Falling house prices shave $50.97 a week off mortgage payments for first home buyers in Auckland: Home Loan Affordability Report

By Greg Ninness

The prospect of owning their own home improved slightly for first home buyers in Northland, Auckland, the Waikato and Taranaki last month, but worsened for first home buyers in all other regions of the country.

With mortgage interest rates remaining largely flat, the main drivers of changes in first home affordability have been movements in lower quartile selling prices, according to interest.co.nz’s Home Loan Affordability Report for August.

It showed that the REINZ’s lower quartile selling price (the price point at which 25% of sales are below and 75% of sales are above) declined in Northland, Auckland, Waikato and Taranaki in August compared to July, but increased in all other regions of the country.

In Auckland the lower quartile price dropped to $640,000 in August.

That was the fifth consecutive monthly decline in the region’s lower quartile price since it peaked at $680,000 in March.

The slide in Auckland’s lower quartile prices means it has now fallen below where it was 12 months ago, at $655,000 August 2016.

That fall in prices is evident throughout the region, with lower quartile prices in August below their previous highs in all districts and below where they were 12 months ago in Central, South and  West Auckland, but still up compared to August last year in Rodney, the North Shore, Papakura and Franklin.

While prices have been declining over the last few months, mortgage interest rates have been largely stable, with the average of the two year fixed rates offered by the major banks staying within the 4.82% - 4.84% range between February and August, up slightly from its record low of 4.35% in May last year but still well below its long term average.

Separate 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

The Home Loan affordability report estimates that this combination of falling prices and relatively stable interest rates would have reduced the mortgage payments on a lower quartile-priced for a typical first home buying couples in Auckland by $50.97 a week since the lower quartile price peaked in March.

Unfortunately the drop in prices is still not enough for homes to be regarded as affordable for typical first home buyers in Auckland.

As well as movements in interest rates and house prices, the Home Loan Affordability report also tracks movements in incomes, and calculates how much of their weekly take home pay a typical first home buying couple would need to set aside each week to make the mortgage payments on a lower quartile-priced home.

Housing is considered affordable if the mortgage payments take up no more than 40% of their take home pay, and unaffordable when mortgage payments take up more than 40% of take home pay.

The report estimates that when Auckland prices peaked in March, mortgage payments on a lower quartile-priced home would have taken up 46.1% of a typical first home buying couple’s take home pay, well into unaffordable territory.

But affordability has steadily improved as prices have fallen, and in August the mortgage payments would have been eating up 42.6% of typical first home buyers’ take home pay.

So although affordability has been improving in Auckland , house prices have quite a bit further to fall (and interest rates would have to remain low), before housing could be considered affordable in Auckland.

Outside of Auckland, the only other place where housing is unaffordable is Queenstown, where first home buyers would have even more of a struggle buying their first home than they would in Auckland.

That’s because lower quartile prices in Queenstown are even higher than they are in Auckland ($677,000 in August) while wages are lower ($1506.46 a week after tax for a typical first home buying couple in Queenstown, compared to $1612.82 in Auckland).

That means a typical first home buying couple in Queenstown would need to set aside almost half (49%) of their net pay each week to service the mortgage on a lower quartile-priced home in the town.

Fortunately housing remains well within affordable levels in all other parts of the country.

In Wellington City, mortgage payments would only take up 27% of a typical first home buying couple’s take home pay, in Christchurch it would be 21.4% and in Dunedin 19.7%.

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60 Comments

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13

In the face of falling house prices, FHBs should wait a while. Not nice to buy to early in a falling market.

I'd say if National get in buy now. If Labour get in, wait.

All in all this is what has been predicted, forecast and should be expected. Property cycle. Nothing to see here, but certainly good news for the younger generations coming up.

Young FHB-ers - don't wait for a huge crash because there won't be one. Those of us who hold property like sitting on our hands at this stage in the property cycle.

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Am I reading this correct? It takes 40% or below to be affordable! Note represented by their take home pay i.e two earners.I feel very sorry for FHB's that is a very serious commitment leaving very little for all the other necessities when young children come a long!

A point I have made previously. Standard benchmark for affordability overseas for mortgage payments is 28% (or 33% including all housing costs). Somehow, in NZ we put the affordability bar 43% higher.

Machiavelli. All a election will do to house prices or should I say sales is some wait and see and depending who gets in after to the speed of the correction , might be a little faster or slower. National has been in for three quarters of a year since this correction started so there’s no reason it won’t resume after the election if national got in. Specially if they had to take on peters. Remember a couple of very important things. It’s very common for a downturn to last 3 to 6 years. Even with elections close by. Depts extremely high. Affordability is terrible. Capital gains are gone. Masses of people have been leaving Auckland. There’s generally plenty of houses for sale but to expensive. LVR might change for FHBers but they terrible for investors. And the biggest and most lasting is the exit of overseas investors. They were aloud to enter the housing market all round the world around 2011 and now that’s over because of the damage. There’s plenty of countries that have aloud overseas investors to go wild in housing. Elections or no election and they are all correcting since China clamped down. There’s no reason at all that would be reversed. Auckland if national got in might get a short rise of sales but the buyers or should I say only FHBers aren’t enough to move any needle. Also generally at the beginning of a downturn interest rates are high. The dropping of those rates are generally a big help , specially dropping 4%. We haven’t got that ether. There’s been many corrections with many lasting about 4 years and government always do what they can but because of the nature of a boom and the many reasons we just have to do the time. Also this boom has been bigger and faster than most. The elephant in the room will be the overseas investor bailing in mass. Some on here will try and play the supply card. But really what’s changed over the last 6 months other than the market dropping. Immigration high. Rents not that high. And people leaving Auckland. In fact Auckland better start looking after there young or they’ll leave nz all together.

Hi O4 Normal,

I'd bet you my bottom dollar that in 6 years time house prices will be far higher than they are now.

TTP

You might be right and If a FHBer brought a house today , it might be worth $100 to $200k less in a year from now meaning he would likely be under water in his mortgage so if he needed anymore help from the bank or a partner lost there job or dropped the hours they would be in trouble or they could even have to do a job transfer and need to sell there house but couldn’t, . Theres many reasons why you need to stay above water in your house so why would you buy now compared to rent a bit longer and buy when the market has settled. Makes sense to save money. Also if you have taken on to much risk just be aware what could happen in the near future. Could you and your investments handle a recession. Theres many things you could do. Sit and hold tight. Your house might go down and back up later . Or sell if you are worried ,maybe stay with family and maybe buy in a low coming up. It you have a few houses but owe to much money maybe sell one now because it could free up some cash. Read as much as possible and make good sensible decisions. But remember in the long term housing has always been good but sometimes it the short term periods you need to worry about. These are times you need to watch your risk it’s just not worth the stress over a house, specially a investment property. Of course if you love you home and the depts fair why would you even be watching the market. There’s more to life. Don’t believe the line if you don’t get on now you never will. If housing was made that people couldn’t get on there wouldn’t be a market and if Auckland can’t give you what you need people are finding plenty of other places that do. If Auckland wants immigration and you can get a reasonable price for your house why not just leave it to them. There’s cheaper rentals to outside Auckland with better traffic. If Auckland won’t play ball. Leave

The chances of the average house price dropping by $100,000 to $200,000 in the next year is approaching zero.

Nice thought - but it ain't going to happen.

1 million to 900K or 1 million to 800K. I dont see that as unreasonable. Especially since property prices have gone as high and as quick as they have in the last 4 years. A few desperate people selling, the sniff of fear in the market, that prices will drop further and people will lose money if they dont sell now. RE pushing people to take the best offer so they can get commission.

As the say, we will see. Interesting times indeed.

200K drop - what a joke!

It won't be a joke for the owners if they need to sell and no one needs to buy.

Once it becomes a full on buyers market you should expect greater variation in prices and 10% or 20% or more drops in valuation may be realistic.

Of course you may still make a large capital gain selling at 20% less than yesterdays valuation, it all depends on what you paid.

Remember the valuations are only estimates they aren't an offer to purchase at that price.

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17

Take a fool to be buying now. The drop is only the start of things to come.

... yes ... that $ 50.97 / week saving on mortgage repayments is being dwarfed by the crushing fall in the price of houses ....

I'd advise landlords to vote Greens/Labour ... a CGT will allow you to lock in the losses from the top of the housing market ... to off-set against future gains .....

... from the government's point of view , now would be the stupidest time to instigate a CGT .... the property boom is over , Red Rover ....you won't collect a penny of tax from house prices continuing to go up from here .... but property speculators will be able to claim $ Billions in tax off-sets if they choose to sell at lower prices ....

But that's not stopping the Greens from pushing for is as hard as ever , is it .. .. 1999 was the moment to bring in a CGT ....you're two decades too late , guys ...

@GBH. and was the Property boom over in 1999? - why invite a snake into your house by voting for a CGT? ...

... personally , I think that CGT is a seriously stupid tax ... but , if a government wanted the biggest return from it , the moment to instill this dopey tax is at the start of a property boom ( circa 2001 in NZ ) .... not at the end ...

Unless , they're planning to make it retrospective !

... but the best bang for your buck , in my silly opinion ... is the land tax ...

A capital gains tax is not about bringing house prices down or collecting more tax.

It is about making the tax system fairer.

Most investors, including me, buy mostly for the tax free capital gain and to write off all my expenses including interest against my income.

Someone on PAYE cannot do this which is very unfair.

Was that not the Trump Card, someone who shall be nameless played in making his pile of filthy lucre.

Stealth. There’s no doubt about that. I feel a bit sorry for some on here . There hope that a national government could change the top of a correcting boom to another boom is absolutely mad. It’s been correcting under national. There’s miles to many things involved here and high immigration will only keep forcing the locals out but now that the big investor money is gone all Auckland will do now is push there young and brightest out. Like what’s been happening I guess . If national were to get in I’ll give the market no more than 3 months till the people see that there’s no silver bullet . We need to take the pain so we can get on with it.

If the market fails to correct substantially and quickly (and that's not something I'm either predicting or hoping for) I think a National led government is likely to hasten non-homeowner migration from Auckland, whereas a Labour led one might stave that off for another 1-3 years.

The biggest problem for Auckland in that former scenario is that the National led government would see the solution to such internal migration as increased immigration from overseas and/or additional taxpayer subsidies by way of a variable accommodation supplement to retain a newly defined classification of essential workers in Auckland.

Whichever party come to power, I suspect the fiscal plans as projected by both will be overtaken to some degree by urgent measures not yet anticipated/discussed.

Kate everyone I guess has a different idea of a correction, bust, pop, crash. Downturn. If I put 20% deposit on a house at the top of a boom and it dropped by 20% I’d think that was the end of the world. Personally I think flat to down 10% is a correction and 30% maybe a crash. If you had one income and 4 kids you might think differently. There’s been many corrections around the world over many levels but let’s just pick one. How bout nz and the last one . 2008. In my view house prices up to 2008 weren’t that bad even tho they just about doubled. The main topics weren’t about people living on the streets , cars or in motels and interest rates got to 9% . The good thing i think is the market had time to grow over a good period with incomes JUST ok to match the prices. The GFC came we had elections around then and we dropped interest rates over time by 4%. BUT STILL WE WENT DOWN with the government doing all it could for years. Immigration was high then too . It wasn’t to after 2011 with a hole lot of other countries giving the housing market a good kick in the side with overseas investors that got things going and only Auckland of course. Auckland had to spill over to the rest of nz . THAT MOSTLY OVER, check other countries with the same symptoms with or without election all trying the normal stuff to stop it. Yes Kate our government national or labour will do all it can. It’s a REAL shame we don’t have the luxury of dropping interest rates a decent amount . That’s a hole nother story I just hope our interest rates don’t go up. But FHBers have been kicked in the ribs in this country and they’re now our biggest hope. But there numbers are to small and prices to high and nz can’t build houses in a downturn, to expensive and that another story. But yes Kate the government (whoever) will do all they can. A carrot or two to the FHBers I guess. FHBers will hardly make a difference because they are small in number when so many others are out of the market plus they may even leave Auckland or be pushed out. The irony of it is the ones Auckland ignorance are the only ones to save it. I would expect at LEAST a repeat of 2008 but without the lowering of interest rates and the elephant in the room being at what point does a overseas investor call it over I’d have to say this downturn should be a LOT worse

Hi Stealth,

That's wishful thinking indeed.

In a few years time we'll be looking back at the cheap house prices of 2017.

If I had the money I'd buy now - while the market is soft. Prices aren't going to fall by much more - but the upside potential in the medium/long term is vast.

The sooner you buy in, the better off you are (both socially and economically) as time goes by. I don't blame first home buyers scrimping and saving to put a deposit down - it's the best thing they can do for the future.

Frankly, anyone who suggests otherwise lacks the wherewithal.

"house prices have risen at nearly 10 times the pace of wages for typical first home buyers over the last four years."

Yep houses greater then 10 times income are easily affordable so obviously house prices can only go up.

Im sure Banks will lend on greater then 10 times income, its not risky at all, with over 50% of income being spent on Mortgage. Who needs food anyway its over rated.

Just ran our actual household income through Westpac's calculator. They would lend us 6.5x gross household income with payments taking 55% of net income. Borrowing the maximum would need a 26% deposit to purchase our current home. I assume that's the maximum leverage we could get. The reality is that because we are mortgage free the income multiple has no meaning if we upsized because our equity changes the calcs. Very few FHBs would be anywhere near as comfortable, but we could easily help our children into homes, which I understand a number of other parents are doing on a regular basis, again changing the picture. We can say that most FHBers would likely need assistance in the Auckland market, but the affordability issue isn't the same for all FHBers so prices being 10 times income is a level not a limitation for all.

That is really wishful think. But only for those wishing to increase prices and fill their own pockets without thinking through the consequences of higher prices on the economic of the country or city that the house is in.

Remember that interest rates are low today. Interest rates in NZ are (just like most of the development world) interlinked with other markets, the US, EU, Australia, Asia, there is a global expectation that rates will remain low compared to historic levels but will increase slowly (already started).

Once NZ interest rates increase housing will become less affordable, so over the next 3 to 5 years existing mortgage costs will increase. Prices will come under additional pressure then.

Perhaps a bigger issue is New Zealand's competitiveness if we get the wage growth needed to make the current house prices affordable, if incomes double over the next 5 years what will be the impact on export, manufacturing jobs here etc. Will the NZ$ drop to half to compensate? if so any off shore house owners will be sure to exit the market or lose their shirts.

lets get real.

Election year bound to be a drop off

135,000 record immigration now will help boost prices post election

Vote change vote labour. The partu that will ban foreign buyers and cut back immigration from 135k to 50k

135k crazy. In 10 years thats another auckland sized city arriving

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17

Agreed. That number of arrivals mostly in AKL is just madness. Even driving in from Hamilton on Mondays is seeing gridlock at Bombay at 0530. Just crazy. JK has sold his mansion... please just stop it.

Patience Avaerageman, things just do not happen overnight or with a strike of magic wands in a "poor" country like NZ ....Good things take Time ( and lots of money) or have we became too spoiled to want it all NOW or else ?? ... Moaning is good for the soul, just like meditation ...

Econ bird
Moaning is all NZers do
The politicians know that
All you get is a vote every 3 yrs & some fools actually want to extend that to only every 4 !
Yes the migrant madness will certainly continue unchecked if National get another 3 years
They have 0 policy other than to bring in foreign exchange via new migrants
It's a ponzi politics style that destroys quality of life
God help Aucklanders

Its not a magic wand with traffic. 6 years ago the traffic was fine, now its not. Why? Because of Nationals addiction to the drug called immigration. So increase immigration get the instant hit, and then if we want to come off it we have the long process, unless we go cold turkey.

Because we are on the drug of immigration, we have been saving our money but not investing in NZ. Its a fake way to grow the economy.

I would love to see the gridlock get worse, just so the people stupid enough to vote pro-immigration in past elections can suck up the results of their decisions.

Im moving to the country so Im going to agree with this.

If you want to continue with massive immigration with houses, roads, hospitals etc all under pressure,
then vote National.

Wonder if John Key sold his place before Labour put a Ban on selling to foreign buyers

Labour’s ban on foreign speculators purchasing existing houses will be based on the Australian policy. Under our policy only citizens and permanent residents will be able to buy existing homes. The ban will also apply to foreign trusts and foreign corporations. Removing this speculative demand from the market will help stabilise prices and give Kiwi families a fair shot at buying a place of their own.

http://www.labour.org.nz/cracking_down_on_speculators

Why do you need to wonder?

"But affordability has steadily improved as prices have fallen, and in August the mortgage payments would have been eating up 42.6% of typical first home buyers’ take home pay. So although affordability has been improving in Auckland , house prices have quite a bit further to fall (and interest rates would have to remain low), before housing could be considered affordable in Auckland." writes Greg
Then with the Ist of April tax cuts of $1000 pa and an extra $10k towards the deposit these couples should afford that Home
No Brainer, VOTE NATIONAL ...

You think $11k is what is stopping people being able to afford buying a home?

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10

Leave just leave as life is much better in Australia and Europe now for the younger ones. Auckland has become a terrible place to live and will get worse and worse.

There's a Tui ad (pun intended). I have been to all of the major cities in Australia and have had to avoid beggars, drunk and drugged people in each. Yesterday I watched the Police move on a woman in the street who was spitting on passersby. Utopia it aint.

And New Zealand is any better.....

The comment I replied to inferred that NZ was worse than elsewhere. I'm adding mt first hand observations on Brisbane, Sydney, Melbourne and Perth.

And my comment is that New Zealand is no better or worse than anywhere else. I think you were trying to imply Aussie was worse.

Having lived in both countries, I'd say some things are better in Aus, and some are better in NZ:
These are just my views, for what it's worth:

Better in Aus:
- Cost of living
- Cost of housing (outside Sydney)
- Climate
- Overall opportunity
- Access to rest of world
- Overall ,the quality of media (print and TV)

Better in NZ:

- Politics and governance
- Natural scenery
- Education
- Safety (in particular, our lower risk of terrorism)
- More open minded, less racist

Housing is the Aussie dilemma. All the jobs are in Sydney and Melbourne where the housing is unaffordable.

Stop panicking:
"There has been a net migration gain of 73,500 non-New Zealand citizens in the year to August."
http://www.sharechat.co.nz/article/b2e332a5/nz-net-migration-up-in-augus...

Interesting that migration from the UK had the biggest increase on a net basis, up 47 percent to 6,700, with net South African migration up 44 percent to 4,900.

Speaking of the UK it is interesting that NZ net immigration rate is 10 times UKs target rate (if you factor into account population differences)

NZ net immigration rate 72k
UK Target net Immigration rate 100k

Based on NZs population if we were to use UKs target we should have 7k a year max.

Let the market do its stuff. It is being artificially propped up with immigration and overseas buyers. Knock.that out of the market and take our lumps. The bigger the bubble.the bigger the burst. Immigration is taking a huge toll on infrastructure and the people happy to have their houses pumped up in price are now in the karmic situation of seeing their leafy suburbs populated by ugly intensive housing, as we try to fit all the immigrants into Auckland.

Which leafy suburbs are being populated by ugly intensive housing? Our area is seeing single houses extended to take advantage of the 40% site coverage now allowed thereby killing the economics of purchase for intensification. A CGT on rental properties would probably accelerate the trend.

I guess we should take as many immigrants as we can . You wouldn’t think the world would have the many problems it has forever. Different country’s change all the time. The young go there then somewhere else. Places get over populated. Jobs up then down. We’re the flavour at the moment. Hospitals , crime, so many things come into a city being the flavour of the month. I hope nz doesn’t stuff it up. I guess we’ll be ok as long as the Americans are trying to blow everyone up. And the Chinese and everyone else would rather leave there home land

Our neighbours here in Remuera are kicking themselves.
They want to sell, This time last year their agent told them they could get one million, right now he is telling them 850K

Depends if why they are selling as to whether they should be kicking themselves though. If they are moving house, surely they will be buying in the same market and therefore receiving a similar discount?

I think if you were downsizing from a very expensive area like 1.5 million to a different city or town some have done ok and you still can but it’s getting less worth it by the day. Of course there are the ones that don’t want to sell which is perfectly ok . Family home and happyness comes before profit on a stupid house but some have denial of house prices dropping bad.

looking to move to Aus.
So.... kicking themselves.

Fritz. No that’s ok. Lots of parts of ozzy are having the same correction as nz. I don’t know who’s ahead of who. But keep a eye out. Its like buying on the same market. I’m not sure about the currency. If you’re outside Auckland you might want to consider selling really quickly. Even Auckland the drop isn’t that bad but be careful I know many people that have chased a market down and some didn’t sell in the end when they had made up there minds to sell . They were unbearable for awhile. People will always buy with a reasonable discount if they see something they like. But sometimes it’s better to leap ahead of the others. My mate was told $475k to sell it. He thought it was worth that. Prices went down a little he followed. I told him try offers over $425k . He got a good offer turned it down and carried on with his game. In the end that offer was the best . So he had to jump ahead again. Sometimes it’s not worth it. Move on. Get that buyer to the table and think about any offer and your goals

Fritz, yeah, they would be kicking themselves in that circumstance.

I told my parents-in-law to sell their Auckland home last year as they were looking to downsize and move to Kapiti or Cambridge. They didn't and now they are seriously kicking themselves. They chose to rent out their house so whenever they do want to sell, they will have to spend money getting it market ready again too.

They wouldn't take my advise, they didn't even entertain it. But they could have sold at peak and bought in the regions, that were still rising at that that time. They simply would not accept that the market would change. They took the advise of my specuvestor brother-in-law and estate agent auntie. My brother-in-law had to sell his BMW and buy a skoda to help with his current cash flow problems. All his properties are negatively geared, he tops them up from his salary. His next step, if his cash flow problem doesn't improve or if the bank gets twitchy, is to sell one of properties. How many other specuvestors have the same plan I wonder? Also all kicking themselves.

I spoke to a local agent in the Eastern Bays (1071) yesterday as he posted personal success with two sales on Wednesday. He told me he has unsatisfied buyers and can't find stock. Are we living in a parallel universe here? What other Remuera property has dropped 15% since last year? Enquiring minds want to know.

Gingerninja selling one of his houses probably won’t do that much. The hole idea of being negatively geared you would think they didn’t have enough money in the first place. Someone might leave large amounts of money in there private account and tab up the rental but then you’d have a larger mortgage and pay more interest. I would say with the way people have gone nuts with this I must have heaps of rentals rubbish they are mortgaged to the eyebrows and some can’t even afford to pay back principal. That said if your brother in law isn’t careful . Selling anything of has mighted even pay back the mortgage. And that opening a big can of worms with the bank. Hopefully he has at least one property he can sell with his own money in to pay off mortgages on another . Some how tho I’m betting he doesn’t

MUST WATCH "The Great Kiwi Tax Break: https://youtu.be/YtxfwvxOaL4

This video is great and highlights the issues NZ faces with high house prices.

Property prices are going to contine to drop particularly in Auckland. China is heavily in debt and their credit rating has just been down grade yet again today. There's no way that their going to lift their capital controls and it doesn't matter which political party gets in here, they can't do anything to changed China's debt problems.

Messages to all First Time Buyers; Wait the market hasn't bottomed out yet and it has far further to fall now that the top end buyers are gone. Most market recorrection take two years and we're almost through the first year.
My advice is don't buy until 2019 let the property market drop to affordable levels.

I totally agree CJ099. It would be stupid if a FHBer didn’t wait. Investors knew what they were getting into. They knew they were creating a bubble or they were blind. FHBers were left in the dust years ago. FHBers shouldn’t be jumping in early to save investors. They made there bed. Investors that brought over the last 2 or 3 years are a tinny % of all the houses in Auckland. Remember FHBers someone in the end will always sell. And most importantly most of the houses in Auckland were brought before 2012 so those focks can stand dropping there sale prices to meet the market. I’m still very worried about overseas investors leaving the market in mass. I’d keep a very close eye on Canada