Housing cycle on a plateau

Depending on how you look at them, December figures for the housing market can be viewed as weak or strong - or both.

Thursday, January 22nd 2004, 7:18AM

The median house price fell in December in a move which some might see as a bit of heat going out of the housing market but which is more likely due to a rogue figure in Wellington as a result of the holiday slowdown.

Certainly, activity fell in all but one region, Hawkes Bay, compared with November, according to the latest Real Estate Institute figures. Compared with December 2002, activity was up in all regions except Wellington and Nelson/Marlborough.

The national median house price dropped from $235,000 in November to $229,000 in December with Wellington’s median price plummeting from $262,000 to $240,500. That was still up on the $215,000 median price for Wellington in December 2002. The number of houses sold in Wellington dropped from 1,127 in November to 857 in December and that was also down on the 892 houses sold in the region in December 2002.

Nationally, sales fell from 10,722 in November to 8,703 in December.

Real Estate Institute president Graeme Woodley says the number of properties sold in Wellington for under $400,000 jumped from 79% of total sales in November to 85% in December.

"We don’t believe there has been any wholesale weakening in the housing market and anticipate that the January figures will show their traditional resurgence. The property market remains buoyant," Woodley says.

Prices rose in six of the 11 regions in December compared with November and fell in the other five. Compared with December 2002, the December prices were up in all 11 regions.

Nevertheless, Ulf Schoefisch, chief economist at Deutsche Bank says the annual rate of increase in house sales has come down from around 30% in the September quarter last year to about 10%.

"While the level of sales remained close to historic highs, the data over recent months seem to indicate a turning point – or at least a plateauing – of the housing cycle," he says.

Schoefishch isn’t the only one to see signs of a slowdown. Economics firm Infometrics says real estate agents and potential property buyers are in danger of overestimating the housing market’s strength.

The factors which drove house prices up in the last year are turning around, particularly net migration. In the six months ended November, the net rate of arrivals per month plunged from 3,650 to 1,020 in seasonally adjusted terms. That is sufficient to reduce population growth by one-third," Infometrics notes.

Rising mortgage rates this year are also likely to squeeze buyers out of the market, it says.

Reinforcing that view are the latest figures from AMP’s home affordability report which shows homes became nearly 6% less affordable in the December quarter. For 2003, affordability was down 7.6%.

"The record highs in house sales and median dwelling prices provides evidence that New Zealanders’ love affair with residential property has continued unabated," says AMP Financial Services managing director Ross Kent.

"However, there are plenty of warning signs that the current housing boom will soon end," he says. "There are also signs that rental yields are beginning to slip."

REINZ PROPERTY MARKET REPORT

REINZ PROPERTY MARKET REPORT

TOTAL DWELLINGS MEDIAN PRICE COMPARISONS FOR DECEMBER 2000 – 2003

REGION	DEC 00	DEC 01	DEC 02	NOV 03	DEC 03
Northland	135,000	162,500	167,500	176,500	195,000
Auckland	240,000	253,800	267,500	320,000	325,000
Waikato/BOP/Gisborne	160,000	169,000	176,000	189,500	193,000
Hawkes Bay	125,000	140,000	156,250	180,000	178,000
Manawatu/Wanganui	109,500	110,000	102,000	118,000	134,250
Taranaki	98,000	107,000	115,000	140,500	136,250
Wellington	190,000	195,000	215,000	262,000	240,500
Nelson/Marlborough	155,000	147,500	175,500	261,000	286,000
Canterbury/Westland	146,250	147,000	151,750	180,000	190,000
Otago	90,000	95,000	110,000	155,500	153,250
Southland	69,000	78,500	87,500	115,990	110,000
NZ Total	$170,000	$178,000	$192,000	$235,000	$229,000