October house sales jumped 15.5% on 2017

House prices rose just 0.5 percent nationwide in October from September, while Auckland prices fell a smidgeon. However volumes of houses sold jumped 15.5 percent from last October to the highest number in five months.

The latest Real Estate Institute of New Zealand’s house price index shows prices nationally rose 3.8 percent in the year ended October but fell 0.4 percent in Auckland.

Excluding Auckland, the index was 7.9 percent higher than a year earlier.

The number of properties sold in the latest month jumped by 911 to 6,791 compared with October last year.

“October saw the real estate market spring back into action,” says REINZ chief executive Bindi Norwell.

“This is the highest number of sales for a month of October in two years and is the equivalent of an additional 29 houses sold each day across the whole month.”

However, she notes that sales the previous October were dampened by the election.

The ban on foreign buyers took effect from Oct. 22 but Norwell says she’s confident the figures don’t reflect any rush by foreign buyers to get in ahead of the ban, pointing to Statistics New Zealand figures showing the lowest level of foreign buyers in the September quarter since it began keeping records.

Nevertheless, Kiwibank economist Jeremy Couchman says the bounce-back doesn’t mean the housing market is hotting up.

“If we average seasonally adjusted sales over September and October, we find that activity was 2 percent below that experienced in the previous eight months of 2018,” Couchman says.

“Current developments are consistent with our view that the housing market has entered a period of consolidation” and house prices are likely to move sideways for the next year or so.

“The housing market has been contained because of government policy uncertainty and tough restrictions on investor-related lending,” Couchman says.

“But the market is well-supported too and far from falling off a cliff. We have a massive shortage of housing, record low mortgage rates and an unemployment rate at 3.9 percent.”

Despite the sales increase, the number of days it took to sell a house in October increased nationally by one day to 35 days, compared with October last year.

Auctions were used to sell 15.8 percent of the houses sold in the latest month, up from 14.9 percent in October last year. This is the first annual increase in auction sales in 28 months.

Couchman says there is growing anticipation that the Reserve Bank will loosen its loan-to-valuation restrictions (LVRs) in its upcoming Financial Stability Report. In simple terms, LVRs control how much of a banks' lending on housing is allowed to be low-deposit mortgage lending. They are intended to protect the long-term health of the banking system.

“The housing market remains well behaved. There is every possibility that the Reserve Bank sees current conditions as congenial to looser LVRs. In addition, loosening LVRs would work with, not against, the bank’s monetary policy objective.”

Still, he’s expecting only a modest loosening of the LVRs, akin to those delivered last November.

The house price index was developed by the Reserve Bank to smooth out greater or fewer numbers of cheap or expensive houses being sold in any month and to take into account the size of houses being sold to reach like-for-like numbers.

But REINZ continues to headline its own median house prices, which rose 6 percent in October from the same month last year.

The discrepancy between the median price and the index’s 3.8 percent annual increase is easily explained by the fact that the number of homes sold for less than $500,000 fell from 46.1 percent of the market last October to 41 percent this October and the number of homes sold for more than $1 million rose from 12.6 percent of the total last October to 14.1 percent this October.

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