Falling prices and lower interest rates making housing more affordable for first home buyers

Property

Outlook brightens for first home buyers in Auckland with lower quartile house prices declining for three months in a row, latest interest.co.nz Home Loan Affordability Reports show

24th Jul 19, 5:00am by Greg Ninness

By Greg Ninness

The outlook is improving for aspiring first home buyers in Auckland, with falling house prices combining with lower mortgage interest rates to significantly improve housing affordability in the region.

According to the latest interest.co.nz Home Loan Affordability Reports, the Real Estate Institute of New Zealand’s lower quartile selling price in Auckland has fallen for three months in a row, dropping back from its record equalling high of $680,000 in March to $670,500 in June.

Although the drop in the lower quartile price is relatively small, it’s significant because the record price of $680,000 was first set in March 2017 and then equalled in February and March this year. Up until then, prices at the lower end of the market had been firm and it looked as though the record price of $680,000 was about to be overtaken, but instead prices have slowly retreated over the last three months.

And the decline in prices appears to be widespread. June’s lower quartile prices were down compared to those in May in five of Auckland's seven districts – Rodney, North Shore, Auckland Central, Waitakere and Papakura, and up compared to May in Manukau and Franklin.

Adding the good news for first home buyers is that mortgage interest rates are continuing to fall. According to the Home Loan Affordability Reports the average of the two year fixed mortgage rates offered by the major banks dropped to 3.87% in June from 3.97% in May. That was the lowest it has been since interest.co.nz started collating the figures in January 2002.

The combination of falling lower quartile selling prices and lower mortgage interest rates has had a significant impact on the mortgage payments typical first home buyers are likely to face. The Home Loan Affordability reports estimate that the typical first home buyers in Auckland would likely be paying $643.85 a week in mortgage payments on a lower quartile-priced home in the region, based on June’s figures. Back in June last year that figure would have been $683.15. Two years ago in June 2017 it would have been $694.68.

That means typical first home buyers in Auckland could expect to pay $50.83 less a week in mortgage payments on a lower quartile-priced home than they would have two years ago. And over the same period incomes have been slowly rising, which reduces the percentage of income that’s being eaten up by mortgage payments.

However the decline in lower quartile prices has not just been confined to Auckland. June’s lower quartile selling prices were lower than May’s in six of the REINZ’s 12 regions - Auckland, Waikato, Bay of Plenty, Wellington, Otago and Southland. They were up compared to May in Hawke's Bay, Nelson/Marlborough and Taranaki, and unchanged compared to May in Northland, Manawatu/Whanganui and Canterbury/Westland.

But in most regions it is too early to say if the downward drift in prices is a temporary effect of the weak winter market, or part of a longer term trend.

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

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127 Comments

by PocketAces | 24th Jul 19, 6:46am 1563907617

Don't you mean less unaffordable?

by brisket | 24th Jul 19, 9:44am 1563918267

Nailed it. It's good news, but we've got a long way to go before we're at *actually* affordable.

by Joe Wilkes | 24th Jul 19, 6:43pm 1563950583

Just so we don’t think that we are the only Country where transaction volumes have fallen off a cliff. It Could be worse, we could be in Wales or Northern Ireland.

‘HMRC data shows there were 84,490 residential transactions on a seasonally-adjusted basis last month, down 9.6% on a monthly basis.

The figure was lower on a non-adjusted basis, at 83,750, down 13.6% compared with May.

All UK regions experienced a drop for the third consecutive month.

The largest annual decline was in Wales, with sales falling 43.9% annually to 2,840.

Northern Ireland registered a 30.7% drop to 1,870 sales.

Transactions in England and Scotland were both down 24% annually to 70,920 and 8,120 respectively.’

by Due Diligence | 24th Jul 19, 7:06am 1563908765

Outrage and incredulity about to ensure. Not what the DGMs want to hear.

by Dgm | 24th Jul 19, 7:13am 1563909201

Falling vs Flat.. guess you struggle to differentiate between the two..

by Due Diligence | 24th Jul 19, 7:31am 1563910304

Are you stoked that the outlook is brightening and affordability is improving?

by Dgm | 24th Jul 19, 7:33am 1563910420

Still struggling to comprehend the answer?

by Due Diligence | 24th Jul 19, 7:48am 1563911309

-3.5% is a catastrophic crash and nothing close to flat in the big scheme of things. Any number below 0 is technically FALLING. Look at the HPI graph - it's like a cliff, not a wonky pancake! Happy?

by Dgm | 24th Jul 19, 8:16am 1563912977

Petty mind.

Deflecting your incompetence to understand basic facts

by Due Diligence | 24th Jul 19, 8:26am 1563913603

Why such a sookey baba this morning? Cheer up, look at the AK affordability report. It is affordable for a young couple earning the median pay rate to buy a lower quartile-priced home in Auckland.

by Dgm | 24th Jul 19, 10:48am 1563922093

Don't you do your due diligence before posting comments? Or are you hiding behind your moniker

Hopefully you do your due diligence before buying assets, else you may be like a few others that BUY HIGH SELL LOW, even though they claim to Buy Low Sell High

by Laminar | 24th Jul 19, 2:29pm 1563935370

"Petty mind."
Evidently you are a bit too upset to be posting publicly. Id suggest a cool soda and some time on the sofa.

by Dgm | 24th Jul 19, 2:54pm 1563936899

Follow your advice maybe

by Yvil | 24th Jul 19, 2:36pm 1563935777

DD, I think you will find the fall in Auckland is 1.4%, not 3.5%

"Auckland has fallen for three months in a row, dropping back from its record equalling high of $680,000 in March to $670,500 in June"

That is 1.4% from the high, it's actually still up on June 2018

by Plutocracy | 24th Jul 19, 8:29pm 1563956966

He's quoting total Auckland fall, you're quoting 'lower quartile' price fall.

by Yvil | 24th Jul 19, 9:07pm 1563959246

Well yes I am quoting lower quartile, that's what this article is about, it's even in the title

by northman46 | 24th Jul 19, 7:59am 1563911965

by tothepoint - d… | 24th Jul 19, 9:13am 1563916418

Well-spoken - Due Diligence.

It's the end of the road for the DGM.....

Things just aren't as doomy-gloomy as they would have us believe.

TTP

by mfd | 24th Jul 19, 9:18am 1563916727

I seem to be out of touch. Last time I was here the 'DGMs' were those predicting house price falls - now we get an article talking about house prices falling and that defeats the DGMs? Have you all swapped sides? The whole point in hoping that prices would fall was that houses could become more affordable and less of a drag on the real economy.

by Voiceofreason | 24th Jul 19, 10:52am 1563922348

The bottom line is that house prices are beginning to fall, and with that affordability is improving, albeit very, very slightly. To encourage FHBs to buy because of this would be premature. Yes, expectations of price falls because of the bubble necessarily deflating are starting to be realised, at least in Auckland, so far. There may be a bouce along the way if the govt and RBNZ throw the kitchen sink at it but likely short lived.

by CourtJester | 24th Jul 19, 11:13am 1563923616

I agree TTP, things aren't that doomy-gloomy now that prices are falling. Many young people finally get a glimpse of hope.

by Voiceofreason | 24th Jul 19, 11:49am 1563925794

A glimpse CJ, just a glimpse. More afforabke prices to come. Yep, that’s good news, accept for the highly leveraged folks who bought in near the peak (including now btw), encouraged by the spruikers.

by Milkyone | 24th Jul 19, 11:54am 1563926063

I don't get this at all?

DGMs are (maybe) being proven right. Becasue correct me if I'm wrong, but wasn't the DMG argument that house prices would fall? And doesn't this article suggest they are in fat falling? So how is it the end of the road for them?

Shouldn't it be the end of the road for the spruikers?

Help me out here, I might have missed something...

by northman46 | 24th Jul 19, 12:29pm 1563928149

Same. Some how this a ttp brigade victory?

by NorthernLights | 24th Jul 19, 12:51pm 1563929504

Due Dilli is that chilli ?
Sounds like a gherkin
Of course the Auckland property market will never decline
It’s spruikers law
I guess I’ve owned far more Auckland property than many & sold out at relative peak with a nice 25% gain in my last year living in Auckland as icing on the cake
I however have also sold Auckland rental property in 2000 & it wasn’t a great market.
So if you believe after years and years of property increases there’s not going to continue to be a decline I’ll bet you’re wrong Sentiment isn’t up anymore
Good Luck

by BeSensible | 24th Jul 19, 12:19pm 1563927540

Irrespective whether Due Dilli is a chilli or gherkin, his posts are like cabbages... just puffed up with no substance

by NorthernLights | 24th Jul 19, 12:53pm 1563929603

So sensible
I bet they’re rotten cabbage too

by Nzdan | 24th Jul 19, 7:11am 1563909113

Great news. I'd suggest that the ability to service a mortgage has never been the biggest hurdle for First Home Buyers, so it's strange that is the key measure of housing affordability that is always discussed. But at least a fall in the lower quartile house prices should correspond with a fall in the deposit requirements... the actual hurdle First Home Buyers face.

by Miguel | 24th Jul 19, 8:46am 1563914791

Agreed. It may have been a good measure when prices were 3-4 times income and interest rates were higher, but the deposit seems to be the biggest hurdle for most.

The reality for FHB seems to be that over 40% end up buying with 20% deposit (not by choice, as no one wants to pay lender protection insurance). What is harder to gauge is the number that require outside assistance for the deposit, but I've seen estimates of between 50-70% in the big cities.

by Pragmatist | 24th Jul 19, 7:32am 1563910350

Falling lower quartile prices.. falling top end prices.. and the bit in the middle? Falling too. So we are three months into an __ month slide.

My guess is 28 months, based purely on numbers pulled out of my whatzit..

by theglc | 24th Jul 19, 7:52am 1563911574

Well that really depends on the global economy... could be 12mths or 120mths

by Pragmatist | 24th Jul 19, 8:54am 1563915285

I didn't say what was going to happen after 28 months.. rocket or lead balloon.

by Trevor42 | 25th Jul 19, 9:07am 1564002459

Going by the graphs of the previous history of the market, the next rise will be around October 2022, but starting with the falls levelling back up in Auckland from late Summer (February) 2022. So your 28 months from now would be correct. Due to predictable people behaviour the market changes emanate from the dormitory suburbs of Auckland and ripples out through the regions as we have just been witnessing.

by theglc | 24th Jul 19, 7:46am 1563911202

A good start, more to come...

by Ocelot | 24th Jul 19, 8:03am 1563912236

And it's going to keep getting more affordable until our yields are on par with Australian cities. All the while Australian cities continue to also get more affordable.

by mikekirk29 | 24th Jul 19, 8:15am 1563912929

Greg is it possible that REINZ might release an analysis of sales in the $600-750k bracket in last 3-6 months? My study shows them doing quite well compared to higher brackets in Auckland , only down about 7% on same period in 2018. Higher bracket sales down 17-35% depending on which you choose

by Joe Wilkes | 24th Jul 19, 1:04pm 1563930290

Ssh Mike, the market needs the Mom's and Pop's to remortgage.
But I do wonder how many uneducated investors don't know or haven't realised yet, that the family home that they leveraged off to become landlords, has been losing greater percentages of capital (on higher starting points) than the lower value investment homes 'might' have gained over the last couple of years. 10% off $2,000,000 is far bigger than 10% gain on $600,000.
But as I remember the saying goes - The Lord's of Finance Giveth and they Taketh away.
But I do agree with you, I would like Greg to investigate by price band so that more people get a true understanding of why the market doesn't fall equally at each sector. I think we all agree now that Auckland is falling, but let's look at the variances from top to bottom to provide some balance.

by mikekirk29 | 24th Jul 19, 8:36am 1563914201

Price bracket $400-750k in Auckland residential sales fell 44% from 2016 (first 6m) to 2019 (first 6m)
Despite interest rates falling. In bracket 800-1.2m 2016-19, first 6m, down 25%

by CourtJester | 24th Jul 19, 8:47am 1563914836

That fall in the $400-750k sounds quite significant. I didn't expect the lower quartile sales to drop by so much. I guess no one's buying those "amazing" 1br studios for $450k a piece anymore. Gee, I wonder why all those 97% kiwi buyers suddenly decided they don't like 1br apartments!

by Chairman Moa | 24th Jul 19, 10:16am 1563920186

I think he meant the number of listing, not median or average sell price. (I assumed mikekirk29 is a he!)

by CourtJester | 24th Jul 19, 11:16am 1563923794

He meant the number of sales, as stated in his comment. Building hasn't stopped, but sales have slowed down to a crawl.
What do you think those property developers will do if they can't sell their overpriced apartments for years?

by Chairman Moa | 24th Jul 19, 1:00pm 1563930051

I am in Brisbane and we have new apartments being built for Africa.
Those developers (the smart ones) 2-3 years ago set up rental companies to rent their unsold apartments until such time they can sell them. Market is pick up again now after years of flat lining on house prices..

by RickStrauss | 24th Jul 19, 1:00pm 1563930010

Well, that's not a bad result if it helps rental affordability too.

by Toppertee | 24th Jul 19, 2:00pm 1563933612

You might want to double check Brisbane is still falling.
Also the credit pluse is very weak. Not enough buyers and Low volumes of sales.
We won't know the outcome till September or there abouts if Government APRA and the RBA have produced a floor in the market.
It's very hard to tapper a housing market once it starts to slide.

by Chairman Moa | 24th Jul 19, 4:42pm 1563943368

Apartment pricing is up 0.1% in May-June. I see if i can pull out the stat.

by oreo | 24th Jul 19, 8:47am 1563914840

Take $200000-300000 off the median price and I will call it affordable

by THE MAN 2 | 24th Jul 19, 8:56am 1563915377

In Christchurch without family backing it is very affordable to be able to purchase your first home.
With use of Your KiwiSave you need to come up with very little by way of savings.
Depending on your income and work history you would only need $50k max including KiwiSaver so if you haven’t got that then you probably won’t be able to afford the mortgage and not worth the risk to the Bank.
You can still purchase a home in Christchurch that is in good knick for $300k, ok area not amazing but it is what it is.
A good family home on a full section in an average area, for $450k so if you believe that is unaffordable then you will never own your own home, because prices are only going up in Christchurch, with interest rates so reasonable.

by oreo | 24th Jul 19, 9:03am 1563915828

Why would I go and live in Christchurch !?

by oreo | 24th Jul 19, 9:07am 1563916042

By the way that was a rhetorical question, before I get someone telling me why

by Chairman Moa | 24th Jul 19, 10:23am 1563920587

Christchurch, great city if you have no 1 haircut and imitation Dr Marten boots

by Voiceofreason | 24th Jul 19, 10:55am 1563922558

TM2, the prices are lower compared to some other places, but that doesn’t mean it won’t still drop as the bubble deflates.

by mikekirk29 | 24th Jul 19, 8:52am 1563915129

Affordable on two decent incomes and at current rate of interest, and providing neither loses their job or wants to have a baby and is off work as a consequence.

by RickStrauss | 24th Jul 19, 10:45am 1563921934

We squeeze the life out of middle New Zealanders while using their taxes to fund the groups that do have a high reproductive rate. As a result, middle New Zealanders can't afford to think about 2-3 kids instead of 1-2.

Makes no sense, but 'tis the modern globalist way.

by CourtJester | 24th Jul 19, 11:19am 1563923996

Oh, I'm sure it was the "groups that have a high reproductive rate" that caused the housing affordability crisis. It's the families with 4 kids and minimum wage earners that bought up all the houses in Auckland. They are the ones owning 26 rental properties each.

by RickStrauss | 24th Jul 19, 1:01pm 1563930102

Sorry, was more a general comment than arguing that people with lots of kids were driving price rises. That's definitely unlikely. (Although their part in raising rents might contribute indirectly.)

by CourtJester | 24th Jul 19, 1:45pm 1563932738

Fair enough, and yes, taxes could certainly be lower if people only had as many kids as they can support and raise to be productive members of society. But every country has this issue, and there isn't much you can do about it besides free education. And 'free' education is paid for by the taxpayers. Taxes in NZ aren't that high though, considering how much 'free stuff' we're getting for it.

by Cowpat | 24th Jul 19, 9:28am 1563917335

I understand that Australia is different to New Zealand,. Housing occupancy and costs data released in Australia last week for the years 2017-2018, show that the age of the first home buyer , 55 percent were referenced below 35 years . Therefore 45 percent were above 35 years of age. Given that Auckland has the highest median priced real estate in Australasia and because Tony says were diffrunt, what is true the median / average age of the l FHB in Auckland or indeed New Zealand.
https://www.abs.gov.au/ausstats/abs@.nsf/mf/4130.0

by Market Interest | 24th Jul 19, 10:32am 1563921144

I'm not sure it's all that meaningful. There are a lot of Kiwis (well some Aussies too) that have used their 20s to get out and see the world, building their skills at the same time, and renting for flexibility and lifestyle support. It's only when they come to settle down for a family and want some stability etc. that buying a house factors in.

Which brings me to the next point...many of the itinerant 20-somethings get used to no commitments and a high income. Returning to NZ on often lower incomes and a higher costs of living, having to save for a deposit AND put something away for the child-rearing can be rather daunting.

I don't know how that skews the averages, but it has to be significant.

by Miguel | 24th Jul 19, 12:54pm 1563929659

It's extremely meaningful in the context of these articles. All of these measures of affordability generally assume a long term mortgage (30 years).

Can someone buying their first home in their late thirties/early forties to take on a 30 year mortgage? Not really, if they plan to have it paid off before retirement. And with interest rates so low reducing the term of the mortgage makes a bigger difference to repayments than a smaller mortgage with higher interest.

by SimonRo | 24th Jul 19, 5:20pm 1563945629

I pray that someone in their thirties getting ready to buy a first home has been working on that deposit and net-worth for the previous decade. Granted this is difficult if rent costs were high and incomes didn't quite match.
Likewise in reference to those who enjoyed higher incomes overseas and have come back to the shock of still-low NZ wages, a financially literate person would have been accumulating higher savings overseas too.

But I do think that a larger than normal deposit does set someone up to buy a larger than normal house and still need to borrow 600K+ for 30 years. Which is going to be tricky until wages really do start to rise.

by pin3cone | 24th Jul 19, 10:02am 1563919368

It's like swallowing an apple, as a FHB in waiting, reading figures like this:

"The median house price was $609,480 in June, down from $618,000
last month. The median house price was $600,000 in June 2018
which puts annual growth at 1.6%. Five years ago the median was
$385,000."

by Milkyone | 24th Jul 19, 10:19am 1563920391

As a FHB in a position to buy, but waiting for now, its excruciating.

Crazy to think if I had been born 10 years earlier, and the rest of my life had gone the exact same way, I would now be a millionaire...

by Market Interest | 24th Jul 19, 10:23am 1563920630

Of course you'd also be 10 years older. A decade of youth for a million buck$...that sounds like a fair exchange :)

by Milkyone | 24th Jul 19, 11:09am 1563923368

Ha well not really; if you are born in 1980 and live for 80 years, and I am born in 1990 and live for 8o years, we both still only live for 80 years...

by RickStrauss | 24th Jul 19, 10:46am 1563921992

Ehem, I can assure you that you would have earned that million bucks by pulling yourself up by your own bootstraps!

by Milkyone | 24th Jul 19, 11:13am 1563923634

I have a friend who is 7 years older than me, who bought a property 7 years ago in Auckland. ie the real living example of 'if I was born 10 (or in this case 7) years earlier. He paid $800,000 then (which even after adjusting for inflation is well within my budget today). The property today (with zero improvements) is worth 1.9mil.

So he has made a million dollars simply by being born at the right time. I think even the strongest spruikers wouldn't put a bet on me buying a house today in Auckland which increases by that amount in 7 years!

by theglc | 24th Jul 19, 11:43am 1563925433

That depends, if the "National" party (of NZ/China is debatable) get voted back in...

by CourtJester | 24th Jul 19, 1:37pm 1563932273

National doesn't have control over China's capital outflow.

by Dogboy | 24th Jul 19, 11:52am 1563925965

I bet 1 would!

by Mrs The Point | 24th Jul 19, 11:54am 1563926047

Oh I think you will find that those praying at the altar of A. Church are expecting a doubling of prices every 10 years. Now that we have had 3 years of no growth, they will obviously double in 7 years.

by Joe Wilkes | 24th Jul 19, 12:59pm 1563929980

Ah the old doubling..... Why are houses so expensive in Ireland? - 'Because they're always Dublin and Dublin.'
Used to be a very common saying 15 years ago.

by Yvil | 24th Jul 19, 12:57pm 1563929827

Milkyone, you say: "So he has made a million dollars simply by being born at the right time"
There are plenty of people that were born at the same time as your friends and who have NOT made $1Mill.
He did not become a millionaire because he was born a certain year, he became a millionaire because he ignored all the calls that houses were too expensive AND HE TOOK ACTION AND BOUGHT A HOUSE

by CourtJester | 24th Jul 19, 1:21pm 1563931280

The house where I live now was bought for 820k in 2017, then sold for 790k in 2018. The former owner didn't lose 30k + costs because he was born a certain year, he lost 30k + costs because he ignored all the calls that houses were too expensive AND HE TOOK ACTION AND BOUGHT A HOUSE

by Yvil | 24th Jul 19, 2:49pm 1563936552

Point taken CJ, I do think though, that when a FHB buys a house, his/her time horizon is much longer than 1 year, it matters very little if the value of his/her house is up or down in 1 year or 2, what matters is that that house will be paid off in 20 - 25 years and probably worth double by then vs the FHB who wanted to pick the very bottom of the market, missed it because he/she thought it would go lower then missed the train when the market goes up again and is still renting in 20 years.

Trying to pick the bottom of the market is a very, very dangerous game

by Milkyone | 24th Jul 19, 4:44pm 1563943496

Very much agree with your point about trying to pick the bottom (or making predictions along the lines of 'its going to go down from here for that matter) being a very dangerous game. I am fully aware that I am in effect making a hundered thousand+ dollar bet right now.

Which is why I spend hours every day reading every single bit of economic/property analysis I can get my hands on. I would love to find an argument compelling enough to make me change my mind, thereby giving me a justification to go out and buy (and the fiancee would be very pleased, she is well sick of the waiting game).

However at this stage, I am more convinced by the DGM argument than the Spruikers.

by Yvil | 24th Jul 19, 7:32pm 1563953558

Fair enough M1, how about that: don't listen to me, don't listen to DGM's, just do one thing:

Every time you meet someone who owns their own house, whether they bought it 3 years ago, last year, 10 years ago etc… ask them the question: "Are you happy today that you bought your own house or do you regret it?"

Keep a tab of the answers and come to your own conclusion

by Milkyone | 25th Jul 19, 8:32am 1564000346

How about this then; I could ask everyone if they have ever had their life saved by wearing a seatbelt. Most would say no.

However the few who say yes are the ones that really matter.

Same deal with property. Most people bought, their prices went up, and they are happy. However a minority bought at the wrong time, and effectively set themselves back a decade. ie imagine if you were a FHB who had bought at the peak in Sydney. You would be distraught right now.

In a story of thousands, where the majority have reasonable wins, but a minority have colossal losses (be it seatbelts or property), your first concern should always avoid being the guy who loses big.

In seatbelts, it means always wearing your seatbelt. In property, it means heeding the warning signs, and not buying just before the market plummets.

The big difference between right now, and whenever all those other people bought their first house, is that right now the market is clearly dropping slightly. So unlike those in 2011 who said "I will wait, because even though the market is going up, I think it will drop", I am saying "I will wait, until either the market starts to stop dropping".

by CN | 25th Jul 19, 9:14pm 1564046052

Milkyone (and other potential first home buyers in Auckland),

Each potential owner occupier buyer has to make their own informed assessment of the risk to property prices in the area that they wish to purchase.

FYI, here is an example of a property buyer (owner occupier) who:

1) believed that rent is dead money (comment at 3:00),
2) believe that you have to own your own house (comment at 4:10).
3) had a fear of missing out as she believed that property prices would continue rising (4:39),
4) overpaid for their home (when the house price to income valuation for the area was 8-9 times)
5) financed their house purchase using an interest only mortgage with a 100% loan to value ratio

https://www.youtube.com/watch?v=BfcSWLJBIRg

Their mortgage was based on two household incomes. When one person lost their job or had a significant cut in their income, they faced financial stress.

We calculated the results of 3 scenarios - 1) scenario of Mary above, 2) assuming that they had rented the whole time 3) assuming that they had rented until prices were cheap and then bought property. Assuming interest only financing the net worth at the end of 2019 (i.e 12 years after their purchase in 2007) would be the following under each scenario 1) negative 54,000 2) 22,464 3) 192,953.

That single financial decision to purchase a house in 2007 at the height of the property price bubble, has likely had a financial and psychological impact on Mary and her family. It will likely also have ramifications for her retirement due to the lost equity value in the house which will ultimately result in a smaller amount of financial assets to support her and her husband for retirement.

Followup where some others heeded warnings by economists on the property prices - https://youtu.be/m25FXP9O7dE?t=3m44s

by Yvil | 25th Jul 19, 8:20pm 1564042810

Hi M1, I'm very saddened by your comment above, I really thought we were getting somewhere in good faith. My advice was very sound, the story about wearing a seatbelt has nothing to do at all with buying a house, it's just being sarcastic. Unfortunately it shows you put far too much weight on the small possibility of losing (which always exists) and it cripples you from taking action. Honestly, sadly I think you will never be a house owner because you will always find a reason why there's risk. Listen to your girlfriend, be brave and do it, you won't regret it

by CN | 25th Jul 19, 10:24pm 1564050241

It depends on the owner's circumstances and experience:
1) those that have made a financial gain would likely have had a positive experience and likely to recommend buying a house - that is likely to be many currently in Auckland when property prices are at historically high valuations. For example, you would have likely had an overwhelmingly positive response to buying property in 2005/2006 in the US, Ireland for those that had owned for say 2 years before 2005/2006.
2) those that have made a financial loss and were forced to realise that loss, would have a had negative experience. That could be those same people that had the positive response in 1) above, if you asked them the same question in 2007/2008.

You could ask the question to these people in New Zealand:

1) https://www.stuff.co.nz/business/money/100789055/15-years-of-leaky-buil…
2) https://www.stuff.co.nz/business/money/64093828/
3) https://www.stuff.co.nz/life-style/homed/latest/104833494/no-code-compl…
4) https://www.stuff.co.nz/bay-of-plenty/103189572/21-bella-vista-homes-to…
5) https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11…

A school friend purchased an apartment in 2003 in Auckland, it turned out to be a leaky home - the apartment has lost value from the initial purchase price (and he still has a mortgage on it, so he has lost a large percentage of his initial deposit and subsequent principal payments for the last 16 years, as well as the interest cost), and he still has to pay about 50% of his original purchase price for remedial work (as well as pay rent for alternative accommodation whilst the remedial work is being undertaken and maintain the existing mortgage payments) - it has taken not only a financial toll but a psychological one as well.

by Yvil | 26th Jul 19, 10:01pm 1564135282

Please let me know the result once you've asked 100 people.
Thanks

by Trapped Millennial | 24th Jul 19, 9:04pm 1563959085

Welcome to my life Milkyone. My fiancee wants to buy and not rent again and I can't do it for the price/quality mismatch in New Plymouth. Also the deposit makes a very nice paycheck each year in investment income. Makes living "rent free"

by Milkyone | 25th Jul 19, 8:26am 1563999984

Ha does this sound familiar to you?

"Ok so I get it, we will wait for awhile to buy because it makes financial sense to"
"Thats right babe"
"But, how long is awhile?"
"Um.... Well...."

by Trevor42 | 25th Jul 19, 9:38am 1564004292

That guy has no patience and should not be investing in housing. Profitable investing, no matter the vehicle/type is less risky long term. Even share brokers will tell you don't invest unless you are prepared to wait 10 years for your ROI!!
You can profitably invest in the housing market at any time (no timing needed) IF you have the patience to wait 10 years +.

by Milkyone | 24th Jul 19, 4:38pm 1563943109

You are correct Yvil. Though based on the context of my comment, I would have hoped that it was clear that I was more interested in drawing a comparison between myself and my firend.

We both saved hard, spent little, and will end up buying a house around the same age, for similar prices. However I think the chances of the house I buy increasing by a million bucks in 7 years to be very small indeed.

Not saying its unfair or anything, as the world owes me nought. Just that it can be somwehat frustrating.

Of course gives me good emotional leverage, to make him get the last round if we end up leaving the pub on an odd number of drinks :)

by Voiceofreason | 24th Jul 19, 11:04am 1563923050

Milkyone, Hold tight, market situations do change. Assume historical affordability will return rather than carry on at these levels. Markets this out of whack never never last. When people start saying the new high level is the new normal, that’s a sure sign of a change around the corner.

by refactornz | 24th Jul 19, 11:14am 1563923699

Without a structural change, mean reversion can be expected but not necessarily within a timeframe that works for people. The same can be said for the value of the NZD. How long can you wait? 1 year? 5 years? 20 years? House prices were already crazy in the early 2000s. Now they're even crazier.

by Voiceofreason | 24th Jul 19, 11:56am 1563926166

I agree that now is almost always a good time to buy real estate. The exception to that is a bubble. I think it’ll be well worth waiting this time. I say this as someone who did catch the market at the right time in the steep curve up, both in Australia and NZ, not as someone who was too late for that. There will be another great buying opportunity as this all plays out.

by Milkyone | 24th Jul 19, 12:02pm 1563926559

Yes I find the 'now is always the right time to buy' logic mathematially illiterate.

If you need to buy a new pair of jeans, and they will cost $200, but the store is having a 30% off sale next week, you wait to buy the jeans. Same applies to property.

Or in property terms, there have been 6 periods in the past 50 years in NZ, where you would have saved at least 5% by waiting a year to buy.

Of course whole different kettle of fish if you are looking at property as an investment for rental yields etc, but for FHBers, the 'buy now no matter what' mantra is comletely nuts.

Assuming the DGMs are right and the Spruikers are wrong of course.

by Yvil | 24th Jul 19, 1:02pm 1563930135

VoR, the 2002-2007 upswing in prices was bigger (%wise) than 2012-2017!!!
In 2007 all the talk was EXACTLY the same as now, that houses could not possibly going to go any higher... Milkyone's friend, who is now so much better off has made money not "because he was born at the right time" but because he had the courage to take action and buy his own house.

by mikekirk29 | 26th Jul 19, 11:07am 1564096024

Yes Yvil you are right, the earlier period % rise was larger.
Because the latter period, prices became so high that % rise was limited by the diminishing of sales each year from 2016-19.
Whereas in 2002-07 more people (as a % of potential buyers) could keep up.
If you had access to sales figures in Auckland for the 2002-07 and 2012-17 periods it is clear that sales decline has been dramatically different in latter period.

by Milkyone | 24th Jul 19, 12:05pm 1563926743

That's the big question... I personally can wait a few years if need be, but at a certain point even my patience will wear out. I am hardly going to have kids while living in a flat with 7 others.

Just have to hope that the fall (if it comes) happens soonish.

Worst case scenario would be a Japan type situation. Not end of the world for me, as I will probably be able to get to 50% deposit so my equity is safeish, but for those buying on 10-20% deposits... Ouch

by Yvil | 24th Jul 19, 1:09pm 1563930585

VoR, you say "Assume historical affordability will return"
I do not want to be antagonistic or spruiking or whatever some call it, I'm very sincere when I say: this is, IMO, extremely dangerous advice. I really do not think prices will "return to historical averages", owning a house will continue to be for the "better off" and waiting for prices to significantly go down is a lost game. I admit it is not right and fair but we're have to make the difference between fairness and reality.
I say that with best intentions, in the hope that I can convince 1 FHB to be an owner rather than still waiting in 10 years time

by Voiceofreason | 24th Jul 19, 2:57pm 1563937049

Yvil, the question is, why don’t you think affordability will return to historical averages or close? Hundreds of years of the history of markets are against you there. It may seem different now, being the 21st century and all, but it’s just a question of when. Look what happened in the US after the GFC. Sure, some selected areas of the world are expensive relative to others, resort towns and havens for the rich, but not as a national average. Queenstown and the like will be expensive compared to other areas (but could drop somewhat in a national correction).

by refactornz | 24th Jul 19, 4:04pm 1563941054

Sometimes there really are structural changes though that are unlikely to reverse - at least not for a long time. E.g. Transition of single-income families to duel-income families as the norm. Globalisation and the signing of FTAs. Securitisation and deregulation of financial markets. Technology changing the relative importance of capital vs labour and the relative earnings of different careers. Government meddling in laws that take a long time to unwind.

by Yvil | 24th Jul 19, 7:22pm 1563952979

VoR, travel to countries with higher population density than NZ and you will find your answer.

by CN | 25th Jul 19, 9:22pm 1564046532

A simplified comparison of the two viewpoints and beliefs underpinning future house price expectations in Auckland:

1) Property price bulls - in line with historical averages for the last 40-50 years, property prices in Auckland will continue to double every 10 years
2) Property price bears - in line with historical averages for the last 40-50 years, house price to income and house price to rent ratios will revert to their historical averages

One group focuses on historical house prices, whilst the other group focuses on historical house price ratios.

Which 40-50 year historical average do you consider to be the most relevant? or other?

by mikekirk29 | 26th Jul 19, 11:09am 1564096141

Has anyone info on what property prices did in Auckland 1984-94.
REINZ seems only to go back to 1992.
Doubling every 10 years is a big claim that people keep making.
Ownership in Auckland has been declining since 1992.

by CN | 26th Jul 19, 1:35pm 1564104915

Mikekirk29

FYI, a 50 year study (from 1965 to 2015) of house prices in NZ by the RBNZ

https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulleti…

Extracts from page 5 of the report

Since 1965, house prices have risen significantly. .... This shows that nominal house prices have doubled every 12 years on average.

Before the Reserve Bank adopted inflation targeting in 1989, high nominal house price inflation partly reflected generalised inflation
in the economy. There is a statistically significant structural break in nominal house price inflation in 1991, when low and stable inflation was
established. After this structural break, nominal house price inflation halved. Before 1991, house price inflation averaged 12 percent per year;
afterwards it was about 7 percent.

by Yvil | 26th Jul 19, 10:07pm 1564135653

Thanks CN, in short, be it +7% pa or +12% pa or less, since 1965 house prices have gone up significantly and steadily. Yes this is good enough data for me

by firsthomecryer | 24th Jul 19, 11:29am 1563924582

I am in the same boat. Renter born in '88.

As much as I envy those born at the right time, getting philosophical on it, if I had been born earlier and chanced into easy 'wealth', it wouldn't have forced me to actually learn about hard core budgeting, the stock market/index funds, market booms and busts, and side hustles which I know will ultimately serve me well in the long run.

It sucks how slow it takes for the tide to turn on these ridiculous prices, hang in there!

by Milkyone | 24th Jul 19, 11:59am 1563926351

Yes fair enough, I agree it has taught some useful skills and self control; I got first job 5 years ago on $35K. Have nearly tripled my income since then, but haven't changed my spending habits at all.

I have been hustling hard for years now, and am in the weird position where I probably have more liquid assets right now at 28, than I will at any point over the next few decades.

by Yvil | 24th Jul 19, 1:11pm 1563930689

Well done M1

by northman46 | 24th Jul 19, 12:41pm 1563928919

We're in the same position. Year after year of being battered by investors and Boomers, it finally feels like a things are changing. But the wait is painful.

Agents and banks response is we just max out and to higher. Yeah nah. Not working 70hrs a week to make these people richer. Just don't get how most millennials even stand a chance even with these falls (other than bank of mom and dad).

by Glitzy | 24th Jul 19, 10:44am 1563921840

If 5 years ago median was 385k and you know inflation / wage growth is about 2% you can figure out where fair value is quite easily and it ain't in the 600k arena. Bide your time.

Remember too that the stats quoted in this article are produced by REINZ ~ a trade association for the real estate sector. They aren't independent. Not saying they aren't accurate but I am saying do your own research and then you can have your own view.

by sharetrader | 24th Jul 19, 10:03am 1563919408

there will be some cheap houses down ihumatao in 15 years once the second international runway is built less than a 2 Km from them,
my guess it you will get a lot selling up due to noise.
will be interesting to watch the court cases against the council for allowing houses to be built so close meanwhile fletchers will have made there money and moved on
https://corporate.aucklandairport.co.nz/airport-of-the-future/building-…
https://www.stuff.co.nz/auckland/114438925/protesters-at-aucklands-ihum…

by unaha-closp | 24th Jul 19, 1:04pm 1563930242

Fletcher Building isn't known for its ability to make money. They have sat on that prime development site all the way through the price boom, all the way through the stagnation and are now seemingly bent on taking it to market just when land prices are beginning to tank.

by WestieAJ | 24th Jul 19, 2:26pm 1563935188

Maybe Fletchers by bringing things to a head now are just trying to create the political pressure on central government to fund Auckland Council to by it back so it can be incorporated into the Stonefields reserve. Do they really want to build on it now ? Are there already "affordably priced" empty new builds in Mangere area looking for buyers?

by albinodog | 24th Jul 19, 11:42am 1563925328

Think someone will be freaking out and start cutting OCR to 1% which will mean that lower quartile prices will be even more affordable.

by Dgm | 24th Jul 19, 1:01pm 1563930102

Way to go.. nothing too sleepy about it..

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…

by Nzdan | 24th Jul 19, 3:55pm 1563940532

Needs to be more of a push/government incentives for manufacturing to relocate to the regions.

by Averageman | 24th Jul 19, 1:18pm 1563931123

Mean while role in Boris. Hard Brexit coming with his hand on the wheel. Watching closely as this could be the torpedo to finish Deuche bank, and then who knows what can happen. If NZ ponzi can ride thru that wave unscathed Ill be well impressed.

by Somebloke | 24th Jul 19, 1:48pm 1563932909

Knock another 30% off and I'll start to show some interest. Renting a nice property on a 2% yield for the landlord right now. Meanwhile my money is making returns that landlords will never achieve. Im still laughing at the pity and contemp directed at me over the last few years. I'm a LHB not a FHB. (Logical).

by Market Interest | 24th Jul 19, 2:19pm 1563934779

Renting can certainly make sense. But there doesn't seem to be many investment options that don't carry a risk commensurate with the economy. I.e. if another 30% does get knocked off, there goes the economy, and there goes your investment too.

by Zack Brando | 24th Jul 19, 2:25pm 1563935151

House prices declining could increase his portfolio's value OR have no effect at all.

by Yvil | 24th Jul 19, 2:56pm 1563936960

SB, if house prices were to drop 30% you may not have a job anymore and banks won't be in a position to lend to anyone. Depositors would be scrambling for their money and tax payers (you?) may be called upon for bailouts. It wouldn't be good for anyone

by Voiceofreason | 24th Jul 19, 3:11pm 1563937867

It’s true, if house prices drop 30%, which could happen, unemployment would soar and a bank with a very large mortgage book could well need a bailout and/or bailin. The NZ sharemarket and property market would both not be in great shape. Gold and overseas investments would be the go until prices hit rock bottom. Interesting that the govt announced an upcoming deposit guarantee plan at this very moment in time, after nobody speaking of such a thing for ages, combined with ANZ internal shenanigans at the same time. What else is going on behind the scenes I wonder?

by CN | 24th Jul 19, 3:55pm 1563940548

FYI, https://www.youtube.com/watch?v=QEHAwmpG8dA

Disagree with the point made about a large price fall benefiting property investors - many leveraged property investors may not have any borrowing capacity based on debt servicing calculations. In Auckland, a property investor with a LVR of 50%, and with a property price fall of 40% would still not have any borrowing capacity to buy further investment properties in Auckland.

If Ashley was correct about a large property price fall benefiting property investors - then property investors in Australia should be buying up large - but that simply is not the case. Same with the property price falls in Ireland in 2008/2009, and the US in 2008/2009. Only property investors with lots of cash available would be in a position to benefit.

by Yvil | 24th Jul 19, 7:28pm 1563953334

Huh? Neither VoR or I said that "a large price fall (will be) benefiting property investors" Far from it, our point is everyone would lose

by CN | 25th Jul 19, 8:33pm 1564043623

Yvil,

For sake of clarification, that comment was made referring to Ashley's comment in the video.

by Somebloke | 24th Jul 19, 5:14pm 1563945298

Thx Yvil, but I don't need a job, I create my own opportunities. And I'm not a depositor, I I invest in my own businesses (which have no concentration of risk) or lend out any spare capital directly to a diversified base of borrowers (if there are any widespread crises ill be bailing myself into the assets they used as security at a discount). I paid less tax than my cleaning lady in the last year, completely legally, thx for asking.

by alittle | 24th Jul 19, 3:38pm 1563939480

$10000 drop is it much enough for FHB to jump and also low interest would be attracted if offered for minimuum 10 Years as this low level - Minimum.

FHB are better off waiting for sometime before buying as when market changes , it does not changes again in a hurry (Changing from High to Low so will not change again soon and also the proces of fall has just started and will be slow because of low interest and still has a long way to go).

FHB should buy and enter in own home but now when have waited for so long and getting an opprtuinty to get more out of their deposit should wait and buy wisely.

by richard1965 | 24th Jul 19, 3:35pm 1563939331

This is correct, initially (Till now) houses which were $900000 or Million $$$$ plus were falling and have fallen but low value house like 2 bedroom / 3 bedroom units (Have observed in Pakuranga, Buckland beach, Howick and near by area) were holding but now have given way and have started to fall - Domino effect.

Not only First Home buyers but even investors should hold before entering the market as in falling market - the price that you have entered will be more important for Investor.

Next level of Fall will be very important.

by THE MAN 2 | 24th Jul 19, 6:37pm 1563950229

Oreo, asked why would he want to live in Christchurch?
I live in Christchurch because it gives most people opportunity to live a life as good as any other place in NZ.
The place is being built after the earthquakes and I enjoy the fact that you can make very good money out of the business that we run, that is
property investment by way of renting them out.
ChCh is the best market in NZ for doing this as rental returns and capital gains are plentiful.
Would I live anywhere else in Nz in the future, no I wouldn’t.

by Chairman Moa | 25th Jul 19, 10:20am 1564006811

TM2, you could say the same thing about Tokoroa or even Aranui!

by THE MAN 2 | 26th Jul 19, 9:17am 1564089471

Off course you could, but what is their in Tokoroa?..

by THE MAN 2 | 26th Jul 19, 9:27am 1564090070