Talk of an Auckland price crash overstated

Belief in a housing market crash in Auckland is a bit like believing in the Loch Ness Monster. Despite no objective evidence that Nessie actually exists — there are still many thousands of people who want the myth to be true.

It doesn’t take much to whip the promoters of an Auckland crash into a frenzy with the slightest downward variation in median house prices or change in the international climate. This time, it’s the drop in house prices across the Tasman, with the claim that Sydney is crashing and surely Auckland will follow.

An objective look at the median house price graphs for Auckland and Sydney since 1992 actually show a remarkable degree of similarity — even down to the price blips following the Asian Tiger and GFC downturns.

If Auckland does follow Sydney — the news isn’t good. House values in Sydney are down 11.5 per cent over the past 12 months. In fact, every Aussie capital city, bar Hobart, reported a fall in house values. There is also evidence that regional property markets, which until now have held their values, are softening.

So, surely it’s time for Auckland home owners to panic? Well, not so fast.

Firstly, Auckland doesn’t actually follow the Sydney market — it mirrors it — meaning that the two markets have generally experienced the same trends at much the same time, rather than one following the other. This shouldn’t surprise us as both markets are affected by the same international and financial drivers and generally react to them in the same way. That’s important because — unlike Sydney — the drop in Auckland median prices over the past 12 months has been negligible — just 2.2 per cent — meaning something is affecting the Auckland market which is different to Sydney.

Secondly, even 11.5 per cent isn’t a crash — in my view; a ‘crash’ would be a drop in median house prices exceeding 20 per cent and which stayed with us for several years.

That hasn’t happened to either Sydney or Auckland since the mid seventies. Yes, prices in Auckland dipped in 1998 after the Asian Financial Crisis, bottoming out at 6.6 per cent, and again after the GFC in 2008 bottoming out at 8.6 per cent, with both dips lasting for a little over a year. But these dips both followed booms which saw house prices roughly double — and the same is true of the Auckland market in 2019.

In my view an Auckland crash is highly unlikely and prices will start to go up again by around 2021.