The Eastern Suburbs residential market recorded a median house price of $1,600,000 over the March 2017 quarter. This equates to an increase of 6.7% or $100,000 compared with the same quarter a year prior when the median sat at $1,500,000. While the quarterly median saw a fall from its previous quarter level, when quarterly fluctuations are smoothened with the use of 12-month moving averages of monthly medians, the continuation of the upward trend at a slower pace is more visible, based on the latest provisional April 2017 data.
In terms of sales activity, the number of sales in the Eastern suburbs market was 331 over the first quarter of 2017, down 17.9% compared with the same period a year earlier which saw 403 sales.
The moderation in value gains and the fall in sales activity experienced in the Eastern Suburbs market is a reflection of the prevailing trends in the wider Auckland region which can be attributed to a number of factors. There is increased anecdotal evidence that Banks are tightening their lending criteria for home buyers. This is adding an additional constraint to the market which was already under the influence of regulatory changes imposed upon investors by the Reserve Bank of New Zealand (RBNZ). Unlike the RBNZ’s higher deposit requirement, tighter credit assessment policies have implications across all buyer types. In addition, the slight edge up in mortgage rates also has an impact on the overall demand with relatively higher borrowing costs.
The above factors, however, do not change the reality of Auckland’s housing shortage. In fact, the region’s housing shortfall is widening given the current levels of net migration and residential construction activity. Moreover, the combination of capacity constraints and the fact that development finance is also harder to source is limiting the ability of the development sector to meet the regional requirement, as fewer projects proceed. Therefore, the underlying drivers of the Auckland housing market remain in place providing support to values.
The softening of the market is also reflected in the total inventory available to the market as shown in the adjacent graph. Both the total inventory and weeks to sell figures have tended upwards over recent months and are now close to their historical averages. On an Eastern Suburbs market level, tight conditions are illustrated by the average days on market figures which were as low as 45 days over the March 2017 quarter, only slightly up from the 43 days figure recorded in the same period a year earlier.
The impact of rapid price appreciation over recent years is well illustrated by the shift in the number of sales recorded within various value brackets. Eastern Suburbs is one of the most affluent areas of the country, with properties located within the area commanding some of the highest prices in New Zealand. This is reinforced by the fact that the fastest growing price bracket over the last three years has been the $2 million + band. Properties sold above $2M, now comprise almost one third of Eastern Suburbs sales. Only two years ago, this price bracket constituted only 16% of sales.
On the supply side, difficulties faced by developers in obtaining finance, due to banks’ tighter lending criteria, is resulting in a slowdown in the growth rate of building consents in the wider Auckland region. The change in the trends of residential building activity is much more profound in Orakei Ward, which encompasses the Eastern Suburbs market. The number of new residential building consents saw a significant fall rather than just slower growth. The number of consents issued in the Orakei Ward was 283 over the 12 months to April 2017, down 23.5% from the same period a year earlier. While difficulty in access to development funds can be held partially responsible for this fall, the extent of the decline rather suggests a lack of available development land in the area, constraining new supply in one of the most desirable areas of Auckland.
Spotlight on St Heliers
The seaside suburb of St Heliers has experienced a marked increase in values in recent years. Its seaside charm, proximity to the heart of Auckland city, along with a large number of cafés, restaurants, boutique shopping and stunning views of Rangitoto all combining to entice people to live in the area.
Mirroring the trends of the wider Auckland region, rapid value increases have been apparent within the St Heliers market over recent years. Recent months have witnessed an easing in value appreciation. The local market recorded a median house price of $1,387,500 over the March 2017 quarter. The St Heliers market saw 52 sales completed over this quarter with an average days on market figure of 40 days. The March quarter was followed by a notable increase in April 2017, which saw a monthly median of $2,000,000 according to the latest provisional figures released by the Real Estate Institute of New Zealand (REINZ). It is important to note that, as a smaller geographical area compared to the Auckland region or the Eastern Suburbs market, the St Heliers market has fewer sales which makes quarterly and monthly medians more sensitive to the attributes of individual properties sold in that particular period. Therefore 12 month moving averages better illustrate price trends in the St Heliers residential market which continue to edge up.
Spotlight on Orakei
As one of the most affluent suburbs of not only the Eastern suburbs but also the entire country, Orakei’s proximity to the coast and the CBD makes it one of the most desirable areas within Auckland. Orakei is characterized and known by its large and luxury clifftop properties with views to Rangitoto and Devonport. As a smaller market than St Heliers, Orakei typically records only between 20 and 30 sales each quarter and therefore its median prices show a much higher volatility. Coupled with the fact that Orakei offers properties at a wide range of prices, median price movement can be therefore more extreme as illustrated by the adjacent graph. Consequently, even the use of moving averages of monthly medians are not capable of capturing the price increases recorded over 2016 in the Eastern Suburbs, suggesting fewer upper-end properties were put on sale and sales activity was more concentrated in relatively lower priced properties. The Orakei residential market recorded a median price of $1,635,800 over the March 2017 quarter and the local market had 21 sales completed over the same quarter. Sales volumes have, therefore not declined at the same rate as in the region as a whole. The average days on market in the Orakei residential market was 43 days over the March 2017 quarter, slightly lower than the 45 days Eastern Suburbs average.
Sales Hot Spots (12 months to 2017 March)