Cheer up Sydneysiders trying to buy a house, you could be in Auckland, New Zealand, which is undergoing its own property boom.
Unprecedented sales activity in March has seen Auckland’s residential housing market establish new records for prices and sales numbers. The average house price is even more expensive than in Sydney, with the gap widening as a stronger Kiwi dollar heads towards parity.
Barfoot & Thompson, the largest agent in the nation’s largest city, is going gangbusters, selling a record 420 homes for more than $1 million in March, an increase of around 40% on 12 months ago, and a quarter of all sales.
The company says its median price for property is up 9% on March 2014 at NZ$711,000 (AU$698,000). By comparison, the median price in Sydney is $8000 less at AU$690,000 , a jump of 13.9% year-on-year.
Barfoot & Thompson MD Peter Thompson said prices were up 3.9% on the previous month and the average sale price is at an all-time high of $776,729, up $17,000 on the previous record set in December.
“In the first quarter of this year, the average sales price has risen 6.1 percent over 2014’s average price for the year of $716,588, and March’s average price was 7 percent higher than it was 12 months’ previously,” he said.
“Buyers were not put off by the record prices.”
Just under a fifth of Auckland properties (300 in total) sold by the agent went for under NZ$500,000
Auckland is home to just under 1.5 million people and the country’s strongest property market in the country, driven by high population growth combined with historic underinvestment in housing stock.
Thompson said his data found the average price of properties his company sold over the past two years had risen by 23% (11% in 2013, 10% in 2014).
“There is every reason to anticipate prices will continue to rise,” he said, but refused to be drawn on how much higher.
Westpac NZ predicts price rises will beat the national average with 7.5% growth.
However, New Zealand Reserve Bank governor Graeme Wheeler was far more cautious in a speech he delivered in February about the outlook for the Kiwi economy.
He warned of the potential for a “sharp correction” saying:
“Our concern about house price inflation is based on the risk it poses to financial stability and the broader economy. Although it has not been a major factor in recent years, high rates of house price inflation can spill over into stronger spending and pressure on consumer price inflation.
“And the more that house prices get out of line with historic relativities, the greater the risk of a sharp correction, leading to financial instability.”
Auckland and Christchurch, which make up around half of NZ’s total housing, have seen prices rise 39% and 27% respectively above 2007 levels.
House price inflation was only slowed by Loan-to-Value ratio restrictions and the rise in mortgage interest rates had curbed demand, Wheeler said, however rising household incomes, falling interest rates on fixed-rate mortgages, strong migration inflows and continued market tightness were now driving up prices again
“Annual house price inflation measured on a three-month moving average basis is currently 10.9 and 7.4 percent in Auckland and Christchurch respectively, and 1.1 percent in the rest of New Zealand,” he said.
The governor said Auckland’s housing shortage was estimated to have increased in 2014 between 15,000 and 20,000 dwellings.
“Auckland Council estimates that 10,000 houses a year will be required for the next three decades. Residential building permits are currently running at an annual rate of 7,700 – a 70% increase over 2012 and twice the 2011 level, but well short of the increase that needs to be sustained over a long period,” he said.
Another key concern for Wheeler was house price to income ratios. He produced the following 2013 chart from the IMF showing that NZ was only just behind Norway when it came to greatest deviation in house price to income ratios.
Australia can take some comfort that its clearly in fourth place at around 40%, but little solace in being well in front of the UK.