Barfoot & Thompson's December result reveals low sales volumes and very low new listings signed up. But average and median prices are holding up as fewer buyers are meeting seller expectations

Auckland's major real estate sales agency, Barfoot & Thompson, had a very restrained December.

They sold only 674 properties, the lowest December level in seven years, and well below the average December sales for that period of 836.

And they signed up just 571 new listings in the month, the lowest for any month since data is available in 2001.

But thin trading has not impacted selling prices yet.

The average selling price in December was $939,871, or +2.9% above the same month a year ago. It was also +2.9% above the November average.

The median selling price in December was $870,000, or +3.6% above the same month a year ago. It was +4.8% higher than for November 2017.

Agency boss Peter Thompson said: “The sense of urgency to buy a property regardless of its asking price has disappeared.

“Undoubtedly, the measures progressively introduced by the Reserve Bank, a more prudent approach to mortgage lending by the trading banks and a growing apprehension among buyers as to the prices being paid all played their part in cooling the market."

Sales in the higher-priced neighbourhoods are keeping the averages up.

Thompson noted: “In 2017 8.9% of all homes sold were for less than $500,000. In 2016 the comparative percentage was 11.1% and in 2015 14.9%. In 2017 37% of all homes sold were for in excess of $1 million. The comparative figure in 2016 was 35.4% and in 2015 29.1%."

This low result caps a very average year for the firm. They sold only 8,947 properties in 2017, down -24.7% from the number sold in 2016, and -34.6% less than in 2015. In fact, 2017 saw their lowest sales volumes since 2010.

But they are chock full of listings. They ended the year with 4,160 listing, the highest level since 2010. But this is nowhere near a record; that was the 7,538 available listings in March 2001.

Dropouts - the listings that never sell - reached 8,285 in 2017, a rate of 45.7% of all new listings they took in in the year. This compares with 33.9% in 2016 and represents a key indicator of how tough it has been for real estate agents in 2017.

As Thompson noted, seller expectations have been held up by the Auckland Council rating valuations. But it is also clear that buyers "are taking a more considered approach", as Thompson puts it. Which is a nice way of saying sharply fewer buyers are prepared to pay those sorts of prices. The number who do are dwindling quickly.

Today's data confirms there has been no Spring selling season bounce in 2017. Sales in the four months October to December at Barfoots totaled 2,723. In the previous four months - May to August - they totaled 3,265. Rather than a bounce, there was a dip.

Barfoots now have 31.1 weeks of inventory on their books at current sales rates, the highest in almost six years.

Barfoot Auckland

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160 Comments

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11

Asking prices are not realistic on a flat to falling market. Sellers will need to lower their expectations if they want to sell. No hurry or panic to jump in this overpriced market......the risks are far greater now for a correction....patience is the key.

The market is rising, not falling, can you read or nah?

Stop letting the truth get in the way of a good story...

The market is crashing, houses in Devonport and Mission Bay will soon be $200k. Nobody should pay more than $150k for an Auckland house or they will be sorry...

Ehem, Bill English has noted multiple times that the housing market is flat to falling.

The real estate media churn begins for 2018. Even if the REAs have nothing to really say, they will fire up the printing presses regardless considering "share of mind" is vital for their existence. One thing you definitely won't be seeing in the media is articles on how to read and understand data or how the basic tricks that communications professionals used to confuse the sheeple.

Yes, the median data is making things look better than they are given the higher end of the market is making up much more of the composition of sales

Possibly but you don't know that, given that I suspect you don't have access to the data sets. And even if the composition of sales is skewed to the right, what are the implications, if any?

"Sales in the higher-priced neighbourhoods are keeping the averages up".

Its in the article.

"Sales in the higher-priced neighbourhoods are keeping the averages up".

Its in the article.

So what are the implications? If you want to "analyse the data", you would need the whole data set over time to make any inference on the implications. "It's in the article" is a mentality that is plaguing the sheeple.

It is a nudge to the statement above that 'the market is up". No more and no less. if you can't get the drift...................

Yep all good questions.
Of course, one implication (if the composition of sales is skewed to the right), is that the median price in middle and lower market sectors has dropped, potentially significantly.
As you say, would take proper data analysis to confirm that.
But I suspect that to be the case from what I know.

To be fair the median is less affected by changes in the mix than an average.

The median price is "making the market look" exactly how it is, no better, no worse. That's the whole point of a "median"

The median is a single data point. [edit: Sorry, that sort of personal insult is not allowed here. Ed ]

True, to a point. But it's also a crude measure that lacks nuance, in isolation.
It doesn't necessarily tell us how certain sectors of the overall market are performing.
Because, really, there isn't 'one market'.

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16

Those that are not desperate to sell, won't. I think if this situation drags on, there is a $238 Billion reason why patience will hit a limit and seller anxiety will increase exponentially. Johnny come latelys will soon discover things can really happen to (New Zealand) real estate that were not covered in those property seminars!

Sellers appear to be holding out for yesterday's prices that relate to yesterday's reasons. Potential buyers are now considering what's coming tomorrow before committing.

Selling into a falling market is the hardest thing economic human nature has to deal with - especially if the entry price was higher than the current exit price.
Selling into a rising market is dead easy! The worst that happens is people say " Oh, well. I didn't get as much as I could have, but I still made a profit!" Easy...
But selling on the way down? Most people, even professional traders find that hard to contemplate. Because the fear is that they will have to say "I got out at the bottom. If only I'd waited..."
Guess what? Waiting often ensures that 'getting out at the bottom' is probable, and the longer the waiting time - the worse it is, because 'the bottom' is so much lower.
Those who survive it all? Those with manageable debt and time to spare, and best of all, those that had the courage and sense to get out early. As we know " Your first loss, is your best loss..."

What a delight to read

Pretty good results considering.
Barfoots sold more houses than new listings for the month.
The graph looks nice and natural with that December upswing. I bet a lot of you guys weren't expecting that.

..considering what? All the good 'fake' news out there or all those black swans circling?

Zachary, what's your take on the dropout rate heading skyward? This certainly would have skewed the days to sell - right?

What does the dropout rate mean though. Did a significant number of sellers just go to other agencies?
I think I saw one dropout in my area of interest although they appear to have wanted significantly over the 2017 RV.

A healthy market today would be showing an increased sales volume and lower dropout rate, firm to steady prices rises across all price spectrums. There is certainly a desire to sell by the many for gain, at this stage not desperate to sell en mass at a loss!

The dropout rate is a significant measure. It gives an understanding of those who will more than likely relist once buyers become anxious about missing out, buy anything and everything at and above listing price - like what happened in 2015/2016.

A lot of speculators are hoping this is just a temporary pause before the next "upswing"

People change agencies all the time. Also a fairly high dropout rate looks to be normal. I don't see it as being all that significant, just that it is a harder to sell now than it was before, which we all know.
Seems like you are searching the data in order to cling onto something doomy.
We are settling into a stable trading environment, which is a good thing.

"Seems like you are searching the data in order to cling onto something doomy"

Geeeeze Zachary I thought you might come up with something substantial than suggest it was people changing agencies. How does dissatisfaction with Barfoots translate into overall increased sales volumes in Auckland - it doesn't and it obviously hasn't.

If you are labelling accelerating dropout rate is "normal" what are you basing this on? Some facts please.

The dropouts were pretty high even in the boom times. Of course there will be a few more now that things are "stable".

Zachary, I'm not trying to troll you - honestly :) I agree that some people will always change agencies but you have to have your head in a plot to not see this for what it is - lol!

Your statement lacks facts unless you can back it up. The article above explains its on the increase as good times are in the rear vision mirror plus agents are doing it tough.

Suggest you read the article again.

I just took that from the article above where it states that dropouts were 33.9% in 2016 .

So now you think healthy markets have firm to steady prices rises¿ AKA growing exponentially, is 3% yoy not firm to steady prices rises enough for you?

skudiv, when you attended a property seminar did they guarantee there would forever be an equally large herd of bigger fools waiting so that all those paper profits can be easily cashed in? I suspect yours did and you've failed to recognise the market has turned to a buyers market and has been for a while;

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1188...

Buyers are less enthusiastic and have choice. The market is fast running out of bigger fools to pay lofty prices hence the lower selling volumes - not a healthy sign if you'd care to notice.

No they said cashflow is king, capital gains are a nice bonus, be very selective when you buy. When you buy for cashflow you don't care what the price will be in 5 years. I think you should check it out.

"cash flow is king"

When its reported elsewhere that rents only increased 0.8% in Auckland, fell 2.4% in Christchurch it tells me a story of two large markets where cashflow has peaked as has the capital gains. Not a healthy development when tenants are either tapped out or in the case of Christchurch there is a glut of rentals. Something has to give.

Right now, I get better return from a 4.25% term deposit and I don't have to pay rates, insurance, maintenance and nil chance of it getting trashed.

What term is your deposit, and what currency?
With a 40% deposit, interest only costs 2.4% and the gross ROI is 4%. It's called leverage - learn about it.
(based on a rental returning 4%)

My term deposit is with Rabodirect, 5 years and in NZD.

Interest only loans are now deemed a risk to financial stability. Suggest you diversify - now.

http://www.smh.com.au/business/banking-and-finance/apra-moves-to-tighten...

One could get quite a healthy return on that 40% deposit in a term deposit while they sit and watch the market transition. Right now, I see the scales tipped well in favour of patient renters.

Retired-Poppy,

From Australia - many property investors are unable to handle the increase in mortgage payments as the mortgage goes from interest only to P&I. Some are being forced to sell some investment properties. The assumption of being able to roll over an expiring interest only mortgage into a new interest only mortgage is a faulty assumption - many new property investors may not realise that credit conditions do change and can get tight and refinancing into a new interest only loan can become very difficult. 20,000 property investors getting caught out in Australia - how many properties would they need to sell? and the number of potential buyers would be decreasing. Also interesting that the banks have accelerated property investors from interest only loans to P&I loans. I would expect property investors in NZ to also get caught out. Note in NZ banks, there is a total of $54.65bn of interest only loans issued to owner occupiers ($25.9bn) and property investors ($28.7bn). A further $38.758bn of interest only loans to business borrowers (which may or may not be secured by real estate)

The founder of one of the country's biggest property investment clubs says its 20,000 investors can't afford their mortgage repayments after the banks shifted them from interest-only loans to principal-and-interest mortgages earlier than they expected.

"How would you manage if your bank told you you had to pay 45 per cent more per month on your mortgage?" Kevin Young, founder of Queensland's Property Club (previously called The Investors Club) told The Australian Financial Review.

http://www.afr.com/real-estate/residential/property-club-investors-stung...

New Zealand (Austrlalian) banks have already started to move customers with expiring 5 year interest only loans onto P & I. These customers bought back in 2012-2013. More to follow as each 5 year term expires and shifts to P & I. Bank Shares are looking to decline if these customers start to default anytime soon.

Yeah I'm sure anyone who bought in 2012 is going to be really upset if they have to sell now and realise a 100% profit.

I neglected to point out that the 3% yoy return is an additional 8% ROI but you probably already knew that. Meanwhile patient renters are getting nowhere, faster than ever before.

"Cashflow is king and cap gains are a bonus". Rubbish. At current prices and yields cashflow is barely adequate to give any sort of return on equity over the risk free rate of return. The property market has been all about untaxed capital gains. Period.

Come now Zach you know your area is hardly representative of the macro Auckland property market
American Greed has nothing on some of the spruikers here still endeavouring to spruik Auckland property in the face of waning sentiment

Yes still repeating misinformation. "The number of sales began to return to normal in November, with the biggest leap in sales numbers between October and November for six years, Brisbane said."
https://www.stuff.co.nz/business/property/100308863/house-prices-fall-fo...

I think it will work both ways, buyers can always sit back and pay high rents as long as they want to...until the market meets their number, problem is if the market never comes back to their number then they may miss the boat until the next upward swing. Have a look at the graph above for average price over the past 15 years. Not to say this is the future but certainly a good indicator of the last boom and bust cycle. The lowest drop was around 10%. Waiting for a 20% or more crash may never happen. It's all speculation, including our comments. Their is always going to be some turnover between people who have to sell and those who want to buy and they will determine the market at any perceivable time..

High rents? The rent I'm paying covers (60% LVR interest only) mortgage repayment and rates and just a little bit more, therefore giving the owner about 1% return on his (assumed to be minimum) 40% equity investment. Unless you think there are still large capital gains to be made on 50yo unrenovated houses in Auckland it doesn't make sense to be a landlord, or to buy.

Pragmatist
For argument's sake let's say the house is worth one million and the owner has invested 400k. You say he is getting 1% return so that is $4000. If the house goes up with inflation of around 2% then that's another $20,000 a year so the 400k is returning $24,000. That's a 6% return on the investment with little or no tax. That's not too shabby.
You don't need large capital gains, just keeping up with inflation is enough in this scenario.

P.S. How many times do we have to say this? It's not the un-renovated 50yo house that is appreciating, it is the land, the location.

ZS, that is a terrible attempt at making a point.
Another great example as to why property is the simple man's investment class.

"If the house goes up with inflation of around 2% then that's another $20,000 a year so the 400k is returning $24,000. That's a 6% return on the investment with little or no tax.
That's not too shabby.
You don't need large capital gains, just keeping up with inflation is enough in this scenario."

You do know what general inflation is, right?
..And how we are meant to factor it into return calculations?

I wouldn't call it that terrible. I know what general inflation is and it only worked out using a "basket of goods" not everything, everywhere. Some things get relatively cheaper over time such as electronics and vehicles.
Anyway the 6% return exceeds so called general inflation.
It's not a super investment but what I describe is almost a worst case scenario. A landlord is likely to purchase a property that has more potential for appreciation than others taking into consideration location and trends - that is part of the game.
I know you consider sub 10% returns as losing. You must be very rich getting such high returns or do you not invest because you can't find a sure thing investment that returns more than 10%?

"Anyway the 6% return exceeds so called general inflation."

Where do you get the 6% returns from though, if you are including inflation? That's just a nominal return.
I challenge you to go to any bank manager and present that case to him as a basis for backing your investment.

Your real return (gross) is only 1%, as Prag was arguing.

Pedantically, yes, but we all know what happens in reality.

Not pedantically.

All investors should exclude inflation costs as a nominal gain.
Without doing that you cannot properly identify real gain and opportunity cost.

Seems like over analyzing it a bit. Never mind, you do you!

If just looking at it from a financial perspective is "over-analyzing", then I refer you back to my original statement about property being a simple man's investment.

Don't you think inflation plays a more important role in real estate than any other investment class? Fundamentally the landlord is using the tenant to pay the costs of borrowed money to purchase something of value that keeps up with or exceeds inflation. Especially real estate in a growing beta+ global city.?

It seems to me that you are the simple one for refusing to look at this holistically.

ZS.
You cannot bank nominal gains and call it a win.
Real gains are what matters.
If your argument is that you seek an investment with 1% real gains and 6% overall gains, you are a simpleton.

Hi nymad,

I commend your effort to educate ZS but unfortunately basic financial literacy is beyond some. It would seem you really lost him with "real" vs "nominal".

No more disparaging us poor property buyers then as we are just simpletons and losers who invested unwisely. We took huge risks going against all the clever clogs advice punting on such poor nominal returns and so deserve what little winnings we managed to pocket surely. But crypto-currency is much better, it doesn't have any nominal returns to worry about.

Actually, I am a property investor as well. I bought early and am holding. But my numbers look much better than the ones you were laying out because I know what I'm doing.

Also I love how incorrect your "no nominal returns" comment was. Its nice being proven right =)

Do crypto-currencies earn interest? If so are you receiving any?
My laying out of numbers was in response to Pragmatist's scenario. I was really just pointing out that his landlord wasn't in such a bad position.
Anyway see mja's latest comment. I am not alone! It is you guys who are the primary school kids that just don't get it.

That said, I do understand the point that is trying to be made which is that the landlord would be better off transferring his 400k into some other investment right now. However that is not an easy thing to do and landlords are generally very comfortable with property. So the return is not that great but so what? it's still a return. Also he may well have investments elsewhere, just like you.

Boom!
Hit a nerve there I think =)
You ok there ZS?

but seriously, you need to read up on what nominal vs real returns mean.

I googled up nominal. There's hardly anything. I have edited it a bit above. You haven't hit any nerves. I don't know much about other investments, I'm not a genius in this area and could still learn a thing or two. I'm very comfortable with things as they are and my investment approach. It has served me very well. Might try some crypto...

I agree If your bread and butter is property investing and you are comfortable with your financials then its a good idea to stick with what you know.

As for the term "nominal" is sort of economics jargon, wiki has a good explanation if you were interested.

https://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics)

Ok I buy that. If you know what you are doing it makes sense to stick with an asset class you are comfortable with. As for crypto, for me I like the volatility but that is really not for everyone.

lol... agreed

Still assuming capital gains and assuming no interest rates rises, factor in a 1% interest rate rise and our rent doesn't cover the interest only payment. And 6% before tax is pretty poor. My simplicity growth fund investment has made 6% (before tax) in the 3 months since I moved to them. In the last 12 months* it would have done 9.3% after 28% PIR. And it doesn't involve dealing with tenants turning the house into a P-lab or cat pee in the carpets, or calling in the middle of the night with a leaking hot water cylinder, real estate agents, bank managers or fear of interest rates rising from all-time lows or even having to deal with the taxman or accountant.

*Based on their almost identical kiwisaver fund.

Exactly. Absent (untaxed) capital gains, at current prices and yields the real net return on equity is pretty close to zero. Landlords are making a one way bet on ever increasing real house prices. As part of that bet they effectively price their net equity return at zero or close to zero.

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10

Although the cause in 1987 was far more catastrophic, the exact same thing happened. At the start of it all, people held out, thinking they could hold out for the price they wanted. It was all well and good at first, but slowly but surely, people began to have to settle for what buyers were prepared to pay. More got distressed, more could not see the sense in holding out for what looked like a non-existent return to "normalcy" and realised that if they had sold for that lesser price 12 months ago, they would a) probably have gotten more and b) not have had to pay the mortgage on a property whose value was falling. They began to get realistic and accept the truth.
There were lots and lots of lifestyle blocks with incomplete dream homes on the market back then.

Yeah but it is in fact different this time!

We didn't even have the reserve bank act back then.

And banks just pulled the plug on so many loans.

Nowadays, the RBNZ would lower the OCR to 0 and the banks would play ball like they did last time, giving people mortgage holidays etc.

They learned through the 1987 crash, that if they sell everything off, all they do is cause house prices to go lower and that caused them even more problems via even more loans now being considered bad.

Banks never play ball. Banks will sell you out if YOU don't make your repayments on time. Banks make their income from selling long term 30 year debt and then they sell off the risk to other investment companies in tranches and re-package that debt and call it AA grade investment bonds, but in reality investors will be taken to the cleaners.... again.

Are you referring to NZ?

TainuiBabe - are you suggesting for one moment that NZ/Aust banks do this, or are you in a 10 yr time warp and confusing with the US practice?

I've never seen 30 year bank debt in NZ.

Exactly. Banks will put up with some things but if you aren't making debt service a bank will enforce, either directly or by forcing the owner to sell w some not very gentle persuasion.

House prices are out of whack with incomes. We no longer have the biggest driver of those OTT prices in the market, as they have been called home, buyers now no longer have to behave frantically in order to secure a house. Definitely the process is going to be slower, as long as the only drivers are what we have now, but if buyers have time to be cautious, they will be cautious and most will be more hard nosed about what they are prepared to pay. If anything else happens that could downwardly affect price movement, then it could pick up momentum.

I'm waiting for one of those "broken dream" lifestyle blocks!

Oddly enough,no-one seemed to want them, I figured it was because the houses were dream houses, but only for those that had dreamt them, the next lot wanted to start fresh with their own dream houses, it was pretty nasty for a while

Given our economy is now increasingly inextricably linked to housing it seems unlikely that house prices would be allowed to decrease much as this would pass through to inflation rapidly and the Reserve Bank would be forced to adjust rates lower. Through our own actions over two decades we are locked into a trajectory.

And yet since 1987 the market has come back in leaps and bounds, so the question remains...how many people are in it for the long haul and don't care what happens in the immediate future and how many sellers turn stock over in the short term and are at the mercy of the "market". No doubt prices will come back a bit. but if you are trying to time the market this is anyone's guess, hoping for an up or down market is not really productive and risky.

It depends on which market you look at! The obvious example is Japan, where the stock market is still some 40% below where it was in ~1987. Yes, it's back off its lows of a couple of years back, and who knows...those 'waiting it out' might just get back to square. But how long is 'the long haul'? 10 years? 20? 30? 50? After1890 in Australia it took ~ 60 years for the property market to get back to 'square'... and markets sometimes don't have a 'long haul' ( especially if you had Judge Corporation!)

It's a tricky market, eh. Much money has been borrowed from the future via QE/stimulus around the world, but growth and inflation haven't shown their faces as hoped. And without either of those...it's a big ask for young Kiwis to take on massive debt to buy the houses off the older folk. Doesn't look like there will be inflation coming along to rescue people any time soon this time.

It's not even the young kiwis though, 40% of 40-50 year olds don't own their own home, almost 60% of 30-39 year olds don't own their own home (2013 statistics, so it might well have changed, and for the worse I'd wager), you're talking historically about people who would be looking to down-grade or up-grade up at this point in their lives, not having their own home. That's a massive voting block right there - thanks greedy boomers.

Crazy eh...and yet some people who do own still convince themselves they did it all on their own two feet and NZ's history of encouraging and facilitating affordable housing had nothing to do with their current lot.

You should be saying thanks to:

1) The RBNZ and it's 2% OCR. Makes large mortgages so much more affordable, yay!
2) The National government for allowing the whole world to play in our housing market.
3) The National government for allowing unbridled immigration for 9 years.
4) Auckland Council planners for 20 years of failed planning policies stopping housing/apartment developments time and time again.

Low interest rates, overseas speculation, high immigration and restricted planning = housing prices going waaaay up. Aren't we all sooo rich now!

But, anyway, got basically bugger all to do with those who happened to buy their places earlier.

RE agents earnings must be way down in 2017 compared to 2016. I also imagine property "flipping" will have been much lower in 2017 too.

With house purchase volumes down, will this then translate into lower volumes of mortgage lending with a knock on effect to the money supply in general? What changes have reduced property volumes made to the banks, any changes to share of the market? What did the 2017 mortgage market grow by? Might there be an article on mortgage lending in 2017 like there has been previously pretty please? For instance we had this article in 2016;

https://www.interest.co.nz/personal-finance/85392/new-zealand-mortgage-m...

Thanks David.

I'm guessing if November and December didn't provide much respite and with no substantive spring bounce, then the overall picture for 2017, might be even more grim?

holy crap, Estimated real estate commissions from Q3 2016 -> Q3 2017 down 93 million dollars! On an annual basis it wasn't as bad, down only 193 million. But still, if you assume the agents take about 3% then that 193 million in agent fees corresponds to a total sales volume reduction of 6.56 billion dollars per year.

gingerninja, this might help;

https://www.rbnz.govt.nz/statistics/c32

Retired-Poppy, thanks!

Just for anyone wanting quick snapshot data;

Total mortgage lending ($million)
Nov 2015 6,415
Nov 2016 6,349
Nov 2017 5,293

But total lending for the year (excluding December as 2017 data not out yet, so excluding Dec 2016 also);

2016 (excluding Dec) $66401 million
2017 (excluding Dec) $53960 million

Gingerninja,

FYI, for that dataset, here is the definition of new lending.

Total new lending ($million) - Total value of monthly committed residential mortgage loans, which are finalised offers to customers to provide mortgage loans or to increase the loan value of an existing mortgage loan, as evidenced by the loan documents provided to the borrower.

I think it represents gross lending commitments rather than actual loan drawdowns.

As you can see here [ https://www.rbnz.govt.nz/statistics/s10-banks-balance-sheet ], the total gross bank lending assets on the bank balance sheets increased by $328mn in November from $426.5bn to $426.8bn .

CN, so does this imply that the lending is happening, but just outside of the property market or that existing mortgage borrowers are withdrawing equity?

Gingerninja,

I'm not a banker. My interpretation is that the numbers in your quoted dataset are gross lending commitments by banks. I think it is likely that most of this would be drawn down. Bear in mind that these funds could be used for refinancing maturing loans at other banks, or at the same bank perhaps. So hence the net overall loan growth in housing is a lot smaller than the gross lending commitments.

Also as I understand, lending commitments are open for up to 3 months, so I'm not sure if the figures for the next month include outstanding commitments if the loan has still not yet been drawn down in the next month.

If you look at this table, then it shows the net lending growth for all banks and non bank lenders for housing. https://www.rbnz.govt.nz/statistics/c5. There was an increase of just over $1bn in November 2017

All these people trying to read things into this tiny little article.
There is some uncertainty out there.
But where it goes from here is anybodies guess.
I think its way too early to draw any conclusions about the housing market.

This from the Herald

"Mundy said although it was difficult to get a steer clear on the direction of the market, policy uncertainty could weigh on investor demand causing prices to flat-line or fall slightly further."

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1197...

Any dramatic changes in direction (up or down) will I think come from factors outside our control.

The Market will go where it is told to go! That's how markets work - when the mass of people believe what they are told ( and make projections based on that). The problem arises when doubt kicks in, and if it takes hold in sufficient size - that...is the stuff of a Crash....
eg:http://www.psywarrior.com/Goebbels.html

Hmmm... the following was missing from this report:

" In 2017 the number of homes sold was down more than 25 percent from each of the previous three years, but average prices still rose 4.5 percent to $926,632 and the median selling price jumped 2.7 percent to $843,583, said Peter Thompson, managing director of Barfoot & Thompson."

"Normally when sale numbers fall by such a large percentage, prices retreat from their record high levels," Thompson said. "But this has not occurred, and prices have continued to rise modestly. It underlines there is still buyer support at current prices."

http://www.sharechat.co.nz/article/43d0e7b2/auckland-house-prices-rise-i...

Are we there yet? .... We are still waiting for the Crash guys, any idea when is it coming ??

Maybe it's happening at the Top End? Average Prices and Median Prices will rise if the more expensive property is being ditched as opposed to cheaper stuff transacting. Maybe, just maybe, those in the know; those with the Good Stuff ( Sir John comes to mind!) know? (NB: Queenstown is often a good indicator of that trend)

Soon, grasshopper, soon.. (Tho i don't think it'll be a crash, just a long slow unwinding)

What is always coming but never comes (not your wife)

A decent Auckland public transport network?

Eco Bird, if sentiment towards the NZX-50 turned mildly negative then shares would fall - but not all shares. Some more popular shares keep rising while others stay the same. Some interpret the weakness as an opportunity and buy. If the negative sentiment prevails too long it eventually spreads to the entire market.

I see a similar short term picture whereas homes that offer that extra something are holding their value and are selling - at the moment. I interpret this as a transition. Buyers have something they have not seen for some time - choice.

LOL ... it is amazing how you can change your narrative and twist your philosophy once hit by fact on the ground !!! .... So now you are comparing property with shares Huh?
it just shows how limited your financial knowledge on both is mate .... I suggest to stick to what you know and stay away from risky stuff ... not worth your precious retirement time I reckon :)

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I’m curious, what drivers are going to keep house prices stable or rising from this point? Ordinary commodity houses that first home buyers are always reminded to set their sights on.

Wealthy immigrants?
Foreign speculation?
Even lower mortgage interest rates?
Wage inflation?

No - what RP is highlighting is market psychology. You seem to miss the analogy - perhaps that is to difficult for you.

Eco Bird, I thought even you would be smart enough to spot my message about how investor behavior alters depending on sentiment and how it relates to any speculative investment.

Your answer mimics someone gone bush........

lol, No mate I got your point ..but the analogy is wrongly applied -

Property and Shares follow different rules and the hurd psychology and mentality do not apply in the same way let alone they operate on some different set of drivers ... there is much more than price and volume indicators !!

That is what you guys are missing .... I have a foot in both camps ( for years ) so I know very well what works in each asset class ...

Your theories and expectations are incomplete mate - need more indepth analogy and some gut feel conclusions based on experience to call a market ...

This time Peter Barfoot got it right and his comments about buyer supporting current prices after being underpinned buy the new 2017 CVs is spot on.

No matter how you spin it, This Market has proved to hold thanks to Organic Growth and Supply Shortage ...and the emerging data is simply confirming that !

Get ready for more of the same in the next two months ... and another 2-5 % increase for FY 2018

July 2017 was a bottom as I called it --- I am yet to be proven wrong.

Take it easy RP

But we did prove you wrong Eco Birdy. And I'm sure we will do it again especially after the foreign buyers ban, do you seriously expect us to believe that won't have an impact on the Auckland market. :)

"I am yet to be proven wrong."

Have you ever been proven right, though? (Except in the eyes of DGZ, ZS, and TTP)
I mean, that's what matters...

haha, So far Yes nymad ! .. look at the data and prices and be patient you will be disappointed a bit more every month until April/May 2018....

July 2017 was a price bottom in Auckland and that did not change thus far !!

You see, there is no heroism in this, this is not a beauty contest ...the results of any investment decision prove if you were right or wrong at the time - so far I am winning.

Can you link me the current data?

Dig for property prices here or any other stat site, don't expect me to spoon feed you nymad .. do your own research.

Just because it hasn't happened doesn't mean it won't happen.

That's right !!.. you must be from the " Why Not " generation who question anything and everything, believe in the tooth fairy, and live on hopes that anything can happen !! lol, just like that ... Fortunately, Our property market does not follow Murphy's Law ... :)

How do you know. You seem to think there is some is some "law" or "rule" that the market is following - seems a bit ridged to me.... please enlighten us to this "rule".

I'd avoid engaging BadRobot, Eco Bird, it'll do your head in. Reminds me of that robot in Hitchhikers Guide to the Galaxy.

and you remind me of the idiot Harvey Bains in Waiting for God.

Indeed , I see that he just made your point :)

I stopped spoon feeding illiterate people ages ago - but like to catch them on the spot at times -

You referring to yourself. You claim literacy (in what I'm not sure) - yet when challenged all you do is insult people. Classy - not.

WHERE IS TTP??

Interesting that the average selling price in December was $939,871, or +2.9% above the same month a year ago. It was also +2.9% above the November average.

Have you checked the mirror?

Rents are still giving great returns to seasoned and experienced investors in Christchurch!
Plenty of tenants looking for property in Christchurch at the moment and many from overseas as they see what christchurch has got to offer!
The biggest problem is that a lot of the people looking have skeletons in their closets, and if you aren’t careful landlords can be caught out!
Fortunately our checks are comprehensive and we would rather have an empty property than have some nightmares in residence.

"Fortunately our checks are comprehensive and we would rather have an empty property than have some nightmares in residence"

WOW, despite all this hassle, rents are still down over -2% in Christchurch - capital gains gone. Hassle free term deposits of up to 4.25% are more attractive by the day............

TM2, If your rentals are hassle free then your paying someone else to do it! Sounds expensive.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11942791

Yeah I'd expect my PM to tell me so. I rather leave my rentals empty than nightmares!

Haha. As the old saying goes, better out than in.

Um, that's flatulence, isn't it?

TM2, if you are going to continue to make ultra bullish claims about anything to do with Christchurch, you really need to start backing them up with facts/proof/data. You're not doing your credibility any favours by spouting endless anecdotes and hot air.

He’d make a really good used car salesman.

The Boy is an RE agent by “profession”.

Maybe all the specuvestors have moved away from property and into cryptocurrency for the spectacular capital gain on offer

Welcome to 2018, I see not much has changed with the commenters, the doomsayers are still seeing only doom & gloom, the property bulls are only seeing the upside and Grendel is still being rude. Such is human nature I guess, we so much rather be "right" i.e. stick to what we believe, than "open" to other's opinions and ideas.

Happy New Year! =)

Nymad, you can bank nominal gains. I certainly have over the years, when I sell a property and repay the mortgage, we do not adjust the numbers for inflation over the period I held the property. Buy at the right time in the cycle (not now, wait 2-5 years), use leverage and inflation will make you rich. Over the long-term property appreciates at the rate of nominal increase in wages (real wage rises + inflation). Property is the perfect business as interest is 80% of property expense, and this expense reduces with time as principal is paid back (assuming stable long term interest rates over 20-30 year period). Whereas income (rent) in areas with a growing population will increase at the rate of nominal wages (real wage rises + inflation). It is inflation that makes the property wealth creation formula work, to look at real (inflation adjusted) house prices, completely misses the point.

Inflation alongside holding real estate is what has created most of the world-wide old money families. I remember 5 years ago an interview with Frank Giustra (has committed over $100 million to charities, son of miner, made money in mining sold out of gold mining industry in early 1980s, then established Lionsgate film company and got back into precious metals mining in the early 2000s) when the talk was of deflation. He stated always bet on inflation, as the elites will not allow deflation, as with leverage and even a small amount of inflation, vast wealth can be created easily. He was at pains to point out how easily the elites create wealth this way, and advised that the elites at this time 2011/2012 were securing funds at incredibly low interest rates and purchasing assets he stated principally property, followed by shares.

Those who inflation adjust house prices, to compare to other asset classes. Are like those kids at primary school who "don't get it". The key is and always will be inflation and leverage, and concentrating buying into 50% of the time when the property market is flat (declining prices in recession to early appreciation 2-3 years post recession).

"Those who inflation adjust house prices, to compare to other asset classes. Are like those kids at primary school who "don't get it"."

Interesting.
So, just one question.
How do you actually make an objective investment decision? How do you actually ever quantify the risk of your investment or the opportunity cost it represents?
If you just blindly think that you will ignore inflation, because it 'will always be there'.
Where inflation has generated significant wealth it has been during period of exceptionally high core inflation benefiting existing loan holders. Or arbitrage positions. During periods of steady inflation, like we have had for 25 years, inflation is easily baked into the forward interest rates.

The last 8-10 years have been luck, not anything else for the majority of 'investors'. It is not them leveraging true inflation/interest rate arbitrages, but instead just leveraging. To be leveraging any position without estimating the real gain you will receive is silly investing.

But, hey, if this is 'big boy' investing. I'll stay a child, thanks.

How is it much different to investing in crypto-currencies? ( Crypto's getting popular better get in - Auckland's getting popular...)
Inflation was a factor that could likely be relied on as the RB had a target to keep it within 1-3%. Other factors such as high immigration and the increasing wealth in source countries were indicators that house prices were likely to exceed inflation. A large proportion of immigrants were Chinese and Indian who like to buy houses. Also wage and rent inflation was a factor. Similar cities to Auckland such as Sydney and Vancouver also had high price inflation before Auckland did.
You could claim it was just luck but there were a lot of hints that house prices would appreciate were there not?

Nymad, high inflation is not needed, even 1-2% will suffice, if execute a simple strategy.

The objective business case is below.
In flat market buy in middle class area low maintenance home ie modern brick and tile. Aim buy at replacement cost of house + maximum 50% of land value (equates to cost of developing section), I have been able to do this in every cycle. For example 2010-2015 purchased brick and tiles houses in Wellington area for 420-460K replacement cost was about 400K land was 180-200K. In an area with an increasing population, buying at replacement cost of house + section with nil developer profit (from land subdivision or property construction), puts a floor under property value so minimal down side.

Key is to hold for at least 5 years, so has to be middle class or above, as if have a string of turd tenants will chuck in the towel think West or South Auckland. Even without property price rises, after maximum 5 years will be cashflow positive as rent increases while mortgage is static (interest only) or declines with principal repayments.

At this point you allow inflation to do your work for you. Cost of construction will go up with inflation, as will rents in an area with an increasing population (tends to be real wages + inflation ie nominal wage rises). Even if there was no inflation, if the population increases property values will rise as when you purchased you bought below replacement cost. And if prices do not increase there will be minimal construction as can buy an existing modern house for significantly less than cost of buying section and commissioning build (only builds tend to be high end, where wealthy want their own design). In this scenario something has to give, as there is a housing shortage with an increasing population, and minimal construction. Hence prices rise and eventually they rise enough to where they approach cost of a new build, and developers move in and spec houses.

Key is buying at the right time, late recession to 2-3 years post recession. With replacement cost in mind, in an area with increasing population, mitigating the downside risk of capital losses. The properties will move to cashflow positive status as rents rise, but by this time an increasing population will have pushed prices back to replacement cost levels. And then you have the option of selling and pocketing those nominal dollar gains. Not rocket science just a simple strategy.

As complex as your investment strategy is, I'm sorry but the nominal inflation isn't increasing your real position vis-a-vis another investment class.

I think there might be some confusion over what you think real and nominal are...

Pretty much just comes down to the ease of borrowing large sums of money for an appreciating asset that returns a steady income and is perceived as a safe investment and is beloved by lenders. There aren't many other asset classes that have these "features". Tremendous success over many years for many, many people, indeed everyone in for the long term, has made this a popular investment strategy.

Nominal after inflation, real adjusted for inflation. Inflation is increasing my investment position versus other asset classes, due to the ability to leverage property. Concern with leverage is declining values, but this can be mitigated by buying below replacement cost in an area with an increasing population, key is patience. Try getting the bank to lend you 400K to buy 500K worth of shares.

The difference between real and nominal is not an issue. Among my peers I received notoriety by missing out on Economics national top scholar in 7th form in the 1990s by 1/2 a mark, when I got the first exam question (multi-choice) wrong, by ticking the wrong box in the give me simple question to get you into exam mode.

mja,

What you are advocating is just a buy low, sell high strategy. There is nothing wrong with your strategy, it's just your understanding of the gains.

Nearly every asset class in a developed market exchange has the possibility of leverage through a brokerage. I dont know where you get the idea that property is the only asset that can be financially leveraged.

I'll say it again, unless you are arbitraging the inflation, it is not making you more well off than another asset class.

As for the 7th form economics exam, you have my condolences. I don't see how it relates to the argument, but obviously you get some enjoyment out of telling it to the grandkids.

I don't think anyone has made the claim that real estate is making you more well off than another asset class. Just that it is not a bad investment.

Advocating putting 50% of your wealth into crypto-currency and shunning real estate is a pretty extreme position though, I would have to say. Surely it's insane?

ZS,

MJA's whole position (and yours) was that you can bank real gains from nominal inflation.

When did I tell advocate putting 50% of your wealth into crypto currency?
That may be my position, but in no way did I advocate it for anyone else.

In my view if you reveal a conscious and voluntary investment choice and continue with it you are de facto advocating that choice. People will read nymad comments and be influenced by them to some degree. If you are held in high repute by the reader then it will definitely be seen as an endorsement.

True.
However no one takes us two seriously, though ZS.
God help them if they do.

True that.

^^ but that isn't different to all the property-related comments ^^

And no one bats an eyelid about people discussing their choices in that market. Apart from maybe the commentors who are obviously just spruiking.

I always got the impression that the motivation behind all the hostility in comments was disagreements concerning the perceived endorsement of positions, either of an investment, political or lifestyle choice nature. Endorsements that are self serving.
A definition of spruiking is promoting or publicizing which is not necessarily a bad thing. It's just a derogatory term for a common activity.

ZS, sure, but certain commentors are clearly more overtly self serving than others ;-)

MJA I can see the logic of your business plan, apart from where you suggest buying brick and tile houses in Wellington. Brick and tile houses are always less desirable in Wellington and don't appreciate as much in value. No one wants to live in a brick house in an earthquake prone area.

I read that Lockwoods are safest in an earthquake.

I purchase mostly up the Coast. I think "no one" wanting to live in a brick house in an earthquake prone area is a bit extreme. I'm sure there are some occupied brick and tile houses in the Wellington area. Brick and tile on a slab, don't need to paint, always look nice and are warm homes. Most people go for warmth and a lack of mould, rather than perceived additional safety in a possible large earthquake. And even after the large earthquakes over the last 24 months, no issues, my wife did a small area of re-pointing on a couple of areas on one house (took an afternoon).

My brick and tile properties have outperformed the median price for the Wellington region, did an agent tell you they are undesirable. Reality is often different from anecdotal hearsay.

Yeah, I wasn't thinking up the coast, I was thinking Wellington city from your comment. I imagine brick and tile are just, if not more, desirable up the coast, where the earthquake risk is less.
Certainly in Wellington city, the brick houses, which tend to be much older also, take longer to sell and don't tend to be as desirable.
I've always had brick homes myself, and agree that they are much warmer, easier maintenance than wooden. I have re-pointed 17th century through to 19th century buildings, i've even rebuilt brick walls. I find it easier than carpentry. I'm certainly not down on brick houses in general, however, not sure i'd buy a brick house in Wellington city (or in the Hutts near the fault lines).

Here are a couple of examples for everyone.

9 Herne Bay Rd paid $3,001,000 in March 2016. Be lucky to get $2.5M for it now.
11 Ward Terrace Sandringham paid $1.775 in Sep 2016. Homes has it at $1.635.
Shamubeel eaqub paid $1.6 in June last year for his pad. Be lucky to get $1.4 for it now. I wont say where it is for privacy reasons. Market is falling and no amount of hype can fool people now.

This is just idle speculation if these properties haven't sold for lower prices yet. Who knows what they would sell for now? Prices in Auckland went up last month according to the official figures. Let's see how it goes.
That said i have always believed if you are going to sell within a year or two you are likely to lose. That's pretty normal.

Would it be on Frederick St in Hillsborough by any chance?

If there are no actual sales showing a realised loss then this is a weird set of examples. What’s the rationale for choosing these and what’s the point?

Are they even on the market? Would be one thing if they were and listed at the prices you mentioned.. the fact they hadn't sold if listed with those prices would indicate a falling market or at least a lack of support at those price levels, but if these are just numbers you dreamt up.. then Wheres The Fridge?

My experience is exactly what MJA has said. Equity comes from inflation in nominal RE values using bank loans as leverage. Its a no brainer. The yield that I calculate is based on my original buying price or nominal debt. I am getting 12% currently.

These are just random examples I have seen not selected for any particular reason and they don’t have to sell to set a valuation. In fact they would struggle to sell.

The only way you could qualify your last sentence is by providing examples of properties that are currently struggling to sell. There must be some properties with asking prices on TradeMe that are languishing that you could provide as better examples.
I've actually been actively looking for examples of sales that appear to be of a distressed nature and haven't found any notable ones. Ones where they look like they should fetch a high price but in the end didn't.

There are properties struggling to sell, but as other have mentioned before, these are tending to be the overpriced, or less desirable properties that would always take longer to sell in anything but a smoking hot market. And the smoking hot market is over for now.

However, I've been keeping tabs on the recent auction sale values and comparing them to trademe estimates, homes estimates and RV's. Whilst there are plenty of properties that simply aren't selling, from the ones that do sell, i can't see any notable price drops as yet. Some properties are going for less, but actually more are selling above estimates.

I'm waiting to buy, so obviously would love prices to come down and do genuinely think there is a chance that they might HOWEVER, at this point, there is no price crash. Market cooling definitely, buyers market on the horizon certainly, some price depreciation but price crash? No.

@ Nymad, MJA & Zac.

Just wanted to thank all three of you for presenting reasoned arguments for your relative positions on the real Vs Nominal question. I really enjoyed reading all of your comments and it was made especially so that at no point did it turn personal or descend into trolling. Well done guys (or gals) and thanks.