Average asking prices on Trade Me Property fell 0.6% in May, Auckland market slowing the most

The brakes are being applied to the housing market, according to the latest figures from Trade Me Property.

The average asking price of homes throughout the country that were advertised for sale on the website in May was down 0.6% compared to April.

In Auckland there was an even bigger decrease with the average asking price dropping 0.7% compared to April.

"Asking prices are still up almost 10% on a year ago, but we're seeing signs that a slowdown is starting," Trade Me's head of property Nigel Jeffries said.

He said the Auckland market market was experiencing a more significant slowdown than the rest of the country.

"The Auckland market first broke through the $900,000 ceiling back in November and since then the average asking price has hovered around the $915,000 mark," he said.

"It has been stagnant compared to the powerful market of the past few years when prices blasted from $700,000 to $800,000 in just 10 months back in 2015, and then leapt from $800,000 to $900,000 the following year.

"The way things were going we'd expected to see prices closer to the $1 million mark by now, but the LVRs and other restrictions appear to have slowed the Auckland market right down."

However the Christchurch market has slowed even more than Auckland's, with prices in Christchurch now below where the were a year ago.

The average asking price for Christchurch properties advertised on Trade Me Property in May was $471,350 which was down 0.4% compared to May 2016.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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58 Comments

Aha, the long awaited correction may be here, we'll know for sure in the next few months. Over-extended real estate kings better watch out... Lest we forget four fifths of bank's assets are mortgages, so maybe not... Maybe there is room for more financial insanity!

.. so long as interest rates stay at the current hysterical low levels ... nothing could possibly go wrong ... keep the faith , keep borrowing , all will be well ...

.. so long as interest rates stay at the current hysterical low levels ... nothing could possibly go wrong ... keep the faith , keep borrowing , all will be well ...

Nudge theory.

The 'logic' [sic] seems to be that prices are high QED prices must crash LOL! Yet banks have been lending cautiously for quite some time, remember the bad old days when you could buy with a 5% deposit?! Now you need a 40% deposit if you already own one home. Fact is buyers have left because of the increased deposits required, and the China stuff. None of this says sellers are under pressure, but many will be hoping to cash out some capital gains, and who can blame them?

Hi Hevi,

"Aha, the long awaited correction may be here, we'll know for sure in the next few months."

I've heard that many times before!

The reality is that house prices are stubbornly refusing to move down.

What's becoming clear is that the last upswing was not just cyclical: it represented a significant structural adjustment as NZ becomes increasingly sought-after, globally, as a place to live and own property.

I think there will be some downward movement in house prices in the short-term. But it will not be much.

In the long-term, NZ (especially Wellington and Auckland) remains an excellent choice for property investors.

There's a market expectation of two rate hikes by the Federal Reserve this year. Their announcement won't be far away. I'm expecting their balance sheet unwinding will provide an effective rate hike. If the Fed increases rates by 0.5% this year our banks will be forced to act and that's most likely going to stick us with higher interest rates.
http://www.cnbc.com/2017/06/13/fed-rate-hike-this-week-to-hit-millions-o...

It's tomorrow ( THU )

Hopefully this is the beginning of a much needed market correction. The government doesn't deserve this reprieve though and should still regulate to save the next generation from being renters for life. The Nats and Labour are both guilty and have shown they care more for votes than people- shameful!

Honest questions here.

If it is just a gradual decline in prices across say a couple of years, does that constitute a "correction"?

alternatively if prices drop say 5-10% in one hit does that constitute a "correction", even though prices would still be 50%+ more than 5 years ago?

A gradual decline isn't really a correction. A correction usually returns prices to the mean growth rate or temporarily below.

There seem to be some panicked about a 20-30% drop in house prices. A 30% drop in the market value of my house would still not be less than the purchase price in 2014. There will be different views on whether that's a correction or not but it is something that is easily weathered if you finances are in satisfactory shape.

So for your example no that is not a correction. I would refer to that as a mere speed bump.

So how much would property prices have to drop to be called a "crash", dictator ?

I see a correction looking more like 5% plus within a year or so. We have seen this many times over the last 40 years I have been watching the market. The "main market" falling away at 5-10% while the higher price range suffering more as there are always fewer buyers at the top end. And people should look beyond the "so-called" market drivers, because it is all about sentiment- On the way up it was "yay, I can make some easy money!' , on the way down its "whoops, I think the market's topped out- time to run!" This market got way too over-heated by foreigners and should never have been allowed to do so. Humans need protecting from themselves sometimes and that's the Governments role

I actually see prices going sideways for the next decade, and not dropping. People don't want to lose money on housing. But sideways in real terms is a drop, due to inflation. Wellington prices went sideways for nearly a decade after 2007. Not unless there is a financial crisis again, which is possible too.

I think we are only at the start and I wouldn't place too many bets at the moment. I understand people don't want to lose money which is why we have massive supply in the market at the moment.
The million dollar question is;

How highly leveraged is the average home owner and when do their fixed rates come up?

Now a lot of people fixed there mortgages this year. What will the rates look like in 2 - 5 years? And will you be happy with 20% higher outgoings in a house that is worth 10-20% less?

I think the craziness is yet to come.

You don't actually lose anything unless you sell and buy in different markets.
This is the mind playing tricks on the average specuvestor - out loud voice --- Im worth 5 million - inside mildly scary voice --- and I have mortgages totaling 4.5 million.

That is only true if you do not increase your debt level.

the example you give is pretty scary with prices falling, if they fall 10% you have lost all of your equity and the banks should be extremely worried about their loans.

I suspect you are right and I know people who think like that.

Problem is there outside voice is doing the accounting wrong the correct outside voice should say is "I'm worth 500k (5m-4.5m)"

and the inside voice says "I have a 10x more debt as I do equity and leverage cuts both ways. Please don't let the market drop EVEN A LITTLE or I'm properly screwed"

A slowing down and plateauing-off in the housing market has been anticipated for months - and is hardly newsworthy anymore.

I note that the monthly decrease in prices recorded is very small (< 1.0%) compared with the increase of the last 12 months (almost 10.0%). So, necessary to interpret the data with a proper sense of perspective (though, inevitably, the usual suspects here will conjecture that the housing market has fallen through the floor - or is about to do so).

Post-winter and post-election could bring a different trend.

Long term indicators for NZ housing as an investment remain very positive.

I agree, too many factors holding up the pricing at this point in time and its also that critical pre-election time when everything goes on hold until after the election, then its business as usual when the Nats get back in. Really we will not know a trend until after the election, possibly not until summer. Really the current drop is insignificant, I used to lay in bed in the morning to be told my property had gone up $1500 a week on the radio for months on end. Time for it to plateau for a long period, maybe drop a little further if interest rates begin to rise as affordability will be the key to what happens.

"I note that the monthly decrease in prices recorded is very small (< 1.0%) compared with the increase of the last 12 months (almost 10.0%). So, necessary to interpret the data with a proper sense of perspective"

Indeed. And in using your own words that "very small" monthly 1% decrease is 12% pa, which is not going to be sustainable for very long for a lot of people, especially if they bought relatively recently.

Hi rmnz,

In fact, the decline is about 0.7% for the month - if you care to read the article properly.

So that's around 8.5% on an annual basis - which is well less than 12%.

House prices, as in the past, are "sticky down".

A fair point, but if you also add on inflation it's still flat at best. Sticky-down house prices only hold up until desperation sets in. Of course nobody wants to realise a loss but I would question how long people can hang on for in a falling market given the borrowing rates/amounts over the last few years and lending tightening by the banks.
I think it's dangerous to assume that because NZ largely avoided a housing fallout out from 2007 that we will do so again. At the moment it feels like the market is still being held up by migration and lack of supply, but increasing inventory, time to sell, lower sales volumes, falling auction sales, rising interest rates, without significant wage increases, all point towards further price declines.

True, and recent buyers have so much more at stake than they would have 10 years ago. They borrow large sums without a plan to repay, just pay the interest and forget the principal. Its a recipe for disaster. You are right, almost everyone but us had a healthy market correction in 2009 and that makes us all the more vulnerable now.

"Long term indicators for NZ housing as an investment remain very positive."<\i>

If only we had a time machine and could return to the 1970's before financialisation when university was free and the average kiwi worker earned the equivalent of ~2.5 - 3.0 kg of gold per year and private debt/GDP was ?( I cant find the number but it was below 30% in 1990), Houses were 3x an average income and interest rates were above 15%.

But now the private debt to GDP ratio is above 160%, everything is financialised, people earn ~1kg of gold per year. The younger generations enter the workforce laden with education debt typically owing ~0.5 to 1kg of gold. They're broke before they've even begun! Moreover the cost of living consumes 50-100% of the average wage. Are the younger generations wealthy enough to afford your houses? Is the debt/GDP ratio low enough to accommodate further expansion for lending into real estate? Is is possible that that the next 40 years of house price inflation will look like the last?

I know some recent students that owe over 2kg worth of gold in student loans. Not a great way to start out on a low paying career.

It shows a number of thing
(1) A change in interest rate direction, which just proves that lower rates pushed prices up
(2) Overseas buyers are drying up

But the high prices will likely remain for some time, as supply is still not meeting demand, largely due to NZs immigration flood gates being open. If we were letting in the same proportion as the US, we would only have 10-20k of new overseas people coming in a year.

Housing approaching market value with $1 reserve. It's probably worth about a dollar in the current market.
http://www.stuff.co.nz/business/property/93674307/1-reserve-for-brand-ne...

Hi dictator,

That wouldn't, by chance, be a biased sample of a single house would it?

Surely not - coming from a person of your esteemed credentials....... (-;

People need to enjoy the entertainment rather than getting all worried about events that are unfolding. I started my business during the GFC. Who cares if property is crashing, be sensible with debts and move on.

They can also have a laugh at the marketing of a $1 reserve.

All the sales data currently point to a general "slow down"

However the following levers can only point one way unless something changes significantly

Increasing Sales Listings
Low sales volumes
Increasing interest rates
Poor auction results
A lot of negative articles

In my opinion we are seeing a both sellers and buyers holding on to their cards, who will fold first? and what will happen when it does?

Its hard to see where the next boom can come from in Auckland unless more overseas cash re-materializes.

I think we can all see it coming whether you wish it to or not

Please explain why anyone who is a seller has to "Fold" ? The only reasons you would fold is if the interest rates take a big hike or you loose your job and cannot make the mortgage repayments. Anyone who has purchased a house, even recently has no reason to "Fold" and take a loss unless they have rocks in their head. Anyone knows housing is a long term game so if you have no reason to panic sell, why would you ?

"First out, best out". It depends on why an owner is 'in' in the first place. The hardest human emotion to overcome in any financial situation is - to take a loss. People generally take their profits too early, and their losses too late. Losses, have a habit of becoming BIG losses. That's why asset markets are often Up, via the stairs and Down via the elevator shaft......

Agree Carlos67,

Housing is not a new form on investment in NZ - and most housing investors are savvy enough.

But there are always a few that get themselves donkey-deep in debt and then hit upon hard times (like losing their job). The market exerts discipline by purging itself of the "uninitiated" every so often. This situation, of course, may create a silver lining for other investors......

A seller doesnt necessarily have to fold they can simply wait & hope for a better price or take the property off the market but then you have to question why the property is on the market in the current conditions anyway.

Logic says that sellers that have their house on the market want to sell their house, plain and simple. If they cant get what the want for it then its either hold or fold.

It does depend on why you or they own the property,

if it is a income related investment (if they need the income generated to live) then they would be better to sell and invest in elsewhere until the market changes.

If they are highly leveraged, they would be better to take the profit now rather than reduce their equity. it would be harder for them to reposition themselves with less equity especially with the new rules in place. This factor may be playing on a lot of investors minds as they could not rebuff their existing properties with the current rules, so they may choose to take the risk.

If they are looking for the best returns for their investment then they will most likely sell now, take the profit and invest in stocks which are doing well and expected to continue.

The Auckland market must go down, Greed drives it up and Fear drives it down. Fear is the stronger emotion

Really liltyke,

I think markets are a tad more complex than you portray. (-;

I have been heavily involved in the property industry most of my career, believe me it is that simple. The property cycle has been amazingly consistent over the past 40 years or so, even though very different factors (usually external) begin the down cycle. Take a look, 1977-78, 1987-88, 1999-2000, 2008, so 2017-2018, its right on time!

I would say the fear of missing out also plays a part. Its the only reason I can figure why anyone would buy property in this market.

@ liltyke: Yes and now with the latest interest rate hikes I can't see prices holding. It just puts more pressure on Buyers, so prices are heading south.

Don't worry, up or down house price will still double in 7-10 years.
Well, that's an email that I have just received from my trusty RE agent. She assured me this temporary correction is just the normal winter affective disorder for housing market..

Yes basically its all about your ability to service the mortgage long term. What is almost guaranteed is the house your in will be worth double in 15 to 20 years time, essentially before the mortgage is paid off. It will go up and it will go down along the way, but the overall trend is a straight line and its only going in one direction and thats up.

She will probably be trying to sell you a used car in six months time

Take her assurances and 6$ to a cafe and you will have just enough value to buy a mid sized latte.

It's just moving from sellers market to buyers . it happens !

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I'm really surprised by the number of property bulls in these comments considering the data. It's as if you think housing is only effected by the current situation, which will never be subject to change.

Why do any of you assume that immigration will stay high or that unemployment won't increase? Immigration has always gone up and down, as has unemployment, not to mention that those two factors are strongly correlated.

There are clouds on the horizon for Australia and NZ. Whether it be a recession in China, a housing correction or some hitherto as yet unseen event, NZ households are vulnerable. They are heavily indebted, houses are wildly over valued by every measure there is......and nothing stays the same in markets forever.

They say you should make hay while the sun shines, but what have NZ-ers done? Instead of using the period of low interest rates and strong-ish economic growth to pay down debt, they have gone on a debt spending binge. You can say what you like about house prices, but at some point, the debt cycle will play out. Could be now, could be in a few years but the idea that things will stay the same or continue as they have been indefinitely, is utter psychological delusion.

well said, we can sweep this housing crash under the rug for may be a few more months, but eventually the truth will surface and it will be a truly bitter one for a lot of investors to stomach it.

@gingerninja,

yep the irrational exuberance and inability to accept that this time is different (but in the worst sense) defies logic.

The overshoot of house values v all historic metrics in a time of QE and ZIRP means we're in uncharted waters with alot of downside v upside in my view.

I also belong to a couple of Property Investor chat groups - there are 2 distinct groups in those.

The relative newbies (in property the last 10 years..) who refuse to see any storm clouds and that the value will just keep on keeping on no matter what....they will not ever concede a point on this - even from other (more experienced) property investors in the group.

However the older sages- those who have been through multiple cycles and REAL downturns got rid of under performing or highly leveraged properties a year ago and are not buying..

And most of those (including one member with MANY MANY properties and been doing it for 30 years is building the biggest cash buffer he can right now....

Who is being bullish?

Ecobird, Yvil, and tothepoint have been the bulls these last few articles .. completely ignoring facts and logic, using condescending tones on their posts and have only anecdotes to back up their claims.

You're not the villain anymore, Zachary, I've actually enjoyed your solid posts these last few days as you always back up your claims with logic and data.

They have bullish comments but are not prepared to back them with bullish actions. Yvil was more interested in trying to attack me personally than engage in discussion. I think the bulls have too much skin in the game, or too much at risk.

Yes you know when they start attacking your character they do not have any valid arguments left....

Also with the property crash going on it's a "so what?" situation. You just adapt and move on.

Precisely, I've been trying to get them to provide a valid reason why they think that the property market will start to go up again but so far they haven't provided any evidence or reasoning what so ever?

They act just like Real Estate Agents and continue to encourage everyone to buy property even when the article they are posting on show that the market is falling. They seem very desperate that property prices are trending downwards.

They just don't want to see the reality of the situation; The top end overseas buyers are gone, we can all see that from the poor auction results. Naturally prices will gradually decrease.

This all reminds me of someone. Anyone else miss Ted?

I have to admit when Ted did it the numbers were only just starting to turn and were inconclusive at the time.

You can catch him most days on NBR commenting under various names.

I agree but the spending binge has not just been housing, its people borrowing on their house value and buying new cars (which have been at record sales for the last 3 years) and no doubt things like travel and other "Must Haves" which are not necessary so yes some people are going to be smacked badly if it takes a nose dive. The smart people have killed off their mortgage in this time and have thrown everything at it while the interest rates are low and have got themselves out of debt.

@ gingerninja: Yes you're quite right, why take on an over priced property when all the evidence points to prices decreasing.

Since the property market has become decoupled from prices there's no point in putting a huge mortgage noose around your neck. All the banks are now trying to apply the breaks both here and abroad, now that the major property Investors are gone and there are too many people of interest-only mortgages who were trying to keep up with massively over inflated property prices.

Article The Australian: Mortgage noose tipped to see property prices crash by 10 per cent

Quote: A crackdown on interest-only home lending could trigger price falls of up to 10 per cent in the red-hot markets of Sydney and Melbourne, economists warned yesterday.

http://www.theaustralian.com.au/business/property/mortgage-noose-tipped-...