Kelvin Davidson: Auckland. In a nutshell.

Clearly, the housing market news, sentiment, and data are all moving pretty quickly at present, with commentary having turned sharply over the past few months from discussing the upswing to now speculating about how deep and prolonged the downturn might be. The sharp increases in mortgage rates that we’ve seen have played a key role in this turnaround.

So given all of this, let’s do a quick stock-take of where Auckland currently sits. First, there’s no doubt that market activity levels have weakened – across Auckland as a whole, they’re about 40% lower so far in 2022 than they were at this stage in 2021, with Rodney for example down by less than that, but Papakura weaker than the overall figure.

On the listings front, the new weekly flows coming onto the market have remained pretty normal across Auckland for this time of year (i.e. the Autumn/Winter lull), but with the number of properties leaving the pipeline (due to sales) having declined, the total stock on the market has risen significantly – shifting the balance of pricing power from sellers to buyers.

In that environment, it’s no surprise that values have declined. Data lifted from our automated valuations model shows that of the roughly 200 suburbs across Auckland, around 120 have seen median values drop by 1% or more since March, with areas such as Pakuranga Heights, New Windsor, and Avondale seeing declines in the range of 5-7%. But it’s not just relatively cheaper suburbs feeling the pinch either – for example, Point Chevalier (median value of $2.16m) has fallen by about 4.5% over the past three months.

In terms of market share, our Buyer Classification data shows that despite falling values (and the potential option of waiting for a lower price later) first home buyers and mortgaged multiple property owners still have a presence in Auckland – with 26% of purchases apiece across April/May, albeit with the overall number of deals lower. Relocating owner-occupiers, i.e. ‘movers’, have been a little quieter in the past few months, with cash multiple property owners seeing a rising share – perhaps some investors with significant equity behind them sniffing out ‘bargains’.

Over the coming months, Auckland’s property market is likely to remain under pressure (as will the rest of the country too), as would-be buyers continue to face a tighter environment in terms of mortgage availability but also rising interest rates. The large refinancing wave coming through – about 48% of NZ mortgages are fixed (at previous low rates) but due to be re-priced in the next 12 months – will be a key factor to watch too.

The investment landscape has also changed, and although there are few signs of existing landlords heading for the exits, it wouldn’t be a surprise if new investors are looking really closely at their sums. If the GFC experience repeats, the drop in prices may be about 10-15%, but then the subsequent flat patch could be long (about 2-3 years), with little capital gain on offer. That will make it harder for the sums to stack up, especially when mortgage rates are also well above rental yields.

However, as I’ve noted above, some investors are nevertheless still active, and of course, there are always potential buying opportunities in any market conditions. It’s just that in a downturn, due diligence needs to be stepped up to the next level. New-build townhouses in Auckland are clearly an option, with plenty of supply coming through and with the added bonus of being able to continue to claim interest deductibility – just keep an eye on build costs and the solvency of the developer.