It's the more expensive homes that are leading Auckland's property market down, Greg Ninness discovers

It's the more expensive homes that are leading Auckland's property market down, Greg Ninness discovers
Photos: Sandra Wagner https://500px.com/sambones14012

By Greg Ninness

The Auckland housing market appears to be slowly easing from the top.

The Auckland market is softening and it appears to be the more expensive homes and suburbs in the upper end of the market that are leading the decline, in both price and volume.

The decline appears to have started late last year and continued into this year.

Sales figures from Auckland’s largest real estate agency Barfoot & Thompson, show that the agency sold 1631 residential properties over the three month period from December last year to February this year, down 15.6% compared to the same three month period a year earlier.

But the decline was much greater at the top end of the market, with the agency selling just 51 homes for more than $2 million from December last year to February this year, a 40.7% reduction in the number of $2 million-plus homes it sold in the same period 12 months earlier.

Over the same periods, sales over $1 million were down 23.7%, sales over $750,000 were down 15.9% and sales over $500,000 were down 12.9%.

Those figures all suggest that the decline in sales was greatest at the top end of the market.

The latest figures from Quotable Value paint a similar picture.

They show that the average value of residential properties in Auckland over the three month period to the end of February this year was $1,044,576, which was down 0.9% compared to the same three month period a year earlier.

But the decline in average values was greatest in the Gulf Islands, which is dominated by the millionaire’s playground of Waiheke, where average values were down 3.9%, and on the North Shore, where average values were down 2.0%.

And within the North Shore, the biggest decline was in the exclusive coastal suburbs where average values were down 3.1% on a year earlier, while in the more affordable Onewa district they were down just 0.5%.

Around the rest of Auckland, value falls were relatively modest, but in Franklin on the city’s southern rump, which has the lowest average property value in Auckland at $673,782, the average was unchanged from a year earlier.

Those figures also suggest property values are declining more at the top end of the market than they are at the bottom.

That trend could intensify over the next few months.

A decline in property prices and values is usually preceded by a drop in sales volumes, and because the QV figures are a lagging indicator of market activity, the decline in sales volumes suggested by the Barfoot figures are probably only just starting to show up in QV’s numbers, which could decline further over the next few months.

But why would the top end of the market be declining while the bottom end remains relatively stable?

The answer is probably due to human nature.

Many of the people buying or selling at the top of the market will be discretionary buyers/sellers.

They are more likely to already have a comfortable, if not luxurious home, but may have been planning to upgrade to the home of their dreams.

If they see uncertainty in the market, or think they won’t get as much for their existing home as they thought they would, many will just decide to put their plans on hold for a while and see what happens.

It’s a different story at the lower end of the market where first home buyers are much more active.

If they have been saving for a home for a while and find one that suits them and the bank is prepared to provide a mortgage, they are much more likely to buy it regardless of the market outlook.

The emotional pressure on them to buy is usually just too strong to resist.

This constant demand side pressure from first home buyers coupled with a significant undersupply of affordable homes in Auckland means prices for lower value homes are likely to fall more slowly than prices for homes at the top of the market.

So it could be an interesting time for the Auckland property market this autumn/winter, particularly for people thinking of buying or selling an upmarket property.

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190 Comments

12
up

Another obvious reason the higher end of the market is falling more is affordability.
Although the lower end of the market is far from affordable in Auckland, there is obviously a much greater pool of owner occupiers or investors who can afford at those levels.
The FBB will also be having an effect at the high end.

20
up

I see this as being a direct reflection of the FBB. Once you have to rely on local people with local wages, the prices just don't stack up. The affordability crises is looking to resolve itself with some top down adjustment.

10
up

I wonder when the prices at the bottom end start dropping too.. You can only compress the range so far before people realise that spending 10% more gets them a 40% better property, and then prices at the bottom end have to fall to match the relative quality of the property.

Or will the top-end stop falling and level out before the bottom end starts falling?

Indeed. As an additional answer for one line in the article:

But why would the top end of the market be declining while the bottom end remains relatively stable?

There are simply now fewer buyers in the market with the cash or income to afford those houses at those prices.

As far as i can tell the lower end is falling in several locations. The upper end, while probably in decline, may have distortion from wealthier people withdrawing their properties. A lot of a price decline, or rise, can be from a change in the mix of sales.

14
up

Auckland = Sydney = Melbourne = Vancouver = housing slump..

Easiest and simplest equation

All of them will be sorely missing the foreign marginal buyer – who simply paid mad hatter prices to secure a property for goodness knows what motive.

17
up

To get their hot money out of their communist homeland?

What!?!

China's economy is weakening and some may need to sell up to get funds home.
I also saw something on tv about how the Chinese government is getting more serious about tracking down money laundering into Aus and NZ

Ridiculous. The CCP is the best party in the world. Also, 5G without Huawei is like Rugby without New Zealand, China Construction Bank without Chair Jenny Shipley, or China without ethnic / religious re-education camps.

... recall the mid-late 1980's ... when Japanese buyers paid Mad Hatter prices for prime tower blocks in New York & Chicago , and golf courses on the Gold Coast ... they got skun alive when the property prices collapsed ...

Same old , same old ... history doesn't repeat , but it does rhyme ... this time around its Chinese buyers ... the latest wunderkind economy ... yet to crash ...

... the bottle of milk goes sour from the top down ... first the creamy head starts to go whiffy , a taste of things to come ... then the rot settles down into the centre , and all the way to the bottom ...

Where high-end Orc Land property goes , the rest of Orc Land follows , and the remainder of the country trails down in its wake ...

... always has , and always will , bubbles get deflated ... this time is not different ...

16
up

"The emotional pressure on them to buy is usually just too strong to resist."

Yes it is. I am 30 with a good job and the pressure people put on me to buy is insane.

I'm in the same position, and agree wholeheartedly

The emotional pressure to sell is now equally high..

If the emotional pressure to sell is high, then just wait for the financial pressure on highly leveraged property investor owners of Auckland residential property to be high. That pressure is building every day for some highly leveraged property investors and many are unaware of it - they will potentially get caught out ...

There could be quite a few whose goal all along was to sit on interest only lending until they’re bumped on to P&I which is when they sell up for the “guaranteed” capital gains. Problem with that is selling into a soft market.

A large number of property investors are purchasing Auckland residential real estate at high valuations, and implementing the same capital gain oriented strategy at the same time, using the same highly leveraged interest only financing strategy and equity release / deposit recycling strategy. A large number may find that they are going onto P&I at the same time, leading to a number of highly leveraged property investors needing to sell and deleverage at the same time.

Despite the housing shortage as claimed by economists and property market commentators, this can lead to an imbalance between effective supply and effective demand and a buyers market. When properties are listed for sale for a long period of time with no buyer interest at the vendor's price indication, financially stressed vendors may look to lower their price expectations.

Property investors dont plan to sell when they roll on to P&I lol, if they did they would have to pay tax.

You're right.

Some property investors didn't plan on getting into financial stress either. If they come under financial stress as a result of going from interest only to P&I, tax becomes secondary in importance. If painful enough, the primary importance is to stop the cashflow bleed, and that may mean selling ...

Some buyers between 2014 - 2016, of property located in Auckland, have assumed that their interest only loan will roll over into another interest only loan. The bank lending environment in 2019 is very different to that when the mortgage was taken out. Even though some of these buyers may have made capital gains, the fact that a property was cashflow positive and now has turned cashflow negative due to the higher debt payments may cause some highly leveraged property investors to sell.

The property investors likely to get caught out are those who are part time property investors with one or two properties. Since they are part time property investors and have other full time occupations, they are likely to be unaware of the changes in the lending environment and its potential impact, until they get a notice from their bank informing them that their repayments will increase significantly as the interest only period has expired.

Those interest only periods for those purchasers in 2014-2016 are expiring between 2019 and 2021.

If you're interested, here are some recent articles about the change in lending environment:
1) https://www.squirrel.co.nz/blogs/housing-market/how-responsible-lending-...
2) https://www.gra.co.nz/articles-by-salesh-chand/finance-challenges-for-pr...

Im pretty clued up on the lending environment but i do appreciate it when people link articles.
The vast majority of investors will not have any trouble rolling on to P&I and most that want to will get IO for another 3 or 5 years if they want it.
Servicing is calculated on the balance of the term so if you apply for a 30 year term and 5 years of IO then they check you can repay at much higher rates over a 25 year term. 2014/15 buyers will be close to neutral even after adjusting for principal. Those who are meaningfully negative are likely only bleeding a few hundred a week even if ring fenced. The investors with a home and two rentals are among the highest earning few percent of the country and a few hundred a week aint gonna blow them up.
It hurts to hear for some people but a vast majority of property investors are high income earners and there is a lot of 'slush' in high income budgets.

Laminar,

Thank you for sharing your experiences.

Do you see lending on the whole of Auckland or specific suburbs in Auckland? If so, what suburbs?

If you're seeing lending on select suburbs in Auckland (such as the high rental yielding suburbs), then there could be other suburbs in Auckland that the financing stress arise (such as the low rental yielding suburbs).

Laminar,

ICYMI,

https://www.stuff.co.nz/business/111146436/property-investors-told-worri...

He said many investors, particularly in Auckland, did not think about what the property would generate in rent when they bought.

Some were left with only enough weekly rent to cover the interest on the bank loan, "plus hopefully a little left over for rates and insurance".

"Often there's nothing left over for any maintenance. If interest rates went up 1 per cent or 2 per cent from the low where they are at now, these investors would have negative cash-flow.

"The problem with this strategy is that because they choose to use interest-only mortgages, the debt against the property will always remain the same. Their only hope is that prices increase so that at least on paper they appear to be better off. Their focus is often on looking for small parts of the city they think will go up in value more than others. "

"Already I'm hearing of investors wanting to sell now, especially in the likes of Auckland and Queenstown. They are afraid that prices may drop and are also afraid of the potential capital gains tax.

I appreciate linked sources so thank you. The source however is a prima facie lie. 100% of investors think abotu the rent. The quote is from a investor/salesman in an article in the herald.
Never the less if you think about it a CGT cant harm anyone in the sense that it only taxes gains.
All investors are 'afraid' prices will drop in the sense that even investors that dont care if they do, certainly see that its set up for a drop. There is some mitigants to that but when you have stretched affordability you have the risk of a correction in price.
Never the less, while some will sell, a great majority will not. The great majority are high income and it doesnt really matter if a loan rolls off IO or not. If what you are saying is true we would see a meaningful change in the home ownership ratio. Home ownership basically heads in one direction for a reason, investors are high income and the rich get richer. Its an ugly truth, investors are the least likely to need your pity.

If you don't need to just sit back and stash that cash, you aren't missing out on leverageed capital gains at the moment, so if you personally don't have a pressing need to buy and have affordable rent where you are, you are better off putting money in the bank for a better deposit/better property further on down the road.

Quick calcs suggest you are better off staying renting @ $500/week than trying to service a $675k mortgage at 4.2%. The interest on the mortgage is more than your rent.
If you get the mortgage at 3.9% then its pretty much breakeven on how much rent you are paying to the bank for use of their money vs rent for use of somebodies house.

* All dependant of course on the fact you do put the extra money into saving rather than just spending it.

That's a bit shortsighted though, yes mathematically it's correct but the large difference is that after 25 years you end up owning your own home if you buy and if you rent, after 25 years you own… nothing at all

18
up

Clearly they are going to buy, just not when the market is tanking. Your comment has little relevance.

Thank you missed the point, think you missed the point

Evidence suggests that it is you that missed the point.

A guy who clearly thinks the past is a certain predictor of the future.

It certainly appears you missed the play on words

No, i just thought it was lame.

14
up

Did you actually bother to read what I wrote?

Put the difference aside, buy a house later when prices are saner, or if prices stay flat.. when you have a bigger deposit so you won't actually be paying more in "money rent" than "house rent"
Paying rent to bank for use of their money is just as much dead money as paying rent to a landlord.. and at the moment paying a landlord is in many cases cheaper, and it avoids a lot of other costs that become your problem when you own. (rates, insurance, maintenance etc)

11
up

Sensible.
Just load money into Kiwisaver. Can't be touched till the time is right to buy.
FHBs should totally ignore the likes of Yvil

That's by definition why they are FHB, because they don't buy

Well, since you are one of the most pedantic pratts on here at times, I'll just point out how wrong you are.
By definition first home BUYERs are people that buy, its sorta intrinsic in the name. :)

"buy a house later when prices are saner"
Isnt that now, in auckland at least? After prices have been falling how difficult is it for a patient fhb to take that decisive action and not think "what if?"

Nah, haven't you heard, later is always better, lol. There should a word for that, oh wait (pun intended) I think there is, it's called procrastination

10
up

Sorry you are talking garbage.
There is no right or wrong. The way you talk it’s as if buying now is the only good option, and you are screwed if you don’t.
If you have a good deposit it possibly is. If you don’t it isn’t. And the key point with the latter is that with prices unlikely to rise much if at all in the next few years, it would be much better to save hard and get a much chunkier deposit together.

Well, there is a huge difference between having 5% deposit and buying in a falling market, where you could be in negative equity in mere months, and waiting till after the fall when that same deposit is now a 20% or higher deposit, which means you have a resonable buffer before you are in negative equity.

But I wouldn't expect a clown like you to be able to make a sane evaluation of risk like that.

No, so far your many predictions have all been wrong. Your assumptions are hopeful at best otherwise naive. Your property decisions costly. Feeling under pressure?

My many predictions? do tell of these many predictions, because the only prediction apart from fun guesses at what next weeks auction clearance rate might be that I recall making is that Auckland is flat to slightly down for the next several years at least.

"you aren't missing out on leverageed capital gains at the moment so if you personally don't have a pressing need to buy and have affordable rent where you are"

The important point is that you are missing out on the leveraged capital losses at the moment.

Be a trougher, not a peaker. House price valuations are essential. Would you prefer to be a trougher or peaker? An illustration of how the price you pay for a house can result in two significantly different financial outcomes. It is valuation that is essential. - https://www.irvinehousingblog.com/2008/08/11/timing-does-matter

Indeed, though Auckland is still pretty flat, the falls have been minor so far, particularly at the bottom end of the market where FHB are likely to be shopping. We will have to see if they stay in a gentle decline or things get worse.

Currently the median sales price for REINZ in Auckland has fallen 11.0% from its peak.

An owner occupier household who purchased at the peak median sales price who financed it with a 80% LVR mortgage and 20% initial deposit has seen their initial equity value fall by 55% ..

An owner occupier household who purchased at the peak median sales price who financed it with a 90% LVR mortgage and 10% initial deposit has seen their initial equity value fall by over 100% - they are now in negative equity.

Now how long did those people take to save up their initial equity deposit? Such rapid erosion of their initial equity in 24 months since the peak median sales price in March 2017.

Given the high levels of leverage used in house financing by many households, you don't need much of a fall in house prices to see a significant fall in equity. It's okay if these home owners can maintain the mortgage payments throughout the property cycle, but if they need to sell, then that is a crystallisation of that property price change.

Some "change in circumstances" include relationship breakup, a death of a income earner in the household, loss of job / or cut in wages of one income earner in the household, etc

I'm 20 years older than you and rent, in some circles I'm considered a housing leper. In truth I'm just misunderstood.

I've had three houses. First was the best. Other two were opposites in terms of cost and quality. Have been renting since early 2018. Appart from being occasionally being treated like a 2nd class citizen I haven't been happier in a long time.

my observations, of an "exclusive coastal suburb" on the shore, is that vendors of higher end properties often don't sell at all when then can't get the prices that were on offer 2 years ago. Places that might have been 2.2 are getting offers of 1.8, and the vendors just take the house off the market. So that would be consistent both with a big decline in sales volumes, and relatively modest drop in the sales prices.

It doesn't change the fact their house is now worth less.. Valuers, QV/Corelogic/Homes etc all use the prices of places that do sell to set valuations and estimates. They don't realise a loss, but its still there, just unrealised.. until something changes and they need to move or refinance.

when those sales actually happen, yes.

There are always sales that have to happen.. Births, deaths and marriages (ending) being a fairly constant thing.

yes, but number? In Auckland in 2003-04 sold 43,000. Last year it was 29,500.
This year it is heading for 22,000 looking at drop in BT figures.
Demographics don't favour purchasing either. Central Auckland dominated by renting and buying apartments.
Younger demographic there means fewer sales per 100,000 pop
In Rodney older pop move less, so fewer sales and pop of Auckland over 65 is growing 5 times faster than pop under 16.

The lowest number of transactions since 2001 in any 12 month period for Auckland was 16,190. That was for the 12 month period ending in Feb 2009.

Like my colleague, they are expecting by doing this they'll get that higher price again soon once the market has strengthened. That the market could weaken further is not a possibility.

Prices which are usually flat are really just sticky..unless they have to sell they are taken off the market.

I don't think they should "put their plans on hold for a while and see what happens". I think we all know what happens when the first domino falls.

18
up

Many of the drivers that took the market up have now either gone or have been diluted.

They may not be back any time soon – so hopefully people get nice and comfortable while waiting in the meantime.

Who knows - prices may slowly revert to once again being based on more local / NZ influences.

"But why would the top end of the market be declining while the bottom end remains relatively stable?"

I think it's more of a result of the ban on foreigners

Yvil, still blaming the current Government for something that was coming anyway - "yawn" What about the Chinese Government crackdown on capital outflows?

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122...

As entirely expected by those with their eyes open, the westerly winds of change are about to sink our housing market and they are growing stronger by the day ;-)

I don’t like to gloat but…

ahahahahahahah! I told y’all, back in 2016! I told you so.. and it’s got nothing to do with our toothless foreign buyer ban. The brakes on upper quartile Auckland were slammed on hard by the CCP at the end of 2016. What was that John Key said before he bailed out? 3% ... yeah right

'brakes'

Thanks Zac

"I don’t like to gloat but…ahahahahahahah! I told y’all"

Gloating, adj; dwelling on another's misfortune with smugness or malignant pleasure

11
up

Ahem. You seem to gloat a lot about FHBs missing out.

10
up

Sheesh Yvil it was a joooooke! yes a juxtaposition of opposites. Seriously though, I do feel sorry for the people who bought into the top of the market. However, I’m genX and I see the tremendous wealth transfer engineered by the central banks, capital flows from China, and exacerbated by John Key’s self serving neoliberal reign. Upper quartile is where all the doctors lawyers engineers and scientists like me live, or lived. I’ve said this before but if you triple the house price, then even with optimistic 3% wage inflation then it takes ln(3)/ln(1.03)=37.2 years for wages to catch up. The house where I lived actually quadrupled in price from 2006 to 2016. Of course bank lending is dependent on age and accumulated capital so what it all means is a permanent wealth transfer away from the aforementioned cohort of society. Perhaps you don’t care about doctors lawyers engineers and scientists, but when they stop having kids and move away then it’s a probably a bad thing for the country. The only thing that would reverse the damage to the future prospects of that cohort is price declines in the upper quartile.

Lack of chinese cash with fbb and money laundering changes. Of course nz commercial reality will apply. Top end could have a 30% plus reduction. Paying 3m instead of 5m...it still rules out most NZ taxpayer buyers.

Double post

I think that recent sale of a block of seven flats in Parnell which sold for $4.025 million illustrates why the bottom end is more stable. The yield was 3.93% (essentially seven 575k properties). When a yield is slightly more than a bank term deposit then the 'fundamental' value of a property is set which is why we wont see the bottom quarter of properties fall through the floor. Rental yields act as a backstop on these properties while it is not the same for high end properties.

Exactly right. When the rental yield or rent vs buy figures add up, it creates a floor under any price drops. The only reason this wouldn't happen for some reason, is if there is an extreme banking crisis (and banks won't lend to investors or FHB in that price bracket) or if there is some big dramatic crash and people emotionally believe that prices will keep dropping. But even then, the floor will be close.

And lets not forget the rental returns on the lower priced properties are continually propped up by the taxpayer funded accommodation supplement

Hmmm, yes and no. Not quite that simple.
One of the reasons that the yield on the Parnell block of flats would have been 'acceptable' is that it is a fairly large piece of very central land, with lots of redevelopment potential.
If it was ONE of those flats (with effectively no land) for sale offering that return, it would be much less desirable as an investment.

I don't get out of bed for 4%.

We're talking about big money and big loans and fairly secure investments that banks will lend money on that you manage yourself. I'm not saying it is a great investment that you necessarily need to get out of bed for, I'm saying this sets the base level return. You can probably bank on another 2% on top for inflation of property prices and other factors. This is why the bottom is not going to fall out of this segment of the property market, at least while interest rates remain low.

I don’t agree.
With costs for landlords rising, the bright line test at 5 years, and a good chance of a cgt, and capital gains likely to be muted moving forward, the return needs to be significantly better than 4%. I’d say at least 5%.
As I say above the Parnell example is an outlier. There’s a good chance it has been bought to be redeveloped.

This weeks reports were of how the regions are performing strongly for increases in capital value. As you know 2/3 of new zealanders do not live in auckland which means that when you say capital gains are muted, 2/3rds of New Zealand property owning public respond that you dont know what you are talking about.

Look at the title of the article.. cleary we are talking about the Auckland market. And the first post in this sub-thread is about Parnell.. which also happens to be in Auckland.

Huh, Since when is chch in auckland? Or is that different so that you can justify to yourself to respond to The Man. Or cant face the fact that at least 2/3rds of nz property is NOT in the doldrums

The rest of the country follows Auckland. The bubble found its ceiling and then spread outwards. And it will deflate in the same pattern. It's pretty clear that Houseworks has recently invested outside of Auckland and is emotionally attached to a certain outcome.

You are dead right and when things start to get tight everything will contract back to the main centres. It's always been that way, though it's been a wee bit different this time, in that Auckland (the main area affected by foreign money to the extent it has never been before) seems to be being the worst affected for a protracted length of time. Usually the regions react sharply and come to a faster and longer lasting grinding halt than main centres, and then life becomes difficult for those who relocated finding they can't cash out of the regions and be able to afford to return.

You live in Hamilton PocketAces. With everything you know and see in the greater waikato and Hamilton from the expressway to the growth of the city, can you really say all that about a "longer lasting grinding halt"? Do you know from experience of being stuck and cant return to Auckland :) If you say yes then I know your blinkered and negative bent.

Can you not follow threading? It's not that hard.

Dim. The article is about Auckland.

Hahahha I love that comment!

Hardly a surprise, how many Kiwis have more than a Million to spend on a home ? The multi million dollar homes are going to take a big hit, there are now no longer rich Chinese trying to launder their money. Lower end property will not fall by anywhere near the same percentages, average Kiwis still need a place to live.

On that note, wonder how many of China's top ten most wanted fugitives now has sequestered in our suburbs. The count was 3 back in 2017: https://www.tvnz.co.nz/one-news/new-zealand/three-chinas-top-10-most-wan...

I did see Citizen Yan out and about in a central Auckland park a while back (obviously his home detention in his luxury Metropolis apartment had finished), and he didn't even make the top ten.

Makes you wonder why NZ's pas governments' dragged their heels so much on anti-money laundering legislation. At quite the cost to young Kiwis wanting to get into home ownership.

The old saying, laws are made to be broken still rings true. Is it really that hard to get around the FBB?

I guess it really depends on what's at stake for those who get caught assisting buyers to get around the FBB? In particular the requirements for AML compliance of conveyancers, lawyers and real estate agents.

It's like saying "is it really that hard to get around the Crimes Act?" when you want to commit fraud, it's not going to stop everyone. But imagine how prevalent fraud would be if it weren't illegal.

https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cf...
https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cf...
https://www.justice.govt.nz/justice-sector-policy/key-initiatives/aml-cf...

Judging by his comments about valuations and valuers recently, plus his lapses in filing bonds, he'd give it a go for a few bucks profit.

For example a foreign buyer could buy through a private seller and without a mortgage. Or through a conduit and then later transfer to self. These are simply quick fire possibilities

Well done, you've described exactly how someone will break the law. A bit like how the drinking age doesn't prevent minors from drinking alcohol, should we repeal that law?

It is the AML rules that now stop that scenario.

Banks ask question now.

Just bought a rental this week that will be positively geared after all expenses and 100% financed!
Why would people still want to be renting when they can buy for less than renting?
4 massive bedrooms and big living and garaging in desireable location!
Young couple could rent out the extra bedrooms and it wouldn’t cost them anything.
Opportunities for everyone if only they took them!
People that whinge and moan about housing being too expensive need to open up their eyes, as this is not the case whatsoever!!!!!

because chch.. and FHB cant get 100% finance

You do what you have to get the deposit.
It is easy enough with KiwiSaver etc, and also utilise your parents equity in their house!
It is amazing how many parents are unaware that they can easily assist their kids into a home, without any problems whatsoever!
If you want to be renting for life then that is easily achievable, just do nothing!
What I can guarantee is that if you do not own a home when you retire, your retirement will not be that exciting!

True, I bought my first house with 100% finance, 80% from the bank + 20% from the vendor in exchange of paying full asking price

Always the TM2s answer.. MOAR LEVERAGE/RISK. And always other peoples money. He might be okay in Chch, but that policy in Auckland might be about to bite some "investors" hard.

Yeah, I wonder how Ron Hoy Fongs disciples are feeling these days?

tl;dr use nepotism to get ahead.

Because there are better returns elsewhere.

Not ones that you can live in and not ones that banks will lend a young couple hundreds of thousands to gamble on.

Don't you live in a house not an investment? Did I miss that day at school where they became synonymous?

You were replying to THE MAN2 where he writes about how young couples should buy a house rather than rent one.

I did 2 autions in Tauranga this week with mixed results. The Thursday one had no auction bids on the first 11 lots (there were 14 in total). I didn't stay until the end. We're starting to level off now & will see declines at the top end this year (is my guess). We were 2 years behind Auckland's UP & it's 2 years since Auckland's DOWN started. Almost bang on!

All of these bubbles are bursting at the top . London, Vancouver, Sydney and Melbourne are all seeing the greatest price declines in the most expensive/luxury markets.

This is perfectly predictable. Globally banks are tightening criteria, The marginal buyer pressure has disappeared, the financial news is full of worrying market signals, the froth has gone, the exuberance is dying, which means all perceived "luxury" spending will decline most and the top end of the market will decline more rapidly.

Investors and FHB demand will put a floor under the bottom of the market and there is likely some pent up FHB demand but the numbers of people willing and able to buy into the top end market will be much smaller in real terms anyway. In addition, demographics are going to go against the top end.

The oldest baby boomers are now 72. I don't mean to sound morbid but there will be more people dying and downsizing. There are plenty of boomers who will have relied on down-sizing plans for their retirement. And these guys aren't living in apartments and townhouses.

Good points. There will be a floor on the bottom end but let's not forget the middle. That needs to drop.
In my view, the top end will drop the most (maybe 30%), followed by the mid end (maybe 10%), followed by the low end (maybe 5%).
You make a good point on demographics. I am not convinced that will have a big downside in prices, but I am pretty sure it will be a factor limitting future gains.

What about factoring in some good old inflation into the equation .... the pressure is building and business costs are rising...I think it could happen sooner than later and asset prices will rise with inflation.

Don’t see much inflation coming at all

Inflation has been running very low for 10 years. If house prices had only been going up with or slightly above inflation (along with wages) we wouldn't even be discussing the housing market or bubbles at all.

I think Fritz's guess is the most likely correction if one occurs.

Why? asset prices rose far faster than inflation in the last decade, seems to me that tether between the two is very loose. So why can't inflation head up and house prices languish behind for a decade or so?

Languish is different to fall, even for you right? And if inflation hits ten percent house prices will definitely rise but not necessarily as fast which then balances your point that house prices were previously above the inflation rate.

House prices in Auckland are already falling at the top end, will it pass thru to the bottom end.. maybe. And I have repeatedly said I think Auckland is going mostly sideway for quite a while, but can't rule out falls if some sort of external shock happens. There is no upside in the Auckland market for the next 5 years IMO.

"but can't rule out falls if some sort of external shock .... There is no upside in the Auckland market for the next 5 years IMO."
Hi pragmatist, you're entitled to your opinion. That's fine. The possibility of "external shock" and the risk of some unforeseen black swan event is probably no more or less than at anytime in the last decade. And when the auckland market started to spark in 2012 it wasn't because there were no perceived risks. I can only assume what your eventual property goals might be, but learning to live with the threat of external shocks should be a given. You cant change what others do.

International flow of capital has has a heart attack since November, that is why. Plus Chinese buyers dried up.
Plus credit impulse dying in Australia and China. Too local a focus I am afraid. Auckland is 38% "investor" and they are not biting. If it was truly a "buyer" market, then more sales would be made. Not happening

Pragmatist, of course you should leverage to buy!
Would I have leveraged in Auckland On negatively geared property?
No I would not have!
There are plenty of people who call themselves property investors, but if you are relying on capital gains to make your money, then you are a speculator!
An investment is an asset you own that returns you money each and every week without any risk!
I can assure you that every single property we own is returning us a positive cashflow each and every week plus a very satisfactory profit on paper when we bought it!
No risk at all in ChCh if you buy right and don’t worry about any earthquakes as insurance will well and truly cover that!

You had have to have courage and ability to speculate on Auckland property. Those who did it and either got out or reduced their portfolio made some serious dollars and probably tax free in many cases. They have left for dead the nickel and dimers in places like Christchurch where they have bought and held average properties that are dropping in value along with their asking rents. Dunedin and The Lakes were better bets but again you had to have courage and the ability to borrow. No wonder he is the grumpiest person on this site. He picked a losing formula and now our glorious government is threatening it with new laws such as CGT. I thought property could not be threatened by outsiders but this government is showing us that that assertion is bulldust. All markets can be affected by outside influences. That is why you should be diversified in your investments.

Many capital gain oriented property investor owners of Auckland real residential estate have confused genius with a bull market ... It's when the tide goes out, that you find out who has been swimming naked ...

When the tide goes out, you can see who ha been swimming naked, and who has a great big boat.

Many on this site warned about the down turn in Auckland and Christchurch. Those who elected to sell all or some of their stock have done well. Not everyone has the courage, intelligence and sense to do that. As many a broker has said it is better to leave something in for the next guy before you lose all or some of your gains. When a property that sold for $5.5m in Sydney in August lat year is now worth $4.5m and dropping you know the tide has turned.

The tide goes out when interest rates go up, and that looks to be a while away yet.

In Australia, the RBA (central bank) has kept their cash rate unchanged, yet the tide is still going out ...

Exclamation mark alert.

In Sydney it also started at the top end. Look at where Sydney is now and expect similar in Auckland.

Gordon, you are so funny, you could have your own stand up comedy act!
ChCh property has not dropped at all and rents are increasing if you read the news!
As for rental returns I am more than happy with 9 to 10 % !
Great time to be investing in ChCh as more and more people are moving in, as Phil Twyford is saying!

It is exceedingly difficult to time the market. The long-term trend is very likely to be up. If you take a long-term view, it is always a good time to buy. If you are too scared to buy now, you probably always will be. If you can convince yourself not to buy in what is currently a “buyer’s market”, you’ll certainly be too scared to “catch a falling knife” if prices fall. And if you think you’re going to wait until the bottom of the market to buy, refer back to my first sentence.

"Buyer's market" No sorry, that is when buyers want to buy. If they want to buy why are sales falling. Fact is that potential sellers are being put off by fact they cannot get 2017 value on their sale and buyers are holding off fearing from in equity. Hence fear not confidence driving.

You don’t know what a buyer’s market is.

Already bought and sold multiple times during the Australia and NZ bubbles, but it would take much better market conditions (not inflated prices) than the current market situation to buy more. There have been better asset opportunities elsewhere in recent times. The outlook for Aust and NZ property is not great. We're at or just over the peak of a cycle.

Cycle peaked late 2016 for AK

And time from peak to trough is typically 5 years, with drop less than 10%, even in the event of a GFC. But oh no, this time is different, prices are going to fall for decades until a property in Auckland costs as much as a loaf of bread. Because Sydney. And feelings.

FYI, they were saying the same thing in Australia about 15 months ago about property prices not falling ...

1) https://www.livewiremarkets.com/wires/will-australian-house-prices-crash

2) https://www.yourmortgage.com.au/mortgage-news/will-the-australian-housin...

FYI in Auckland, during the GFC in 2009, the median sale price in Auckland for Barfoot and Thompson fell 12.9% from its peak to its bottom.

Currently the median sales price for Barfoot and Thompson in Auckland has fallen 11.0% from its peak. The current environment is that there is still a growing economy, low unemployment, low interest rates, and no global financial crisis. The current median sales price drop from the peak in Auckland is near the GFC levels and the current economic conditions are much better than those experienced during the GFC.

An excerpt out of the above referenced article justifying that property prices will not fall as supply has not kept up with demand. He has used the shortage in underlying supply and underlying demand in his justification, not effective supply and effective demand.

"supply has not kept up with demand

Thanks mostly to an increase in net immigration, population growth since mid-last decade has averaged 368,000 people pa compared to 218,000 pa over the decade to 2005, which requires roughly an extra 55,000 homes per year.

Unfortunately, the supply of dwellings did not keep pace with the surge in population growth (see the next chart) so a massive shortfall built up driving high home prices. Thanks to the recent surge in unit supply this is now being worked off. But there is no broad based oversupply problem."

Simplistic ey?
Effective supply and demand is fundamental.

The linkage made between underlying supply and demand and why property prices won't fall is so prevalent by economists, & property market commentators. Billions of dollars collectively has been invested in real estate as a result of this underlying belief, and billions of dollars collectively has been borrowed to finance these purchases of real estate based on this underlying belief. This is why these people get caught out when property prices fall.

They are using the underlying supply and underlying demand numbers in the wrong context and not the purposes for which the numbers should be used. People have accepted the Auckland housing shortage number and not understood how those numbers were calculated. To clarify that common misunderstanding was the purpose of my earlier explanations and examples.

Other property market participants with vested financial interests use the underlying supply and demand shortage to suit their own financially vested narrative to persuade buyers of property to buy - property market mentors, real estate agents, etc

Relying on the data from only one agency isn’t good practice. REINZ publishes median and HPI from all agencies combined.

Apologies. The above data is actually REINZ median not B&T median.

For Auckland, 800,000 median price currently vs 900,000 peak in March 2009 is an 11.1% fall.

Refer link and select Auckland:
- https://www.interest.co.nz/charts/real-estate/median-price-reinz

Yes, that’s the graph I was looking at when I posted that comment, I was actually thinking YOY, but I see my comment reads as peak to trough. I don’t think this cycle is different to those that have come before it, and I expect upward phase to start 2021/22. 1975 is only exception as truly catastrophic.

I agree the uptick (albeit slow) might start 21/22. But before then I think we'll see overall median drop at least 5% more.

CN, I think you mean March 2017.
11.1%, wow. Somehow that's getting lost in the media, albeit it's one measure.

Thanks Fritz. Yes, 2017. Excuse the typo.

HPI data is more representative, but I am unable to locate the data. So hence the use of the median sales price.

The median sales price can be skewed by sales mix - for example if more inner city apartments are selling relative to houses, then this will lower the overall median sales price.

I also hear anecdotal stories that high priced properties are getting much less buyer interest (perhaps due to financing constraints and the recent implementation of the foreign buyer ban), so this may have resulted in fewer high end properties selling and resulting in a downward skew in the median sales price.

CN, I think you mean March 2017.
11.1%, wow. Somehow that's getting lost in the media, albeit it's one measure.

No point buying in a falling market.

We are about 2-3 years away from the "Buy Low" point, maybe longer, just as your login suggests that is the right time to buy.

Why you suggest buying now, contradicts you login name, I think you must be a little confused.....

"No point buying in a falling market"

That is how the number of active buyers at current price levels drop off - these buyers are no longer active as they wait for lower property prices. This is how effective demand gets impacted by falling price trends, as expectations of future property prices change.

Contrast this with the fear of missing out in 2016 in Auckland, when property prices had been increasing and active property buyers had future expectations of higher property prices.

Meanwhile, there is still a current shortage of housing in Auckland as calculated by underlying supply and demand (a shortage of approximately 46,000 dwellings as calculated by the Auckland Council) ...

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Not only very high end but have noticed that million dollar to 1.2 million dollars properties have mostly fallen to high 800 to mid 900 but yeah 2 bedroom units which were earier selling between 700 to mid 700 are still more or less at that price or may be slightly low but not as much as million dollar property. Know and can vouch for Bucklands beach. Pakuranga, Howick and near around suburbs.

It is just the begining, slowly everything will fall.

Also have noticed that most properties in market have been purchased between 2015 to 2018 by speculators / so called investors (Can check self by going in history in QV) so are unable to sell for few months after listing before either accepting a low price with no profit or at loss and some that has been purchased at a very high price are being withdrawn unless ready to take BIG hit or is being withdrawal, which is possible if have holding capicity.

This is just the begening and FHB should wait to get more value for their money as prices are not going up in near future. FHB shiuld buy but not in a rush. Not that will miss out if not purchased in a hurry.

I've noticed exactly the same thing. These are the properties out of range of most FHBs (not all, but most), and that generally don't make any sense for an investor/speculator as the capital gains aren't there now and the yields are usually 2.5-3.5% gross.

Exactly. I call this upper middle price range, and I pick it to fall 10% (has already in some places). As you say, out of reach of most FHBs and doesn’t make much sense for investors.
The only thing that will stop bigger falls is the Mexican stand off effect.

Agreed that this property should now fall further (step by step) from high 800s to mid 900s to high 700s and mid /high 800s as a result 700 to mid 700s will also fall.

Give sometime as this fall has just started from November 2018 that is just 4 months and more is yet to come. Higher the rise greater the fall and only positive is low interest rates which is delaying the acceleration of fall which will and has to come.

I've been keeping an eye on Pakuranga. Many properties that would have been marketed at about $900K - $1 million a year or two ago are now being marketed more around 800K. Full sections, 700-800 square metres. Quite a noticeable reduction

And of course it's not reflected in the average/median sales prices, because active buyers are still coming to the market with $xxx to spend. Instead of spending $750k on a 3 bedroom home with a 450 sqm section they might be buying one with a 700 - 800 sqm section and a double garage?

really good point. Although hard to know how often that is happening and how significant it is.

You are clearly someone with a finger on the pulse, and not deluded like some here.

That may be the case in Auckland but with interest rates at historical lows and not going up, now is an ideal time to buy in many places!
The housing market is just not Auckland if you hadn’t realised!

Auckland is the engine room of New Zealand. It offers work opportunities and business opportunities second to none. Hence it has a huge population that is growing. Christchurch is and always will be a large town that will struggle to grow because of its numerous negative attributes. Hence we all meet people who have left it to get a better life.

A possible alternative explanation is that Barfoots are losing market share at the top end of the market. To rule that out, one would need to compare number of listings in the various (asking) price ranges against the previous year.

yes BT is losing share but high end is frozen or dropping still.

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Tip to FHB looking for a deal in this market.

Any new listing that interest you : Either pay asking price OR if looking for a deal than wait for a month and if it is in auction than have to wait for 2 to 3 weeks after the failed auction to step in (If is sold earlier will be at asking price which definitely will not be a deal in current market which is going down).

Also try to avoid houses that have been bought on /after 2015 as those houses most probably are bought at high price compare to current price as a result vendor will have high expectation, so buyers are highly unlikely to find a deal unless the speculator who has bought is desperate knowing that will not be able to hold long and is ready to take a hit.

Also any vendor who is staying in the house and is planing to downsize in same city will be unable to sell high and buy cheap so to avoid as their expectation will be unreasonably high in the current market and unlikely to sell(with few exception).

Finally FHB buy but not in a hurry as now have nothing to lose but gain (Having already missed the last boom).

Finally do not trust agent and be more demanding as it is buyers market.

Will notice that now few agents are having too many listings as are those agents who are giving high appresal (earlier was successful but not now) as a result, to avoid, as will come with high asking initially and will need 6 to 8 weeks for them to drop as have bought the listing with high expectation to the vendor.

Be smart Buyers.

Agreed. My friend who is buying in Auckland is experiencing the same so he first check the history when the house was sold earlier as that helps him to know and not waste time on that property and also approaches not on first open home as initially expectation is near around CV and after a month's those who wants to sell reduces to meet the market which may be 10% to 20% below CV , some excepation but most are much below CV unless it is a sought after premium property, which is hardly any in this market.

If you need to buy in Auckland just add in $1000 a week for capital loss and if works at that then go ahead. Auckland wont stop dropping until Sydney and Melbourne do - so I would hold off until they have stopped. In Tokyo this took 20 years

And Auckland is just like Tokyo, totally similar maybe even the same market in a time warp

Interestingly, my last holiday to Tokyo in Dec 2017 we stayed at a nice 3br AirBnB. Our apartment was on the market for 580K USD (roughly 780K NZD). It was a beautiful roomy apartment, minutes walk from the trendy Meguro Station. At that price, it's not too far off from a 3br apartment in Auckland and much better built!

@ The Man 2
"4 massive bedrooms and big living and garaging in desirable location!" of course it'll be positively gear for 12-15 people in that property!

YeS it will be positively geared for 4-5 tenants, that will be checked out thoroughly.
All our properties are positively geared and being looked after by good tenants.
Treat it as a business and run it professionally is what you need to do.

The problem is how do you know they have 4-5 tenant?
We rented our house out for 2 years when I shifted to Australia. When I asked this very same question, our PM said that if the head tenant have more people than what agreed. There is nothing we can do about it! You can't just turned up any time to check on them, can't snoop on them - Basically you can't do anything with out permission.
This issue is very rampant in Sydney and Melbourne as well.

Rubbish ChIrman, of course you can.
You sign the tenants up with the correct names and numbers, and do your property checks quarterly and you can always tell if there are extras.
If there are extras then they get a 14 day notice etc. it is not difficult to police .
If they end up at tenancy tribunal they will lose and have their names on record which wshould make it hard for them to get future rentals.
We manage our own properties because we do. Far better job than most property managers who have no financial interests in the property.
Never lost a tenancy tribunal hearing ever and we haven’t needed too many over the years .

You didn't really answer the question. How can you (legally) tell if there are more people then agreed?
If I was a head tenant and you made appointment for quarterly inspection. It doesn't take a rocket scientist to lose the extra tenants for few hours.
Beside, you can't question them like "hey there is more toothbrushes than the number of people living here".. try that on tenancy tribunal!

There has been a surge in Auckland's land supply, places where land:improvement ratio is the greatest will have the largest decline in price.

Buying a house in Auckland? Akin to catching a falling knife .Just wait & one may get a cash pile from an ATM.

A house in Mount Albert previously marketed at $1.2 million .Not sold.Now on the market again under a different agency at around $900K. Akin to getting $300K from an ATM if a buyer who hesitated before now decides to wade in.

But ,again unless one has mailed gloves,wanna catch a falling knife???

Most likely not what you imply about big price drop, it is a different marketing technique, asking price vs offers over

Most likey is what he implies about the drop,, but Housework is trying to bury his head under the covers..

Lol

Might not be the same property, but 13 Hendon Avenue, Mt Albert:

$930k asking price.
https://www.realestate.co.nz/3508355

Down from $995k in February on Trademe.
Google Cache Link

Is there a listing for 1.2m? 930k for that area on 700ish sqm is probably realistic, there are 270 thousand reasons why it was not worth 1.2m

I think a motorway designation runs across the property

It is so funny reading many of the comments with people waiting for prices in Auckland to keep dropping!
Reality is that if you had the deposit you would have bought years ago!

Yeah, now go back and read what you wrote.. the only piece of truth in it is " keep dropping", at least you can admit they are dropping, unlike some. :)

Auckland prices don’t concern me!
If property has been bought on the right principles then the investors will be just fine!
We are netting more than we were a year ago on each property due to interest rates being lower and rental income increasing overall due to a commercial property increase.

what are the right principles for you? Do you have a minimum gross yield? Interested to know.

Reality is that there could be several reasons why people haven't bought yet. Here are 4 that I can think of off the top of my head.
1. They didn't live in Auckland years ago
2. Had to wait 3 years for Kiwisaver
3. Had to save for a deposit which took years and had pay off student loans etc.
4. Was single years ago and now with a dual income can afford to buy

Why is it so funny Grumpy? If what you say about yourself is true you have just been a very lucky boomer. You have done nothing special. You live in poor old Christchurch a low price housing area in New Zealand for so many reasons. You are a boomer and have never faced 10 times income loans to buy a home for your family. It takes a lot of time and determination to build up a deposit these days as they need to be a lot bigger than anything you ever faced to buy a home for your wife and children to live in. Laughing about other peoples' struggles to get on the ladder is defenceless. You are not only grumpy in nature you are arrogant and cruel. The sooner you leave this site the better for all of us. You pride on being a positive person but in reality you are just a cruel ignorant old man and are an embarrassment to the boomer generation.

For most owner occupier households, buying a house is likely to be the largest financial commitment that they make in their lifetime.

They make good lifestyle choices for years, deferring consumption so that they can save up for their initial deposit to purchase a house.

It only takes the purchase of a house at an overinflated price to see all those years of work and savings go up in smoke due to the effects of leverage used to buy a house. Take a look at the collateral damage of the property price bubble in the US, Ireland, & Spain. Unfortunately there was also a social cost - some people committed suicide, which will have ramifications on the family and especially children. Others became homeless. There will be mental illnesses that also transpire, as well as a physical toll (such as heart attacks) resulting from financial stress. Some of these will be people you know, people in your community. I recall a story of someone who lost out big during the 1987 stock market crash - they subsequently went out onto their front lawn and committed suicide.

At which point is the financial benefit for a few, worth the social cost for NZ society as a whole, too high? ...

Everyone has a choice whether they buy or rent!
If they don’t like the prices then don’t buy it will leave it open to someone else!
Personally buy when the price is right, positively geared with upside!

Try that on minimum wage! Not everyone earning 6 figures or getting incomes from 46 rental properties. A bit of of touch dude!

I guess there's always upside when you buy grotty rot boxes in New Zealand's own "District 9", with meth fuelled Skinheads for tenants and a multitude of infectious diseases being spread by children.

Crime is up 16% in Christchurch YoY. Burglaries up 20%, Theft up 16%. Sexual Assaults up 15%. At least abductions are down 7.5% (from 27 to 25). What a great place to live.....
https://www.police.govt.nz/crime-snapshot

https://www.newshub.co.nz/home/new-zealand/2018/03/official-new-zealand-...

Almost without exception the Cantabrians I have met / encountered have been snooty 'first shippers', weirdo lefties, or skinheads/bogans.

Fritz, I beleive that, it is the circles that you associate with!
Christchurch people are the nicest people in NZ, the fact that you have found skinheads tends to suggest what type of people you hang around.
I haven’t been near any skinheads ever!

Another theory is that you never venture down the hill or outside you home

Firstly, we own no rot boxes and have no trouble renting out our properties for the high end of the rental statistics for ChCh, because our homes are well maintained!
As for the crime, haven’t been involved in any, don’t go looking for it and don’t really care, as my life doesn’t involve crime!
That might well be your circle,of life but not mine!
ChCh continues to grow with more people coming in weekly and as a percentage, is growing Exceedingly quickly!
You can try and put CHCH down but at the end of the day it is you that is missing out!