Safe as houses?

Stephanie Paxton-Penman at her home in Ellerslie. Picture / Dean Purcell

In many ways, 13 Ballarat St is a modest house. But like many others in Auckland, it has also been a bit of a goldmine.

Solid without too much frippery. Flat roof, great garden, built in the 1940s, indoor-outdoor flow, good potential. Located in blue-collar Ellerslie, an area now prized for its proximity to motorways and the eastern suburbs, the stucco Mediterranean-style house is as much substance as style.

Its sales history speaks volumes about market shifts. In the mid-1990s around the peak of the last housing cycle boom, it fetched about $165,000.

At the start of this latest housing boom in 2002, Brett Penman and his wife, Stephanie

Paxton-Penman (below), paid $280,000. Today, it has a market valuation of almost double that - $500,000.

The question the Penmans - and other home owners - are asking is how much will their home be worth in six months or a year? The couple are banking on it rising in value and have used their equity from Ellerslie to buy a holiday site north of Auckland. But economists say homeowners can no longer expect the spectacular growth seen in recent years. Places like 13 Ballarat St are taking longer to sell and sometimes even sinking in price.

The fortunes of this one house illustrate the way the Auckland market has moved lately - rusting rather than busting, shifting sideways rather than plummeting.

A truckload of housing market information released on almost a weekly basis is beginning to show signs of unanimity. Numbers from the Real Estate Institute, Quotable Value and real estate agencies are showing much the same pattern: volumes are lower but prices are still rising.

BNZ chief economist Tony Alexander believes this signals a slowdown.

"Our view remains that the market is easing off but that the pace of this easing is relatively gradual," he said, citing high job security, extra income from the expanding Working for Families welfare package and net migration inflows sitting only just below their 10-year average.

ASB chief economist Anthony Byett is worried about spending on holiday houses, coastal and Auckland apartment properties and any provincial areas with recent rampant growth. He found similarities in the two latest housing cycles. Although this boom has not run as long as the previous one, it has been more spectacular.

The last housing cycle peaked at the end of 1997, 5 1/2 years after the average price started rising. By then it had risen 55 per cent. The present cycle, which started in September 2001, has been going for 4 3/4 years and the rise so far has been an estimated 89 per cent, Byett found.

The Treasury expects only modest house price growth over the next few years. In Thursday's Budget, it said that from the end of 2005 to mid-2010 house prices will only increase 4 per cent in total - and that is before the effects of inflation have eroded a house's value.

Indeed, the Treasury expects the average house price to fall 5 per cent in the year to June 2007.

However, Deutsche Bank NZ chief economist Darren Gibbs says while prices for some individual houses could fall, average house prices are unlikely to decline.

"There doesn't seem to be any sign that the housing market is slowing to the extent that would be needed to drive wide price declines," he says.

Gibbs expects the recent pick up in net migration to New Zealand - if it continues - to support the housing market.

"The latest evidence suggests that prices are likely to continue to rise, albeit at a slower rate, probably something in line with the consumer price index," he says.

Lincoln University's John McDonagh, senior lecturer in property studies, is predicting a flat housing market for at least two years but dislikes the term "slump". Wider factors like fuel-price changes will influence how long the market stays in plateau mode.

"I wouldn't expect another boom for a while but I can't put an exact date on it," he says.

Talk of any downturn has little effect on the confidence of Stephanie Paxton-Penman, who reckons high annual mortgage interest repayments could keep her in a Huka Lodge suite in some style. She thinks the pain will be worth it eventually.

Stephanie and Brett were married at Scotts Landing near Warkworth. The couple, now with two young children, always dreamed of owning a beachfront property.

Last year, they used the equity in their Ellerslie house to borrow an interest-only loan to make the dream come true - helped by their Ballarat St house recording a 200 per cent value increase since 2002.

The couple had searched around the Scotts Landing area and found what they believe is a treasure: a quarter-hectare section on the waterfront surrounded by a bush reserve.

They paid $440,000 for a section lacking road access and accessible only by four-wheel-drive. Accommodation at present is a pair of 1950s caravans. But that doesn't matter to the couple.

"It's a place where the kids are free - I don't work to make money, I work to have a better lifestyle," said Paxton-Penman, a conveyance specialist with an Auckland law firm.

"With the interest we pay on the loan, I could afford to stay at the Huka Falls Lodge for a month.

"We realised we were buying that waterfront property at the peak of the market but think it's worth it. The property next door, with a house on it, was on the market for $3.5 million and an agent reckons ours is now worth around $700,000."

The 10-year plan is to upgrade access and build a house. Soon, they will also buy an inner-city apartment. The plan is to eventually sell the Ellerslie house, spend their later years living at the beach but working in the city and have a city base for their two children to use when attending university.

Stephanie knows the market has declined somewhat.

"Gone are the heydays of late 2003 and 2004, when vendors were receiving unconditional offers on properties, days and sometimes hours after the property had been listed," she said.

Professor Larry Murphy, who heads Auckland University's property department, says lower sales volume could indirectly spark the market back into a more lively phase.

"People holding off selling reduces the supply of houses available, restricting choices for those wanting to buy and make housing more scarce as a resource which can, therefore, push prices up again," he said.

He believes indicators show the housing bubble has not burst, although some of its air is leaking out. The lower volumes suggest either sales are not going through, properties are languishing without buyers or people are withdrawing from the market.

Either way, he has concerns for the rental and apartment sector.

He says those most at risk of losing their shirts are highly geared speculative rental investors who bought at the peak of the boom and are relying on non-stop rental payments and capital gains.

Garry Schultze, who works for Merlot Property Investment, has a bullish attitude towards the market. "Historical data shows that in Auckland residential property doubles every seven years," he said.

"Despite the market following trends and softening, investors who intend to hold their properties for the medium to long-term have little to fear. The reality is this: If you don't ever sell, you will not realise a loss but if you don't ever buy, you are guaranteed to miss out."

Auckland tenant Hanna Limmer cares little about housing's fluctuations. She will begin saving in five years and has no doubt she will become a home owner. But at 21 she plans to stay renting for a while yet.

So back to Ellerslie, and that goldmine which is a treasure as much for giving pleasure and shelter as for its financial merits.

How long that glow remains strong depends on the market.