Peter Thompson: Potential market stability after Auckland housing makes soft landing

Peter Thompson, Managing Director, Barfoot & Thompson
Peter Thompson: Potential market stability after Auckland housing makes soft landing

The economic cycle which saw the average Auckland house price increase by more than 60%* over the past six years has come to an end.

In reality, it came to an end in March this year but it has taken until now for the signs to be interpreted as a definite shift in the market rather than caution as we headed towards September’s general election.

SEE ALSO: Regions experience a leap in first home buyer activity

Most will be pleased that in Auckland we have achieved a soft landing from the cycle of rising prices, with the downturn resulting in lower sales numbers while prices have held steady.  A soft landing will assist the market in remaining stable.

I’m of the view that no one factor caused the rising price cycle to come to an end. The 20% deposit for owner occupiers, the 40% deposit for investors, banks becoming more cautious and a general belief that prices were getting too high all played their part.

Ultimately, it was the cumulative effect of the various changes that applied the handbrake.   

Naturally, the question now being asked is “where to from here”?

Forecasting of this nature is best left to economists, but the way I see it there are three broad directions the market can take – prices can fall, perhaps significantly; prices can fluctuate around current levels for a while; or after a brief pause, continue their upward march.

Based on the performance of the Auckland housing market over the past 20 to 30 years, I see the most likely outcome as a settled period with only modest price movements and sales numbers gradually increasing.

On the two occasions in the past 30 years when Auckland prices have fallen (between 1974 and 1980, and again between 2008 and 2010) the trigger was external economic factors. The first was a world recession brought on in part by rapid oil price increases and the second by the global financial crisis.

There have been other periods within the past 30 years when prices have retreated, but the falls have been short lived, and shallow.

I believe a key contributor to prices not falling to any great extent is that the fundamental conditions which were the greatest contributors to prices rising in the first place still exist.

These are Auckland still having a major shortage of residential properties, a growing population, mortgage interest rates being low and stable, and the trading banks seeing mortgage lending as profitable business.

Attraction of auctions for the seller remains strong

Some are forecasting that the downturn in housing activity will lead to the decline in auctions being the preferred method of selling a property.

While not disputing that housing is not being cleared ‘under the hammer’ at the same completion rate as 12 to 18 months ago, the attraction of auctions for the seller remains strong.

For a start it focuses greater buyer attention on a property.

What is now occurring is that properties not sold at the auction itself are attracting a larger secondary market of conditional buyers, and these additional buyers, along with unconditional buyers, are then is a position to negotiate.

Invariably this will lead to a property being sold over a shorter time frame that other sales methods.

The recent release of the three-yearly rating valuation of properties is likely to contribute to current prices remaining stable.

Home owners and buyers are in possession of up-to-date estimates of the market value of a property.

While these valuations need to be treated as a guide only, all parties are in possession of the same information, and this has the potential to add realism to the negotiating process. 

Peter Thompson

Managing Director, Barfoot & Thompson

barfoot & Thomspon

SEE ALSO: Regions experience a leap in first home buyer activity

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