Has the Auckland property market swung in favour of property buyers?
Talking with real estate agents and those selling new homes over the last 2-weeks we are hearing that the property market has slowed significantly. There appear to be more houses on the market now and they are not selling as quickly.
This is frustrating some people selling houses and is making real estate agents work harder to get houses sold, while it is giving buyers more choice and time. At this stage we have not really seen house prices drop but we know that in some areas and for some people that need to sell this will be the case.
It is certainly looking more like it’s now a buyers market again.
The Market Swings In Property Buyers Favor
There is a lot of talk to confirm that the Auckland property market has slowed considerably in the last few weeks.
Property information and valuation website myvlocity reported that new residential mortgage registrations in the Auckland property market have declined by 26.2% compared to the same time last year. That was for the year ended October and they say the trend indicates the Reserve Bank’s additional LVR restrictions coupled with an ongoing lack of supply are having an impact.
Personally in my role as a mortgage broker I have spoken to a number of real estate agents and they are all saying that the market has slowed. The sales people in the new build sector are echoing the same, saying that they are not getting as many people through their show-homes and therefore sales are lighter than they have been.
In the NZ Herald this week we heard from some seasoned property investors;
Ron Hoy Fong, with 31 properties valued at $23 million, says “buy now because the city’s real estate market has finally turned and places usually bought by investors are going for up to 30% less”
Gary Lin, another Auckland investor who has 14 properties valued at $10 million says “a lot of investment properties are being passed in, particularly in south and west Auckland. About 70% of them are passed in at some auctions. It’s a good time for first-time buyers. Prices have dropped 5 to 10%”
These are the comments made by just two property investors; however as already mentioned the same thoughts are being echoed by people within the industry.
We have also heard Barfoot & Thompson confirming a slow down in sales with Campbell Dunoon theBarfoot & Thompson auction manager who confirmed the drop but said that he thinks this trend would not necessarily continue, saying “there has been a drop in our clearance rates from a couple of months ago noticeably in the sub $600,000 mark which is probably a result of changes to the LVR rules.”
Why Is The Auckland Property Market Slowing?
I think it would be hard to point the finger at any single thing; however there have been a number of changes recently that have made it harder for some people to buy property.
The Reserve Bank has introduced a number of new rules meaning the banks will typically require a 20% deposit from people buying new homes and a 40% deposit for those buying rental properties. The larger deposit requirements for property investors has lead to a significant slow down in that area which impacts real estate sales.
There is also a lot of uncertainty within the financial sector with some economic commentators being concerned with Trump being elected and the effect that may have on the US banking system which has flow on effects around the world. We have seen some of the banks increase the home loan interest rates over the past couple of weeks and while this is a concern, the interest rates are still at historically very low rates.
Of course the media have been plastering news and opinion on the housing market as they tend to around this time of the year. Some of what we read is good information but much of it is opinion from people that have a view that might be bias. There are those that say property prices are unaffordable and therefore we could see a major correction with house prices falling 20%, while others are saying the opposite – that house prices will continue to increase.
Buyers just seem a little bit nervous.
Will The Property Market Pick Up Again?
This is a question that we are getting asked.
I guess we have to look at what we believed has been driving the property market and specifically the Auckland property market.
We believe the major factor that has been driving the market has been the disconnect between supply and demand – ie: there have not been enough houses.
The problem within the Auckland property market is that while the economy here is buoyant there is still growing demand for houses with people moving into the city, and the new builds being done are not keeping pace with the demand for houses. We know that net migration into New Zealand is at record highs and while we do not have up to date data specific to Auckland we would expect that a large number of those people are moving to Auckland. With the recent earthquakes this might also see people from other regions look at moving to Auckland too which will put more pressure on housing here.
In short – the demand looks to be continuing so that leaves the question of supply.
Of course the Government and the Auckland Council are busy trying to make land available for new builds and this is working. The problem is being able to get the houses built but Statistic’s New Zealand have reported in September that there had been 29,935 new dwellings consented for the 12-months which was up 14% from the previous year. This is about 575 new homes being built each week to house the increasing Auckland population which Auckland Council reported in June was an additional 819 new residents each week.
Assuming that there will be multiple people living in each house then maybe there are enough new houses being built to keep up with the current population increases, but we should not get complacent as the process involved to increase supply takes time. In hindsight we now know that it takes about 7-years from the time that the land is available to the time there is a completed house, and that is too long.
We Want Healthy Property Markets
Most people who are trying to get onto the property ladder think that a collapse in the Auckland property market would help them, when those who already own a home are okay with house prices increasing.
The problem with a crash is that it will hurt a lot of people, and in fact will not make it easier for people to buy their first homes as the banks will tighten up even more. When the banks see a risk they will take extra care in what they will lend and will also price in that risk by increasing interest rates.
A healthy property market is one where house prices are increasing at about the same pace as incomes and this is consistent.
People that are involved in the Auckland property market seem to agree that this is a short-term slowdown and therefore this could be a short window of opportunity for buyers.
