Despite the extra COVID challenges that Auckland has faced over the past month or two, its property market has continued to track steadily – sales have risen, values have generally increased too (albeit not everywhere), and first home buyers and mortgaged investors are still active. Our measures show that houses in Auckland are currently more affordable (37% of average household income required to service a mortgage) than they have been for more than seven years, and with mortgage rates potentially set to fall even further, there don’t seem to be any obvious reasons for this momentum to end suddenly. Of course, the likelihood that unemployment rises from here is a risk for the property market in Auckland and right across NZ.
Clearly Auckland has had it tougher than the rest of the country in terms of social restrictions over the past 6-8 weeks, so it’s worth assessing how our largest city’s property market is faring. The short answer is that that it has pretty much carried on as if the alert levels weren’t even there.
Starting with sales activity, the rebound in Auckland since full lockdown in April has been solid, and the total for 2020 to date stands at 16,752 – the highest figure for the first eight months of the year since 2016 (22,616). To be fair, that partly reflects strength prior to lockdown over January to March (see the first chart), but nevertheless it’s still been a decent rebound, and August itself was robust. Indeed, sales volumes in August were 37% higher than a year ago, even despite the move back up to alert level three on the 12th.
It’s also worth noting that sales activity might have been higher still, were it not for the restricted supply of available listings on the market (after all, buyers can’t purchase what’s not for sale). Certainly, the new flow of listings across Auckland dipped again in the early stages of August’s alert level three phase. As the second chart shows, listings flows in Auckland have now started to rise again, but they’re not markedly higher than at the same time in previous years. In other words, the listings ‘shortfalls’ of April and August haven’t really been recouped.
Turning to property values, they’re a little bit of a mixed bag. As the third chart shows, the overall figure for the region/city as a whole has risen by 1.2% since March, driven by areas such as Franklin and Papakura. But the North Shore and old City TA (central/CBD) areas have been softer. If you look at the map below showing median property value changes by suburb since March, the weaker patterns (blue shading) in the more expensive central Auckland and North Shore markets are also visible.
What about buyer types? Our Buyer Classification series shows that first home buyers (FHBs) and mortgaged multiple property owners (i.e. investors) are tied at a 29% share of purchases in Auckland so far in Q3 2020 – see the fourth chart. For FHBs, one entry route to the market has been to target cheaper segments, e.g. apartments.
And for mortgaged investors, it’s true that gross rental yields are lower in Auckland (about 2.5%) than most other parts of the country. But with mortgage rates so low, term deposits less attractive, and the temporary removal of the loan to value ratio speed limits meaning that a 20% deposit is now acceptable (rather than previous 30%), it’s not hard to find reasons why investors are still keen to buy.