Is Auckland likely to follow Sydney & Melbourne with falling house prices?

by Alistair Helm in


Photo courtesy of  Catarina Sousa

Photo courtesy of Catarina Sousa

Much has been written over recent weeks as to the question “will Auckland house prices fall in coming months, mirroring what has been seen across the ditch in the leading Australian cities?”.

I had firsthand experienced of just this question recently when a Sydney based buyer interested in an Auckland property was fearful of making an offer, uncertain as to the future trend of Auckland house prices.

Such concern and uncertainty in my opinion, needs hard data to either support the supposition or to refute it, and thereby allay fears. Recent commentary in the median has put falls in Sydney and Melbourne anywhere from the current 9.5% fall from peak in Sydney and 5.8% in Melbourne to the potential of a 20% fall according to an ANZ economist.

Whilst these data points are useful (and depending on your perspective potentially alarming); for me the visualisation of pricing trends assists better in comprehending where we have come from, and where we may be heading in regard to house prices. With this as a perspective I was delighted to come across some very interesting analysis published on Domain, one of the two leading real estate portals in Australia.

The article titled When was the best buying in Australia’s capital cities undertook a very interesting analysis to visually portray the slump in house prices in leading cities. The research analysts calculated “how much money would have be made from selling the median value house in each city in December 2018, based on when it was purchased over the prior 15 years.

Historic values were adjusted for inflation so both the buying and selling points are represented in today’s dollars. Therefore, the gains and losses reflect ‘real’ returns, taking into account the effect of inflation”. It is worth highlighting that the data set is house sales and excludes apartments and units.

The resultant charts certainly visually portray the slump .. and some degree of a recovery.

Net gain in house prices in Sydney based on Dec 2018 prices

Just to ensure complete clarity in the interpretation of the chart. The data visualisation shows in each bar the notional net capital gain for a house sold in December 2018 which in theory had been bought in relevant quarter, anytime in the preceding 15 years. So to take a specific data point as an example, a house bought in the period Sep 2008 would have appreciated A$400,000 if sold in December 2018 based on median sale price adjusted for inflation, whereas a property purchased in May 2015 would have sold with a loss of A$6,000.

The chart for Melbourne is presented below to provide a side by side comparison with Sydney based on the same model.

Melbourne notional capital gain in house prices to Dec 2018 Properazzi

Comparing these two charts highlights some interesting differences and similarities. In regard to the loss in capital value over the recent 2 years, Sydney has suffered a significantly larger drop almost touching A$200,000 capital loss (if property was purchased in May 2017) whereas Melbourne only edged towards a A$100,000 capital loss in Jan 2018. However the data clearly shows that both markets are recovering and given these are quarterly data sets this trend covers 9 months in the case of Melbourne and 15 months in the case of Sydney, so it would be fair to say this is a trend.

Also of interest is the key difference between the two markets, especially in the period from 2004 and 2012. Sydney almost consistently delivered c. A$300,000 gain, whereas Melbourne showed significant capital gain through the first 3 years at upwards of A$350,000 but since then has edged lower in two clear cycles.



AUCKLAND

So naturally the question is how does the Auckland market look in comparison, and does it show signs of mirroring Sydney and Melbourne?

I have used REINZ stats to extract the same data set - quarterly median house sale price for Auckland from 2004 to end 2018. I have adjusted the data for inflation by using the consumer price index provided by the Reserve Bank of NZ and have mapped the data in the chart below.

Auckland capital gain as at Dec 2018 for house sales Properazzi

There is certainly a similarity between Auckland and the Australian cities. There are though significant differences. Firstly the decline in capital growth in Auckland occurred earlier - starting in March 2012 when capital gain was around NZ$350,000 through to May 2016 when capital gains disappeared. Whereas Sydney began to see falling capital growth a year later in March 2013, but fell sharper to hit nil growth a year earlier than Auckland in June 2015. Melbourne on the other hand began to see falling capital growth in September 2102 and hit nil growth in December 2016, just after Auckland and a full 18 months after Sydney.

The major difference though is that whereas Sydney has dropped to show a bottom-of-the-market based on median sale price in June 2017, representing a fall of A$172,000 as compared to December 2018; Auckland has a bottom-of-the-market in December 2016 representing a fall of $62,000.

So the Auckland market began to see the heat come out its property market earlier, it saw prices drop earlier and that drop has been for longe, but did not slide so far down as Sydney. Add to this, the fact that the Auckland market has recovered to show positive capital gain for the past two quarters.

There is never any real certainty in predicting the trend in property markets, but based on this data analysis I would judge that the Auckland market does not look likely to mirror the Sydney and Melbourne markets; simply because Auckland saw an earlier correction. If anything it could be argued from this data visualisation that the Sydney and Melbourne markets are in some way mirroring Auckland.

The final chart shows the side by side comparison for all 3 cities based on NZ$ data and supports this assesment.

Auckland Sydney Melbourne house price capital appreciation as at Dec 2018 Properazzi

New Zealand slipping down the rankings of global property price inflation

by Alistair Helm in ,


This may well be the kind of news that we will all may be a little bit pleased to see. For once NZ and especially Auckland are not at the top of the global leaderboard by property price inflation. The Reserve Bank and government officials, I am sure will be somewhat heartened.

This ranking is provided by Knight Frank, one of the global leaders in real estate and their international research department are providers of valuable comparisons of residential and commercial property data around the world.


NZ ranked 27th out of 56 countries in 3rd quarter 2017 Global House price index

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Full report can be downloaded here

At a 5.2% year-on-year house price index inflation the Knight Frank team now assess NZ as heading downwards and place it at 27th place of the 56 countries ranked in the survey. Our neighbour Australia is considerably higher placed at 7th with an annual rate of house inflation of 10.2%.

Tracking the past 5 years in the chart below comparing NZ median price by quarter against Global House Index shows the extent to which the NZ market ran ahead of global index through the past 2 years. It also shows to what extent that the market has come off the boil in the past 9 months, although the final quarter of 2017 is showing a rise. Note: The NZ data in this chart represent the REINZ median price data showing a 4% year-on-year inflation in Q3 2017 vs Knight Frank's at 5.2%.


Auckland ranked 98th out of 150 global cities in 3rd quarter 2017 Knight Frank Global Residential Cities Index

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Full report can be downloaded here

At a 2.7% year-on-year house price index inflation the Knight Frank team now assess Auckland in the bottom third of global cities. Interestingly in the top 20 appears Wellington with a 10.7% annual inflation in 19th place. Our neighbouring cities in Australia see Melbourne at 10th place with a rate of 13.2% and Sydney in 26th place with 9.4%.

Tracking the past 5 years in the chart below comparing Auckland median quarterly price vs Global Index shows the significant inflation ahead of the global index of all 150 cities right up until Q1 2017, the significant decline in property price inflation since then demonstrates how much the Auckland property market has come off the boil in the past 9 months. The comparison of median price as reported by REINZ for the 3rd & 4th quarter year-on-year shows declines. Note: The NZ data in this chart represent the REINZ median price data showing a -0.3% year-on-year inflation in Q3 2017 vs Knight Frank's at 2.7%.


In addition to these two rankings tables Knight Frank has also released a comprehensive report on Global Cities. Auckland is featured as a case study in the report with the following excerpt from Rachel McElwee, Head of Research, Knight Frank New Zealand detailing the developments on the Wynard Quarter and the impact this has on the city.

Auckland: Blurring the lines

"Mixed-use development is reshaping Auckland’s central city, blurring the lines between work and living environments. The largest urban regeneration project currently underway in New Zealand, Wynyard Quarter, is transforming the former industrial port into a mix of residential, retail, leisure, hotel and office space. New types of purpose built spaces will be created such as the innovation hub, housing a campus-style precinct fostering creativity, technology and originality for start-up companies. A diverse range of tenants include the Auckland Theatre Company, financial firm ASB, architects Warren and Mahoney, the Hyatt Hotel Group, and multinational dairy co-operative Fonterra. When completed in 2030, Wynyard Quarter will house approximately 3,000 residents and 25,000 workers. The redevelopment covers 37 hectares of land and stretches three kilometres along the coast. Investment backing for the project came from off-shore, private investment, third sector and government sources. The waterfront could be further transformed if Auckland stages the next America’s Cup in four years’ time".