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Famine to follow Auckland house price feast

Auckland’s ongoing house price feast is likely to be followed by a famine so investors should avoid rear-view mirror investing, one property commentator has warned.

Wednesday, June 10th 2015, 2:16PM

by Miriam Bell

Analysis of data from both REINZ and QV CoreLogic shows that famine followed by feast and feast by famine have, historically, marked the behaviour of Auckland house prices, according to Strategic Risk Analysis Ltd managing director Rodney Dickens.

“Feast” periods when the average or median Auckland house price has increased significantly over five years (eg: compound returns of 12% per annum or more) have almost always been followed by five-year “famine” periods of low returns, he said in his latest “Raving”.

Equally, five-year periods of low returns have all been followed by five-year periods of high returns.

Dickens said that Auckland has now experienced three and a half years of feasting, but that didn’t mean another one and a half years of feast was on the horizon.

Nor did it mean that five years of famine were inevitably looming.

But he said Auckland house prices are set to continue to increase at an above average rate this year.

“It won't be too long until the upturn takes on full feast-like proportions that, in the past, have been precursors to famines and greater risk of downside at some stage.”

In Dickens’ view, the unfolding boom in Auckland house prices will itself play a part in driving the next famine.

“There is a large and growing financial incentive for people to live in the rest of the country rather than Auckland, while the metrics are moving in favour of investors buying elsewhere.”

People searching for more affordable housing, retirees or near-retirees, and investors have strong financial incentives to leave Auckland, he said.

For investors, the much larger increase in Auckland house prices than rents have also undermined rental yields and gives them reason to consider other markets.

“People responding to such incentives will play a part in driving house price performances in Auckland vs. the rest of the country in the future.”

Adding weight to Dickens’ theory are the growing number of reports that more Aucklanders are searching for property outside of the SuperCity.

And recent data from Realestate.co.nz shows that the number of people from Auckland looking at properties in other parts of the country has increased significantly over the year from last May.

Realestate.co.nz CEO Brendon Skipper said this was a dramatic change in online searching behaviour, which could well be driven by record high property prices in Auckland.

Properties for sale in Hawke’s Bay have attracted the greatest increase in levels of interest, with 152.2% more Aucklanders looking at properties in that region compared to the same month last year.

Other regions which have seen a jump in interest from Aucklanders include Manawatu/Wanganui (+123.4%), Waikato (+113.8%), Northland (+85.5%) and the Bay of Plenty (+83.5%).

« Auckland property values continue meteoric riseAuckland house prices up 20% in a year »

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ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
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China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
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Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
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HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 4.30 4.20 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.45 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
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Median 5.34 4.04 4.09 4.39

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