First home buyers were helped by big drops in house prices in Papakura and Franklin in May, but prices remained surprisingly firm in many other places

First home buyers were helped by big drops in house prices in Papakura and Franklin in May, but prices remained surprisingly firm in many other places

By Greg Ninness

The dream of home ownership moved slightly further out of reach for many aspiring first home buyers in May, as the benefits of falling mortgage interest rates were wiped out by rising prices at the bottom end of the housing market in many regions.

The Real Estate Institute of New Zealand's lower quartile selling price edged up in six regions in May compared to April (Auckland, Waikato, Hawke's Bay, Manawatu/Whanganui, Nelson/Marlborough and Southland), declined in three (Taranaki, Wellington and Otago), and was unchanged in three (Northland, Bay of Plenty and Canterbury/Westland).

Of special concern to first home buyers is that May's lower quartile prices were at record or record equalling highs in four regions - Auckland, Waikato, Manawatu/Whanganui and Southland, and the national lower quartile price also remains on a record equalling high.

That apparent firmness in prices at the affordable end of the market is surprising given the low sales volumes that have been evident over autumn and winter.

However not all the news is bad.

In Auckland, where affordability issues have been the most pressing, there were significant falls in the lower quartile selling prices in the Papakura and Franklin districts on the city's southern flank.

In Papakura, the lower quartile price dropped from $585,000 in April to $550,000 in May, which was the lowest it has been since August last year. In Franklin the lower quartile price was $575,000 in May, down from April's record high of $635,000, and the lowest it has been since February.

At those prices, the mortgage payments of lower quartile-priced homes in Papakura and Franklin would take up less than a third of the median take home pay of Auckland couples aged 25-29, if both were working full time, putting them well within affordable limits.

Mortgage payments are considered unaffordable if they take up more than 40% of take home pay. 

Elsewhere in the city, mortgage payments on lower quartile priced-homes would also be below the 40% affordability limit for typical first home buyers in Manukau (36.96%) and Waitakere (38.73%), while first home buyers would likely struggle to afford the mortgage payments on lower quartile-priced homes in Rodney (42.54%), North Shore (47.46%) and Central Auckland (42.87%). And scraping together a deposit could still be a major problem for first home buyers in Auckland.

Interest.co.nz estimates that if a couple earning the median wage for people aged 25-29 in Auckland saved 25% of their after tax pay for four years they would have $76,624 to put towards a deposit, which is 11.3% of Auckland's lower quartile house price, or 13.9% of the lower quartile price in Auckland's cheapest district, Papakura.

Although they may still be able to get a mortgage with that amount of deposit, they would probably not qualify for the lower interest special offers banks make from time to time, which generally require a minimum 20% deposit.

Outside of Auckland, excluding Queenstown, housing remains affordable to typical first home buyers in all regions.

After Auckland, the next most expensive region is Nelson/Marlborough, where the mortgage payments on a lower quartile-priced home would take up 28.43% of the after-tax pay of a couple earning the median wage for people aged 25-29. That's followed by Bay of Plenty 27.15%, Wellington 25.09%, Waikato 24.67% Hawke's Bay 21.96%, Northland 21.15%, Otago 19.63%, Canterbury 18.44%, Manawatu/Whanganui 15.43%, Taranaki 14.59%, and Southland 12.54%.

Queenstown's lower quartile price was $790,000 in May, making it the second most expensive district in the country behind Auckland's North Shore on $800,000. But Queenstown's problems are compounded by lower median wage rates compared to Auckland, which means the mortgage payments on a lower quartile-priced home in the town would take up just over half of the take home pay of a couple aged 25-29 and working full time for median wages, pushing it well into unaffordable territory.

The full Home Loan Affordability reports for each region and district are available by clicking on the corresponding links in the box below.

The comment stream on this story is now closed.

Home Loan Affordability Reports are available for each of the following regions and cities (click to view).
Northland Region
Whangarei District
Auckland Region
Rodney District
North Shore District
Waitakere District
Central Auckland District
Manukau District
Papakura District
Franklin District
Waikato Region
Hamilton District
Bay of Plenty Region
Tauranga District
Rotorua District
Hawke's Bay Region
Napier District
Hastings District
Gisborne District
Taranaki Region
New Plymouth District
Manawatu/Whanganui Region
Palmerston North District
Whanganui District
Wellington Region
Masterton District
Kapiti District
Porirua District
Hutt Valley District
Wellington City
Nelson/Marlborough Region
Nelson City
Canterbury Region
Christchurch District
Timaru District
Otago Region
Dunedin District
Queenstown-Lakes District
Southland Region
Invercargill District
All New Zealand

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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I have it on good authority that house prices are stable in Auckland.

I was assured of that too. Now who was it that said that?

When I was in Japan last year, you can buy a nice 3br apartment in Asakusa, near Tokyo CBD for less than a price of a 3br (leaky) apartment in Auckland.

Around Ashiya near Kobe (one of the wealthiest residential areas of Japan), you can buy very nice properties under NZD1 mio.

Actually Greg's article above states
"The Real Estate Institute of New Zealand's lower quartile selling price edged up in six regions in May compared to April (Auckland etc…)"
Did you read the article NZDan or only the headline?

I read the article, that's why I said prices are stable.

.

Yvil, on a side note, I just went back to the NY 2019 predictions and I noticed your one is missing. Why? https://www.interest.co.nz/news/97512/will-current-prosperity-last-will-...

From yesterday's figures from the Reserve Bank it appears that FHB are taking on 38% of new debt for mortgages. Yet only have 17% numerically. Big loading of risk. Patently they are taking out multiple loans. Joe Wilkes is doing important work on this. Also, banks are bending over backwards to give FHB loans because investors are 25% down on a year ago in terms of new debt taken on. So, as banks give the price of the home, the home price will not drop. Bank largesse or and Estate Agent pressure on vendors determines price of sale. On top of that is forced sales which will appear in the spring.

Things are very fragile. The market is only just hanging on, and that's clear to anyone who knows even a little about these things. Wouldn't take a huge domestic or international event to turn things to full bust mode.

Trolling comment deleted. Ed.

Quite right.
You reckon Wellington is falling away? It's only one experience but I thought my dad's one down there was quite telling.

Would you mind sharing his experience? I'm waiting to see where Wellington's heading.

Central Wellington suburb, 3 bedroom detached house. RV 1.4 million. Price expectation was 1.2-1.25 million, sold for S1,075,000.
Was on market for 2 months. Had to lower expectations to sell.
He wasn't too devastated. He bought it for 650K in 2004.

That's a bigger hit than I was expecting for Wellington.

His agent reckoned that's the way things are going there. Obviously always exceptions.
It feels like Wellington might have entered Auckland-mode.

Where I'm involved in residential is more on the affordable or near affordable range. There's still a lot of demand in Wellington in that range, but people can save to buy those. The over $850k-$900k+ range is out of reach for many with finance approaching impossible for most. It'll be interesting to see if the affordable demand is met over the next two years (assuming no economic event occurs).

It is not trolling. It is disagreement

13
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Nothing surprising about the price falls starting in the further out less desirable areas.. got caught in traffic coming home from a customer site on Wednesday, got on at Takanini at about 6:30 pm and crawled from Wiri till I got pissed off with traffic and headed out to the airport to watch planes land while the traffic got sorted. Bugger the idea of doing the southern motorway northbound in the morning 5 days a week.

Yeah it's a shocker

I'm seeing falls in desirable areas.

Eastern Bays have fallen a lot in the last 12 months.
When you strip out renovated homes prices are fairly consistently 8-12% below CV.

A LOT of homes have been pulled from the market, unsold, in the past ~6-8 weeks.

"a lot of homes have been pulled from the market in the last 6-8 weeks"

Yes true that. In spring they will return beckoning for naive buyers!

I live in Meadowbank so keep my eyes on things. That sounds about right.

10
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I'm in Remuera. You are bang on the money. I've lost count of the places at the top end which have been pulled from the market.

The thing that really strikes me though is the absolutely shocking state of houses which are put up for sale. No insulation, no double glazing, no central / adequate heating systems.

At the top end of the market houses here are more like barns with windows.

10
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Have you not been shown how to open the windows to heat the house up in the morning. I thought property managers had a duty of care to show tenants how the heating systems work?

That only works if the waterlogged wooden framing hasn't swollen up enough to create an airtight seal, or of course the other choice is the auto-ventilation system (sinking pile foundations causing out of square windows with nice air gaps everywhere)..

The subsidence is actually another interesting issue. I've noticed a few things looking at multiple places recently...

1. The slabbed concrete on the drive way and in the garage of a house. Big cracks often mean movement ~ historic or recent.

2. The eaves of a house. If you can see one side dropping or unevenness you know that probably there is ground movement

3. Look under the house and see if you can see cracks in the base of the supporting walls. I looked at a place last week that had a 2cm gap in a crack which was easily visible simply by walking around the house and looking at all the joins.

4. Try looking at whether supporting post at the back of the property are still vertical. If there is movement you will likely see these are off too.

This isn't intending as advice ~ its just interesting to observe how many places here are built on slopes so you have to be aware of movement.

Most importantly pay for a surveyor to report on any property you are thinking to buy. These guys work for you when you hire them so they report to you too.

Water is a great substitute for a spirit level or surveyors tools. Some tricks I've been taught by various rentals i've lived in over the years:
Turn on shower for 30secs, turn off water and see if shower base drains properly or water pools in a corner somewhere. Presence of squeegee in shower may be a giveaway.
Pour some water on the kitchen benchtop and see where it ends up.. (mop it up before it ends up down the back of the stove if it heads in that direction)

And when buying take a marble to all house inspections and roll it across the floors of each room and see if it stays moving in a straight line.
There will be a lot of places that because of defects will be difficult to sell. Several sites North of Auckland have been thrown up by the first two little pigs. It will be interesting now that sales volumes are as low as they were in the GFC to see how many houses get rejected by the market and just become unsellable without major discounting.
It will also be interesting to see how many older homes were leveraged off (having been owned for 30 years or so) without the banks checking and surveying the security and quality of the house being leveraged against.

We’re about to find out.

Very interesting points

Met a guy on an escooter today who commutes into the CBD from Massey on it! I guarantee it would be quicker than a car over those 20km. A car would take over an hour, a decent escooter would take about 45mins and cost you next to nothing.

Hmmm, Aircon/Heater, Stereo, Roof, wipers.. I think i'd stick with the car (at least in winter/bad weather) if I had free parking. Although if going to the CBD public transport options are probably okay, e-scooter or walk to the bus/train station and then chill out and harass people on here :). Its when you try to go anywhere but the CBD that public transport gets rubbish.

Err, just checked google maps, Looks like Massey is a really crap place for public transport. 1hr 17 on an "express" bus to 1hr 30m to get from Westgate to Britomart on public transport on a weekday morning by 9am. Car is 30mins on a good day, or the same as public transport on a bad day according to google maps. Bicycle is also an > hour. My answer would be to avoid living in Massey unless you work out west.

$100 a week on transport is a big saving. Ebike will also be about 45mins. A good cyclist could do it in about 35mins but would be really sweaty.

I have it on good authority that everyone should move to CHCH, plenty of jobs and opportunities.. or even Palmy North (John Clesese's favourite city in NZ)

Palmerston North is gonna be the next Melbourne for sure! I've been hearing some very prestigious investors on Interest.co.nz talk about it for months now.

Yup I heard that too, two similarities between MLB and Palmy North
1. Both are bloody cold and damp, although I love MLB life style.
2. Melbourne's water feature is the brown muddy Yarra River, while Palmerston North is the green Hokowhitu (Centennial) lagoon/lake/pond

Another similarity is they are arty, edgy cosmopolitan metropolises.

You forgot the letter "f" in arty for Palmy North!

My experience - having a household income greater than the median quoted above - is that I don't come close to qualifying for a $600k mortgage. Aren't loan to income multiples of x5 now considered good (I am only ever offered approx x4.5)?

Are you sure these "affordability" numbers match what the banks are doing? It seems too optimistic to me.

17
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Yep, still seems like the elephant in the room on these pieces.
The definition of 'affordability' is still absurd.
and we're talking about COUPLES who earn AVERAGE OR ABOVE wages, which will be less than half the population obviously.
And those RICHER THAN AVERAGE couples are supposed to be pleased that they can by a house which is, by definition, in the crappiest quartile of homes. Says something is way out of wack in our society.

Come on now brisket, you just need to look at the bright side.. its the perfect excuse for creating an on-going menage-a-trois situation..

What I've been hearing is that there is still a liquidity issue at the moment, this is still fallout from the Royal Commission in Australia. In the past my mortgage broker stated that sometimes a good history of saving via KiwiSaver helped, but that was long before the Royal Commission.

The 40% of income is just a benchmark. The fact that people cannot secure financing is independent from the ability to service the mortgage. The reduced liquidity is going to put downward pressure on house prices.

'The reduced liquidity is going to put downward pressure on house prices.'

Yes.

Just recently have started to see fall in Houses in 700s and 800s range which were down earlier also but marginally but now can see that even those units/houses are giving way and falling.

Another few months and will see the overall effect.

I've been calling a 5-10% drop in Auckland from peak for a couple of years. We are down 4%. Might be closer to 10% than 5%, I think.

House in Million Plus range have fallen by 10% to 20% but now houses in low range that is units in High 700s or 800s have started to crumble.

Doesn't tell us anything new, but a good summary of the delusional thinking that borrowing to trade houses is a zero sum game where the only loser is the country as a whole.
https://www.odt.co.nz/opinion/rising-housing-debt-result-our-refusal-fac...

Interesting model that shows a 50/50 chance of price falls in NZ. Only country with a worse outlook is Italy.
https://www.economist.com/graphic-detail/2019/06/27/our-global-house-pri...

Good to get objective and independent views when most of what we hear in NZ is from vested interests.

And Italy already has a much, much lower house price index than NZ. But I'm sure NZ is special!

yes we are diffrunt

I'm sure you have seen it, but for those that havent' google 'Economist Global House Price Index'. Very interesting viewing.

https://www.economist.com/graphic-detail/2019/06/27/global-house-price-i...

Have a play with real/nominal at the bottom, and vs rents/vs incomes.

Good ODT article, totally agree. But he doesn't seem to realise those individuals who are winners having bought houses way back don't give a rats ass about whether it's good for the country. To them those without houses are losers in every sense of the word.

Before the big boulders coming off the side of the hill, there will be quite a few little ones coming down first!
https://www.abc.net.au/news/2019-06-28/baoshang-bank-collapse-hits-lendi...

House prices falling?? Good!.. I need to pay 25% less for my lease and 35% less rent... then I wouldn't have to ask my boss for a rise.