The Auckland housing market continues to be a topic that is rued by many a wishful home buyer. Now Auckland has been rated as the third most live-able city in the world, would housing prices increase again? But are things really on the rise, or are we starting to see a shift in the opposite direction? It can feel like there’s a different opinion every week – but it’s hard to argue with the stats. The numbers provided by ANZ’s February Property Focus report will bring a bit of clarity to those water cooler discussions – and we’ll take a look at the big issues that the report highlights below.
“On ice but not on the rocks”
So are we experiencing growth? In a word, no. While there are signs of growth, there are a number of indicators that suggest the Auckland housing market is on hold for a while – and it’s not necessarily a bad thing. The market has rebounded 17% from the low of September 2017. However the number of days a house takes to sell has risen to 37 days, compared to in February 2016, when it took only 30 days to sell.
What’s holding back the housing market in Auckland?
- Cash-flow problems and reduced margins in the building sector
Significant inflation of costs with no corresponding rise in house prices may cause cash-flow problems for businesses that are over-extended. As banks reassess risk, this will further act as an anchor as they decline to lend to over-leveraged property investors and builders. - More restrictive credit policies
The LVR (loan to value ratio) restrictions put in place will continue to remain in force. This cautious approach has resulted in less lending on higher risk investments. - Public holidays slow activity
Public holidays and school holidays slow the market. This has been true so far this year but as we head into March we should start experiencing growth. - Governmental policy changes
The new government has introduced a number of changes and constraints to help ease the pressure on the housing market. It has banned non-resident buyers, and extended the bright-line capital gain test. This has helped to slow the market and reduce the impact investors have.
What are the forces for growth in the Auckland housing market?
- Historical housing demand remaining
Net migrant flow into Auckland has slowed somewhat, but there are still people arriving and needing housing. The historical demand for housing also remains, and so there is still a backlog of potential buyers looking for homes. - Demand still outstrips ability to supply
The migrant inflow coupled with existing demand requires a rate of home building that the existing supply is unable to keep pace with. Skill shortages in the building trade and cost pressures are slowing supply. - More competition in the mortgage market
Rates have fallen for short-term fixed mortgages which are starting to provide support for the market. As young people take advantage of their Kiwisaver to use as a deposit, this continues to help people to have the ability to purchase their first home.
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What does all this mean?
The advice for investors or first home buyers has not changed. It is anticipated that house prices will remain stable for some time to come. A combination of factors continues to ensure demand outstrips supply however this is balanced by the more stringent LVR rate, banks that are being more prudent in their lending, and government policy being established that stops foreign investment and makes investment property less lucrative.
The combination of these factors creates a softer housing market that will ensure house prices slow to 2 – 2.5% growth over the next few years. Household consumption will grow as a result of the housing market slowdown and rates of savings will increase as people wait to see what the housing market does. Caution and moderation apply moving ahead, but the bottom line is that overall activity in NZ will continue to grow.
How does this information apply to me?
Analyzing trends in the property market is just one small component of what we do for our clients at SurePlan. We are an independent financial advisor so we offer transparent advice that is catered to you. We work with your needs and your time frame so your financial goals are achievable and realistic. Everybody wants to pay off their mortgage faster and retire earlier, the team at SurePlan are experienced to make that happen.
