With all this activity, one would have expected rapidly increasing house prices this year. However, Auckland’s median price has remained around $370,000 to $380,000 for 2005 and only selected suburbs mainly in low cost areas of South and West Auckland have seen booming prices in 2005.

The 2005 median price for Auckland is up 10% on 2004 which averaged close to $340,000 and is up some 54% overall or $134,000 since the start of the boom in late 2001 when the average median for that year was $246,000.

However for 2005 the median of $370,000 was reached in March and has stayed pretty much at this level since although October’s median was up to $380,000. Price increases thus seem to be taking a breather except for South Auckland.

The median price in this area is now sitting around $280,000 which shows a 16% increase since the end of 2004. This has outperformed the Auckland market with an average increase of only 10%.

A number of factors driving the strong increases in South Auckland include good job security and wage growth, readily available finance, a “catch up” phase to the boom the rest of Auckland has already enjoyed, increasing access to welfare benefits and spending, and property investors showing better returns on rental in these low cost suburbs due to the more affordable pricing of the housing in relation to rental income received. The welfare payments are helping to support or prop up rentals and thus feeds directly to higher returns to landlords and higher house prices.

Consumer confidence is beginning to wane and although is strongly positive the latest survey suggests pessimism is now coming to the fore. The slowing of the economy coupled with rising interest rates, high fuel prices and low migration are factors all sited in the latest survey and likely to put pressure on confidence to continue its downward slide. The housing market and consumer confidence have historically had a very close relationship and it is expected both will ease over the coming months.

If interest rates do reach this level to blunt the market in its current cycle we believe the effects will get very ugly. Many first home buyers, investors and home owners are highly geared with limited capacity for interest rate increases of this magnitude. It is feasible a rash of forced sales and dumping of property from over geared developers and investors is possible. This would naturally present opportunities for more astute investors.

New Zealand has enjoyed a very strong population growth period over the past four years and this has been the primary stimulus to the property market. As migration gain has now largely evaporated the effects on real estate must be felt.

It is somewhat alarming that population growth is slowing to such an extent currently given that the economy is still performing so well, we have the lowest unemployment in the OECD, high job security and wage growth plus a booming housing market. One would expect these were all factors that would attract migrants to the country and keep New Zealander’s here. However, this is not the case with some 72,000 people emigrating (half of these to Australia!). The risk therefore to having negative migrant outflows in 2006/2007 could be seen as being relatively high as the economy and other factors outlined worsen over the ensuing two years. Australia is clearly seen as a very favourable destination given the better wages, lower taxes, more affordable housing, good job prospects and favourable climate. Why do we stay? Of course, it’s the rugby! and no capital gains tax on our property!

Worsening immigration and slow or negative population growth could potentially have a quite damaging effect on the property market as an oversupply of housing from the current house construction and apartment boom could result in much property remaining unsold for lengthy periods due to poor demand.

The property boom has now lasted four years and would be unsustainable if it continues at current levels. Falling migration, rising interest rates, a slowing economy and increased pessimism are slowly eroding the momentum and sentiment of the market. However, high job security and good wage growth which have helped support the housing market are offsetting some of these negative influences.

We were earlier predicting a “soft landing” to the predicted slow down however, given the present indicators we believe there is more risk to a more dramatic fall off in activity, particularly if floating interest rates do rise to around 12%. Our 7-8 year chart of the property cycle is quite revealing ? the slowdown is overdue.