Warnings on the state of the Auckland housing market are coming thick and fast now. People who bought recently (at the peak of prices and low interest rates) are likely to get burned. From Stuff:
Warning to Auckland home buyers: ‘The game’s over’
ANZ’s chief economist says “the game’s over” for Auckland’s housing boom, and warned New Zealand’s largest city is now heavily exposed to the risk of rising interest rates.
While Auckland has a major shortage of new houses being built at a time of record migration, Cameron Bagrie said the real driver of house prices were low interest rates. With mortgage rates already climbing, Bagrie said higher borrowing costs would trump the supply shortage.
So still no good news for first home buyers.
“House prices have risen to such an extent that we estimate that for the average Auckland household to purchase the average house… debt servicing costs (principle and interest) would now represent 51 per cent of average disposable incomes,” Bagrie said.
“A 1 percentage point increase in mortgage rates would see this jump to nearly 56 per cent, which is far higher than in 2007, when the minimum mortgage rate was closer to 9 per cent.”
Here’s the usual excellent analysis from interest.co.nz:
The Auckland housing market is on the verge of losing all the capital gains it made in the last 12 months
The Auckland housing market is on the verge of having all of the capital gains it made in the last 12 months wiped out. Prices of Auckland properties have fallen so much in the last few months that median prices are within a hair’s breadth of going into negative territory on an annual basis. They may already be there.
In February the average price of Auckland homes sold by Harcourts, the country’s largest real estate agency, was $934,428, down 1.1% compared to where it was in February last year.
According to the Real Estate Institute of New Zealand, Auckland’s median selling price peaked at $868,000 in October last year and has declined every month since. In February it hit $800,000, down 7.8% from October’s peak.
The interesting thing about those numbers is that the downward trend they show is occurring at a time when Auckland’s migration-driven population growth is increasing at record levels and construction of new housing continues to fall miserably below the numbers that are required, exacerbating the region’s growing housing shortage.
How can this be? As you might expect, the market is being influenced by forces converging from several different directions.
One of the biggest changes to affect the Auckland market over the last few months has been the relative absence of local ethnic Chinese buyers. It would be hard to underestimate the impact they were having on Auckland’s residential property market up until about the end of the third quarter of last year. … Auctions that were packed with Chinese buyers this time last year are now much quieter and Chinese faces are often more notable by their absence rather than their presence. … With the odd exception, the days of the bidding frenzy are over.
This change in buyer behaviour corresponded with new restrictions the Chinese government introduced on the amount of money people could take out of China, cutting off one of the main sources of funding for property purchases by Chinese buyers in this country.
Around the same time, interest rates started rising and tougher loan-to-value ratio (LVR) restrictions on investment properties introduced by the Reserve Bank began to bite.
All of these factors began to weigh on market sentiment, which could potentially have a bigger impact on the market than actual drivers like interest rates.
Here’s a view from the outside, the (Australian) Macrobusiness blog (lots of useful graphs, go read the original):
Add a third huge bubble city to your Aussie bank risk list
CoreLogic has released its latest New Zealand Property Market & Economic Update, which paints a disturbing picture of Auckland’s housing market.
First, population growth into Auckland has been extreme – driven by immigration – with the city’s population growing by 44,500 over the past year, accounting for nearly half of New Zealand’s total population growth of 97,000 … At the same time as Auckland’s population is surging, dwelling consents remain weak…Which has led to a worsening shortage of homes across New Zealand, concentrated in Auckland.
Yet, despite the exorbitant cost, investor participation in the Auckland housing market is at a record high 44%, whereas first home buyers have crashed to 19%
In short, Auckland’s housing market is an immigration and investor-led bubble like few others.
Any government is between a rock and a hard place here. Prices need to fall for first time buyers, but if they do fall (especially with rising interest rates) some recent buyers are going to be hit hard.
English said at the end of 2015 that low interest rates could be locked in “for years”, they started going up in 2016. With similar grasp of the issues English reckons the high cost of housing is due to environmental protection measures, and his helpful advice to first home buyers is be patient. In short, National have no answers.
Labour wants to help first time buyers by building affordable houses. If they have a solution for at risk buyers who bought at the peak I’m not aware of it. Markets rise, they also fall, Auckland might fall further.