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