Liam Dann: Political fallout as property market hits the canvas

Wow, what a day for property news - a one-two punch to the Auckland market.

Just as QV data was confirming that the Auckland market is well and truly stalled, along come the Barfoot & Thompson statistics showing the average sales price in June dropped 3.1 per cent on the average for the previous three months, and was only 0.6 per cent higher than it was 12 months ago.

Boom, Auckland house sales have hit the canvas.

When our optimistic friends in the real estate industry start to acknowledge a trend, we can be sure it has become an unavoidable reality.

It now starts to change the dynamic in an election campaign where the overheated market was shaping up as one of the major issues.

The Barfoot & Thompson data was revealing because it is an immediate and very clear snapshot of what's happening on the ground in Auckland.

But most Aucklanders have been well aware of the change for a few months now.

To use a slightly unscientific term, the vibe had changed.

The conversation around central Auckland sports fields and dinner parties still gravitates to property because someone is always selling a house or knows someone who is.

And we always have an eye on the valuations which constitute a retirement plan for many of us.

Those property stories are now tinged with seller panic.

The Barfoot & Thompson data confirmed the anecdotes. Peter Thompson's commentary was clear and insightful.

The slump in sales numbers has finally translated into prices. In other words, people who needed to sell were holding on, hoping that buyers would return to the market.

They haven't and now prices are falling.

The trend could accelerate. Anyone with an investment property looking to sell but waiting on the market may now be inclined to cut their losses and book the big gains of the past few years.

This could deepen the price slump.

Meanwhile a combination of the Reserve Bank's investor LVR restrictions, tighter bank lending and a slowing of Chinese investment money as Beijing tightens capital controls (seriously, Google it) have dampened demand.

This is the holy grail right? What we were all hoping for.

In theory it should be good news for National, taking some of the heat out of the housing debate.

That might depend on the altruism of older Auckland voters of course. It's one thing to hope the growth rate cools it's another thing to watch your value go backwards, especially if you are nearing retirement and considering your options.

Still the basics of supply and demand suggests there must be a natural floor in this property slump.

Immigration is still at record highs and house building isn't keeping up.

That's the flaw in the story which makes it difficult for National to claim success on the housing issue, even if it does buy it some time.

Housing Minister Nick Smith has been happy to point to falling Auckland prices and a slight improvement in Auckland affordability, as he debates the issue.

But he has continued to stick to the Government mantra that increased record house building is driving trend.

It clearly isn't.

Demand has come out of the Auckland market like someone squeezing the valve on an over inflated tyre.

Okay sort of... that's a simplistic metaphor. The Auckland property market is more like a god-awful, ugly balloon with a multitude of valves and air pumping in all directions.

Economists know that. So too does the Reserve Bank, which can justly claim some success in regulating out some of the risk of the whole thing going pop.

It would be helpful if the Government acknowledged that too.

The one thing that this slump hasn't done is help first home buyers into the market. They can no longer get the loans they need even if their odds of finding a bargain at a wet wintry auction in West Auckland have improved.

There is still fertile ground for Opposition parties but they will have to be up to the challenge of battling over a more complex narrative.

That's what makes it so hard to call.

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