Jonno Ingerson, Head of Research, CoreLogic NZ Ltd.

I’m surprised.

I’m surprised because the latest monthly QV house price index shows Auckland values rebounding ever so slightly. After peaking in November at an average value of $1,051,387 they then dropped 0.7% over the next three months to $1,043,680 last month. I expected that gentle decline to continue, instead values bounced back fractionally.

Why am I surprised?

I have been talking about how any decline is likely to be shallow and short-lived thanks to continuing low interest rates, a desire of investors to keep investing, and high net migration keeping pressure on the growing under-supply of housing in Auckland.

I am surprised because other measures of activity in the Auckland market have dramatically slowed over the past couple of months.

Our measure of buyer demand has been very weak ever since the RBNZ’s announcement of more lending restrictions hit the streets last July.

That low buyer demand translates into fewer sales, and in February the number of sales in Auckland was the lowest for any February since 1993! Lower than in the years following the GFC in 2008 – 2010.

Lower sales activity is almost always joined by values slowing considerably or even dropping.

Then there is the growing number of listings. While new listings in Auckland have been at about normal seasonal levels, the low number of sales in recent months has meant that the total number of properties for sale in Auckland has grown to the highest level for three years. More choice for buyers also tends to mean less upward price pressure.

Furthermore our buyer classification data has shown a dramatic drop in first home buyer activity in Auckland. First home buyers usually pay a premium over other buyers as they fight hard to secure a property they love. Fewer first home buyers, along with the cash investors who remain in the market and tend to pay under the odds, should be causing prices to fall if the market was following the rules.

Adding to the strain, some of the bigger banks have also tightened their lending criteria far beyond what the RBNZ is requiring of them, making mortgages much harder to get for many buyers.

I had also expected that buyers would be starting to sit back and wait a bit – what with autumn now upon us and the heated policy debate around housing and migration ahead of the spring General Election.

But despite all those things that I thought would have caused Auckland values to keep sliding, they have instead held firm. I was confused and I live and breathe property.

This needed a bit more digging.

I was probably premature in suggesting that the impending election will give home buyers and home owners the jitters. I still think that will happen, but probably only once the election campaigns really ramp up in a few months. We will be into winter by then, which is typically a quiet time anyway.

There are also different patterns emerging across Auckland. The most recent data has seen North Shore and old Auckland City bounce back up, while Manukau and Waitakere continue to slide. Meanwhile, the fringe areas – Rodney, Papakura and Franklin – have just slowed their rate of increase rather than showing any sign of dropping.

Manukau and Waitakere have tended to be stronger first home buyer areas, so with those buyers less active declines in those areas are therefore not unexpected.

North Shore and Auckland City, especially at the mid-range of $800k to $1.5m, have shown more resilience than the top and bottom ends of the market. Likely the buyers active in these markets are less impacted by lending restrictions.

Across the rest of the country, the lending restrictions have not hit as hard as they have in Auckland.

Values in Hamilton had fallen 3% since late last year, but like Auckland, that decline has halted. Part of that initial decline will have been due to a reduction in the number of Aucklanders investing in Hamilton. That had reached a peak of 17% of all sales in the city in late 2015 but with increasing values in Hamilton making the investment equation less attractive, plus added difficulty in securing mortgage funding, that proportion of Auckland investors has fallen back to 11% of all sales.

Tauranga went from rapidly increasing values last year to being flat for the first couple of months of this year, and has now begun to creep back up again. Again there is a high percentage of Aucklanders purchasing in Tauranga, some for investment, but more for moving there. That has not eased, but the ready supply of money for those Aucklanders will have slowed a little.

Christchurch dipped in the latest month but it is too soon to tell if that means anything. The market there is more finely balanced than the other main cities following a period of strong value growth after the 2010 and 2011 earthquakes. A reduction in demand and mortgage credit may well lead to slowly dropping values in Christchurch in coming months.

Wellington and Dunedin are still increasing, just ever so slightly slower than previously. Wellington is experiencing a housing shortage, both for owner occupiers and renters. First home buyers are also very active in the more affordable fringe areas.

All this begs the question as to whether the Reserve Bank’s lending restrictions have either not worked, or have worn off already.

Bear in mind that the Reserve Bank is not specifically trying to lower house prices. They are trying to protect the banks and the wider economy against any potential significant correction in house prices. Making sure that borrowers have larger deposits, and that lending is more prudent are two ways of achieving that. The Reserve Bank’s own stats show that lending to investors has dropped by 35% since the introduction of the restrictions. Job done there.

As for house prices dropping? Well there may be a more lasting impact in Waitakere and Manukau, but elsewhere it looks like we are back to increases. At least for the time being.

As the Reserve Bank said just prior to announcing the restrictions, slowing down the housing market would take a combination of things including increasing interest rates, lower migration, looking at tax treatment for investors, but the biggest influence would be massively increasing housing supply. Other than interest rates, those are not things that the RBNZ can directly influence. Furthermore, none of them have materially changed.

Consequently, the strongest forces that have been pushing up house prices are left to do their job. Yes demand has been reduced, and yes supply is up a little. But not enough. Interest rates, while they have risen slightly, are still low enough to not cause pain. Ultimately we have too many people for the number of houses, and until that is resolved it is difficult to see values dropping.

Should I really be surprised then that values haven’t continued to drop?  Perhaps not.