“Auckland residential house prices in February have retreated from the record prices”
Barfoot and Thompson, February 2016
Perhaps this means Auckland house prices are going to fall. Is this possible?
First things first. The median price is still around $750,000 only down 2.7% from the high of $771,000 recorded in September last year. That’s hardly something to be worried about. If house prices started falling in the double digit %, then the tide has truly turned and we are heading for a downward trend. But a price drop of 2% to 3% just indicates prices have slowed and may stabilise for a while. But it’s unlikely house prices will fall by the double digits this year.
Secondly, what is true is that it is taking longer to sell your home. In March 2015, REINZ reported it took on average 30 days to sell an Auckland home. Fast forward to January 2016, it took 39 days. Even in February 2016, the average time to sell a house in Auckland was 36 days.
Thirdly, fewer houses are being sold. Using statistics provided by REINZ, the number of houses sold in February 2016 had decreased 18% compared to February 2015. I also went to a number of auctions in February and March. From what I see and from talking to a number of agents, the number of auctions completed successfully has surely fallen. The number of listings has also fallen in my opinion. So even if house prices do fall a bit, homeowners may choose to not to sell. When this happens, there will be fewer houses on the market. Once this happens, what history tells us is that house prices will begin to stabilise.
Lastly, the Reserve Bank announced an OCR drop to 2.25% in March. With cash in the bank yielding around 3%, more and more people are looking for better ways to invest their cash. Property is popular among many Auckland investors and if the OCR continues to drop, we are likely to see more people buying housing investments in Auckland further fuelling Auckland house prices.
So what do we learn?. 1. the market is slowing down and 2. The Auckland property market may have reached a temporary plateau. 3. An article in the NZ Herald titled Forced sales fall as rates stay low”” just came out. As long as homeowners and property investors can afford to hold onto their property, this reduces the pressure to sell. In this case, even if house prices fall, it won’t fall by much. Learning from the housing crisis in the US in 2007/2008, the huge wave of mortgage delinquencies and mortgagee sales led to major house price declines.
So should you be buying now?
My advice is to focus on the fundamentals. If you have done your due diligence and can afford it, buy it. But now is not the time to jump in and speculate. Don’t borrow money to buy a house to speculate on house prices. You may get lucky once or twice but eventually you may get caught out on the wrong side of the cycle as lose your money. As Warren Buffet loves to remind us “”Rule No.1: Never lose money. Rule No.2: Never forget rule No.1″