What is behind the softening NZ market – Kelvin Davidson

As the New Zealand property market continues to soften, particularly in Auckland, Core Logic reveals that it is not a result of price pressure but more about demographics.  Kelvin Davidson explains.
Kevin:   We’ve heard a little bit about the softening of the Auckland market and Core Logic, like us, are asked quite often whether or not the softening is related to price, or is it about demographics? Is at the top end or is it at the lower end? The senior property economist for Core Logic in New Zealand Kelvin Davidson joins me once again. Kelvin, I know you’ve been asked this question. Is there a simple answer to that?
Kelvin:   Yeah, there is a pretty simple answer, and what we’re seeing is that it’s mostly about geography. So it’s not so much about within in the value bands or expensiveness or cheapness of property within a particular part of the city, but just more about the part of the city itself. So what we’re seeing is that the Auckland CBD or the central area and north shore are the softest parts of the city, and they’re showing the largest falls. Whereas, other cheaper parts of the city, say Manakau, Papakura are still showing a bit of growth. So it’s more about the geography than the type of property.
Kevin:   Property owners are saying, “Well, the Auckland market’s been improving quite well now. Now’s a good time to sell.” Has this turn around been about stock levels? In other words, is there too much stock on? And if that’s likely to come off, will we see prices come back?
Kelvin:   Listings are very high across Auckland as a whole. Buyers have plenty of choice. And so, yeah, I think that has got a key role to play and values are starting to edge down a bit. There’s no real selling pressure from vendors. Most people are in work and interest rates are low, so it’s not as if they’re really having to sell. But those ones who are, because of personal reasons, maybe they’ve swapped jobs, they need to move out, they are probably having to just tick those prices down a bit to meet the market and get a sale.
Kevin:   Yeah. Because it’s not a disaster, is it? I mean, I think from your reporting, Auckland’s average property values fallen by about 1.5% year on year over the last year. That’s hardly a massive decline.
Kelvin:   No. No, it’s not. But these things start somewhere. We’re not saying it’s going to turn into a big down turn or anything like that, but these things have got to start somewhere and we know that prices in Sydney and Melbourne are falling. And that started somewhere. So you’ve got to keep an eye on these things. As I say, we’re not expecting things to turn into a market downturn in Auckland, but you’ve got to recognise that they are down 1.5 and it’s something to take note of.
Kevin:   Downward pressure, I guess, at the higher value end always has a bigger impact, doesn’t it? Particularly on the median price, when we see that start to come down?
Kelvin:   Yeah, it can do. It probably doesn’t have so much of an effect on the median because you try to strip out the really extreme low end top values in the median, but it certainly does have an effect on averages. And I think it can play a role in the real market in terms of confidence. Once people start to see some part of the market falling, perhaps it’s those more expensive properties that start … That that gets media headlines and things start to spiral from there in terms of the confidence effect, and that filters out through the market. So yeah, all of this is definitely something that you’ve got to watch closely and keep a good eye on.
Kevin:   Yeah. Well, we’ll keep an eye on it for sure. Kelvin Davidson, my guest there from Core Logic. He is their senior property economist in New Zealand. Kelvin, thanks for your time.
Kelvin:   No worries.

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