Wellington Housing Market Commentary

 

BY MAX MEYERS REGISTERED VALUER

For each newsletter I research the statistics available on the residential housing market in Wellington to establish the pattern for price movement and future trends. This is a global view and can differ from my experience in valuing individual properties as the figures disguise the nuances of distinct property types.

Houseprice Index for Wellington region 2013, 2014 and 2015

This includes new house prices trending noticeably higher, properties with distinct issues such as leaking, earthquake or maintenance matters trending lower and some hot spots in the market where prices have increased noticeably more than the trend for the area, an example being ownership units in Miramar up more than 10% in the last year.

The effect of the Reserve Bank’s Loan to Value Ratio restrictions on banks (LVR’s) is now becoming evident in the statistics but the effect is waning. LVR’s were blamed for affecting the deals that could be done on lower priced homes. Some very interesting analysis carried out by CoreLogic has shown that initially the lower price ranges dipped in both sale price and numbers but this sector is now recovering faster than the market average, particularly in Auckland.

An interesting feature of the figures for the Wellington region is that the values (% change) are easing but average prices are increasing. This may be the effect of LVR’s reducing the number of lower price sales and increasing the percentage of higher priced sales and therefore average price. Given the trend analysed by Core Logic this may reverse over the course of the next year.

QV Price Movement Report Wellington Region 2013, 2014 and 2015

Overall, the Wellington Region is showing a pattern distinct from the headline grabbing Auckland price growth which is skewing the national trend. There is a slight declining trend developing in prices but generally the market is very steady with only modest changes. There are noticeable differences between Wellington City and other cities in the region, with some higher value locations doing noticeably better than lower value areas.

Value Change Wellington Locations vs National Change in Value in the Past Year

wellington3KEY FEATURES IN THE REGION

> A distinct drop in values in mid 2014.
> Very slow growth in the region overall.
> Significant variation in value change between different areas of the region.
> Low value increase in most areas, some negative (-1.1% to +1.9% range)
> A longer term drop in the supply of houses available for sale.
> More confidence in the market across the region late in 2014 and early 2015. The number of sales was low in 2014 until October and increased to about average in February and March.
> A noticeable increase in the time to sell.
> A significant increase in asking prices since the start of 2014.

MARKET TRENDS

Interpretation of the figures initially suggests an easing market, with low value growth in most areas and longer selling times. However this take is contrary to comments from the real estate industry about bigger turnouts at open homes, more sales activity and higher prices.

Houses Stock for Sale and Listings in Wellington 2007-2015

The key to understanding current conditions is possibly in looking at what has happened to the supply side. Most notably the available stock of housing has been steadily declining as can be seen on the graph “House Stock for Sale and Listings in Wellington.” It can be seen that stock levels were low in 2007 and 2009 after which there was a noticeable increase. The low levels correspond to high value growth periods and high stock levels to low growth periods. The slump in the market in 2014 is evident from the peak in stock available, but from the end of 2014 stock levels are relatively low. Lower stock means less buyer choice and a more competitive market and this is possibly what the real estate industry is experiencing.

Days to Sell Wellington Region 2012-2015

Competitiveness in the market is often reflected in the time it takes to sell. The REINZ figures in the graph “Days to Sell Wellington Region” clearly show longer selling times through mid 2014, a return to normal later in the year, but in the first quarter of 2015 longer times are again pronounced. Our interpretation is that the longer selling times are from old stock finally being sold as buyers run out of choice due to a limited stock of homes. It is a pattern noted in the past but is usually a short term feature as there is a clear long term correlation between quicker selling times and price increases. Alternatively, it may be that increased asking prices, which show up in the figures published by Unconditional, have slowed the number of sales and increased selling times.

Has the Wellington market turned? I think it would be fair to say it’s improved but with noticeable variations between areas.

CONCLUSION

In the last few months there has been noticeable change in some of the metrics for the residential property market and what this means is open to interpretation. The region has shown slow long term growth consistent with larger urban areas, better than provincial towns but eclipsed by Auckland. Declining stock, higher prices for new homes, some locations and types of houses showing well above average value increases, as well as reports of greater activity from real estate agents, suggest prices will increase. We expect this will follow the patterns already seen with the older more central areas growing more steadily and following the more confident business and employment markets. This is a feature of the Eastern Suburbs where the film industry has supported local businesses and employment in the wider community and created demand for rental and sale properties.

Looking ahead Wellington has been stable and remains affordable compared to Auckland.  There are still good areas where sound homes can be had for under $400,000 that are not too distant from Wellington. In the 1990’s, areas such as Wainuiomata, Upper Hutt and Stokes Valley had many years of flat prices but when the market changed in 2002 to 2005, these areas experienced growth rates amongst the highest in the region. At present I see these types of locations as having a low down side risk, especially with the effect of LVR’s on prices abating.

LOCATION

wellington hilltopPORIRUA

After declining during most of 2014, the area is starting to show growth at 0.9% pa. The number of sales has increased to near normal levels and average selling times. A normal market starting to increase in value. 1.3% pa average growth since January 2012.

UPPER HUTT

Like Porirua emerging from declining values, now 0.5% pa. However this is a more volatile market with a lower number of sales and above average selling times – possibly a result of low stock numbers which is starting to put upward pressure on prices. 1.4% pa average growth since January 2012.

LOWER HUTT

Dropped into negative growth in July 2014 and is still at – 0.9% pa. One of the lowest value growth areas in the region at an average of 1.1% pa since January 2012, compared to 1.7% pa for the region and 6.5% pa nationally. There is about average sale numbers and selling times. Possibly increasing values in the next few months.

wellingtonCITY & SOUTH

Slow positive growth since September 2011 now at 1% pa. Less than average number of sales and slower selling times for the southern area but for central, including apartments there has been a noticeable increase in the number of sales and slower selling times. 1.8% pa average growth since January 2012.

EAST

The strongest growth area in the region currently at 1.9% pa but averaged 2.6% pa since January 2012. The shortage of stock scenario is most evident with less than average numbers
of sales and slower selling times.

NORTH

A steady growth area  currently at 1.7% pa. Averaged 2% pa since January 2012. Also lower numbers and slower times.

WEST

Has in the past been a higher growth area but slipped into low growth mode in May 2014 and into negative figures in March 2015. Slightly less than average numbers but a big increase in selling times for 2015. Average 1.9% pa average growth since January 2012.

 

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