Property Editor Greg Ninness looks at the risk that Auckland's housing market could turn, stop delivering gains and hurt some investors

By Greg Ninness

The sheer momentum of the market, which has pushed the region's median house price up by an average of nearly $3000 a week over the last year, to be 25.8% higher in June than it was in June last year, has been breathtaking, especially when you consider that the median price in the region's western Waitakere district increased by an incendiary 33.2% over the same period, while in Auckland's central suburbs they were up by 31%.

However there are signs that the rate at which prices have been rising is starting to slow.

While the median price in June was up 25.8% compared to a year earlier, it was only up 0.8% compared to May which over a 12 month period would be a less spectacular 9.6%. 

The monthly increase appears to have been driven mainly by prices by Waitakere, where the median was up 1.9% in June compared to May, while in other parts of the region median prices actually declined in June compared to May, with Rodney showing the biggest monthly decline (-3.5%), followed by Manukau (-2.9%), Auckland Central (-2.4%) and North Shore (-0.6%).

And recently I have been hearing from some real estate agents who complain about having to deal more often than they used to with vendors who have unrealistically high price expectations, which is making the agents' lives more difficult.

That doesn't necessarily mean that housing prices in Auckland have peaked, but it does suggest to me that the rate at which prices are going up has started to slow.

The next big test of the market will likely come in October when the new tax rules the government announced in the Budget, especially those that relate to overseas buyers, will come into effect.

But I suspect they probably won't have a huge impact on the market.

Net migration into Auckland continues to increase at a fair clip and the number of new homes being consented continues to fall well short of what is required just to keep pace with the resulting population growth, and the shortfall is getting bigger each month.

Which means demand continues to outstrip supply by a substantial margin, so I don't see any immediate easing in the pressure there.

On top of that mortgage interest rates are falling and could fall further, which should also stimulate buyer activity.

So overall, I think some upward pressure on Auckland house prices will continue as we head into spring, but at a slower rate than we've seen over the last year.

However looking beyond that, there's potential for the situation to change quite quickly.

All of the information I've been seeing lately about the reconstruction of Christchurch suggests that the supply of homes in the city is rapidly catching up with demand and may be about to overtake it.

That means Christchurch may soon be facing an oversupply of new housing.

I'm also hearing that the commercial building projects already in the pipeline will be sufficient to satisfy existing demand from commercial tenants for new space and that vacant office space could become a feature of the Christchurch market by 2017.

So construction activity in Christchurch could start to wind down fairly quickly, which means more builders and building companies could start looking to Auckland for work.

That could help to open up the housing supply tap in Auckland.

Then there's the economy.

I doubt that many Aucklanders have felt the effects yet of the drop in dairy prices which is afflicting the rural sector.

But there's a growing sense that the economy is not doing as well as it has been and some commentators are even talking about the possibility of a recession.

If that flows through to a downturn in employment it could affect migration.

If jobs are harder to get we are likely to see fewer kiwis returning home from overseas and fewer migrants from other countries coming here as well.

So there's potential for demand for housing to start to decline just as supply starts to ramp up.

There's also been talk recently about the flow of investment money from China that been coming into the Auckland property market, turning into an avalanche.

From what I've been hearing, investment from China has definitely been increasing and is already substantial.

But my feeling is that it could dry up as quickly as it arrived.

The Auckland residential property investors I talk to are increasingly falling into one of two camps.

There's the traditional investors who are wanting cash flow and decent income from their properties.

Many of these investors have built up their portfolios over many years, but over the last 18 months or so many have preferred to sit on the sidelines, as the huge surge in prices and resulting decline in rental yields has made it harder (some would say impossible) for them to find new properties that would provide them with an acceptable return.

They've been content to watch the value their existing properties rise, along with their rental income, and are keeping their powder dry for the time being.

Some have even been taking advantage of the currently high prices to sell some of their Auckland properties and diversify their investment portfolios or reduce debt.

If the market does head into a downturn, many of these investors will likely be well placed to move in and pick up a few bargains.

Then there's the ones who seem determined to borrow as much as they can to buy as much as they can.

Many of these investors are relatively new players to the market and they often seem to be driven by an almost evangelical zeal.

They are the property market's true believers, who read the books, attend the seminars, and search the web for the next big thing.

If that next big thing is Auckland residential property, they pile in.

But regardless of where they come from, there is often something of a herd mentality among these investors and it might not take much to spook them.

They are generally chasing the quick buck from capital gains rather than long term income and my sense of them is that if they get a whiff of a market downturn, their natural instinct would be to cut their losses and bolt.

So although the Auckland property market is currently hot, there's at least a chance it could turn to not in the next year or so.

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