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.
The comment stream on this story is now closed.
You can receive all of our property articles automatically by subscribing to our free email Property Newsletter. This will deliver all of our property-related articles, including auction results and interest rate updates, directly to your in-box 3-5 times a week. We don't share your details with third parties and you can unsubscribe at any time. To subscribe just click on this link, scroll down to "Property email newsletter" and enter your email address.