There are signs that Auckland's property market is flattening out, but is it heading for a correction? Photo / Getty Images
There are signs that Auckland's property market is flattening out, but is it heading for a correction? Photo / Getty Images
COMMENT: Are we heading for a correction? Or are the recent house price data out of Auckland simply indicative of a plateauing market?
OneRoof/Valocity figures out this month showed a drop in the median sales price in Auckland and there have warnings that growth may be slower this year as a result of Government legislation.
The dramatic downturn in Australia's housing market, where prices have dropped up to 10 per cent, and uncertainty around proposed tax changes in New Zealand, have Kiwis second-guessing.
It's been more than 10 years since New Zealand last experienced pain in the housing market.
The global financial crisis, triggered by a crisis in the US housing market, pushed the world economy to the brink of collapse.
In New Zealand, unemployment jumped from just under 4 per cent to 6.5 per cent in the space of a year while real house prices fell 15 per cent between April 2007 and April 2011.
Banks put restrictions on credit, and construction of new housing almost ground to a halt.
Property investors Jolene Bagby and Jacek Baranowski know what that crunch feels like.
In September 2007, they bought a property in Whangaparaoa, north of Auckland, to subdivide and renovate for resale.
"At the time the market was very hot but by the time we had subdivided and were ready to resell in 2008 the market had dropped and was in recession," says Bagby.
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"We sold at a significant loss. At the time interest rates were 9 per cent so it was not an option to rent it out as the rent would not cover the mortgage cost.
"We learned that prices can come down which we had not realised and that there are times in the cycle when it is best to do only short, quick projects or not buy. This cycle we were wiser. In our area we have seen prices drop back in the last two years and have not been caught out this time."
Bayleys Remuera agent David Rainbow, who has worked through and survived four corrections in the residential market, says: "Since the GFC, prices have risen substantially in not only Auckland, but most cities of New Zealand.
"When the market is active, some people say that it is too hot and will wait until it slows down before buying. When it does slow down they then think of waiting until the slowing down stops. There's never a right time to buy or sell — as most people buy and sell in the same market. The market is the market and this changes all the time."
He adds: "However, a slower market offers those with capital to upscale because the gap is decreasing, just don't over commit to do so."
Jeff Cate, who was an agent with Barfoot & Thompson for 34 years before recently retiring, agrees that it is hard to second guess the market.
Selling now and holding off for a year to buy because you think the market is going to fall could be a mistake if the market picks up again, he says.
"However, as a buyer, you're probably going to be able to buy a better property in a flat market than you might if competition is higher."
Another point of contention in a falling market is the CV. Post-GFC, sellers often fixated on the capital valuation (CV) of their property.
However, the CV is what a property is valued at on a particular day and property professionals frequently note it doesn't indicate what buyers are willing to pay.
In a rising environment market vendors expect to get more than the CV. In a falling market you expect the opposite.
Rainbow says the last set of council valuations in Auckland have been an issue in the current market. "In many cases, the CVs don't reflect market value and put vendors at a disadvantage," he says.
"House prices increased after the GFC and other previous downward adjustments, and hopefully this will occur again — although maybe not at the same levels seen in the last 10 years.
