Naysayers spent much of last year predicting a crash in Auckland’s red-hot market. As such, the story told by the first of the new year’s data – which provided evidence of dropping prices, as well as slowing pace – should have made them happy.

But some commentators think the Auckland market has simply paused for a breather.

There is no longer any doubt the SuperCity’s market has cooled down considerably. Yet the fundamental, underlying drivers of limited supply and high demand remain. And there is little to indicate those drivers will disappear any time soon.

Dropping off the wave

Across the board, January’s data all told the same story: Auckland’s prices and values fell.

Realestate.co.nz has the city’s average asking price falling by 2.3%, to $828,629, in January, while Trade Me Property says January saw a 0.5% decline in the average asking price, leaving it at $801,400. Further, Trade Me’s data shows in the three months to January 2016, the expected selling price of Auckland properties was down $3,900 to $801,400.

Particular emphasis is added to this tale with the release of QV’s January data. For the first time in over a year, it shows a decrease in Auckland residential property values.

According to its House Price Index, values in the Auckland region fell by 0.5%, as compared with December 2015, leaving January’s average value at $928,921. While the Auckland region recorded a 19.8% increase in values year-on-year, over the last three months values increased by just 1.2%.

It's possible the easing in values may be short lived as the underlying factors driving house prices up remain. - Andrea Rush

QV national spokesperson Andrea Rush says that, traditionally, February and March are the busiest months for the housing market. “So it will be interesting to see if the downturn is short-lived and if values start rising again over the next couple of months,” Rush says.

Auckland’s downturn is likely to be a continuation of the softening in the market seen following the introduction of new tax and LVR rules and the restrictions on capital flow out of China late last year, she says. “It’s possible the easing in values may be short-lived as the underlying factors driving house prices up remain: record high net migration, record low interest rates and a lack of housing supply.”

Low Listing Levels

A lack of new listings appears to be compounding the downturn in Auckland’s market. The January REINZ data reveals dramatic falls in median prices and sales volumes – along with low levels of listings.

Auckland’s median price fell by $50,000, or 6.5%, to $720,000 in January 2016, compared with $770,000 at the end of 2015. It is still up by 9.1% on January 2015’s median price of $660,000. Once seasonally adjusted, Auckland’s median price is down by 1.3% on December, but up 9.4% on January 2015.

The decline in the region’s total sales volumes is even more pronounced. Auckland sales are down by 31.4% compared with December and by 13.5% compared with January 2015. Once seasonally adjusted, they are down 4.5% compared with December and 10.5% compared with January 2015.

REINZ chief executive Colleen Milne says the reasons for Auckland’s declining prices and sales numbers are many and varied and include the city’s very tight listings position. “The Auckland region continues to experience very low levels of listings, despite the recent decline in sales volume, Milne says. “Part of the fall in sales could be due to this reason, compounding existing issues around the new LVR rules.”

Pattern Changes

While Barfoot & Thompson’s January data features tight listing levels, and a drop in prices, it also shows strong sales activity. Its sales are 4% higher in January 2016 than they were in January 2015 and they are up 12.2% on December.

Barfoot & Thompson managing director Peter Thompson says both the average and median prices are down on the all-time highs achieved in the last months of 2015. But he feels that, rather than January’s prices reflecting a fall, the decline can be traced to a change in sales patterns.

“During January we sold a higher percentage of homes in the outer southern and northern suburbs, compared to those in the central and eastern areas, than is normally the case,” Thompson says. “Further, there were fewer $1 million plus houses and more under $500,000 houses sold in January than in December.”

National Picture

Inevitably, Auckland’s slowdown impacted on the national data for January. QV, Trade Me Property, Realestate.co.nz and REINZ all recorded decreases in national values and average asking prices.

The QV data shows the average nationwide value is down by 0.3% from December, which leaves it at $556,206. This is an increase of 12.6% over the past year, but of just 0.7% over the past three months.

Head of Trade Me Property Nigel Jeffries says the average asking price of a property in New Zealand fell to $541,900 between December and January. “We’ve now seen three consecutive falls in average asking prices across November, December and January,” Jeffries says. “In January average asking prices fell by 2%, compared with December, although they were up 9% on a year ago.”

But activity in the regions is still showing the influence of the halo effect, in Milne’s view. “Once Auckland is taken out of the equation, sales volumes were up 14.5% on January 2015 and up 21.7% on a seasonally adjusted basis.”

Ten regions recorded increases in sales volumes, as compared to January 2015. Further, new record national median prices were hit in Hawke’s Bay and Taranaki, with Canterbury/Westland equalling its record median set in April 2015.

Regional Stars

Some regions turned in particularly strong performances.

Central Otago house prices overtook Auckland’s, according to Realestate. co.nz. The average asking price soared to $861,723 in January 2016. This is an increase of 4.5% from the region’s previous high of $824,394 set in December.

Bay of Plenty is another star performer. It became only the fourth region in the country to break the $500,000 ceiling on Realestate.co.nz, with a new average asking price of $501,961. Trade Me Property has the region powering ahead with a rise of 12.2% in average asking prices over the past 12 months.

After a long period of stagnation, Wellington also appears to be making a comeback. QV’s data shows the capital’s values are now accelerating at a pace not seen since before the 2007 market peak.

Wellington’s values have risen 4.6% over the past three months and 5.9% year-on-year, leaving the average value across the wider region at $482,716. “There is massive interest in Wellington,” Rush says. “And there’s a shortage of properties listed for sale with listing levels only half what they were this time last year.”

Auckland To Rise Again

Pullback from the new tax and LVR measures, along with seasonal factors, seem to be the major contributors to Auckland’s cooler market. For this reason, some observers are not convinced the SuperCity slowdown will continue for a long time.

BNZ chief economist Tony Alexander says the Auckland market is suffering from none of the things that cause house prices to fall dramatically – quite the reverse. It has strong population growth, limited housing supply and low interest rates in the mix.

In his view, the fall in Auckland prices might continue in the short-term, but the city’s fundamentals point to prices steadying, then rising again – although nowhere near the pace of mid-2015. “These fundamentals centre around a booming population, while the existing housing shortage is still worsening because construction is well below the levels required,” Alexander says.

Alexander thinks this means investors will be returning to Auckland once the current run of regional growth peters out, perhaps early next year.

He warns that, unlike Auckland, many other parts of the country have an oversupply. “If you are an Auckland investor jumping boots and all into the regions buying what you consider to be cheap properties with good yields be very, very careful.”

Part of the New Zealand housing market story at the moment, however, is the pullback from Auckland, he says. “And this regional strength is likely to continue all year given the low interest rate environment.”