Are Auckland House Price’s Cooling?

It’s been a pretty crazy year working in an industry connected to the Auckland housing market and over the last 1-2 months things have definitely cooled down however it is worth having a closer look to see how things may play out moving forward:

• The RBNZ announced around mid May that the 30% deposit restriction to do with Auckland investment lending was coming in on the 1^st of October this year. While this officially got pushed off until the 1^st of November in reality some banks were implementing this rule as early as mid July. We found that the market went crazy with investors in particular trying to purchase prior to the rule change and also potentially offshore investors buying prior to the new bright-line tax rule and requirements in regards to having an IRD number and NZ bank account being introduced
• Over the last couple of months there is definitely been a drop in activity with auction clearance rates in particular dropping through the floor and a noticeable reduction of Chinese purchasers in these auction rooms.
• There has been an increase in Aucklander’s looking outside their region with a noticeable pick-up in activity in Tauranga and Hamilton in particular.
  
  So while Auckland prices are unlikely to continuing growing at the same rate they have been (which I think is a good thing as no one wants a messy crash down the track) there are some key points that are likely to mean that there is still some growth (albeit what is likely to be single digit growth) for at least 2016:
  

• Migration is still very strong. Annual NZ migration recently topped 60,000 for the first time with just under 28,000 of these going to Auckland. Expat New Zealanders returning home has exceeded those leaving to Australia for the first time recently since 1991. I do expect migration to potentially become a political ‘hot potato’ however next with unemployment expected to increase and thus some politicians (read Winston Peters) looking to capitalise on some disenfranchisement around this.
• Supply is simply not keeping up as per this Herald article a bit over a week ago. While there are definitely a lot of apartments coming in as a comparison from when Auckland apartment consents peaked at 4799 in 2005 they were only at 2119 last year. This is still going to take a while to wash out which will keep prices up.
• While the market has slowed of late remember it did the same in late 2013 with the first set of LVR restrictions being implemented. We then had interest rates starting to rise in early 2014 and the combination of the two did peg back activity for a time. With the fact that interest rates are expected to stay low by most commentators for a while yet and that many investors have gained some additional equity caused by the jump in values many will still be in a position to purchase next year and a lot are likely to once they realise that the market is unlikely to take a tumble.

Do remember however to invest prudently and that following all booms there eventually a slump where money becomes harder to access so make sure you don’t put yourself under too much pressure.

If you would like to discuss this further feel free to email me at kris@krispedersen.co.nz.