You will have all seen the headlines this week. Auckland sales volumes are down 30% year-on-year and Barfoot & Thompson is saying that house prices have fallen back to the same level as a year ago.
Both are true but need perspective. No need to panic. Our view is this is not the start of a correction and here’s why...
The 30% fall happened back in September 2016 after the change in LVR rules for property investors. The market never recovered and has continued to bump along at low sales volumes. This is not news! We signalled it in October and even ran a seminar in Auckland discussing what would happen.
House prices started to slip towards the end of 2016, but it wasn’t obvious in the published numbers. Vendors and agents thought the real estate market might come back this summer just been, but it hasn’t. Low sales have wiped out any price gains last year.
We have plenty of buyers in the market with close to $300m of mortgage approvals. That’s like previous years. Buyers are currently sitting on the fence nervous that house prices will fall and nervous about interest rates. The housing market is driven by confidence and that will impact prices. Eventually buyers will return and quickly learn that nothing’s changed, everyone will be competing over the same small stock of decent non-leaky code of compliant homes.
With ongoing population growth, large infrastructure investment (think central rail loop), and tourism set to hit five million over the next decade, there will be ongoing constraints on Auckland. Our property shortage and high construction costs are not going away anytime soon.
What is happening is the result of a policy setting by the Reserve Bank that is creating tighter credit conditions. It’s a good thing. The Auckland housing market was clearly overheated and needed to slow down.
But, it’s not a market correction. We are at full employment, 98.50% of homeowners are up to date with their mortgages and rates will stay comparatively low for a long time yet. We’re also in the early stages of a massive tourism boom with 10,000 Americans retiring every single day, let alone the numbers out of Europe.
One day there will be a market correction, there always is, but it won’t be driven by the RBNZ tweaking an LVR rule. It will be the result of something overseas and that’s near impossible to predict.