The Auckland property market is exhibiting the classic symptoms of a market uncertain as to its future direction.
The latest 3 months to March, point to a flat market with no perceptible rise in sales activity, with prices edging down. However I believe there is cause to believe that signs of a recovery in the property market may be emerging. The lead-indicator of the clearance rate points to this possible improvement as this year progresses.
Examining the three key data points of sales volume, sales price and clearance rate in more detail should help to explain this summation.
In the first 3 months of 2019 there were a total of just over 5,000 property sales across the Auckland region, this compares to just over 6,000 for the same period last year, as has been the story for the past 2 years as property sales have slowed. What is more significant is the fact that in relative terms the total sales in Auckland in the past year is actually half the actual sales volumes of the mid 90’s and the mid 2000’s. Let me repeat that statistic. Half the sales volumes. The ‘relative terms’ to which I refer is sales per head of population.
In 1996 the population in Auckland was just breaking through the the one million mark, by 2004 it was growing by over 2,000 a month as it reached 1,240,000. Today with that growth rate accelerating, the population of the country’s biggest city stands at 1,657,000.
Back in 1996, the annual sales of property stood at 31,927, this equated to 32 property sales per 1,000 population. By 2004 sales for the 12 months to March of that year was a staggering 40,170, equating to 32.2 property sales per 1,000 population. Now compare that with the latest 12 months to March of this year. With sales of just 24,301 it represents just 14.5 property sales per 1,000 population. Half the relative sales per head of population than those two other periods. This really puts todays Auckland property market into context compared to prior periods.
In relative terms less transactions in Auckland today than at anytime since the darkest days of the GFC - the result of what?
Certainly market price is a key factor, back in 1996 median sales price was $230,000 and by in 2004 it was $320,000 whereas today it is $850,000. Certainly the appetite from investors has diminished from what would have been the hay-days of 1996 and 2004; and certainly access to funds from banks is far tighter today than in those prior periods, although perversely the interest rates on mortgages has never been lower.
There is simply no getting away from it, property sales in Auckland are not breaking any records any time soon. As the chart shows the variance in monthly sales vs prior year has been consistently negative since November 2015, with the brief exception of the early months of 2017 - all of those comparative gains are now being reversed.
As sales volumes remain flat, so do the sales price. The latest month of March saw a median sale price for Auckland of $850,000. This is $2,000 down on March last year and $30,000 down on March 2017, but is $15,000 up on March 3 years ago - property sales prices in Auckland are flat and losing value to what is benign inflation.
With neither sales volumes nor sale prices showing anything of positive outlook, it’s left to what I judge is a key lead-indicator of the market to point to the future, and the rest of 2019 and into next year. The clearance rate, that being the sales volumes as a percentage of new listings tracked on a 12 month moving basis which is now showing a consistent and healthy increase.
If the clearance rate is edging up then a greater percentage of properties brought onto the market are selling and as the historic chart below shows there is a correlation between clearance rate of sale price. A natural and predictable correlation. If properties are selling faster than the rate of new listings and inventory of new listings is declining, so it speaks to greater demand from buyers which in turn feeds into price inflation; although the lag can be many months.
The clearance rate in Auckland in the past few months has edged towards 60% which is certainly a healthier rate than this time last year when the rate was bumping around the bottom of the cycle at 53%, certainly a long way from the frothy market levels of 2015 at over 75%, but much healthier than the GFC days of 2008 at just 33%.
As ever property cycles are notoriously hard to predict and are really best viewed through the rear view mirror. Later this year it will be clearer as to whether there has been a recovery beginning or simply another erratic bouncing around with no clear cyclical upturn on the horizon.