Echoes of past cycle - ANZ

ANZ chief economist Cameron Bagrie

ANZ has just released its latest Property Focus report and it states that the clear take-away, from recent data, is that Auckland is bearing the brunt of the recent slowdown in housing market activity

The bank’s chief economist, Cameron Bagrie, said recent LVR restrictions have had a direct impact on investor lending and Auckland’s House Price Index (HPI) is now moving backwards, with prices lower than they were six months ago.

“When compared with the rest of New Zealand, it looks like 2004-2006 all over again, with Auckland underperforming the rest of the country.”

However, there is still daylight between the median sales price in Auckland and the rest of New Zealand, he said.

“That’s a huge incentive to buy somewhere outside of Auckland if you’re an investor, and to cash up and move if you’re retiring.”

In ANZ’s view, Auckland’s underperformance is a story that will persist if the 2005-2007 experience is repeated.

“Capital (and people) naturally flow to regions where valuations look more attractive and the gap between Auckland house prices and the rest of the country is extreme.”

While Auckland’s market may be going through cooler times, many other regional markets are still performing well and playing catch-up.

Star performers continue to be the Waikato, which benefits from its proximity to Auckland, and the Bay of Plenty, which has seen migration to the region boom in recent years, according to ANZ.

Otago is another star performer with its HPI increasing by 48% over the past three years, which outperforms both Auckland (47%) and regions other than Auckland (34%).

But Bagrie said that Queenstown will be driving a fair bit of that, with the traditionally boom-bust town benefiting from both soaring tourism and very strong population growth.

The other regional markets that are performing very strongly are Northland, Hawkes Bay, Manawatu-Wanganui, and “turbo-charged” Wellington.

Conversely, Canterbury is an underperformer – although this is largely due to strong growth in housing supply in recent years.

Bagrie said the property market is softening due to a turn in the interest rate cycle, less credit, the LVRs and severely stretched affordability.

“But there is still incremental support for prices to lift after a lull courtesy of population growth and a fundamental mismatch between supply and demand.

“We think the former factors will be the key influences over the coming year and expect house price momentum to remain subdued.”

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