The latest house price index data confirms that Auckland is re-accelerating. Annualising the past couple of months shows greater Auckland increasing at a rate of over 21%. That is considerably faster than the rate of increase over the past year of 11.6%.

The acceleration in values is most pronounced in central Auckland, where over the past three months values have increased at an annual rate of 26% compared to only 13% over the past year. Manukau has shown a similar increase from 10.6% to 17.5%.  

Nationwide values are now 5.7% above the same time last year, but much of this increase has been driven by Auckland. A month ago it appeared as if most of the other main centres were beginning to follow Auckland and starting to re-accelerate. However the latest month’s index shows that acceleration has eased off in most areas outside of Auckland.

The increase in Auckland values can largely be attributed to high demand fuelled by strong net migration, falling interest rates and strengthening employment combined with an undersupply of available property. This high demand and lack of supply isn’t an issue outside Auckland, with even the Christchurch market, still fuelled by the rebuild, increasing at only 3.4% over the last 12 months.

While there is increased talk of the Reserve Bank imposing more lending restrictions, so far they have not done so. To impose more nationwide restrictions would potentially hurt markets outside of Auckland while trying to tackle an issue that increasingly appears to be an Auckland one. Increasing the supply of properties in Auckland is the immediate need, and while building consents are up they are below long term average levels. Furthermore, the building activity isn’t keeping up as developers and large building companies struggle to find and keep skilled staff.

An increase in Auckland housing supply may be a few years away, and by that time interest rates are likely to have risen and net migration eased off. But will this lead to a massive correction in values? I don’t believe so.

In the meantime I expect to see Auckland values increase quite strongly in the coming months. Listings remain a constraint on the market so these will need to pick up considerably over the next couple of months to keep up with the increased demand.

The rest of the country will stay steadier with very modest increases across most of the other main centres.

The first few months of 2015 are going to be fascinating to watch!