House prices rise 22%

Jenny Ruth

Friday 27th February 2004

The latest figures underline just how strong the housing market has been and also suggest it will be some time before it cools much.

Firstly, Quotable Value says its house price index jumped 21.9% in 2003, the highest annual growth in the 13 years it has been producing the index.

Secondly, Statistics New Zealand says housing consents jumped 11.1% in January from December in seasonally adjusted terms and were 16% higher than in January last year.

While recent Real Estate Institute's figures are showing a slowdown in the median house price, Quotable Value says it's index showed continued growth in the December quarter, up 4.9% after a 7.3% increase in the September quarter.

"The house price index is a better indicator of change in property values as median sales prices can be impacted by sales activity in specific property types," says Blue Hancock of QV valuations.

"A high volume of sales in apartments or investment properties may drive the median price down when, in fact, property values may be increasing," he says.

He notes that the index has increased for 10 consecutive quarters, but doesn't see this continuing through 2004. "Reduced net migration, house prices outstripping income growth, interest rate increases and increasing construction costs are all likely to impact on house sales in the coming year."

Very few areas of New Zealand experienced growth rates below 10% in 2003 while Nelson led the pack with a 41% increase, followed by Dunedin, up 34%, and Invercargill, up 33%. Napier was the strongest North Island city with 32% growth.

Statistics New Zealand says 2,385 housing consents worth $442.3 million were issued in January compared with 1,995 worth $340.3 million in January last year.

The 30,191 consents issued in the year ended January were up 2,374, or 9%, on the previous year, and was the largest total recorded for a year ended January since 1977.

Ulf Schoefisch, chief economist at Deutsche Bank, says the key driver of the January increase was a 73% rebound in apartment consents and that if you strip these out the increase was only 0.1%. Nevertheless, the annual consents level was about 30% above the long-term average.

"Backlogs in processing applications for housing starts and difficulties in getting builders (as the industry operates at capacity limits) support our view that the residential construction cycle will follow the cycle in the market for existing homes with a considerable lag," Schoefisch says.

"With population growth slowing and housing turnover softening, we expect residential construction activity to plateau and then moderate (i.e. make a negative contribution to GDP growth) over the course of this year."

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