REINZ says median price dropped 5.8% past month; volumes down 4.3% compared with a year ago; Auckland down sharply

REINZ says median price dropped 5.8% past month; volumes down 4.3% compared with a year ago; Auckland down sharply

The national median house price slumped by 5.8% in the past month to $402,000, while sales dropped by 4.3% compared with a year ago, according to the Real Estate Institute.

The median price is still some 8.6% higher than a year ago.

Auckland's median price, which dropped $20,000 in December, slumped a further $31,000 to $569,000.  That's still some 11.7% higher than the median a year ago, but the rate of growth has slowed sharply in the past two months.

Nationally, the REINZ Stratified Housing Price Index, which adjusts for some of the variations in the mix that can impact on the median price, is 7.7% higher than January 2013. However, as recently as October, house price inflation by the same measure was peaking at 9.9%. So the latest figures suggest a considerable slowing in growth.

The Reserve Bank has said previously it expected house price inflation to peak at around 10%. This week Westpac economists reiterated their view that the house market growth had peaked and they expected to see price growth this year of about 6.5%.

The Auckland Index has risen 14.0% compared to January 2013, with the Christchurch Index up 10.0% and the Wellington Index down 1.1%.  As recently as September Auckland's house price inflation was running at 17.5%.

There were 4719 dwelling sales in the month of January, which was down 4.3% on January last year and down 17.0% compared with December.

On a seasonally adjusted basis the number of sales was 1.1% lower compared to December, indicating that the number of sales in January was lower than would normally be expected for this time of the year.

Clearly the Reserve Bank's limits on high loan-to-value lending introduced in October are having an impact.

While the latest month's figures show a sharp drop in the median price, recent monthly figures have actually shown a sharp increase in the median because of fewer sales in the lower price brackets because of the effect of the LVR policy.

ASB economist Daniel Smith said housing market data can be "very volatile" around the December/January period because of the holiday season.

"But if the recent pattern is sustained, price growth appears to have peaked in late 2013. Evidence of reduced pressure in the Auckland market, in particular, will be a welcome sign to the RBNZ."

But Smith said the "structural imbalances" that have seen house prices rise so quickly over the last year or two will take a long time to really diminish.

"Demand looks to have eased slightly since the LVR restrictions took effect, but may be starting to come back. The number of houses on the market remains extremely low, and strong inwards migration will add to demand in the Auckland and Canterbury regions.  Home building is accelerating, but will need to pick up further just to match population growth - let alone reduce the existing shortfall.

"With growth and inflation picking up, an OCR hike in March looks a near certainty. The question is how rapidly rates will rise from there. A slight easing in housing market pressures suggests that house price growth may undershoot the RBNZ’s most recently published forecasts. We continue to expect a fairly gradual cycle of OCR increases," Smith said.

REINZ figures showed that while the total number of sales was down 4.3% compared to January 2013, the number of sales below $400,000 fell by 15.6%. This follows a fall in sales below $400,000 of 16.8% between December 2012 and December 2013.

So, the latest median figures appear to be some pay-back in terms of the median prices for recent rises that have arguably been artificially inflated. The median price nationally has now in fact dropped down to about the same level it was at before the LVR limits took effect.

REINZ chief executive Helen O’Sullivan said there were "a number of factors in play" in the market in January, including seasonal factors and the ongoing impact of restrictions on high loan to value lending.

"As a result it is difficult to get an entirely clear steer on the direction of the market this month. Volumes are still strong relative to the last five years, but are down 4.3% overall on the same time last year."

She said the "softer volume" result continued a pattern that began in November and continued in December.

"However, market feedback suggests that first homebuyers may be tentatively returning – with some assistance - to certain markets."

But this was "by no means a consistent message", with views decidedly mixed outside of the main cities.

"The national median price is up $32,000 or 8.6% on the same time last year, but down $25,000 or just under 6% from December 2013.

"This does suggest a softening price trend, which would come as a relief to many commentators."

However, January data was "often impacted by the seasonal mix of properties", with fewer high value properties coming to market in this month, she said .

A fall from December volumes is to be expected given that many campaigns will be timed to start in the latter half of the month after the holiday season ends, and transactions therefore don’t conclude in that calendar month.

Four regions recorded increases in sales volume compared to January last year, with Central Otago Lakes recording the largest increase of 39.8%, followed by Northland with 11.9% and Hawkes Bay with 8.6%. Four regions recorded an increase in sales volume compared to December, with Manawatu/Wanganui recording the largest increase of 20.1%, followed by Taranaki with an increase of 6.1% and Central Otago Lakes with an increase of 5.5%.

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58 Comments

I've noticed a huge increase in the number of houses in Auckland with asking prices instead of Auctions. This implies to me that the demand is nowhere near as hot as it once was.

Recently I ran across the best known Auckland operator in this field. Tellingly, he told me he had now sold everything as he considers current price levels to be absurd.
Bob Jones, NZ herald  11/2/14.
best known operator...have to be Olly wouldn't it?

Hope IRD intend toget some tax off him for it. People like that are parasites

No, I am reliably informed that Olly has been only buying. Tax only applies when seling.

ZZ...We wait with bated breath for you to limber up and get back in to the Auckland/New Zealand property game... Please hurry, you are stalling and stagnating the whole market.... Hurry!

But we need houses to keep on rising, how can we spend, if we cannot keep putting it on the house.
Leverage is the only way to go.
Get stuck in.
All our Real Estate buddies Bankers and hangers on, will be bereft of income, taxes may fall, rates may suffer, Councils will be in debt, Governments up to their necks in debt on your behalf, no matter what the interest rates, no matter what the SOEs fetch.
Have you no thought for others.?
Go, go, go.
Spend like it is 2008/9/10/11/12/13.
You know it makes sense.
 

Canada's immigration has just suspended its business visa application for super rich guys. I am sure a small part of it will eye NZ.

I think its a bit of chicken little syndrome.  Only the crud is left over from last year.  Alot of the auctions are scheduled for 30 jan as far back as the 5 december.  So that will mean the stats will be  skewed somewhat.

We are not so sure.
If first home buyers come back, then % more lower $ value properties would be moving.
Over Xmas we were shown "first home buyers dream" houses that agents thought would have otherwise have been sold before October... Agent called Jan, asking if price was a problem.....
So if they have been moved on at say 5% to 10% reductions, etc...
 
Is it more that current bank profits more a high watermark?
http://www.abc.net.au/news/2014-02-12/roger-montgomery-talks-to-the-busi...
and then
http://www.theguardian.com/business/2014/feb/14/australia-housing-bubble...
 

Ho hum

Certainly the part of the cycle when you should be revolving out of auckland and into growing high yielding provincial cities.  Smart money already out of auckland.

I'd be going with 'secondary' cities not villages of 6000 people.. Huntly population declined between 1996 and 2001 by 3%.  It's simply not large enough to have the critical mass to support population growth.
Palmerston North and New Plymouth are my pick, both growing cities.  Palmy has good uni, fonterra, foodHQ,  air force, army base,  farming, central hub, close to welly (new highway will bring it even closer to welly), has multiple 'villages' (wanganui, feidling, bulls, sanson etc) and smaller towns around it that have a net population flow towards palmy.
In Palmy, a FHB can buy with 10% deposit a home above the median value. With the FHB grant and kiwisaver, almost anyone with a job whos been in kiwisaver for 5 years can buy their first property up to 300k in value. Yet the median price is still in mid 200's...  

Good god, I lived in PN for 3 years working at the Hospital.  John Cleese gave a pretty good reason for living in PN !

Plamy has a university, and a below average one at that. And you don't have to live there to 'go' to it...in fact half their students don't...

ZZ, $350K with water front..sounds good but how much did you spend annually for cleaning cost and repairs?  Cleaning cost and repair I meant cleaning for ongoing tagging and broken windows..!

I got out of Auckland in late 2012.  I paid a week visit recently and realise Auckland is a blimming expensive place to live, the rates on my old house went up to $5600/year and Lenny baby are looking at ways to extract more money from the poor Rates payers.  Had I sold my house in 2013, I'd have got another 8-10% more but it's life, so I sucked it up!

 
David H -  "Clearly the Reserve Bank's limits on high loan-to-value lending introduced in October are having an impact"........Ah....hmmmm.....pardon.......but I'm having difficulty following the reasoning behind that statement.
 
http://www.rbnz.govt.nz/news/2009/3706847.html
How stratification works

  • Dwelling sales from approximately 1800 New Zealand suburbs are ranked according to their median sales price over the relevant comparison period (currently January 2005 - June 2009).
  • The suburbs are allocated into ten different groups (or strata). Suburbs accounting for 10 percent of the lowest sales by price are grouped into stratum 1; suburbs with 10 percent of the most expensive sales price are in stratum 10. The allocation of suburbs to each stratum is fixed over the comparison period.
  • The number of sales and median sales prices in each stratum is used to obtain a sales-weighted median price. This puts more weight on suburbs where there are more sales while filtering out sales of very high or low priced properties, giving a more stable measure of price trends for the stratum.
  • The sales-weighted median housing price in each stratum is averaged to produce a housing price measure from which the housing price index is derived.

The most important part of the release is conviently overlooked by those looking for a negative spin when they seek a "Shock - Horror" headline
"However, January data was "often impacted by the seasonal mix of properties", with fewer high value properties coming to market in this month, she said."
The headline should have read: Fewer High Value Houses Sold In January Skew Sales Data"
January is  a total mess when it comes to getting accurate figures. What with holidays, weather and half the lawyers and real estate agents on holiday how can accurate figures be collated?
 
It was a similar story this time last year:
REINZ report January 2013

The national median price rose 4.2% compared to January 2012 to $370,000 but eased from the record $389,000 established in December 2012.

Completely agree.   We seem to have a culture of sensationalized headlines, often very misleading about what the article is actually about.  Especially on stuff.co.nz

Auckland House Prices have peaked....get used to it.

Auckland House Prices have peaked....get used to it. We FHB will keep looking on the sidelines later this year.

the index sorts out the different mixes. 
 
"Nationally, the REINZ Stratified Housing Price Index, which adjusts for some of the variations in the mix that can impact on the median price, is 7.7% higher than January 2013. However, as recently as October, house price inflation by the same measure was peaking at 9.9%. So the latest figures suggest a considerable slowing in growth."
 
Why don't they just give us the raw data.  This month is the index up or down? Who cares what the yoy comparison is, as it's not comparing things to the same fixed point. 
 
Just the graph of the REINZ index over time for all regions is all I need to see, forget the convoluted commentary and emotive headlines.

Prices have to keep rising or Auckland's housing "crisis" will never end. Developers need an incentive to build. If prices start to drop they won't have one. Be careful what you wish for.

Maybe there isn't a crisis? Stagnant rents would seem to suggest that the demand is for investment, not homes.

This is why I favour a land bankers tax of some kind. There is not so much a shortage of land than a shortage of houses being built on the land.
Does anyone know how much land is being held undeveloped by developers?

Nothing slows a market down like an expected increase  in the costs to entry , in this case the costs of borrowing .
This is normal market behaviuor given the market (incl.Banks ) are anticipating Interest rate rises .
Maybe the LTVR rules are starting to bite.
or , maybe the market has just run out of steam with buyers realising its gone too far and  its time to sit on their hands  
or , like any market , sense eventually prevails when people realise the market is over-reached  ( stretched to its limit in terms of price )

All of the above perhaps. I expect and hope for continuing price increases albeit at much lower levels than past years, which everyone seems to agree is unsustainable. The LTVR rules seem to have had the desired impact. If the impact is too strong though and house prices decline developers will have little incentive to build. This will see us just kicking Auckland's housing can down the road..
 
If we see further data like this in months ahead will Mr Wheeler ease the LTVR restrictions? 

The current prices are unsustainable. Property is not affordable, price to income multiples are in the 5-8 range, not the historically affordable 3-4.
Prices need to drop.

But Olly promised prices would double in the next few years and interest rates would stay low for years! This isn't fair, why can't prices go to 12 or 14 times income. I thought we would all get rich selling houses to each other at societies expense? /sarc

Olly like everyone does not get it right all the time. Years ago  he managed to lose a lot of his own money and other people's money when he ran a public company called Landmark if I recall correctly. Luckily for those people he did the right thing and reimbursed them their losses in full. We need more people like him in New Zealand.

It was less than 2 years ago  Newland said prices could  double in 5 years and interest rates remain low. Your sarcasm is  premature by at least 3 years. Come back in 2017 and tell us how your strategy has worked out for you Zp.

Yes October 2012 I think. The income side of the median multiple equation sure as heck won't double 2012 levels by 2017. And interest rates will surely rise in the short term, medium term who knows.
We could have prices at 12 times income in 3 years time but I doubt it, even if for no other reason than the political fallout that would result (i.e. Labour/Greens win election and make big policy changes) and the RBNZ's ability to further choke credit if they so wish. Graeme Wheeler's stated comfort zone is house prices rising in line with inflation.
As for my strategy I don't recall disclosing that!
I am not questionning Olly's integrity or saying I am any better at predicting the future. But the constant cheerleading of house prices gets pretty tiresome. It is a zero sum game, it's shelter, and it's not productive.
Tell me, where do you think inflation adjusted prices will be in 2017?

The Herald's "Auckland Rental crisis" article season would normally be underway by now. It peaks at the start of March, but we would normally have had a couple of articles by now in past years (If people want to check that just google Auckland Rent Crisis and check the dates on the articles).
I'm going to take the positive view that people are better informed about the fundamentals of the market so such stories are being being checked against actual numbers before publishing a story on the basis of a few people who left it a bit late for a well located Uni flat and opinions of rental agents.

Zz .....wishful thinking ...the Auckland rental demand has markedly slowed and driving round in the weekend I saw a few "for rent" signs. I know I might of been a bit early on my previous call earlier this month on this matter, but  as an ex - property manager, with signs up at this time of the year, demand is not what it was .....
 
Anyway, good luck with your rental increases. 

Crazy Horse, rents are up 10% yoy, hence the reason the perma-bears on here have given up on that one.  That's what happens when there is a supply shortage, you get shortages of rentals and properties to buy. 

Well the $620,000 mortgage that we had preapproval for back in august that would have cost us $830/week over 3 years fixed term back then would now cost us $975/wk at 7.25% interest at 3 years fixed term with a 10% deposit. We are feeling quite relieved we didn't sign up to a crippling mortgage and are now sitting tight, as are many others and building up our 20% deposit

Good call. I've got a 20% deposit ready to go and but the potential for interest rate rises frightens me - an extra $100 a week for a 2% rise against the current floating rate.
 
Looking for a very affordable house if anyone's selling...

Maybar if you'd bought back in August and fixed then you could have bought a house for $620k and you'd be on the lower payments today. Now you can't afford to buy a house for $620k.
 
Buying a house is largely about debt servicing. If you can "only" afford payments of $830 p/wk you could afford a house  valued at $620k when interest rates were 5.7%. When interest rates are 7.25% you can only afford interest payments on a house valued at $530k.. It's obvious why increasing interest rates effects house prices. The problem you face Maybar is that it is highly unlikely house prices will drop anywhere near enough to balance out the increased interest payments you must contend with. Even if house prices drop back a bit, as interest rates rise your cost of ownership will still be greater. 

Thanks for that, and yes we can afford to buy a house at $620,000 as it's 3 times our annual income, we just haven't chosen to buy as we can't see value for money right now. We are better off saving a bigger deposit, and see what the global issues from china and the US throw our way. I was just using our case as an example to illustrate why property prices won't be going up like they have been.

You sound like a thoughtful chap Maybar. I am sure you know what you can afford. On that income the banks would lend you vast sums of money. However if someone can afford payments of $830 p/wk max, the value of the house they can afford is determined by the interest rate (and their deposit). Therefore, as interests rates rise people can afford less, hence decreasing house price inflation. So I think we agree.
It's interesting all this talk of house price to income ratios. I would have thought the loan repayments (taking into account current interest rates) to income ratio would be the more relevant measure of housing affordability. Hugh?

Well, I think the affordability index calculated here at Interest does include mortgage interest rates, so some do use it.
That said, as an long term/ across countries measure I don't think it is all that useful- and I am saying that as someone who thinks the NZ housing boom from 2001 was primarily financially caused (Australia allowing negative gearing on foreign property investments). There are a couple of reason I dislike it: the minor one is that rates can vary so much in shorter term periods  and for most people housing is a very long term issue so interest rates largely balance out, the major is that if interest rates were important in the grand scheme there should be some vague relationship between house price changes and interest rate changes and there is not (at least compared to the strength of other factors).

We're in a very similar position Maybar. We came close to buying last year, now we feel like we've dodged  a bullet with the climbing interest rates and falling prices.
We commited to 3-3.5 times income max too. What's scary is a lot of people earning half what we do are looking at homes in the same price bracket. I have no idea how they will service 500-600k mortgages once interest rates climb.

with the climbing interest rates and falling prices.
 
I think it's a bit early to assert interest rates are climbing and property prices are falling. We need to wait and see. I'll go on record and say I think house prices will be higher in a year than they are today.
 
I think you will need to wait another 3-6 months to see what is really happening. We shouldn't overlook the present time of year! Also, I expect rents to go up to cover the cost of interest rate rises and other increasing expenses (Rates, insurancew etc) so you might find the bullet finds you. 

Luckily our rent is a bargain, it would have to go up a long way to push me back into the house market.
Interest rates are a sure thing, property prices - who knows. I suspect they'll flat line and inflation will cut into them.

Denial, fear, anger, depression, bargaining, acceptance....
 

If house prices fall or flatten, what might happen to interest rates? 

My sense at that the RBNZ will focus on inflation. But they might ease off the LVR restrictions.

OCR or retail rates?
Depends on the fall....5% they wont blick. In fact they will pat themselves on the back, get to 15% and its still downward however....and much else of course...and it will be change underwear time...
So OCR would drop, but would investors lend to us at such a small %?   perversly the retail rates might climb as wholesale costs rise.
Its interesting what happens when you cant grow "smoothly" any more, huge instability, and conflicting impacts almost un-controlable.
regards

For so long many New Zealanders have focused totally on investment property. The consequence of that is that they have missed out on massive gains in the world share markets including New Zealand. Wall Street and the S & P are at record highs. New Zealand companies pay excellent dividends ,generally better than housing rental returns. The moral of all this. Be diversified. Be in houses and equities. A caveat however. Sometimes get out of housing and sometimes get out of shares. Be prepared to take profits and buy back in cheaper. Always have some cash in the bank to take advantage of forced sales or new floats.What would I do today. Look at reducing my housing stock levels and share portfolio. You will make mistakes but you reduce the chance of losing a lot of the gains you have made.

Personally I sold all my shares, I see the equities as dead cat bounce. When I did (the first time ever) it took 2 or 3 weeks to clear them all and get my $. So sure its more liquid than housing, but it also has micro fast trading, isnt an even playing field and more aware ppl trading IMHO.
Cash, yes I agree on the idea of having some to hand, however when the banks become insolvent and take depositors money....you could be left with nothing...ie no where is safe.
Enjoy yourself at TAB.
;]
regards
 

Steven you are in a bad way when you think the banks will become insolvent. They might in Turkey where things are tough at present but not in NZ/Australia where they keep making record profits from all the borrowing for property and business activity.  Are you one of those people who think the world is coming to an end?

Are you one of those people with an IQ too low to understand the exponential factor?
http://www.youtube.com/watch?v=umFnrvcS6AQ

Thats right, none so blind as those that dont wish to see.
Yes if you view the world as never ending expotential growth based on ever expending fossil fuel extraction.
 
regards

Two ways to get prices down. (Neither will be followed by this Government)
1. Reduce immigration and overseas speculators. Both of these could be done immediately by regulation.
2. Encourage less investor gearing to bring a level playing field between owner occupiers and investors. Reduce the amount that can be claimed as an interest expense against rental income or prescribing notional return as used in the FIF for overseas shares.

Is that figure new (ie non NZ citizens) migrants ?
Or does it include NZ expats returning permanently  to NZ ?

zaneyzane will tell you every single one of them is a 'single' cashed up immigrant bringing in squillions of dollars to buy up Auckland property... not just one house but four and five houses... non of course will be refugees, or middle class famalies arriving with very little and dream to get ahead in NZ. None will be extended family members on small pensions or kids reuniting with parents. None will want to live/buy houses anywhere else in NZ other than in Auckland.
 
All of them are single entries, all of them with cash, all of them buying houses! Then when they have residency they will bring other family members over who will ALL bring more squillions and buy more houses.... only in Auckland of course...
 
ZZ will also tell you he made so much money last year horse trading houses that he's on a break, him and all his mates... cos all people who make cash on houses stop for awhile to take breath and give cashed up immigrants a go... come on Spottie, you know they do... so just wait, once they have finished their wonderfully extended holidays they'll be up and at 'em and prices will double from 2009 prices and rents will double from September 2013 prices... and while I'm writting this 20 000 more cashed up immigrants have arrived with suitcases full of cash and have bought more houses...
 
Better get in and buy mate, I just saw another China Air plane arrive....  

John Armstrong seems to be following the somewhat bizarre line about how the extradition process works that has been promoted by the Government to attack Russell Norman. For an actually breakdown of what is involved see
http://pundit.co.nz/content/will-no-one-rid-me-of-this-turbulent-german
 

Census Meshblock data out late next month. To get ready I've been having a bit of a play with data from the 1996, 2001, and 2006 censuses. I thought people reading the comments might be interested in Auckland maps of:
Number of people in meshblock divided by number of private dwellings 1996:
https://www.dropbox.com/s/35ynniuuukarwle/density1996.png
Number of people in meshblock divided by number of private dwellings 2001:
https://www.dropbox.com/s/dtko71ppchuhvaj/density2001.png
Number of people in meshblock divided by number of private dwellings 2006:
https://www.dropbox.com/s/607kq61x4kt5pmg/density2006.png
These are all actually really large image files, so there is some scope for zooming in. Gaps indicate issues with the data and me not caring enough to solve every last issue. People is total people including children.