Peter Thompson: Indicators pointing to active Auckland housing market and stable prices

Peter Thompson - Managing Director, Barfoot & Thompson
Peter Thompson: Indicators pointing to active Auckland housing market and stable prices

Speculation around whether Auckland house prices are about to fall significantly have again surfaced in the media.

The latest round of speculation has been kickstarted by news that the Sydney median house price had fallen by 4.5% in the year ending June 2018.

It promptly led some to ask the question: Will the same occur in Auckland?

This type of speculation is not new and in various forms forecasts that Auckland house prices will tumble been around for a few years. All have proved to be false alarms. 

The reality of the situation is that Auckland house prices have been stable for some 18 months and have barely moved from the record prices that were achieved in the first quarter of 2017.

They are certainly flat-lining at present. While house prices in many parts of the country are continuing to rise this is more a case of prices in other centres catching up and closing the gap on what has occurred in Auckland.  

The Reserve Bank has certainly made it clear it does not see Auckland prices falling any time soon.

The Governor of the Bank, Adrian Orr, when asked his views about a possible Auckland price decline acknowledged it was “possible”. However, in the same breath said it was also “possible” prices would rise. He noted that a price decline or rise were not scenarios the Bank had worked into its projections.

For me, the far more important driver likely to affect the housing market than what is occurring in Sydney is the Reserve Bank’s official cash rate (OCR) which is the number around which mortgage lending is built. At 1.75%, the Reserve Bank implied that it could be as late as 2020 before this is lifted.

What this implies is that mortgage lending rates are likely to stay stable for the next two years, providing buyers with a great deal of confidence when making decisions about taking on long-term debt.

Westpac Chief Economist Dominick Stephens is on record as saying he is having to adjust his ideas on mortgage interest rates and that there is a possibility of a rate cut within a year.

There have been few periods in the country’s recent economic history when mortgage lending rates have stayed so low, and stable, for such a long period.

Another piece of positive news for Auckland housing tabled in the past month came in the release of Auckland Council’s 2018 growth monitor index.

This talks about the current population of Auckland hitting 1.65 million, after growing by 43,000 in the past year; the number of jobs created in the City growing by 190,000; the unemployment rate declining to 4.5%; and the number of new businesses registered by a net 8000.

For all its challenges Auckland remains a thriving, growing, ethnically-diverse city generating 38% of the country’s GDP and more people are moving to Auckland than any other part of the country.

Based on Auckland’s current economic development, the stable mortgage interest environment, population growth and a housing sector that cannot build properties fast enough to meet demand, there is every reason to take the optimistic view that house prices will not decline.

Naturally, there is always the potential for some unexpected, offshore economic development to undermine the future – as it did in 2007 with the onset of the global financial crisis. But these threats have, and will always, exist.

 The last Auckland property price downturn was caused by the GFC of 2007. Auckland prices year-on-year fell by 5%, stabilised the following year and within two years had recovered all the ground lost.

For the majority of home buyers – whose motivation is to have a home to live in and will likely hold on to the property for seven years or more – there is little to be concerned about over modest fluctuations in house prices.

Those that invest in property to make money do so with their eyes wide open in the knowledge that all forms of investment carry with it risk, especially if they are looking for short-term gain.

My pick is that between now and year end the Auckland market is likely to see active trading, with prices remaining stable.

Peter Thompson

Managing Director, Barfoot & Thompson

barfoot & Thomspon


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