By Gareth Vaughan and Bernard Hickey
Barfoot & Thompson, Auckland's biggest real estate agent, says it sold more houses in February than in any February since 2007, and although the average price was up only 2.7% from a year ago, it has sold more houses for above NZ$1 million in the first two months of the year since 2007.
Barfoot & Thompson said it sold 764 houses in February, up 145, or 23%, from 619 in February last year with the average price for the month at NZ$536,069, up 1.2% from January, and up 2.7% on February 2011. Sales were also up 81, or 12%, from 683 in January this year.
It was the strongest February in terms of sales volumes since 1,033 sales in February 2007.
“Prices are edging up, but only at a modest rate,” said Peter Thompson, managing director of Barfoot & Thompson. “It is also a normal part of the regular market fluctuation for prices to increase in February over those for January.”
Thompson said the market segment where the most noticeable change took place was in the NZ$1 million plus price range.
“In February we sold 41 homes for in excess of $1 million, compared to 29 in February last year, and this followed on the sale in January of 40 $1 million homes, nearly double the number for the previous January,” said Thompson.
“You have to go back to the peak selling year of 2007 to find more $1 million homes sold in the first two months of a new year.”
Meanwhile, Barfoot & Thompson listed 1,552 new houses in February, up from 1,031 listings in January.
“While this was up 50.5% on those for January and contributed to sales numbers increasing, the number was in line with the number of new listings in February last year.”
Thompson said the firm had 4,917 properties on its books at the end of February, the lowest number at this time of the year for five years.
“Lack of listings is still holding the market back from being more active," he added.
See Barfoot & Thompson's February market report here and February market analysis here.
However, Interest.co.nz's analysis of the figures also shows the 'drop out' rate, which measures the numbers of listings from previous months that dropped off Barfoot & Thompson's listings in February, rose to 637 or 13.4%, which was the highest rate since July 2009.
Regional breakdown
The regional breakdown of the Barfoot figures show the biggest sales growth in February from a year ago was in South Auckland and West Auckland, with growth of 82% to 122 and and 37% to 122 respectively. Eastern suburb volumes actually fell to 65 from 68 a year ago. Central Auckland sales, which often includes apartments, were steady at 24.
Central suburbs were also flat at 109. North Shore sales rose 14% to 170.
However, the price action showed a different picture.
The average price for central Auckland, which includes apartments, rose 33.6% to NZ$282,879, while the average price for the central suburbs, which includes Mt Eden, Epsom and Parnell, rose 13.5% to NZ$679,820.
The average price for Eastern suburbs, which include Remuera, St Heliers and Mission Bay, rose 22.6% to NZ$790,285.
(Updated with regional details, drop out rate)
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34 Comments
You'd have to be foolish to think the above story tells an acurate picture of the housing market because the true story is all about interest rates.
Over the boom period of 01 to 08 mortgage interest rates hovered around 10% so if buying a $1,000,000 property tickled your fancy, using Bernards mortgage calculator, you would pay over a 25 year period $2,095 each week.
In todays market the same $1,000,000 house is worth less, but lets say for simplicity's sake that you borrow the money to buy a house at 5% interest over the same period and hay presto $1,348 per week is all that you'll pay.
A better way to think of it is purchasing $1,000,000 worth of shares in a houseing portfolio. At 10% return you could expect a return of $2,724,149 over a 25 year period. @ 5% return you can expect $1,752,362 over the same period.
For this and other reasons it is easy to see why housing is still a risky investment until interest rates rise - and what is the chance of that happening soon.
But most people don't have mortgages at all or have mortgages that are a very low proportion of value, so it's not really a fair comment about the premium end of the market. I suspect the number with mortgages at above 80% of market value for $1m homes is less than 1 in 20.
Hence why you should look at property as an investment, if you purchase a property for $1,000,000 with no mortgage and live in it then the return or value to you is, in respect to, what you could otherwise could have done with the money and this is the current mortgage rate + or - the other investment return.
Not exactly. If you want a nice house you need to buy one.
Paying $1000pw to rent a $1.0m house while you go and invest $1.0m cash in something else makes no sense.
Firstly you'd need to be earning $1500pw pre tax from that investment just to break even assuming no capital gain and no future increases in rent. So that's about 7.5% plus say 2% capital gain (at the inflation rate), so you'd need 9.5% to be better off - before even adding a risk premium. What risk free investments earn 9.5%? Financial companies anyone? European Govt debt? Nothing at all risk free gets that return.
If you've got cash - own your own home before investing it in anything else (other than your own business which should come first - if you are competent to make it happen).
but weather or not you own or rent makes no difference. If you have $1,000,000 to own the home you live in you get a return - in your example the $1,000 on rent you would otherwise spend is the return on investment.
If you spend the $1,000 on rent, then you are free to invest your $1,000,000 on an investment which will hopefully pay a hirer return than owning the property.
My original point is that it's the mortgage rate which determines weather or not home ownership is a good investment and though the heading of this article suggests housing is holding steady and even improving as in investment the truth is your return on a million dollar housing asset has almost halved over a 25 year period due to the mentioned mortgage interest rate changes.
You have successfully re-defined the term "genaralisation". Tell me which shares in a housing portfolio returns 10% per year?
Also I have a mortage on our house since late 90s and the interest never got to 10% infact nowhere near it.. the highest was 8.4% floating..
Good point Chairman.
Actually housing ownership provided a 10% each year between 2001 and 2008 with properties doubling in value over the period and ofcourse gold has out performed housing.
Which highlights that housing is an investment with a return and just like any other investment it might go either up or down in the furute.
As the graph in the link illistraights floating interest rates over the period hovered between 8 and 11 % - probably closer to an average of 9% than 10%.
www.globalpropertyguide.com/Pacific/New-Zealand/Price-History
Great news that the housing market is taking off again. Best to get in at the bottom. Limited supply and not much chance of further supply as building houses is too expensive. We need to get in on the next property boom. Maximse leverage and raise the maximum mortgage on properties and buy more. Govt still give investors a tax deduction to subsidise property investment through negative gearing. Time to make a fortune like in the 70,s and 2000's!
It''s remarkable that people can look back and study following the second world war that their was a population bubble and this can be measured through al-sorts of commodities like nappies, prams, growth in schools.
Yet the same economists can not work it through to property and monetary expansion.
Go ahead invest your life's savings - if you have any, in property.
Yes wonderful isn't it.
The bulls shouldn't get cocky - central Auckland is sounding suspiciously bubble-like.
As Olly says as night follows day bust will follow boom. I reckon there are a few chumps out there buying near the top of the market. Any stats/anecdotes as to how many of the central Auckland properties are going to Chinese chumps???
no racial ovetones intended or conveyed. I talked about "chumps" in general terms, then Chinese chumps as a subset. There are obviously plenty of kiwi chumps paying too much as well
But I'm genuinely interested in knowing how many Chinese buyers (or chumps) are purchasing central Auckland property
I know in this globalised free market world its sacrilege to even consider protecting housing markets from foreign interest.....
I was in Auckland for few days last week. Caught up with a friend who is working with a firm associated with continental cars. He said that middle aged asian business men are not interested in traditional BMW, Merc, Audi anymore. They are buying Posche, Ferrari and Lambo.. two of the lastest ferrari 458 were bought by chinese (or chumps) business men. So there is a bit of money flowing around!
http://www.stuff.co.nz/national/politics/6523745/Immigration-changes-give-preference-to-wealthy
Wealthy migrants now have to be just that tad bit wealthier given real estate is on the up and up! When you've got to meet an "investment" threshold in order to qualify for residency - the higher the price of the bricks and mortar, the better!
Well, 3 of my mt Eden house owning neighbours say that prices have gone silly. They all independently used that same word...
Comparison of Aus vs Canada:
http://www.macrobusiness.com.au/2012/03/australian-vs-canadian-property-by-leith-van-onselen/
What is fundamentally different about NZ?
there is not really that much difference, culturally / economically / socially
Perhaps, NZ has a lower housing supply responsiveness, as our building sector is not as competitive as Aus or Canada. Also, NZ is somewhat different in that in relative terms Auckland has a much bigger share of the total national population than any city in Aus or Canada
there is no compelling reason why a (proper) bust cannot occur in NZ, when it has occured in numerous international markets. In fact, widespread research in urban economics demonstrates that markets that are supply constrained tend to have bigger booms and bigger busts (ie. refer the heavily regulated US cities). Hence my earlier warning about complacency amongst housing bulls
In summary - there is compelling evidence that the very factors that are currently driving Auckland factors skyward may also eventually contribute to a bust
When? how? By how much? Hard to pick
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