Housing sales are well down at the top and bottom ends of the market but unchanged in the middle

Housing sales are well down at the top and bottom ends of the market but unchanged in the middle

The residential property market appears to be consolidating around the middle, with sales being squeezed at both ends of the price spectrum.

The unadjusted monthly sales figures from the Real Estate Institute of NZ show that in the first half of this year the total volume of residential property sales was down 8.5% compared to the first half of last year.

A closer look at the figures shows that much of decline was caused by fewer sales of properties at the top end of the market - those properties selling for $1 million or more.

Perhaps more surprisingly, there was an even bigger drop in the number of sales at the bottom of the market – those properties selling for less than $500,000, while sales of properties in the middle – priced between $500,000 and $1 million - were almost unchanged.

In the six months to the end of June this year, 4806 properties sold for $1 million or more, which was 734 less (-13.2%) than were sold in the first half of last year.

Most of that decline was in Auckland, which accounts for almost three quarters of all residential property sales of $1 million or more, with the decline being even stronger for properties priced at $3 million or more.

The REINZ estimates that million dollar-plus sales in Auckland were down around 17.3% in the first half of this year compared to the same period of last year, about twice as much as the overall market decline, while sales above $3 million in Auckland were down around 27% over the same period, about three times as much as the overall market decline.

So, much of the decline in sales that’s occurred this year has been at the top end of the market and that’s mainly been in Auckland.

But there has been an even bigger fall in sales at the bottom end.

REINZ monthly sales figures show that 14,470 properties sold for less than $500,000 in the six months to June, 2754 less (-16.0%) than were sold in the first half of last year.

That meant the percentage of homes selling for less than $500,000 dropped from 43.4% in the first half of last year to 39.9% in the first half of this year.

It also means the decline in sales at the bottom of the market has had a far bigger impact on total sales than the decline at the top of the market.

But what about sales in the middle?

They are more or less unchanged from a year ago.

In the first half of this year 11,254 properties were sold in the $500,000 to $749,999 price bracket, down just four compared to a year earlier, which pushed up that price segment’s share of total market sales from 28.4% to 31.0%.

In the $750,000 to $999,999 price bracket, there were 5775 sales in the first half of this year, up just 2.3% compared to the same period of last year.

So sales in the middle price brackets were more or less unchanged from the same period of last year.

Unfortunately the REINZ does not publish geographic breakdowns of sales in the lower and middle price brackets.

But a clue about what is happening at the bottom and middle segments of the market can be gleaned from monthly Reserve Bank of New Zealand figures which show new mortgage lending by borrower type.

These show a sharp decline in new lending to residential property investors and strong growth in lending to both existing home owners and first home buyers.

In the first half of this year new mortgage lending to residential property investors decreased by $1.399 billion (-19.3%) compared to the same period of last year.

Over the same period, new lending to first home buyers increased by $560 million (+11.2%) and lending to existing home owners was up by $1.329 billion  (+7.0%).

So what to make of all this?

While we don’t have a complete picture of what is happening in the market, a few trends are appearing.

The top end of the Auckland market is definitely off the boil and prices at that end of the market will likely be under pressure.

Investors are much less active than they were a year ago, and anecdotal evidence suggests some are concentrating on reducing their debt levels rather than expanding their portfolios, even though interest rates are at historic lows and going lower.

Increasing numbers of first home buyers are taking advantage of low interest rates and the absence of investors to take the leap and buy a home of their own.

But the growth in first home buyer activity isn’t enough to make up for the loss of investors, leading to a net loss of buyers and an overall reduction in sales activity at the bottom of the market.

Meanwhile in the middle price brackets, which are dominated by existing home owners, many of them baby boomers, it’s business as usual.

They are still using the equity in their existing homes to move into something else that suits them better.

That fact that mortgage lending to this group is increasing while property sales in this segment of the market are flat, suggests that they are mostly trading up, and they are taking on more debt to do it.

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"there has been an even bigger fall in sales at the bottom end." Seriously, how can there really be an acute shortage when people are obviously not snapping them up at the bottom of the market?

18
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There was never a housing shortage. Just another tale fabricated to breathe some last life into the property market.

20
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I think so. A speculative housing/credit bubble, not a shortage. A crisis of affordability, yes. This same story has played out in many markets around the world. It doesn't end well.

19
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The shortage claim fell apart as soon as you compared the rent price index to the house price index. If an actual shortage existed, they would be rising in tandem - instead rental yields fell to essentially zero. It is an entirely speculative bubble.

Comment about rental yields in Chch from a certain investor Man (or 2) coming up in 3...2...1...

More people were coming in than we could build houses for, it doesnt take much maths to understand that this will result in a shortage. Shortages do not cause rent and property prices to rise in tandem as there are a lot of different pressures. Affordability drives drives house prices and interest rates have a strong effect on those but much less effect on rent. We cut rates a lot over a long time, so you would expect house prices to dramatically outperform rent in that case.

How would people be able to afford more rent in a credit bubble? It is very hard to get a loan to pay for the rent, these things do not go up in tandem.

It is easy to figure out that we have a housing shortage by comparing Auckland's rate of construction to all the large Aussie cities over the last decade - Auckland lags massively. Auckland is even behind Tauranga and Tauranga is a tiny city.

The issue is that the demand estimates are based on how people lived when prices were lower. On that basis people did live at around 2.6 people per household. However, as prices rose then people demanded less (children at home longer, first home buyers take in a flatmate). The pattern has became closer to 3 people per household in Auckland. The Government's estimates of housing shortage are based on the income/house price ratio of 2006. There is therefore a significant housing shortage but only if house prices fall to where they were (in relative terms) in 2006.

Also many immigrants from Asia (especially South Asia) live in bigger households - 3 or 4 people or more.
Also factor in that over the last 10 years 20-somethings are staying at home more.
So yeah, agree, the old 2.6 should be more like 3.0 - 3.2
Makes a big difference in terms of the demand / supply equation.

If you used 3.2, then Auckland would be in an underlying oversupply situation.

Auckland population 1,660,000
Number of residents per dwelling: 3.2
Required number residential dwellings: 518,750

Current actual number of residential dwellings in Auckland as per Auckland council: 550,000

Excess number of residential dwellings: 21,250.

If you use 3.0, then there is a underlying housing shortage, of 13,333 residential dwellings.

As you can see, the calculation is very sensitive to the assumption used for the number of residents per residential dwelling.

Sounds about right and the difference is the empty homes in Auckland . See this old article

https://www.newshub.co.nz/home/money/2018/05/30-000-empty-homes-in-auckl...

14
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And because there's a shortage of "affordable" housing caused by investor crowding pushing up prices, it self feeds the reinforcement that Landlords are a necessary part of the market.

Another way of putting it, Investors pushing up house prices to justify their existence where, in their absence, the problem wouldn't exist therefore we wouldn't need so many "Landlords".

We did not have a typical speculative/housing credit bubble, instead there was a cost inflation bubble. In a typical housing bubble lots of houses get built - see Dublin, Melbourne, Toronto. In Auckland land costs were inflated faster than demand for new housing, bugger all houses got built. We do have a housing shortage. If our housing minister doesn't keep his promise to reduce costs, the market will sort it out by removing credit and Auckland will see price falls that make Dublin 2009 look like a picnic.

I wonder if the decrease in sales at the lower end is due to the price increases in the regions, or the drop in 1-2br apartment sales. If only REINZ had the means to publish a regional breakdown of these stats...

Yeah, I suspect it's the regions.

Well in Auckland we’re currently building a lot at the lower end but people are buying fewer. Where is that going to take the market?

As with any media outlet: consider why what appears appears, and is stated.
Then consider what is not appearing and why?
Mr Niness is saying the market is concertina-ing. I forecast that a year ago.

Sales falls do not just indicate what is not selling, they ALSO show what is not being put on the market.
Thereby median falls by default, as number of people pulling property off market because they cannot get price they thought it was worth (when foreign buyer money was boosting it artificially) is far higher than those in lower brackets, who CAN get price they reckon its worth.
Market is having to adjust to fact that its level above $1.2m is no longer supported by buyers from abroad, in Auckland.
This adjustment is made primarily by those who do not have to sell, NOT selling.

Study of sales bracket between 600-750k in Auckland shows smaller drop in sales in last 6m , of about 7%.
It is not difficult to calculate, if one wants too.
Similarly, apartment sales in that price bracket have also dropped a lot in first 6m of this year, compared to 2018, by about 33%

Study of different areas radiating out from central Auckland also shows sales decline in all categories is worse more central you look.
In Rodney sales in 3 bed category are up 10% in last 6m for instance.
Lastly, FHB share of mortgages taken out is under-stated by RBNZ recording because multiple loans are taken out to afford mortgage
This is ascertainable by looking at the number of FHB mortgages RBNZ reports and then comparing it to share of sales they are identified as having.
It doesn't add up, as Joe Wilkes has shown, repeatedly.
then, yesterday RBNZ admits that 8% of mortgage holders have 40% of debt.
NO risk then.....

"RBNZ admits that 8% of mortgage holders have 40% of debt."

Holy Crap!!!

Correct me if I am wrong, but there are basically no properties in the Auckland region under $500,000. So presumably this drop in the lower bracket is entirely in the regions?

Assuming I am right on the above, anyone got any theories as to why this segment of the market has vanished?

Houses in this segment of the market have vanished. Except for the hordes of unsold 1br studios that no sane person would buy at $400k+.

I get they would have vanished over the past say 5 years, but compared to same time last year? Have the prices in the regions really shot up that much?

Yes a lot of small apartments are being built in Auckland to address the great shortage we don’t have.

I've seen a couple out Weymouth, Otahuhu and Manurewa starting to dip below $500k again. Which is interesting of itself.

Yes -- if rising prices reduce the number of places offered <500k, that doesn't mean demand in that bracket is falling... Or are their statistics accounting for that obvious point somehow?

Regrettably, RBNZ, stats NZ and REINZ have a maddeningly consistent blind spot when it comes to breaking down national figures in DETAI, for geographic area, price bracket, demographics etc. All of which are quite readily available in UK and Australia .
This seems to take on impression of convenient obfuscation in some cases.
Auckland Council recording of ownership of housing stock is similarly feeble and out of date.
Lack of data is perfect way of ensuring population is closely related to condition of mushrooms

Of the 11,000 trademe listings for auckland, around 1700 are less than 500,000

Should have thought to check that myself. Good point.

All empty sections and apartments though. So these are all failing to sell then?

Would love to know the sales numbers in this price bracket for Auckland. Because if all the really cheap crap in Auckland is failing to sell, does suggest the FHBers are less desperate than initially thought right? Or just prefer to rent than to buy an apartment

What's with the 1-sentence-per-paragraph style? The herald does this, but that's because it's a glorified tabloid. Surely interest writers think more of their readers?

Can make it easier to read on mobile devices.

I can see that, to a point. It's painfully unorganised to read on a real screen, though.

disorganised.

I think the reason for less sales under $500k and steady sales of $500k - $1M is that there was still increase in prices in NZ, excl Auckland, in the first 6 months of the year, taking a substantial amount of houses that were previously sold in the high $400k to above $500k

Under $500k is classed as the lower end of prices?
That ridiculous. We have bought all of our rentals at under $500k and many at half that price and the ones at half that are extremely good properties in good locations.
We did pay $470k for a 232m2 exec home in a new subdivision a few years ago and returns $600 per week now worth around the $620k mark.
No wonder investors are not buying up there, there are good investors and not so good.
The money is made when you buy!

Things are seriously out of whack in certain parts of the country in case you haven't been paying attention.

Haha, I know the feeling TM2, I used to live in Chch, $500k gets you nothing at all in Auckland. Still I would not want to move back to Chch, the Crusaders is the only thing I still like about Chch

Yvil, seriously I would not live in Auckland if I was paid to.
ChCh is a really great place to invest and live in.
Auckland offers no more than ChCh and has a lot more issues that need addressing.
Each to their own but I have travelled a fair bit and know where I prefer to live.
Oz is not the place that people think it is, well not for our circumstances anyway.

ChCh has a lot more issues that need addressing. Agreed.

Want are the issues that need addressing, that Auckland haven’t got?
Quality of living is far better than what Auckland offers!
If you are talking about the earthquakes, you have to remember that we have had many thousands of shakes and we haven’t had a single property that we have had empty at any time due to the quakes.
The worst thing about the quakes has been the loss of life and many having to fight EQC or insurance companies.
Many people have made plenty and ChCh is going to be fabulous when all finished

Got to admit I love Auckland, go out sailing after work, go fishing on a Friday after leaving work early, drink on the viaduct at some new bars, beautiful water. Go kitesurfing on the shore, the bays which is easy. Good bars around with water views in North Shore, Mission Bay, St Heliers and Eastern Bays. Short distance to great beaches and fishing spots up North, Coromandels, and the Mount.

So its great. I have lived in many cities, and Auckland is definitely up there. Im sure I have missed a few things, but I think you get the gyst.

Im in the UK at the moment and I look at the weather all the time, what was funny, was the weather in summer was colder here then Auckland in Winter. It was only one day, but winter weather in Auckland is mild as well.

Funny I was thinking the same about Christchurch, I would no longer live there if you paid me. Yes I used to like it because it was flat and that Avon river and the wizzard and the church.....but since the Earthquake I'm afraid its a no go for me.

"Meanwhile in the middle price brackets, which are dominated by existing home owners, many of them baby boomers, it’s business as usual."

That's a curious claim. If the top end in Auckland is collapsing in volume the middle ain't business as usual. Its prices are dropping.

I really really hope it *isn't* true that baby boomers are trading up and taking on mortgages to do so.

"there has been an even bigger fall in sales at the bottom end."

Reason as lower end house price have not fallen as musch as so people by streching a little are able to buy more value for their deposit (Low interest rate also is helping).

Million dollar plus houses are worst hit.

Supply is rising and demand is falling.
It is not difficult to state that really.
Supply is too slow to catch up with expansion phase.
Then, just as it does so, demand drops due to business cycle downturn (yes, it is going down, unemployment is a lagging indicator)
It is vey important that people stop thinking and writing in terms of total market shortage or over-supply and refer to which bit of market they mean and where in country, if debate is to be any productive use.
There is a surplus of apartments and they are not selling (39% down in Auckland last 6m)
There is a deficit of 3 beds at 600-750k and they ARE selling whenever they come OTM.
There is a surplus in some areas of Auckland of 4 beds priced 800-1.2m.
These are selling but in lower numbers than last year. Mostly this is because fewer are being put on the market because vendors are being told they cannot get price they think it is worth.
The reason they are being told that by Agents, is because demand (number of buyers interested) is down due to OBB.
A market has to be segmented for proper analysis. Generalisation is useless.
Also, we have to bear in mind that sales are more down than we think because stock has risen since 2013 in particular. Hence, lower % of stock is getting sold.

As always, thanks for the analysis and the detailed stats.
So the price of the most in-demand 3br houses and the falling 4-5br ones' is inching closer and closer to each other. At what point do you think will the downward pressure in the higher segments start having a significant effect on 3br house prices? Will FHBs eventually just decide to go for the bigger house, take on a slightly bigger mortgage and have a flatmate or two to pay for the difference?

FHB here (28 years young) in the range of 650k-850k on the northshore & stanmore bay area. Supply has dropped over the last couple of months particularly on the Shore. I really hope i'm right more stuff comes on to the market in the spring because we are getting itchy feet but i guess when i look back i've already saved 5% by waiting since Jan.

There seems to be a ton of FHB looking at scraping together 10% deposit's which is crazy considering they are using government support payments as well.

The only area's that are really struggling to sell is millwater there is so many houses available out there at the moment but they are just too expensive how are you supposed to get married etc have kids with a 800k mortgage. I just don't understand how this is sustainable when our combined incomes are 185k per annum and would probably put us in the top 5% for our age group.

"i guess when i look back i've already saved 5% by waiting since Jan.

There seems to be a ton of FHB looking at scraping together 10% deposit ..."

Just to remind you, if you're paying 5% less for the same house, then with a 10% deposit,

1) you have avoided losing 50% of your initial deposit - that is the whopper financial benefit. If the house price falls more than 10%, then the owner-occupier would be in negative equity, (and all their initial deposit has evaporated).
2) you have taken on less debt to purchase the house, which leads to lower loan principal repayments, as well as lower interest payments over the whole life of the mortgage.

Yes I understand that. We have a 20% deposit which was most the battle getting. I stated that the 10% deposit thing because I think its scary and is probably making up most of the banks loan books at the moment.

Have you checked out coastal Beach Haven? Some very good streets and has been largely overlooked so still some good well-priced properties in your price range.

Proportionately speaking, perhaps I can offer some clarity for readers.
Residential sales over 1.4m in Auckland, in last 6m to end of June 2019, made up 15% of sales over $300k
In 2018, same period the proportion was 17.6%

In bracket $300-600k, sales in 6m of 2018 were 1288 and in 2019 were 970. A drop of 25% numerically.
But in relation to ALL residential sales, this lower bracket took 11.2% in 2018, first 6m, compared to 10% in 2019.

Concertina-ing of sales into main numerically important sales price brackets between 600k and 1.2m is because in this bracket are most of people who have some equity and are non speculative sales. Mostly they move for demographic reasons.

Lower price sale in Auckland have dropped so much primarily because apartments are not selling well in Central Auckland. But, they keep right on building them, which is sure to cause over-supply and forced sales in due course. A la Sydney.

"Lower price sale in Auckland have dropped so much primarily because apartments are not selling well in Central Auckland. But, they keep right on building them, which is sure to cause over-supply and forced sales in due course. A la Sydney."
Yes, it's amazing how many apartments are being built in Auckland at the moment. The media narrative of undersupply that persists for this part of the market is quite something. A lot of them don't look like very good quality builds either.

"In the first half of this year 11,254 properties were sold in the $500,000 to $749,999 price bracket, down just four compared to a year earlier, which pushed up that price segment’s share of total market sales from 28.4% to 31.0%."

A large proportion of the new build townhouses and apartments hitting the Auckland market are in the $500,000 to $749,999 range. Many 2 bed dwellings are in the 600-750K range. This new supply will be keeping numbers in this range up.

Keep in mind too that we are seeing older units and dwellings in places like Pakuranga, which previously sold for 800K +, now selling in the 650-750K range.

The drop in sub 500K dwellings is understandable too. Rare to see new one bedroom dwellings hitting the market for less than 500K.

Totally agree, you would be mad to be paying what you are for property in Auckland.
Investors that are negatively geared currently will feel the pressure if they are not seasoned investors as returns should not be negative with the interest rates so low as they are at the mo, and with ringfencing now in!
Property investing done right is impossible to beat, bearing in mind the uncertainty of equities in the future.

I'm all for property investing done right. Happy to get an ugly home with sound basics, clean it up, rent it out to cover mortgage payments, rates, and maintenance. Keep the tenant happy, get your debt paid off by someone else and you're styling. However the current market in Auckland makes that impossible without a very sizable deposit, eradicating returns. With no or negative equity growth, investing here is a dead duck. Once the market resets to a balanced level I'll look again but it makes no sense in the Auckland region right now.

Fall in Sales at the Bottom End can be explained by quality of these houses. Investors have long snapped them up because they could fill them and obtain yield, but now these poor quality houses provide no upside near term for an investor, whereas since the 2012 recovery the near term until 2018 was predicable and positive.
Thus with the Investors leaving this stock on the shelf so to speak it is up to the permanent home buyers to take them out, but the bankable set of permanent buyers has worked too hard too long to take their $120k_+ deposit and buy a house that needs too much work, and they know it will be a long time before they have the lending power to upgrade as they are the top of their lending ratio just to purchase. On the other hand where there is a quality offering in the bottom quartile those properties don't last long. Remember compared to only 8 years ago the cost to a homeowner to make improvements has sky rocketed and that makes the buyers of low quality stock very wary in this market.

Changing foreign buyer activity, and tinkering of interest rates. Compression of the median and upper quartile was predictable. I'm speculating a partial reversion to the historical Auckland to provinces house price ratio.