Despite record rises, market dictates that "unsustainable" prices should drop
Auckland property prices are likely to fall in the coming months as lockdowns, supply and market fundamentals come to bear on the housing market.
Recent research, such as Bluestone’s Property Indicators, have already shown a decline in prices in New Zealand’s largest city, though they are currently more linked to a lack of action due to lockdown.
Sydney and Melbourne saw similar shifts when they were in lockdown, only to rebound once restrictions lifted, but, according to Cameron Bagrie of Bluestone Home Loans, Auckland’s property market is more advanced in its cycle and will likely fall because of simple market reasons.
“If you look at our report, it runs until the end of the September quarter, when Auckland was bearing the brunt of lockdown over a chunk of the period,” said Bagrie.
“There’s an economic reality regarding the imposition of the alert levels which is hurting Auckland more than the rest of New Zealand.
“If you step back and have a look at the wider picture beyond the alert level shifts, what we are starting to see is that the fundamentals are coming a little more to the fore in housing.
“One such fundamental is supply relative to population growth. Auckland is building a lot of houses, but the population data showed a small decline in the last 12 months.
“We are going to see some indicators that show a little bit of a bounce. One of the examples here is that volumes will pick up as alert levels shift back down.
“But the indicator looked at both levels and changes: you can pick up levels, but if you’re still well below average, you’ll get a different signal in terms of what the market is telling you.”
Auckland’s property prices might just have accelerated so far that they can only go downwards, in the short term at least.
Auckland property prices likely to fall before they rise again
“We have to remember that the indicator is moving from there, from what could be described as exceptional strength, and we’re just starting to see a turning point,” said Bagrie.
“Stepping beyond the alert level shifts, the bigger picture is a pretty big turn in the economic fundamentals for housing.
“Interest rates are moving up, Auckland has more leverage as it is a more expensive market and you have the key fundamental which is supply relative to demand. There’s a lot of stock that is starting to come on the market.
“The property market in New Zealand, and particularly in Auckland, has been described by the Reserve Bank of New Zealand as being above the sustainable level. I agree with that assessment, and the question is how to restore house prices back to a sustainable level.
“In practice, that is going to be a slight decline in house prices, or at least the air coming out of the balloon, in combination with lifts in income.”