Fri. Jan 28th, 2022

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Humble home sells for twice its CV in booming Auckland market

3 min read

A humble 1970s Auckland home has earned its owners close to $2 million profit in just one decade of ownership, highlighting how far prices have skyrocketed ahead of the release of new council valuations.

The North Shore home on Sequoia Pl in Sunnynook fetched $2.4m at auction earlier this month.

Not only is that almost $2m higher than its $430,000 purchase price in 2010, but is also $1.4m higher than its 2017 Auckland Council valuation.

The council earlier said it will release its new CVs next month, but is yet to officially confirm that.

Owen Vaughan, editor of NZME-owned property website OneRoof, said Auckland house prices continue to hit record highs in the meantime.

“Auckland’s property market in the last three months, despite lockdown has lifted considerably, with the average property value for the city now well above $1.5m,” he said.

“This house like many others that have sold in the last year and a half have seen huge gains.”

The huge pace of the price growth has led prices to leap well above the last Auckland Council valuations done in 2017.

Homes selling for hundreds-of-thousands of dollars – if not millions – above their CVs has become common.

The city’s average property value in 2017 was just over $1m, now its $1.5m, according to analysts Valocity.

However, with interest rates now on the rise, property pundits are expecting house price growth to slow in the coming months.

The Reserve Bank of NZ this week raised the official cash rate for the second time in as many months – taking it to 0.75 per cent – and signalled at least another seven hikes before the end of 2023.

Kelvin Davidson, chief property economist with analysts CoreLogic, said shorter term home loan interest rates had now hit 4 per cent, and are likely to climb above 5 per cent in the next six-12 months.

While those rates are still low by past standards, the enormous jump in house prices meant many will feel the pain in their pockets from higher rates.

“With house prices having soared by 28.8 per cent over the last year, mortgage payments as a percentage of gross household income are already back at 41 per cent,” Davidson said.

“(That is) well above the average of about 37 per cent, and the highest since Q2 2008 (when mortgage rates were above 9 per cent),” he said.

“A mortgage rate of 5 per cent now would see that repayment burden rise to 46 per cent, and at a 6 per cent mortgage rate, it would climb to more than 51 per cent – which would be the worst level for at least 18 years.”

Vaughan said “interest rate rises are just one of the headwinds the housing market will be facing next year” as more Kiwis are expected to head to Australia for better wages, thus dampening buyer demand for houses.

“Credit restrictions, rising building costs and possible changes in net migration will all have a dampening effect on house price growth,” he said.

It comes as new council valuations are due in two of New Zealand’s biggest housing markets.

Valuations are due out next week in Wellington, while Auckland valuations had earlier been earmarked for early next month.

The last CVs were issued in Wellington in 2018 when the city’s average property value sat around $800,000.

The post-Covid surge has seen the city’s house prices jump more than 50 per cent to an average price just above $1.2m.

A source of fascination to property-mad Kiwis, CVs – formally known as capital values – can affect prices homes sell for as well as the rates bill.

Homeowners wanting to sell often hope for a new higher CV in the belief it might help convince future buyers to pay more for their homes.

Higher CVs can also convince banks to lend more money to those wanting to borrow.

But residents with no intention to sell can face a higher Auckland Council rates bill if their new CV jumps too much in value.

CVs also do not change the total dollar amount councils collects from rates.

Councils instead decide how much money it wants each year, and then use CVs to help work out the share each home and commercial property owner pays.

Auckland Council has already decreed it intends to raise $2.3 billion from rates in the 2022/2023 financial year – the first year the new CVs come into effect.

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