Price change tempo keeps on changing

Plenty of bounce in Auckland market. Photo/Brett Phillips

The fire burning under the property market seems to be as bright as ever. Sales activity has picked up dramatically in recent months, particularly in the top half of the North Island.

So it was something of a surprise when news emerged in the last couple of weeks from the real estate industry that median house prices in Auckland had dropped from June to July. Commentary suggested Auckland may have reached its price peak.

Our view at CoreLogic is that rather than this reflecting a drop in overall Auckland house prices, it is more likely due to more sales at the cheaper end of the market.

That would pull down the median sales price.

It also isn't unusual for a monthly median to bounce up and down from one month to the next.

There has been no change in the anecdotes we are hearing from people in and close to the Auckland market over the past few weeks. Just more of the same about prices increasing.

So why might there be more sales at the lower end of the market? It is a trend we have been watching play out for a couple of years. First-home buyers and investors drive activity in that segment of the market.

Rule changes imposed by the Government and Reserve Bank may be encouraging this activity.

On October 1 a capital gains tax will be introduced for non-owner-occupied Auckland properties resold within two years of purchase. This may be leading to investors buying up before these rule changes kick in.

We are also seeing a further recovery in first-home buyer activity to levels we haven't seen since the LVR speed limits were first introduced in late 2013. This will be due in part to historically low interest rates, and first-home buyers finding ways to get together the extra deposit needed.

One of the other rule changes to come in later this year will be a relaxing of the LVR speed limits outside Auckland.

The Reserve Bank is encouraging banks to apply these new limits immediately and that is undoubtedly letting first-time home buyers back into the market outside Auckland.

One of the things that could slow the Auckland market is a change in buyers' expectations that there are more value gains to come over the next few years until supply and demand rebalance.

Have we reached that point? I don't believe so, but time will tell if this apparent slowdown in Auckland prices is real and sustained.