USA is about US$5/hour. There is a lot of cheap (often illegal) labour about. Do they pay $80/hr for tradesmen?
 
 

Affordable that is when you don't take into account transportation costs;
 
http://www.nhc.org/media/files/LosingGround_10_2012.pdf

SK ,Chris J, BigDaddy, Jane Turner, Tony Alexander  et al
Do you guys not stop to think that there is at least a moderate chance that House prices in Auckland could crash, as they have in most markets around the world where prices have got overheated???
Is this possiblity on your radars at all, or do you guys think the chances of such a crash occuring are extremely remote? Have you ever stood back and REALLY thought about it?
Personally I think you are ill advised to be so confident about Auckland, especially as its economic fundamentals don't look that flash moving forward 

No chance MIA.
 
Prices can always ease, but won't crash anytime from current levels.
 
$600k for good houses in the prime areas just won't happen again, because as each year passes, the standard of housing in the area improves, there are less do-ups, less opportunities to buy at lower levels and the central suburbs escalate from being mid-upper areas to top end areas.
 
Currently $900k will get something decent in the central suburbs - that's just $45,000PA at 5% which is not much more than rent.  Prices are expensive but not unaffordable for the people who want to live in those suburbs.
 
Only a volcano erupting will cause Auckland prices to crash (but if damage is not widespread, it may end up boosting prices like the EQ did in ChCh).
 
In short, not a chance of seeing prices below that 2009 low point.
 
 

I'm not going to argue with you Hugh (I'd rather spend the time looking for opportunities to buy!).
 
Those US markets are a completely different scenario.  The UK fell how much? 10% then flat for 5 years - no massive crash.  In all these markets prime housing areas have performed very differently from the average.
 
Is the cost of owning a home in NZ vastly different from renting? NO.
 
The current interest rate outlook means someone is better off buying than renting in most cases, so why would a crash occur when we have a chronic shortage of quality housing?
 
 

OK, Hugh, Bernard, Gareth, MIA and anyone else out there that doesn't like current prices ...
 
Listen closely, because I'm about to let you in on a secret...
 
Have you ever wondered why people who seemed to make very little money live in fancy houses?
 
It's simple ... if you all paid full attention in maths class you'd know for yourselves so let's run the numbers:
 
There's about 11 variables you need to consider when to see if it makes sense to own a house:
1. The Price.
2. Your Deposit.
3. The Equivalent Rent.
4. Your Monthly Payments.
5. Whether those payments are Fixed or Inflation Adjusted.
6. Your Annual Costs
7. Your Purchase Costs
8. The Future Inflation Rate.
9. The Future Real Interest Rate.
10. The Future Movement in Real House Prices.
11. The Alternate Savings Rate.
 
1-4 depend on the property, but 5-11 are the same for whatever you buy, so let's look at these first:
5. Whether those payments are Fixed or Inflation Adjusted.
If you can afford the payment now you will be able to afford adjusting you monthly payment for inflation (if you were renting you would be assuming you can afford to adjust your rental payment for inflation!), and as this repays your loan earlier, it is a no-brainer to go inflation adjusted.
6. Your Annual Costs.
For lower valued properties 1% for higher valued perhaps 0.5% of the market value per annum.
7. Your Purchase Costs.
We'll assume $2,000.
8. The Future Inflation Rate.
That by law must be 1-3%, so we'll say 2.25% on average
9. The Future Real Interest Rate.
Historically about 4.5% is about the norm for real rates [higher nominal rates were in periods of higher inflation].  This is 6.85% in nominal terms, but assume first 5 years fixed at current 5.95% rates in nominal terms.
10. The Future Movement in Real House Prices.
Let's assume 0% (but we can look at this later).
11. The Alternate Savings Rate.
A nominal rate of 5%.
 
Now, lets run the numbers:
 
Say midle of the road house in ChCh:
A house worth $400,000
Equivalent rent $500pw
Deposit $100,000.
Monthly payment:  $2,500 ($576pw initially)
ANSWER:
Mortgage repaid in 12 years and 8 months
5 years after purchasing $71,570 better off than renting.
10 years after purchasing $185,653 better off than renting (and able to withstand a near 40% fall in real house prices and still be better of than renting).
20 years after purchasing $675,000 better off than renting (market value of house with 0% rise or fall in real house prices now $624,000, so could withstand a 100% fall in house prices and still have been better off than renting!).
 
Say mid-upper house in Auckland:
A house worth $800,000
Equivalent rent $700pw
Deposit $150,000.
Monthly payment:  $4,333 ($1000pw initially)
ANSWER:
Mortgage repaid in 17 years and 3 months
5 years after purchasing $55,492 better off than renting.
10 years after purchasing $152,573 better off than renting (and able to withstand a 16% fall in real house prices and still be better of than renting).
20 years after purchasing $682,153 better off than renting (market value of house with 0% rise or fall in real house prices now $1,248,000, so could withstand a 60% fall in real house prices and still have been better off than renting).
 
The above are two examples where buying may seem a marginal thing to do.
 
Now for an example of the properties I've bought and rented out:
A house cost $190,000
Equivalent rent $500pw
Deposit $0.
Monthly payment:  $2,000 ($460pw initially - zero cash input)
ANSWER: (NB this is if someone owner occuppied not owning it as a rental):
Mortgage repaid in 9 years and 4 months
5 years after purchasing $110,823 better off than renting based on 0% real increase in value, but as the house was purchased 25% below market value initially then actually it would be $179,238 better than renting.
10 years after purchasing $276,373 better off than renting based on 0% real increase in value.  But house is now mortgage free and because it was purchased below market value, even with 0% real increase across the whole market then the house is now worth $315,674 and accumulated saving rents are a further $18,000.
After 20 years you'd have been just shy of $1m better than off than renting.  On an inital $190k outlay.
 
I have a nice little spreadsheet calculator, and on virtually all permutations you still work out better owning than renting.
 
 
 

There is another scenario. A deep recession results in large scale unemployment and mortgage default. Banks are forced to sell at cut-price mortgagee sales to recover their money. Don't think it can't or won't happen here, I hardly need to give examples.

More to add...because as each year passes, there are less and less monolithic leaky homes in Remuera and the Eastern Suburbs as they are currently being recladed or demolished and rebuilt...but the question is: how much higher can house prices go?  I can't see a 1.2M house now will reach 2M in 10 years time to be honest.

It will take 5.25% annual compounded capital growth over 10-years to do that. Not an extraordinary real growth when you take inflation into account. My personal experience in Auckland is 4.75% annual compounded capital growth over the last 25 years. Of course a dollar doesn't buy anywhere near as much now as it did in 1987. Personally, all I want to do is stay ahead of inflation.

Assuming 2.5% inflation, then you only need real growth of 2.6%PA to go from $1.2m to $2m in 10 years.
 
Of course an improving area can produce greater than 2.6%PA relative gains even if the wider market is flat.

exactly - the likes of Chris J, Tony Alexander etc are dangerously and arrogantly complacent - but each to their own. As Hugh says, they were saying the same things in so many parts of the world over recent years
I'm happy to say that there is still a very good chance house prices won't crash - but as I have said there is in my view at least a 1 in 3 chance that they will. A possible house price crash in Auckland is far from a Black Swan event.
People rightly say there is a housing supply problem in Auckland. That will, all things being equal, cause prices to rise IF THE ECONOMY IS HEALTHY AND DEMAND STAYS STRONG. But what these spruikers often fail to recognise or acknowledge, either intentionally or unintentionally is the possibility that demand could fall away.
I for one fail to see bright prospects for Auckland's economy in coming years. And if the economy does dip again, there is limited opportunity to cut taxes and interest rates to boost housing demand

Being at the end of the world NZ seems to becoming an increasingly popular place for wealthy foreigners to set up a bolt hole.  Why are people like James Cameron and Russian billionaries and wealthy Chinese/middle eastern setting up bases here? -  not because it's conviniently located.
 

Do you mean a base like this?
 
'The neighbour said a Chinese brothel also operated on the neighbouring Princess Street, and she had seen men going there after leaving the "gambling house". "I've peeped into the house one evening a few weeks ago, and saw nearly a dozen people playing cards on two tables with lots of cash on the table," she said.
Avondale Police and ESR scientists yesterday carried out a scene examination, and interviewed some victims with the help of Chinese interpreters.'
 
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10844822
 
 

Duke Street is in Mt Roskill.
 
How disappointing. Unfortunately thats a true representation of the transformation that is occurring in Auckland. I grew up in Mt Roskill. A time when it WAS a wonderful place. A  good community. Didn't need to lock your doors at night. Roskill South was the End-of-the-World in those days. The last stop before Waikhowai and the Manukau Harbour. The place is in my DNA. I return frequently to the place of my birth. I stand on the top of Mt Puketepapa (Mt Roskill) from where I can see the cones, the maori forts, Mt Albert, Mt Eden, One Tree Hill, Three Kings and The Manukau. You didn't need Chinese interpreters. There were no brothels or gambling dens.
 
How did this happen? It's not my culture. It angers me to see what has happened.
 
One thing for sure, there are no russian oligarchs in the neighbourhood, and you won't find james cameron there either.

It happens, Iconoclast, because defence of european culture is not a permited activity in this country.

It seems defence of European culture is not permitted in many parts of Europe either, Something NZ should take note of or are we just more concerned about capital gains?

So, Moa Man, silence is consent?
Tell that to your daughters.