Peter Thompson: Auckland housing market has changed, but is not heading south

Peter Thompson, Managing Director, Barfoot & Thompson
 Peter Thompson: Auckland housing market has changed, but is not heading south

Three developments, two recent and one that has been building for some time, lead me to the view that Auckland residential house prices are not under threat of falling, but neither are they likely to grow at the pace we have witnessed over the past few years.

The most prominent of these developments is the strong population growth being experienced by the country and Auckland.

SEE ALSO: Pay of the mortgage or buy a rental?

The second is that concerns around potential increases in mortgage interest rates in the near future have receded.

And the third is the more reserved approach taken by property buyers in the first quarter of the year. 

At the heart of the rise in Auckland house prices is population growth. It’s a case of supply and demand, and the demand is growing faster than the supply. It’s been there for the last 9 years, and shows no signs of reversing.

New properties still lagging behind the number of new arrivals

When you look at the figures for new builds in Auckland, and also the level of new housing in the pipeline it adds up to a lot of new properties hitting the market. But it still continues to lag behind the numbers of new arrivals in Auckland.

The vast majority of the country’s new arrivals, no matter whether they are immigrants or expats returning home can choose where they want to settle. About half are settling in Auckland.

They are not deterred by stories about high house prices, high rents, congested roads, inadequate pubic transport and creaking infrastructure. Where they are coming from such conditions are the norm.

It is Auckland’s lifestyle and economic opportunities they are seeking. And their numbers far exceed those that are finding Auckland is no longer the place for them.

Auckland population: nearer 1.6 million

Official figures as to how many people actually live in Auckland is always 12 months out of date, but at June last year Statistics NZ had it at close to 1.5 million, so it is now likely to be close to 1.6 million.

Even though the housing supply in Auckland is inadequate for a population growing at the pace it is, a case can be made for saying property prices have not escalated totally out of control.

The brakes that have been applied to the market include the Reserve Bank’s lending regulations, the trading banks adopting more stringent mortgage criteria and the self-discipline of the majority of buyers, who have restricted their debt to a level they can service.

For a time during the early part of the year there was concern that if mortgage interest rates increased rapidly then the fine balance around debt servicing might unravel, leading to potentially an increase in mortgagee sales and prices falling.

However, the threat of that occurring appears to have receded. One and two year fixed mortgage rates have even moved down marginally in the past week, and all major trading banks are offering one and two year fixed rates at under 5%.

Little likelihood of mortgage rates going up in the near future

Based on that rate it can be assumed that currently banks see little likelihood of mortgage rates going up in the near future.

The third develop is the current state of the property market. It can be summed up as one where prices are holding at record levels, the number of properties for sale is the highest it has been in 4 years and sales numbers are at their lowest in 5 years.
Buyers are taking their time, being selective and the properties that are selling are priced ‘at market’. Those that sell for above market are those that offer something special.

It adds up to a market that is different from that we have experienced over the past 9 years, but not one that is on the verge of turning south in a big way.

Peter Thompson

Managing Director, Barfoot & Thompson

barfoot & Thomspon

 SEE ALSO: Pay of the mortgage or buy a rental?

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