Auckland housing price index has dropped 12.1% in the last 12 months to April 2023
Source: REINZ

After experiencing one of the strongest runs up in house prices, Auckland has lost some steam after experiencing one of its steepest corrections in the last 16+ months. As with all other markets and assets, prices do not move in a linear fashion, providing opportunities for savvy buyers and investors to take advantage of market fluctuations. The recent correction in Auckland's property market presents a unique opportunity for buyers and investors to enter the market at valuable prices, while still benefiting from the long-term growth potential of New Zealand's largest city. The anchor fundamentals for the city have remained the same; the largest projected increase in population numbers, the highest median income in the country, and an economic powerhouse that contributes around 38% of the New Zealand's GDP. The recent dip in the housing price index has drawn strong support from first-time home buyers and opportunistic investors who recognize the potential of this market.

Seasoned investors who has the knowledge & experience of previous dips will find this a good time to enter, in order to position themselves for the next big upswing in the following cycle. The Auckland region has enjoyed one of the fastest and strongest growth after recovering from previous dips in the past. At the same time, however, many maybe affected and focused too much on the short term negative news media, and would prefer to sit on the sidelines, while waiting for better clarity. While no one could accurately predict the bottom & start of a recovery, recent data has suggested that the decline in the housing index is starting to stabilize with a much smaller decrease in April. The slowdown in the rate of decline could be giving a peek into a near-term floor for house prices, which would be consistent with some shifting trends in key drivers. A near or peak in interest rates could start to increase buyers’ confidence in the coming months, with unemployment remains at all time low, alongside a drop in available listings, and huge increase in net migration.

In addition, any potential easing in the LVR rules may also provide much need relief to home buyers who rely on smaller deposit to get started on the property ladder. The decline in prices gave first home buyers and patient investors who were previously priced out a chance to pick up bargains during this window period, before mass demand comes back in full force. This helps to create a strong support for housing prices, with limited downside as the market cycle moves along. Years of under-building in the Auckland region has led to the squeeze in the imbalance of demand greater than supply as population boom. Together with a relax LVR and lower interest rates environment, this has driven much of the bull run in the last decade. This led to an increased in building activity to cope with the soaring housing demand in recent years. However, with the market slowdown and price decline in the last 16+ months, developers are less keen in building more as there is little to no margins since land and construction costs remained stubbornly high. While the housing demand remained fundamentally strong in the long run, we may potentially enter back into a new phase of under-building, worsening the supply crises, and setting the bedrock for the next upswing in prices. This is evidenced in the recent drop in Auckland new dwelling consenting from the start of 2023 to present, align with the market slow down. Long term investors would take advantage of this lagging effect and position their portfolio for long term growth.

*based on population projections

Source: Stats NZ