Auckland house prices - making sense of the data

by Alistair Helm in

Auckland house market cools in hot January - Business - NZ Herald News.png

If there is one certainty with property prices is that there is always uncertainty! - That is never more true than with the Auckland property market and its property prices.

The headline from earlier this week speaks of property prices falling in Auckland as the market cools in January; yet a few days later another report seemed to scare us with the view that Auckland is within the world's top 20 priciest cities!

What can we make of the mix of data and where is the market going?

My view is you have to be focused on core data and avoid being hijacked by random erroneous data, reports and surveys. The good news is that we in NZ do have good property data, it is well structured, easily accessible and is right up-to-date.

The most reliable indicator of property prices in Auckland is the REINZ Stratified median price index. Published monthly it uses the most recent month's sales data and makes adjustments to ensure that for example higher sales in high priced suburbs, matched to other extremes such as low sales in low price suburbs does not skew the median price. The method is professionally administered by The Reserve Bank and used as a trusted pricing method for property reporting worldwide.

The latest data including January for Auckland shows that the last 2 months has seen property prices ease. From the peak of $578,150 in November the stratified median price has slipped to $548,750.

Auckland house price index Jan 2013.png

As the chart above shows this is now 13.3% above the peak of prices seen before the GFC in 2007.

However as a cautionary reminder if you adjust for inflation as the chart below shows Auckland prices have barely made any gain in the past 5+ years. In November we came within 1% of the CPI adjusted peak price from July 2007 but the past 2 months has seen this fall to 5.3% below that peak. So based on this you would have to assess that property in Auckland barely keeping pace with inflation over half a decade.

Auckland house price index CPI adjusted Jan 2013.png

Other sources of property price information

There are other sources of property price information available for Auckland, the most recognised one is the Barfoot & Thompson data. Now B&T are the largest real estate agencies group in Auckland and currently represent around 40% of all sales in the region which makes them a key indicator of the market. However they do not represent the whole market, 6 out of 10 properties sold in Auckland are not sold by B&T. Additionally their property data which is released within the first few days of the month and therefore gains early media attention is very raw data, however a major weakness of their data is that their property prices are just based on average price, rather than median or stratified median which leaves the data open to fluctuations, especially with high priced property sales.

Whilst the average price of sales by Barfoot & Thompson may be out of line with the REINZ Stratified median price for Auckland property as the first chart below shows, the trend of price movements as the second chart shows is more consistent.

B&T REINZ monthly property prices to Jan 2013.png
B&T REINZ price movements to Jan 2013.png

I would therefore as ever be cautious in reading media reports and look to the REINZ Stratified median price as the best guide for what is happening to property prices in our major city. Certainly read the indicator trends of the B&T data when it is released but be wary of that average price which they now shows to be sitting atop $600,000