Peter Thompson: Never a better time to sell in Auckland

Peter Thompson, Managing Director, Barfoot & Thompson
Peter Thompson: Never a better time to sell in Auckland

Auckland house prices have increased in value for the past 8 years, and naturally the question on everyone’s mind is will this golden run continue through 2016?

To date, the only actual data available covers sales in January, and it showed sales numbers were in line with those for previous years and prices 7% ahead of where they were in January last year.

However, I always treat the first month’s trading figures with caution, and will want to see sales data covering February before firming up on my views as to where the market is heading.

 

A seller’s marketPeter Thompson2

While the jury remains out on 2016, I am of the view that there has never been a better time to sell a house  in Auckland than right now.  

In December and January the number of homes on our books at the end of each month was at their lowest monthly levels in 20 years.

This seller’s market is being created by the unrelenting demand for homes caused by population growth, a relatively sound economy, and the ready availability of mortgage money at low interest rates.

In the past 8 years, the average price of an Auckland home has risen by close to 60% and the median price by more than 70%. Commentators are quite right when they say such a golden run has to come to an end. All cycles reach an end point, and eventually go into reverse.

The question is, has the current cycle reached its peak, and if it has will the landing be ‘hard’ or ‘soft’?

 

Still a housing shortfall

A dispassionate analysis of the factors that affect the Auckland property market suggests that the up cycle still has the potential to continue, and at the very worse any downturn will result in a soft landing.

The most telling statistic is the growth in the local population. Statistics NZ data says the population of Auckland increased by 42,000 people in 2015, and hit 1.5 million last June.

Based on the average Auckland household size being 3 people to a dwelling, we needed another 14,000 homes to house last year’s increase.

In spite of all the efforts of Government, Council and developers, the Ministry of Business Innovation’s latest estimate puts the number of new homes built in Auckland last year at 13,000. This is a shortfall of 1,000 needed to house natural growth.

This year the Ministry’s is forecasting 14,000 homes will be built and in 2017 17,000 – but only if Auckland’s Unitary Plan is finalised and implemented.

 

Into the unknown

The big unknowns are will the population continue to grow at the same pace as in 2015 and will Council get a working Unitary Plan across the line?

While I fully support the intent of the Unitary Plan to allow greater density and multi-level housing in more parts of the City, the Council has not taken the people with them in terms of its latest, last minute proposals. Public concern has been created and trust in the Council has been undermined.

The Unitary Plan has all the makings of becoming a local election issue, with local body politicians taking entrenched positions.

I have concerns this development will delay the process, and the end result may well be less flexibility in the system than is needed. This will not be helpful in tackling the challenge of providing more homes to house the growing population.

 

Borrowing flexibility will ease the landing 

Where I do have confidence is that when the price rise cycle does eventually reach the end of its run there will be no hard landing. This is based on the flexibility banks such as Westpac have built into their mortgage products. Borrowers today have the ability to spread their borrowings over a range of terms and interest rates, and in the process can lock in their repayments for as long as 5 years.

With the right structuring of their mortgage people can protect themselves against future interest rate rises for the next 5 years, and can achieve even greater peace of mind with mortgage protection insurance.

Those that take advantage of this will insulate themselves against future fluctuations in the market in terms of price and rising mortgage repayment rates.

 

Peter Thompson

Managing Director, Barfoot & Thompson

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