As explained last week we have noticed a lot of action in the last few weeks in the Auckland market. One of our properties we are trading had 15 groups just in one open home last Sunday. We have not seen these numbers since September last year.
I have a very simple theory/hypothesis based on current trends, graphs and numbers and I am about to give you a few details of how it came about and what it will mean to you. I will explain 2 of the 4 factors I evaluated when reaching my conclusions in this blog (because of space restrictions) and I will cover the other 2 at our next live event in Auckland next Saturday the 20th
The first factor I want to talk about in detail is home loan approvals. This is a great indicator of what is more likely to happen in the near future. Obviously not all approvals turn into loans but knowing that the number and total value of approvals is up or down is essential to evaluate the future health of a market. Number of approvals dropped significantly after the new lending restrictions were introduced in Auckland last October and they lead to a significant “price drop” in December and January.December was the turning point on loan approvals (see Herald article below)
This turn of tide in home loan approvals is materialising now with more activity in the market which I expect to last until May when the standard winter annual microcycle starts. This should give the market enough time (February-May) to reach and even surpass the heights of October last year creating an almost perfect double peak pattern. You can easily see the annual microcycle in the graph from interest.co.nz below
The second factor I wanted to talk about in this article is the fact that the average value of those new mortgage approvals are the highest ever recorded and this is extremely significant. Higher loans fuel larger number of investments, especially in the low interest rate environment we currently exist in. There are currently not that many great alternatives to invest this new found equity into, so the real estate market will see a large influx of funds in 2016 still fueled by the supply-demand problem (see drop in number of properties available graph below) Auckland suffers and the lack of viable investment options. The current unstable international environment that surrounds equities, commodities and businesses (low inflation) only fuel this further.
I think we are definitely nearing a slow down in the market (we are definitely due one soon) but how near is hard to predict specially with current international developments. As an investor the answer is not to wait until something happens but to be informed and aware and future proof your investments. Better choices are needed in changing times and we believe we have some very valid theories and ideas you could benefit from.