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AUCKLAND WEST AND NORTHWEST

WEST & NORTH WEST RESIDENTIAL

The West and North West Auckland residential market has gone the way of the wider Auckland market over the last three years – that is transactional activity and price growth have slowed down quite considerably since the end of 2007. This follows spectacular median price growth and high activity throughout the early to mid-decade property boom.

The residential market has come a full circle over the last ten years with subdued levels of activity in the late 90s and into the early part of the decade, moving into a period of strong activity growth from early 2002 through to late 2007. During this time residential sales activity in Auckland’s Western suburbs reached a historic peak with over 2,500 sales completed in the September quarter of 2003.

As residential market activity in West and North West Auckland was ramping up, so too was the residential median sale price as a result of the strong competition for the property that was coming to the market. From the December 2000 quarter to the June 2007 quarter the median sale price doubled, growing at an annual average rate of over 11%.

The pressure that was brought to the West and North West Auckland residential market throughout the early part of the decade is evident in the track of the average number of days taken for a property to sell. As the market heated up and became very competitive, the average number of days for which a property sat on the market dropped like a stone to a historic low of just 30 days and remained low for the subsequent four years.

The end of 2007 marked the beginning of the tumble into recession for New Zealand’s economy following the global financial crisis. The impact of this has been significant for West and North West Auckland’s residential market as would-be investors lost confidence in the returns they could make on residential property and their willingness to make long term investment commitments was curtailed.

The loss of confidence became very apparent in emerging data from Real Estate Institute of New Zealand (REINZ) as we moved through 2008 and 2009. In 2008 the market all but stalled in Auckland’s Western suburbs. Over the same time period, residential property values were in correction mode, readjusting to a very different economic landscape. The lack of confidence in the market was also reflected in the time it took to sell residential property, which extended to as long as 63 days.

Since the depths of recession, conditions looked to be improving, with one of the main indicators – transactional activity – heading in a positive direction throughout 2009. The last few quarters though have seen a stalling again of the residential property market in West and North West Auckland. The reason for a repeated slowdown in the residential market, in the main, is that consumer confidence has trended downward since early 2010, after a strong post-recession boost. Overall, consumers are maintaining a certain amount of caution until it is clear that the local economy is well clear of a double dip recession. This is making both vendors and purchasers hesitant about making long term financial decisions.

The result is somewhat of a Mexican standoff in the residential market, with purchasers expecting to get a bargain, following three years of median price correction, and vendors, with decreasing debt servicing costs, not feeling like they need to lower their price expectations. This is particularly evident in Auckland’s Western suburbs, according to agents who operate in the area, suggesting that vendors are in no rush to sell their property and purchasers are well educated and in a ‘buyers market’. The resultant price disparity is what is holding the market at stalemate.

Over the coming 12 months, some stimulating factors will begin to feed through to the residential market. The Reserve Bank reduced the official cash rate (OCR) to 2.5% in its March review. Currently 75% of mortgages by value are either on a floating interest rate or will be rolling off a fixed term within 12 months, so these mortgage holders will be experiencing the direct result of decreasing interest rates. The Reserve Bank’s move was a pre-emptive one, in a bid to lessen the knock to the economy, and therefore consumer confidence, that was likely following the Christchurch earthquake in February and the spike in fuel prices.

A well reported shortage of new housing, due to low construction levels, will be exacerbated by the removal of a significant amount of stock in Christchurch and the subsequent resources channelled into rebuilding. The impact of this will be on house prices, rather than activity and will not be immediate. However, over the course of the year, we will likely see upward pressure on median residential prices as an increasing number of buyers vie for an insufficient number of residential dwellings.