Average housing values in Auckland are lower than they were 12 months ago says QV, with value growth in other regions slowing

Average residential property values in Auckland were almost 1% lower in January than they were in January last year, according to the latest valuation data from Quotable Value.

It was the second month in a row that average values in Auckland have been lower than they were 12 months earlier.

The latest value declines were evident in most parts of Auckland, with average values being lower January than they were 12 months earlier in all districts except Rodney.

The biggest decline was in coastal suburbs of the North Shore where average values in January were down 3.4% compared to January 2018.

Average values in Rodney, central Auckland and Manukau Central and North West went against the trend and posted slightly higher average values than a year earlier, while average values in the Gulf Islands were unchanged.

QV Auckland property consultant James Steele said the Auckland market was quiet although first home buyers were still active.

"Buyers are benefiting from some bargains although these tend to be properties which do not appeal to the owner-occupier market and are often snapped up by those deal hunting investors left with good equity or borrowing capacity," he said.

"On the supply side, we are seeing significant infill construction which is expected to continue based on the number of building consents currently being issued."

In most other centres average values in January remained ahead of where they were a year earlier, although the rate at which values were rising had eased back in many places.

"Main centres such as Dunedin and Wellington are seeing a slight drop in the rate of quarterly value growth compared to previous months," QV said in its report for January.

"Wellington City, in particular, has typically seen higher growth of between 1.9% and 3.9% over the the previous five months, however this figure dropped to 1.0% in January."

The highest rates of average value growth over the 12 months to January tended to be in smaller towns and rural districts, with Wairoa, north of Napier, having the country's highest average annual growth rate of 32.8%  followed by Kawerau with 30.7%.

QV House Price Index - January 2019
Territorial authority Average current value 12 month change% 3 month change %
Auckland region          1,045,775 -0.9% -0.1%
Wellington region             693,448 7.9% 1.1%
Total New Zealand              684,468 2.9% 0.9%
       
Far North 428,376 1.7% -1.7%
Whangarei 561,271 10.1% 1.5%
Kaipara 557,155 9.9% 2.4%
Auckland - Rodney 960,040 1.3% 2.1%
Rodney - Hibiscus Coast 933,000 0.5% 1.5%
Rodney - North 987,135 1.9% 2.5%
Auckland - North Shore 1,202,443 -2.2% -1.1%
North Shore - Coastal 1,362,966 -3.4% -1.9%
North Shore - Onewa 968,251 -0.9% -0.9%
North Shore - North Harbour 1,191,045 -0.7% 0.7%
Auckland - Waitakere 819,303 -0.4% -1.1%
Auckland - City 1,234,033 -0.9% 0.2%
Auckland City - Central 1,082,344 0.4% 0.3%
Auckland_City - East 1,557,718 -1.2% 0.5%
Auckland City - South 1,092,400 -1.1% -0.2%
Auckland City - Islands 1,166,754 0.0% 2.5%
Auckland - Manukau 903,213 -0.1% 0.1%
Manukau - East 1,147,319 -1.2% -0.8%
Manukau - Central 705,752 0.4% 0.4%
Manukau - North West 785,644 1.2% 1.1%
Auckland - Papakura 696,144 -0.6% -0.7%
Auckland - Franklin 670,613 -0.4% 0.0%
Thames Coromandel 746,189 5.9% 0.7%
Hauraki 422,560 13.1% 4.4%
Waikato 489,613 4.1% 0.6%
Matamata Piako 467,862 8.2% 2.8%
Hamilton 577,352 5.9% 0.3%
Hamilton - North East 723,758 4.6% -0.6%
Hamilton - Central & North West 532,861 7.8% 0.8%
Hamilton - South East 531,878 7.6% 2.1%
Hamilton - South West 513,504 4.3% -0.3%
Waipa 567,350 6.9% 1.2%
Otorohanga N/A N/A N/A
South Waikato 256,730 13.7% 5.0%
Waitomo 217,545 6.5% -0.1%
Taupo 512,818 9.7% 6.4%
Western BOP 651,073 5.5% 3.3%
Tauranga 721,981 3.3% 2.0%
Rotorua 444,910 6.6% 2.6%
Whakatane 463,204 12.6% 1.6%
Kawerau 244,386 30.7% 1.8%
Opotiki N/A N/A N/A
Gisborne 323,676 9.2% 0.6%
Wairoa 206,551 32.8% 10.2%
Hastings 504,553 11.2% 10.8%
Napier 538,635 11.3% 4.3%
Central Hawke's Bay 367,693 19.6% 5.3%
New Plymouth 458,244 4.4% 1.0%
Stratford 273,478 8.9% 6.6%
South Taranaki 237,108 13.0% 4.8%
Ruapehu 208,713 19.9% 5.1%
Whanganui 273,926 15.0% -0.6%
Rangitikei 216,414 10.6% -8.8%
Manawatu 366,148 12.2% 2.8%
Palmerston North 429,361 13.2% 3.8%
Tararua 225,111 22.4% 5.8%
Horowhenua 340,619 13.2% 1.3%
Kapiti Coast 581,370 6.7% 2.7%
Porirua 585,658 6.7% 1.1%
Upper Hutt 532,632 13.2% 5.3%
Hutt 570,592 9.0% -0.1%
Wellington region 817,944 7.0% 1.0%
Wellington - Central & South 811,004 5.5% 0.1%
Wellington - East 875,306 6.6% 0.8%
Wellington - North 746,573 9.0% 1.7%
Wellington - West 934,271 6.9% 1.4%
Masterton 375,693 14.7% 4.2%
Carterton 416,235 13.7% 5.3%
South Wairarapa 510,534 11.5% 3.4%
Tasman 592,575 5.6% 1.4%
Nelson 609,985 9.2% 3.2%
Marlborough 473,074 4.4% 0.5%
Kaikoura N/A N/A N/A
Buller 197,092 5.1% 3.7%
Grey 209,808 -2.4% -3.8%
Westland 246,433 2.3% -2.7%
Hurunui 390,584 2.4% 1.3%
Waimakariri 448,355 2.4% 0.6%
Christchurch 497,370 0.6% 0.8%
Christchurch - East 376,524 1.2% 0.6%
Christchurch - Hills 675,755 1.2% 1.6%
Christchurch - Central & North 584,841 0.1% 1.1%
Christchurch - Southwest 473,014 0.3% 0.4%
Christchurch - Banks Peninsula 527,724 3.4% 3.0%
Selwyn 554,704 1.5% 0.2%
Ashburton 357,278 1.9% 0.8%
Timaru 364,776 3.0% 0.6%
MacKenzie 516,922 -3.4% 2.7%
Waimate 243,742 7.2% -0.9%
Waitaki 309,462 3.9% 2.4%
Central Otago 510,951 8.4% -0.4%
Queenstown Lakes 1,201,645 7.6% 3.0%
Dunedin 436,208 11.1% 2.9%
Dunedin - Central & North 451,519 10.1% 1.7%
Dunedin - Peninsular & Coastal 397,158 10.2% 2.5%
Dunedin - South 413,458 10.8% 2.1%
Dunedin - Taieri 456,216 13.3% 4.2%
Clutha 215,260 2.8% -3.8%
Southland 293,719 7.9% 4.1%
Gore 239,951 9.2% 4.8%
Invercargill 286,253 12.2% 2.0%
Main Urban Areas             791,692 1.7% 0.4%

QV house price index

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105 Comments

I live in a leafy green suburb of Auckland. A street of approx 100 houses, which will become 107 by the middle of the year. Do the people building know something i don't? Construction seems to have gone up a notch in the past few months, but prices are going down.

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14

Just overshoot I assume. From the time it takes to go from an idea to designs to get consent to start building the whole market could have shifted.

Yep, these people would have begun planning more than a year ago, and are now building past the peak of the market and when building costs are expensive. I hope they were not planning to build and then sell on, as they may find it'll be at a significant loss.

Saw it happen in Christchurch in response to the EQ demand, but the difference with Christchurch is it was mainly green field developments so you can't really go selling titles until the infrastructure is in place, and if the becomes saturated from a tonne of sections coming onto the market a developer can't really just dig up all the pipes and take them back to Humes for a credit.

Just because prices are dropping doesn't mean that it is a bad time to build.

If it's a developer, there could still be profit in a falling market.

If it's a home owner, there can still be value in a new build. Either because of personal preference or financial.

Prices have been ballooning for so long, it's as if people have assumed this is normal. It isn't always. All markets go through cycles, you can't make ridiculous profits year in year out. That just isn't normal or realistic.

The market is flat rather than rapidly declining so if you bought a piece of land a while ago developing it is likely to still be profitable. In fact developing property may be the best way to make money in this area right now. The article says the only bargains are the crappy houses. New houses in leafy areas still fetch high prices.

negative -3.4% Coastal NShore
So happy I took the cash & left
A number of years ago a colleague thought he’d do well spec building a couple of townhouses beachside location but in the 6 months
it took him to completion the good ol Auckland property market turned negative sentiment & he was forced to
sell them at a considerable discount.
There might be a few more under construction bargains ahead for those willing to wait a little longer
Regardless of the spruikers comments the market trend has turned & that’s now statistical fact

Auckland City - positive for the last three months.

It sounds like your colleague made less profit than he anticipated rather than a loss otherwise you would have stated that. Forced to sell them at a considerable discount.rather than a loss.

I wouldn't get too excited yet, these are averages, not medians. Wait for the REINZ HPI and I think you'll find Zach is right, its flat/very marginal declines. Very little moving at the top end.while lower priced stuff is turning over round this way. (Mt Roskill/Lynfield/Hillsborough)

Is anyone wondering - why are property prices going down on the North Shore in Auckland (and some other suburbs in Auckland) yet there is a housing shortage in Auckland?

More apartments then you can shake a stick at going up on the shore. I would wait for HPI figures for a better picture.

Because the shortage is overstated, if a shortage at all, and it's been a bubble, which will inevitably deflate, following Australia with a bit of a lag.

Nope, just waiting for census data to come out to show whats really going on.

Friends developing a section close by started the process 15 months ago and only are at the earthworks stage now. If they finish by Christmas it will be close to 2 years from start to finish. I asked them about market concerns and they said that they weren’t worried as new builds in leafy suburbs don’t have much competition and buyers are wise to the true costs in older homes.

I think a lot of people are like your friends, they really don't see the risks involved.

These people could be facing -10% or more by then, and as the market declines building cost will likely go down as well.

Those who fail to learn the lessons of history are doomed to repeat them ...

https://www.oneroof.co.nz/news/lessons-from-nzs-last-housing-market-down...

Property investors Jolene Bagby and Jacek Baranowski know what that crunch feels like. In September 2007, they bought a property in Whangaparaoa, north of Auckland, to subdivide and renovate for resale. "At the time the market was very hot but by the time we had subdivided and were ready to resell in 2008 the market had dropped and was in recession," says Bagby.

"We sold at a significant loss. At the time interest rates were 9 percent so it was not an option to rent it out as the rent would not cover the mortgage cost.

"We learned that prices can come down which we had not realised and that there are times in the cycle when it is best to do only short quick projects or not buy.

As the construction is finishing now, the people who sold the subdivided sections must have been paid peak of market prices for the land. If any of them are still living in their original houses, maybe call around and offer your congratulations?

you mean property wont go up in a straight line continually...the banks said it would...…..wow.

It is such a shame that PropertyPrices2Fall has been put on a commenting holiday for bad behaviour. How he would’ve loved to chime in today.

"Hahahaha patience pays off ;). BLSH what do you have to say now mamas boy!! Vendors must be fuming! It's now a buyers market, what a good feeling!" - PropertyPrices2Fall, Feb 13 2019

Gone but not forgotten.

BLSH, ready to change your prediction for the market this year yet?

Not a chance. My prediction was a flat market, and I’m confident it is going to stay that way.

Keen to see REINZ report in a few days.

BLSH, that’s confidence, considering the Auckland market has dropped over 5% already in some places and Sydney has been falling fast over the past year, ahead of Auckland. You might get away with the whole of NZ being flat overall, or even up, with a lag behind Auckland in other places. I’d say Tauranga will be second to turn.

Yep, also wouldn't be buying in the Tron right now.

Auckland has -1% capital gain and Hamilton has +6% capital gain. Most people disagree.

I agree, Auckland is just pushing off from the top of the slide.

Lowering 'prices' will solve all the worries of the 'do nothing get rich' commenters re CGT. No gain, not tax. Had to happen.....

Latest Corelogic estimate (10/2/19) for my home 95.21% of 2017 CV. It was just over 100% late last year. That represents a $120,000 drop in value.

Houses are being built in my street as well. 800m2 sections with 1960s houses having the old house moved off and subdivided into two with the new properties targeting $2.5 ~ $2.8 million sale prices.

It's a lot of coin for a postage stamp sized section.

The shift in North East Hamilton is one to watch. Anyway, picking up sticks soon and moving to the Naki so another housing market to research and delve into.

More data is required before anyone gets to excited. I expect more detail will support a decline. Speculators are finding a new "its all to hard" reason to exit on an almost daily basis and are starting to head for the exit. This underlines that their investment was only ever about capital gain. Any more pressute could make that a rush. I remain in the bear camp.

Will say that chch office space is in a tenant drought. There is lots of new and refurbished space that has been empty for several years and big incentives being thrown around.

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Raywhite halfmoon auction on 11 Feb out of 11 properties 2 were sold under hammer and may be assuming one or two after auction were sold by negotiation.

Is it stable market or falling market ?

Anyone who feels that market is not falling is away from reality. Infact see no reason for the market to go up so will fall - how fast and how much it will fall one has to wait and see as the only positive is low interest rate.

Already am seeing property with RV of 1.25 Million with asking of 1 million and still not selling so this is a fall.

What would be the impact if there were an additional 116,000 properties listed for sale in New Zealand? Even say, only 20% of these (which would be 23,200). Not sure how many of these are in Auckland.

http://tenancieswar.nz/2019/02/11/116000-loss-making-rental-property-own...

But, but, but...according to TM2, hardly any property investors negatively gear property.
And, anyway, houses disappear from the housing stock when investors sell them.

On a serious note, though. That is a phenomenal subsidy going to landlords.

There is a phenomenal subsidy going to tenants

where?

Really...
It seems weird that we would be subsidising tenants for poor investment decisions on the part of the landlord.

Then there are the marginally positively geared properties which are financed by a interest only mortgage. What will these property investors do when their loan goes from interest only to a P&I loan? Even if they are producing profits, after principal repayments, their cashflow could unexpectedly become cashflow negative ...

Haha, ah, sorry to burst your bubble but that is 50% of the total housing stock in NZ. Not going to happen.

At some percentage level of these 116,000 tax loss properties being listed for sale results in a potentially large imbalance between effective demand and effective supply in the property market. If you look at the numbers, that percentage level threshold may not need to be that high.

A large imbalance between effective demand and effective supply, combined with a large number of time constrained sellers could result in significant market price changes.

Half the housing stock in NZ? 116,000 is a bit over 16% of the rental housing stock, or about 6% of Total housing stock.

https://www.stuff.co.nz/business/industries/103478711/how-many-homes-are...

"We are watching closely what's going on across the Tasman in regard to the Sydney property market, and Melbourne's. We are starting to see early signs that Auckland's starting to follow that lead, it's probably a bit of a lite version at this stage."
"He added that "the Auckland property market is falling as we speak - let's not sugar coat this - people are out there saying the market is flat, the market is not flat. Auckland house prices are down 3% from their peak about 12 months ago and some wards are already down 5-6% but at this stage it is very orderly, it's very manageable."
Auckland property market falling as we speak, acting like Sydney ‘lite’ - economist (Cameron Bagrie)
https://www.tvnz.co.nz/one-news/new-zealand/auckland-property-market-fal...

This reminds me of what most economists were saying in Australia about Sydney and Melbourne at the same stage (and I've been following), and even as it dropped much further. They kept saying it's a soft landing, its orderly, manageable. And then it kept going and going and is getting out of hand now. If you're not expecting Auckland (and the rest of NZ after that) to drop 20-30%, you are not thinking straight. Great if it doesn't go down that much, but it seems really possible after the hugely inflated market we've had. It's the classic bubble and bust.

"If you're not expecting Auckland (and the rest of NZ after that) to drop 20-30%, you are not thinking straight."

Voiceofreason,

They do not see what you see, they do not view the house market in the same way that you see it. The don't use the same framework to look at the house market as you. Here is what they see - these are some reasons given in the mainstream media & other sources as to why property prices will not fall by much:

1) during the GFC, house prices in Auckland fell only 7-10%
2) over the past 50 years, house prices in Auckland have averaged 7.2% per annum (or commonly referred to as house prices doubling every 10 years). This trend can be expected to continue into the future
3) there is a shortage of housing in Auckland, so property prices won't fall by much
4) there is a growing population which means that there will be more demand for houses
5) we have inward immigration which means more demand for houses
6) interest rates are supportive of house prices
7) We mustn't forget either the vested interests in ongoing stability. No government, central bank or trading bank with mortgage exposure wants materially lower house prices. Nor does an incumbent Beehive want falling house prices going into an election campaign
8) the economy is doing well, with low unemployment
9) there has been insufficient construction of new builds to meet the housing shortage
10) there are high construction costs to building a house. House prices cannot fall below their construction cost.
11) people don't sell their houses at a loss
12) continued inflation means that house prices will continue to rise in the future
13) property market participants & commentators who have been correct in their predictions about recent property price trends have more credibility and hence their predictions of upward prices are believed by a wider audience.
14) previous warnings about a house price crash have been wrong - property prices have continued rising upward significantly since these warnings were given, so there is little reason to believe these warnings.

These reasons and the fact that:
1) Auckland property prices have continued to keep rising in recent years fueled by fear of missing out
2) Auckland property prices have not fallen by much in the past has given people the continued confidence to buy.

These beliefs supported by upward prices (and resulting positive price feedback loop) has caused property prices to rise higher and higher. This continues until, at some stage they reach an unsustainable price level.

Some sources for your reference:
1) https://www.stuff.co.nz/business/106883553/house-prices-have-fallen-but-...

2) https://www.stuff.co.nz/business/110499233/think-house-prices-are-going-...

Good to see the article today on here, KPMG acknowledging that it's an asset bubble that's likely to burst, and the market has been irrational. There have been so few national media articles acknowledging this, but quite a few international ones. Bubbles are easier to see from the outside, with fewer vested interests.
https://www.interest.co.nz/property/98084/kpmg-sees-2019-key-year-house-...

People are rational if they believe the above reasons for continued rises in house prices - they are buying houses based on those beliefs. That is how asset prices reach extreme levels. The positive price feedback loop is strong.

People don't see the extreme asset price levels at the time - it is only after prices have fallen significantly that people go - oh, it was so obvious that asset prices were extreme.

One recent such example is Bitcoin - during the rapid price rise period, recall all the price justifications given as to why it was going higher and higher, and the future price predictions. Anyone attuned to recognising asset price bubbles saw the signs of potential risk ...

It is interesting to see how people get caught up in an asset price bubble and the underlying beliefs and justifications that cause people to act in the way that they do.

Yes, it happens time and time again. I think it tends to be the next, younger generation that gets caught out the most each time, being less experienced. Millennials got caught in the Bitcoin bubble. Those who experienced the Dot Com bubble, like me (but didn't lose my shirt), saw the Bitcoin bubble for what it was. As for property, in NZ and Australia there really hasn't been a major bust since the 1890s in Australia, even though there have been plenty throughout the world, even recently (US, Ireland, Spain, and Japan before that). People just really can't believe it could happen here because even older people have never experienced one. The late 1980s was perhaps the worst. The narrative that real estate prices will never go down a lot, or just plateau and go up again is firmly entrenched in this part of the world.

There are a lot of sheep in New Zealand

What the .... ? Have you never read the ollie newland books and plenty of others that deal with property disasters or even heard of the 80s crash, it wasn't just shares that suffered. More recently the gfc, many Auckland property people were affected badly from 2008 to 2011. Lots of casualties and mortgagee sales. So yes we know what can happen, but basically property is the best investment and much better than risky share investments.

Robert Shillers books on this feedback loop are good...Irrational Exuberance, Animal Spirits. Our media have played their part in this feedback loop and it's interesting noting their change in views recently - now that it would appear we're at the top of the market. News media reporting appears to follow public sentiment/opinion instead of principles and underlying fundamentals. Next the strong housing market will be labelled over-valued and weak - yet we were told the opposite of this for the last 10 years.

Irrational Exuberance is a great book, I wish more people would read that.

Yeah I'm a big Shiller fan. It would be nice to think that all those in politics and financial governance would have read this book or at least understand this level of thinking (our politicians clearly don't, or do but don't show it) - but then you realise current leadership is based on popularity, not leadership (based on principles/value systems), and current society isn't that interested in taking responsibilty, just short-term gains that will result in long-term pains.

Out of Australia on the price feedback loop.

Now the price feedback loop has turned negative ...

"It's a snowball effect — when people see prices fall in a market, they're less inclined to buy,"

"People fear falling prices, and they move out of the way."

Banks remain cautious on lending, despite what may be their official line, he said, and the declining residential property market is putting would-be borrowers off buying.

"The net result is stagnation in terms of activity — more properties on listings, but not necessarily being sold, and deeper home price falls," he said.

"It becomes the feedback loop that drives prices significantly lower."

https://www.abc.net.au/news/2019-02-13/lending-slump/10807478

At some point the banks will review and revalue the property portfolios of the business loan and commercial loan borrowers who have used the proceeds to purchase residential real estate portfolios. In most cases, the loans have a LVR covenant of 65%. If there are borrowers who are close to this covenant level, a downward property valuation may result in a covenant breach and the bank may request additional collateral. If there is limited cash available or limited unencumbered assets to pledge as collateral, this may result in properties being sold.

Wow, during the GFC house prices in Auckland only fell 7 - 10%? That's comforting to know, maybe if house prices do start dropping again the RBNZ can just drop the OCR by another 600 basis points because it worked last time.

Over the past 50 years household incomes combined with interest rate reductions have enabled people to "afford" to pay more for a house. We've gone from 1 wage earner households to 2 (as is evident by comparing Household Income Stats to Average Wage Stats).

Sounds like all the same reasons everyone gave for Sydney prices not falling around 2016.

And the only reason NZ/AU suffered minimal falls in the GFC was only due to OCR going from 8% to 2%. We don’t have that sort of room next time

CN

You have some good points but are wrong on the following important points

2) over the past 50 years, house prices in Auckland have averaged 7.2% per annum (or commonly referred to as house prices doubling every 10 years). This trend can be expected to continue into the future

11) people don't sell their houses at a loss

Akld house prices are already close to maxed out DTI, prices cant continue to increase at 7% pa without wages increasing in line with that or wealth coming from somewhere else.

Over the past 40 years we have seen the population go from almost exclsuively single income families to almost exclusively duel income families. In the past 10 or so years we have seen massive amount of foreign investment and rich migrants pushing prices beyond the reach of average NZers.

I cant see any new money pouring in to keep pushing prices up by 7%pa can you explain where it might appear from?

Secondly a lot of people who have had their house for long periods of time can sell their houses significantly under CV and still hake a profit and push the market down at the same time

Also people do sell their houses at a loss, when they have too for reasons such as
- they lose their job or cant afford to keep on propping up the mortgage payments
- their rental is constantly turning over and its to much of a hassle
- Renters stop paying and its hard to get them out
- prices start sliding and when it all gets too negative they bail to cut their losses

Of course the biggy is when GFC2 hits which in reality could be the next 2 years, global growth is already tanking, we are an export nation, it will hurt our economy and that will flow on to each and every one of us in one way or another.

I also question the housing shortage in Auckland and wouldnt be surprised if we end up with a glut.

Migration is falling, building is accelerating

To me it will be lucky if Akld stays flat for the next 10 years but more likely is a 25% fall

Thank you for your comment.

You have raised some good counter-arguments to those points raised by the Auckland property price bulls.

Its also not just Australia, but every major property market in the world that's tanking right now. Canada, Hong Kong, London, New York, San Francisco etc. The chances of little ole NZ being the unicorn in a global property rout is about nil. Especially since we are the second most unaffordable housing market in the world behind Hong Kong. However, it took complete idiocy to get us to that point, so I don't expect sanity to return to the populace any time soon, they will need to be dragged there kicking and screaming.

Yeah we are special.... I think not. Polytechs are already feeling the sea change of overseas students going elsewhere or not coming here.

I think, the fact that there is some much hope, discussion, concerns, anxiety on one asset class investment for the average KIWI is a serious problem in itself. No investment should keep you up at night or cause so much discussion on a mere 1% move. Get diversified folks and get past the optimism of only brick and mortar investments.

Agree.

The only anxious ones around here are those that have been calling a crash/bubble burst for the last 10 years. They are hoping all those years of "calling it" are going to finally come to fruition so I doubt they will be moving on anytime soon.

Why would they be anxious.. they aren't the ones with several million dollars of mortgages around their necks.

When you cry wolf for 10 years and everyone mocks you for getting it wrong for so long you start praying for the wolf to arrive, especially if you don't own any sheep.

I own and I think this is a bubble, and have known for years. Just because you know there's a bubble doesn't mean you're not involved, you just have to position accordingly. The top of a bubble is hard to pick, but best not to buy near the top! The old buy low, sell high is true, or buy low and hold, but so few actually do that. It's easy to get caught up in all the excitement and hype for about the last third of the bubble spike. That's a good time to take some profit, but that's when most people are buying. Have a look at the massive spike in the Auckland housing chart and tell me that's not a classic bubble.

"The top of a bubble is hard to pick, but best not to buy near the top!"

And there are people doing this with lots of leverage. Some have debt levels that will be too high relative to their debt servicing ability.

It's only when the tide goes out that you see who's been swimming naked.

Haha that's quite a fitting analogy.

PatrickW,

How would you suggest an owner occupier diversify out of this asset?

For owner- occupiers, the house is the largest cash purchase that they make. Many have saved for years to put down the initial deposit. Some others have borrowed the deposit from the bank of mum and dad. They then finance the remainder of the purchase price from a bank.

Many don't view it as an investment. Many view it as a home, which gives them peace of mind for financial security. Peace of mind that the landlord can't kick them out.

These people have the majority of their funds used to purchase this asset. It would be the largest asset in most household balance sheets. Difficult for many indebted households to own this asset and to diversify out of this asset at the same time. As far as I know they can only do one at a time - they normally choose to own the house.

Do you know of some other way?

Just underlines one of the risks of stupid house prices. It it was half the price one can invest the surpless elsewhere.

Slide in house prices ?

Excellent news.

Prices have a long way to go south before there is real value in the Auckland market .

This has the characteristics of a "soft landing" , rather than a cliff fall , and that too is good news for both the Banks and home-buyers .

I agree its currently looking like a soft landing, but it wouldn't take a lot to push it past the tipping point now. Fun thing that "market sentiment", same market sentiment that drove it to stupid highs could reverse and drive it to serious lows. The upside is gone from Auckland, and not coming back anytime soon.

There are no soft landings from bubbles, and this has been a bubble.

Too little too late - it would be financial suicide to pay an auckland mortgage on an auckland salary, when other cities in Australasia have more money and lower prices

I think they missed a couple of zeros, surely Auckland has crashed by 100% since last year and there are no buyers left.

Not none, just not enough to keep pumping the bubble up. RE.co.nz listing for auckland up to 12458 13458, up 1260 since mid Jan, 6862 Houses, up from 5900 (up 41 since last night, might hit 6900 by the end of the day :) )

Edit: its 13458, not 12458, typo

It will be interesting in April to see what happens with all the houses that have been sitting on the market for the last 6 months. will Vendors stick it out for another winter or drop their price expectations

There are so many properties on Trade me and realestate.co.nz with titles like

Owner says sell!
Urgent sale!
Whats your offer!
must sell!
etc. etc. etc.

So much of the existing stock has been on the market for a long time......

The pressure is rising for some vendors

When the market is down 15-20% with no sign of turnaround, more builders going out of business, developers in trouble, some will be saying it's no big deal, everything's fine, it'll plateau from here, and it won't have wider economic consequences, it's orderly, manageable.
"It's just a scratch" But you're arm's off!" - Monty Python

Bigger brains than yours have predicted worse, and still been very, very wong.

A couple of weeks ago Steve Koerber (Ray White Remuera agent who seems to be involved in 89% of all property sales in Remuera)* sent out a newsletter with a speil on how he is well placed to sell in a tough market.

What was interesting I thought, was he hung some actually concrete figures in there. From memory he said, there were 115 properties for sale in Remuera on New Years Day. If, by March, there were less than 130, it was a sellers market. If there were 150 - 160 it was a buyers market.

For perspective I kind of keep an eye on Remuera and I don’t think I’ve seen it go above 160 on TM.

Yesterday morning Remuera broke 150 on TradeMe and by the afternoon it was 156.
There are a lot of empty houses (no Fridge, no clothes in wardrobe etc) and there are a lot of top end properties and properties marketed as being ripe for development. Properties that would be snapped up in normal circumstances.

I think RW has a big auction March 6th - The results will be interesting.

There has also been a few private sales listed which I haven’t seen for an while.

*Note for Yvil - this claim is hyperbole. A literary device whereby exaggeration is used to highlight an underlying point. Steve Koerber is not actually involved in 89% of all sales in Remuera.

Indeed. With the "agent to current sales ratio" he will not be collecting/involved in that percentage. At best he may have data on 89% of sales.

"Where auckland goes the regions will follow" eh retired poppy....I dont think so, at least not the regions I've been looking at

Keep looking, coming soon to a region near you.

How "soon" is that?

Mr Alexander has been quoted multiple times that Auckland leads the regions up and down from an investor perspective. He also stated that Auckland high equity "it can only ever go up types" always overshoot in the regions because they make one major critical mistake - they think the regions enjoy the same economic dynamics as the Auckland market. They do not. Time will tell.

Short answer Mr Average, TA and RP have been wrong...it has already been two years ish since auckland stopped heading upwards. Lots of gains in the regions since. You have no idea when your night follows day theory will come to pass, so a broken clock is more right than you are.

Another indicator of the health of the real estate market is RE agents' "Recent Sales" .

A peculiar trend emerging where "Price Withheld" in a selective way. In some instances, price is disclosed & I presume it is where price achieved was good.Something to crow about.

But, in other instances ( & this constitutes the MAJORITY), the price is not disclosed. I can only presume therefore in the majority of cases, the actual sale price was dismal.Far below what the agents may have appraised when they made the sales pitch to hook a listing from owners guillible enough to swallow the bait.

Heh! Heh! Not good for the CV .Not good even to stand on a dungheap & crow!!!

Just check up by clicking on an agent's profile & see for yourself their selective dementia on actual house prices achieved

Correct as many agents are not coming out with sell price even when asked. Forgetting that it is a matter of time before the sell price will be on QV and other website.

They don't want to scare the horses - ie. other vendors coming to market who will be promised top dollar for their house in order for the agent to secure the contract. Its only after the house has been on the market for 3 months will the agent manage the vendor expectations down by disclosing comparative sales figures (funnily enough, about the same time as QV will make the sale price public lol)

Don’t believe that “The Man” said hardly any investors negatively gear property?
We personally do not own a negatively geared property!!!!
Interesting though that from a survey of investors in NZ 65% said that they were positively geared!
Was not Every investor In NZ obviously just the ones that completed the survey!

The Auckland Price Problem.

In a falling market Auckland is in worse condition than anywhere in Australia or rest of NZ. Auckland is likely to see prices fall further than everywhere else. Auckland has spent a decade not building very much, but with soaring land prices. This made Auckland the darling of the boom with prices growing faster than almost anywhere during a rising market. In a falling market the reverse applies and Auckland will fall faster.

And there is a major further complicating risk factor for Auckland. The restrictions on land which encouraged the rise were political, as Len Brown had cut land supply. But then Phil Goff decided to open up a flood of land supply (exurban sprawl development), which is now coming on tap. We are at the point of time where less people want to buy and there is a new regional land over supply available. Sprawled out cities have less expensive land, because they encompass a lot of land. Auckland is currently building a huge sprawl and yet has very high land prices. This dichotomy may not last and it is likely that in the decades ahead Auckland land prices will fall relative to other cities.

All in all, it is looking like interesting times for Auckland.

Do you think it'll be like this graph except replace Dublin with Auckland and Ireland with New Zealand? Maybe a flatter peak to it.

https://upload.wikimedia.org/wikipedia/commons/3/33/Ireland_house_prices...

Yeah greater falls in the major urban centre - Auckland will fall fastest if the market declines. It seems Dublin in Ireland had less upward price differentiation on the upswing compared to Auckland in New Zealand, so the relative decline should be greater in Auckland.

Also with the big land supply expansion taking place in Auckland prior to the market peak, an offset of the price peaks occurs in NZ that did not happen in Ireland.

All of which means - maximum capital gain is to sell Auckland, retire some debt and buy anywhere.

The analogy with Dublin / Ireland is a very tenuous one - until we have another GFC AND a massive banking crises in NZ locally.
Neither is impossible - but is not here now or looks likely at this time.

Correct, we are still in a rising market and long may it continue. At the moment there are decent gains in NZ house prices. Auckland council's aggressive opening of large swathes of greenfield land has caused cost falls, but since only Auckland has been so committed to increasing land supply it is an isolated case.

However NSW, Qld, Vic were all in rising markets until recently and look at them now - no GFC or massive banking crisis occurred and they all declined. If that happens here Auckland will perform very badly, hence the analogy to Dublin/Ireland.

I do agree that NSW, Qld, Vic markets are pretty good analogies for Auckland ; none of them show the type of price declines seen in Dublin - not yet anyway ; I do not think that they will ( short of another GFC or alike).

They are good analogies for NZ, they aren't great for Auckland.

Auckland went through a price boom whilst it had highly restricted land supply (2010-2016) and high demand. Then in 2016 Auckland rezoned a for an over supply of land (exurban sprawl) and from late 2017 onward the Auckland market flat lined. But this flat-lining happened whilst there is still high demand, as shown by the rest of NZ growing. If there that changes, Auckland is going to be facing low demand with large over supply of land.

Auckland's next big problem - disappearing money.
If the owners of this property were able to use the CV to leverage their equity, they would have had up to 1.5mil of credit extended to them.
Now advertising the property for less than the sale price in 2016 and almost $1mil under CV.
Worst case scenario - The equity underpinning $2.5mil of property investments disappears.

https://www.trademe.co.nz/property/residential-property-for-sale/auction...

https://www.qv.co.nz/property/11a-brookfield-street-st-heliers-auckland-...

Listed since November ... Is that a recent price drop?

Their purchase price in September 2016 was $1,778,000 (which was 8% below the CV at the time).

Their current asking price is $1,749,000, a drop of $29,000 from their purchase price. So even if they manage to sell at this price there is probably another 3-3.5% in selling costs (marketing, and real estate commission) of about. That is potentially another $59,500

So based only on the net proceeds after selling costs, they are down $88,466 - about 5% of their purchase price.

Now if they have used leverage, this has resulted in a negative return on their initial deposit used to purchase the property.

1) For an owner occupier, assuming a deposit of 20%, and interest only loan, then the owners have lost nearly 25% of their initial equity deposit
2) For a non owner occupier, assuming a deposit of 40% (as the LVR maximum was raised to 60% in September 2016), then the owners have lost 12.5% of their initial equity deposit.
3) For a non owner occupier who borrowed the initial 40% deposit as part of releasing equity on another property, they then have the problem of having borrowed $711,000 against the value of another asset to use as a deposit on this property purchase and getting $622,000 to repay that loan, leaving a shortfall of $88,466.

Such is the power of leverage in both directions of prices. It magnifies the gains, and magnifies the losses

This doesn't include a further $20,000 negative cashflow per year for a non owner occupier who financed at a LVR of 60% as the interest cost more than offset the net rentals to a long term renter (i.e. not rented out on short term leases on Airbnb).

I don't think it is a great example. The price is a reflection of the building materials and property type.

I have two observations to make:
1. In the '89-'91 property decline, properties in Auckland fell in value up to 30% into the bottom of the market in October 1991. The place where I worked had a regression line formula to calculate the new CV's, basically the higher they were the harder they fell. Lower quartile properties hardly fell at all only a few percent.
2. CN made some very good comments including asking where the income would come from to sustain prices increasing at 7.2% pa into the future as they have done for decades off the back of double household incomes and lowered interest rates. The only way this can happen now is another dose of QE and global interest rates coming down again to give people more headroom (a bit more rope?). Note a 2 year fixed rate in the UK is only 1.75% pa so yes it is possible to envisage lower mortgage rates here if required.