Have you noticed the housing downturn?

For any one following the news, trying to sell a property or even looking at buying a property you may have noticed that things are beginning to sloooow down. The New Zealand Herald enjoys using headlines including the word ‘dramatically’, but we’re not so sure about that. We obviously know that New Zealand has recently gone through a major housing peak. With the average home in Auckland and Queenstown hitting the one million dollar mark, our national housing peak is no secret. When things start coming down from the million dollar mark the lack of buyers is always going to be noticeable. But is it the most predictable housing downturn in the last 40 years?

This same downward trend it also noticeable in other major international cities. Vancouver Has noticed that many sellers are reducing their asking prices and top-end homes that usually boost the housing average are now in short supply. However, they suggest that a third contributor has also had a marked impact on the prices: increased foreign buyer controls. Chinese nationals requesting a currency exchange must now sign a declaration that they will not use the money to purchase property.

Back in New Zealand while traditionally this time of year is slow; the NZ Herald reports that the downturn has begun three weeks earlier than usual. Furthermore, the market hasn’t rebounded as much as usual. Demand across the country has flattened out and even gone backwards in Auckland.

A range of causes can be attributed to this. While none are as dramatic as Vancouver’s move to slow Chinese speculators, the Reserve Bank’s latest lending restrictions have been mostly targeted at investors with the deposit now being 40% for residential property investors. Generally, banks have tightened their lending choices and interest rates are beginning to climb slightly. Combine this with an upcoming general election that is focused on the housing crisis and people will begin to hold on to their money and assets a little tighter.

It also appears that the UK market may be beginning to slow as month on month price rises are becoming smaller and smaller. Similarly this could be attributed to the upcoming Brexit negotiations, their recent election (if you can call it that…) and of course tax increases for investors. Sydney is also experiencing their first price decline in 18 months!

Comparing the international property scene to this time last year it is undeniable that the property peak has come and gone. It could be considered that internationally, governments got just a little too hot under the collar and had to pump the breaks with investor restrictions.

While the above is a testament to the international political situation, another reason may provide some explanation to our cooling housing climate. According to a Seagars valuer interviewed by Bob Dey, this is not the first time New Zealand’s housing market slowing dramatically. Reid Quinlan has taken national housing data over the last four property cycles in order to compare it to our current one and it turns out it is a case of history repeating itself.

By removing the influence that inflation has over 40 years and adjusting the prices accordingly it becomes clear that we are currently following a very housing price pattern as the 1970s, 1980s and the 1990s. Each of these decades experienced a peak around 4.5 years into the cycle followed closely by a downturn around the 5.5 year mark.

Quinlan predicts that much like the property cycles previous to this one, there will be a ‘dead cat bounce’ and then the markets will flatten.

Given the coming election, the reserve bank’s tightening of lending criteria; the bank’s funding restrictions and the Unitary Plan supply increases starting to trickle through, a betting man says that over the next 12 months house price rises will be subdued at best.  If I was to put a lazy $20 on it I would say that the medium house price in Auckland will grow by no more than 7% year on year.