Lower quartile house prices were surprisingly strong in February - making life more difficult for aspiring first home buyers

Lower quartile house prices were surprisingly strong in February - making life more difficult for aspiring first home buyers

Surprisingly strong lower quartile house price rises in February were grim news for first home buyers, according to interest.co.nz's latest Home Loan Affordability reports.

The reports show that compared to January, The REINZ's prices in February were higher in seven regions (Auckland, Waikato, Bay of Plenty, Hawke's Bay, Taranaki, Wellington, Otago and Southland), unchanged from January in three regions (Northland, Canterbury and Southland) and lower than January in two regions (Manawatu/Whanganui and Nelson/Marlborough).

New record highs for the lower quartile price were set in the Waikato, Wellington region and Otago, while record equalling highs were achieved in Auckland, Northland and Southland.

The jump in February's lower quartile price was particularly strong in Auckland and Wellington.

In Auckland the lower quartile price increased from $650,000 in January to $680,000 in February, equalling the previous record high set in March 2017.

Home Loan Affordability Reports are available for each of the following regions and cities (click to view).
Northland Region
Whangarei District
Auckland Region
Rodney District
North Shore District
Waitakere District
Central Auckland District
Manukau District
Papakura District
Franklin District
Waikato Region
Hamilton District
Bay of Plenty Region
Tauranga District
Rotorua District
Hawke's Bay Region
Napier District
Hastings District
Gisborne District
Taranaki Region
New Plymouth District
Manawatu/Whanganui Region
Palmerston North District
Whanganui District
Wellington Region
Masterton District
Kapiti District
Porirua District
Hutt Valley District
Wellington City
Nelson/Marlborough Region
Nelson City
Canterbury Region
Christchurch District
Timaru District
Otago Region
Dunedin District
Queenstown-Lakes District
Southland Region
Invercargill District
All New Zealand

Since August 2016, Auckland's lower quartile price has remained within the price band from $640,000 to $680,000, suggesting the bottom end of the market has remained more or less flat during that time, but February's results show that prices are now testing that upper limit.

One possible explanation for this, at a time when sales volumes show the market is slowing in Auckland, could be that the market is easing from the top, while prices at the bottom end, as suggested by the lower quartile price, are kept firm by the shortage of affordable housing in the region.

Last month also saw a turnaround in the trend for mortgage interest rates, with the average of the two year fixed rates offered by the major banks increasing to 4.26% in February compared to 4.25% in January, although the impact of the rise would have been negligible.

The Home Loan Affordability Reports track changes in median incomes* as well as movements in house prices and interest rates, to estimate their combined effect on affordability for typical first home buyers.

When mortgage payments take up more than 40% of a typical first home buying couple's after tax pay it is considered unaffordable.

In January affordability levels dropped below the 40% threshold in Auckland but that now appears to have been an aberration, with the latest increase in the lower quartile price pushing mortgage payments on a lower quartile-priced home back up to 41.3% of typical first home buyers' take home pay, back in to unaffordable territory.

However, there is some good news for first home buyers in Auckland.

Although the region as a whole is considered unaffordable for first home buyers, lower quartile prices in its southern districts of Manukau, Papakura and Franklin declined in February and remain well within affordable limits for typical first home buyers.

In Manukau the lower quartile price has fallen for three months in a row. In Papakura and Franklin it has fallen for two months in a row and remains well below previous highs in all three districts.

This means that affordability and the prospect of owning your own home is improving in Auckland's southern suburbs.

But there were strong lower quartile price gains everywhere else, putting properties in Auckland's central suburbs, Waitakere, the North Shore and Rodney further out of reach for typical first home buyers on average incomes.

In the Wellington region the lower quartile price jumped from $425,000 in January to $495,000 in February and substantial prices rises were evident in all of the region's sub-districts - Wellington City, Hutt, Kapiti and Porirua.

However, even with the substantial price rises that have occurred in the Wellington region, property prices there are still affordable for typical first home buyers.

The Home Loan Affordability Reports estimate that the mortgage payments on a lower quartile-priced home in the Wellington region would take up just 27.9% of a typical first home buying couple's income, well below the 40% threshold at which repayments are considered unaffordable.

Outside of the Auckland region, the only other place where lower quartile prices have breached affordability limits for first home buyers is Queenstown.

In February the lower quartile selling price in Queenstown was $750,000, up from $730,000 in January, making it the second most expensive place in the country for first home buyers after Auckland's North Shore, where the lower quartile price was $785,000 in February.

However, because median income levels* are substantially lower in Otago than they are in Auckland, Queenstown was the most unaffordable place in the country for first home buyers in February.

*The income figures used in the Home Loan Affordability Reports are the median income for couples aged 25-29 and working full time in each region, based on Statistics NZ's LEED (Linked Employer-Employee Data) series.

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68 Comments

Father and son . Apartment block, tenth floor. Auckland circa 2025

Ordinary house prices are pushed higher by packing more people in them, ahem, cough, sorry prices at the bottom end, as suggested by the lower quartile price, are kept firm by the shortage of affordable housing in the region.

What do you expect? Low interest rates lead to high prices for real stuff. It is just arithmetic.

I will just check to see if cars have become more expensive......oh I see they haven't. So it can't be low interest rates.

Good point, pricing is complex and the result of many factors. I find the idea that foreign capital inflows into NZ housing, both directly and via more borrowing, have pushed up house prices as the most likely culprit.

Low interest rates reduce our tendency to save, and channel any and all savings into the low productivity sector of housing, as we all compete to take on the largest mortgage we can in order to buy a bigger barn. This sets up a destructive circle, where low interest rates result in malinvestment and a high exchange rate. Thus the productive sector is low in profitability.

It is the exact opposite of the wealth enhancing virtuous circle whereby profits flow to the most productive endeavours in our society. This creates a competitive environment where higher interest rates restrict capital to the least productive.

Not sure if trolling, serious or stupid but...

Cars are depreciating assets and people generally don't have to them as a primary means of shelter. Oh wait...

Well yes, many people are now having to turn to their cars as the primary means of shelter.

Houses are a depreciating asset, and land can sometimes become a negative appreciating asset if say it has
infrastructure improvements and zoning that makes it rate-able.

What causes house prices to rise when interest rates are lowered is because supply of credit is increased and therefore relative to supply of land/housing there is less supply of land/housing. If supply of land/housing increased at the same time, and rate, as easier credit, then house prices would not rise.

This is why, as the analogy was given, car prices do not increase when demand increases for that particular brand of car.

In fact, one of the reasons there is an increased demand for that particular brand of car is because it is affordable. And given that car manufacturers operate at close to a true free market, they know that if they were to increase the price as demanded increased, then sales would collapse, or become unstable.

Stability/consistency of volume over time allows for the very efficiency that makes them good value for money over time.

Greg Ninness - are you certain that Statistics New Zealand's LEED series is reliable/robust?

Or might it suffer similar problems to the 2018 Census and the Immigration data?

We're all aware that demographers, economists and other social scientists are becoming increasingly nervous about the quality of SNZ's recent output. (In fact, it's turning into a major dilemma for the researcher/analyst community.)

TTP

LEEDs is as good as it gets. It is essentially the IRD's PAYE database. It covers nearly everyone on every paroll in the country. It isn't a 'survey' - it is the full actual data.

And you are wrong too about other StatsNZ data. Yes, there have been questions raised about migration data recently, and issues with the Census coverage. But I know of no other data integrity queries other than that migration data. Even the Census data is highly likely to be reliable. It wasn't a data quality issue, only a coverage/collection issue with operations.

Hi David Chaston,

You write, "Even the Census data is highly likely to be reliable."

Such optimism is hardly widespread......

We'll see.

TTP

Rather than push up price of cars its been pushing up the quantity of new car sales continually setting new record levels of sales.

Very true.

rubbish.

If you want to ignore supply and demand which is very classic economics "math", fair enough. On the other hand you can look at car sales and in particular EVs. When the price of petrol was going up like a rocket before xmas EVs were selling like hotcakes and the price was rising. Now we are at $2.08 (ish) and pretty stable a litre the prices are now at best flat or declining as every yard now has stock and is selling Leafs.

To anyone sensible, the Interest rate should only matter to the NET difference. ie if you are making 30% profit for little work I fail to see why you care too much if interest rates are say 10%, 4% is even better but then its the time frame for a quick profit.

Not surprised at all. The lower end of the market will hold reasonably ok. It is the middle and the upper ends that will fall significantly, bringing the median down with them.

And the other factor is that they are defining lower quartile by prices alone. What is the quality of the homes that are defining that lower quartile like compared to what it was a year ago, and two years ago. Are people getting relatively more or less for their money, or is it about the same?

Some sort of constant quality index would be good.

Good point now that you mention it.

I've maintained this view on here for a while. If every vendor dropped their price expectations by 10%, would that translate into a 10% reduction in the house price medians or would buyers (in particular first home buyers) get an additional bedroom or a bigger section for that $850k median purchase amount in Auckland?

Market values could be slipping across the board but the market prices remain the same, there's a big difference between the two and it would be foolish to just look at the market prices and say everything is swell.

Yep, and thats just started to show the drop in the Auckland market. Would be great if we could see various more granular statistics ie, a seperate model for apartments and units vs standalone houses etc.

Palmerston North:
"The median house price was $431,000 in February, up from $406,500 last month. The median house price was $365,000 in February 2018 which puts annual growth at 18.1%. Five years ago the median was $280,000.
Dwelling sales in February were 145, up from January’s 76. They are now higher than the 142 sales twelve months ago and higher than the 87 sales five years ago.
The lower-quartile house price was $380,000 in February, up from $345,000 last month. Annual growth was 26.7%, from the $300,000 lower-quartile house price in February (2018)

Hi Simon,

I’ve been telling people that Palmerston North was the place to buy for a long time.......

It’s time people started believing me.

TTP

With the exception of 2008/2009 when 3827 Auckland homes were sold , the last 3 month period December/January/ February has seen the lowest number of Auckland home sales with just 99 more .Adjusted ,there has not been a slower 3 month period. For context in 2006/7, 8067 homes changed hands, in 2014/15 , 6595 homes. When seen in context of the OCR,Io mortgages, migration , (un)employment, home ownership rates
1. If you intend to sell, particularly investment property use the door while it remains open.
2. Do not believe everything/ anything your agent may say
3. Feed your agent before signing anything.
4. The RBNZ will change course this year.

well put.
Yes in real terms now is worse. Auckland's population is much larger than it was 10 years ago.
It's worth listening to the DGMs. For many people, now is the moment they should get out and count their losses.

You mean they will start to raise rate's....I will believe that when and if it will EVER happen

Easymoney,,the RBNZ will lower rates.Your misinterpreting my comment.(David has a good article on bonds.)

Where are you Retired Poppy? The little ones have taken your advice to squirell nuts away for the coming winter. Yet it almost feels like spring for lower quartile homes.

Let's look at the overall Auckland market - it's sick.
Yes, lower quartile prices holding for now. And remember there's a few things distorting that, like more 1-2 bedroom apartments and townhouses coming on line, often selling in that 600-650K range, bringing the overall median for the quartile up. It's unlikely that dumpy 1-2 bedroom flats are increasing much if at all.
I'm seeing prices consistently cut in the upper-middle part of the market, eg. homes originally advertised for $1.1 million, cut to 950K. It's happening a lot.

What areas?

Clearly, the younger generation (FHBs) have a great deal of confidence in the housing market - despite all the negative sentiment of the DGM.

As the years roll by - and FHBs move up to their 2nd, 3rd & 4th homes etc - the impetus across the entire housing market is sustained/fortified.

Indeed, that FHBs remain so active in the housing market is a granite sign of its long-term health and prosperity.

TTP

10
up

Well, I think many of them are going in without their eyes wide open.
Prices are likely to be down in Auckland 10-15% by this time next year, and interest rates will be lower.
They'd be better to wait till then, and save hard over the coming year.
But FOMO is alive and well. And many FHBs are children of boomers and neo-liberalism, so many have bought in to the hype of 'housing never busts' and 'it could never happen here'.

Hi Fritz,

You write, "Prices are likely to be down in Auckland 10-15% by this time next year......"

That's precisely what was written here 5 years ago, 4 years ago, 3 years ago, 2 years ago, 1 year ago - and no doubt it will be trotted out again next year.......

What is far more certain is that when the current flat market (i.e. trough in sales volumes) comes to an end in Auckland, house prices will move up - not down.

Personally, I'd love to purchase a small dwelling in Ponsonby at a sizeable discount compared with today's prices. But, alas, there'll be no such luck......

TTP

That’s your view, and I have mine. Fine. Time will tell. I for one said in late 2018 that prices would probably drop 5-10% in Auckland in 2018, and that is close to what has happened once you look beyond simplistic and biased headline reporting.
My prediction at the end of last year was for another drop of 5-10% this year.
You seem to believe that the past is a predictor of the future. That’s a simplistic and dangerous view.
What do you think will bring us up from this trough in the market in Auckland? Cashed up foreign buyers, investors chasing strong yields, first home buyers willing and able to pay 700-800k plus for starter 3 bed homes? Yeah, nah.
Something has to give.
I don’t think any rational argument is available to support the idea that we have reached the bottom of the market and prices will start increasing again within 1-2 years.

Hi Fritz,

NZ has low (and falling) unemployment, increasing wages, sustained low interest rates, high economic growth, a housing shortage & rapidly rising rents through much of the country. Plus, we enjoy political stability and very low levels of corruption.

That doesn't look like a formula for a slump in house prices to me.

I don't know when house prices will resume their climb - probably not this year or next year - but when it happens there's no easy way of containing it. Despite the recent atrocities in Christchurch, NZ will remain a country where many people would like to put down roots.

Indeed, NZ's global appeal will sustain well-located property as a highly sought-after investment across the long-term.

TTP

Hi TTP

'NZ has low (and falling) unemployment, increasing wages, sustained low interest rates, high economic growth, a housing shortage & rapidly rising rents through much of the country. Plus, we enjoy political stability and very low levels of corruption'

Aus had most of those things too, and they are slumping. You might say they built too many houses. There is some truth to that, but it is also exaggerated.

The main problem is one of unaffordability. Australia reached that point and so have we. Most FHBs can't afford 700-800K minimum for a first home in Auckland. And many investors aren't interested in a gross return of 4% , especially with the legislative changes that have occurred or may occur.

It doesn't really matter how desirable Auckland is or isn't, or how 'non-effective' demand relates to supply. What matters is how 'effective demand' relates to supply. At the moment there is a mis-match, becuase too many people can't afford the asking prices.

So either prices need to come down, OR effective demand needs to be stimulated eg. by cuts to the OCR, or house buying grants.

I think both will happen. Prices will come down, and the OCR will be cut. Prices will then reach a new equilibrium, and stabilise. My pick for Auckland is a further 5-10% drop, then flattening and a slow tick upwards. Hardly doom and gloom! Time will tell.

Hi Fritz,

Australia did NOT have a house shortage: it had a surplus of houses.

That's the critical factor.

TTP

Yes, that's what I said........
But I also said that surplus is exaggerated.
1-2 years ago there were plenty of economists that said they had a shortage. They built quite a lot, but the whole idea of a massive surplus is over the top.

So, let's leave it there, I don't have much more to say. You see steady, not falling prices in Auckland, then another push upwards, I see further declines of 5-10%, then steadiness, then a more low key tick upwards. Let's see where things stand end of year. I'm confident in my prediction.

"You seem to believe that the past is a predictor of the future. That’s a simplistic and dangerous view."

Many highly leveraged property investors are comforted by the fact that :

1) property prices in Auckland have continually risen over the last 50 years
2) property prices in Auckland have been relatively stable over that time
3) property prices in Auckland have rarely fallen in nominal price terms. The worst price fall (in nominal price terms) in Auckland was during the GFC in 2008 where median property prices fell by no more than 8-10%.
4) this is reinforced by personal experiences of many in the property market.

There were similar beliefs in Ireland in 2006, US in 2006. That is a key reason why a large number of people got caught out, including property investors, owner occupiers and the banks.

CN you make a very strong case as to why this time won't be different for house prices

There's a couple more positive points for property price bulls:

1) there is a current housing shortage in Auckland of about 43,000 dwellings (as estimated by the Auckland Council)
2) housing construction costs are rising.
3) there is continued population growth in Auckland

Any more?

In addition, the GFC was actually more of an Atlantic Financial Crisis (North America, Europe). NZ's banks had not gotten in on the shenanigans (although we obviously had the Petricevich, Watson, Hotchin ilk up to their own shenanigans with people's savings here).

The question now is whether NZ's own shenanigans are in a concerning state, and/or as concerning a state as those of our nearest neighbour, Australia.

'1) property prices in Auckland have continually risen over the last 50 years
2) property prices in Auckland have been relatively stable over that time
3) property prices in Auckland have rarely fallen in nominal price terms. The worst price fall (in nominal price terms) in Auckland was during the GFC in 2008 where median property prices fell by no more than 8-10%.
4) this is reinforced by personal experiences of many in the property market'

Where do we start to unpick this? The reality that is faced today is so different from the past.
Anyone who knows anything about economics knows you shouldn't just extrapolate forward past trends to project what might happen in the future. Past trends are relevant, but need to be evaluated critically in terms of current and future context.

The crossroads we are at now is simple math....In the past the 'median multiple' (the ratio between median house price and median income) was low. But interest rates were sometimes very high. Hence, people rightly say that what seemed like affordable housing in the 1970s wasn't that affordable when you had very high interest rates.

We now have extremely high median multiples, and (by NZ standards) very low interest rates. So the math suggests that things have stretched nearly as far as they can at either end.

Demographics are also important. We have an ageing population. Relatively speaking we will have a lot of people wanting to downsize and sell in the next 20 years, and fewer wanting to buy. There is robust international literature on this.

Population growth? Yes, but what is the make up of that growth? (ie. look at the disaggregate data as well as the aggregate data) If a lot of that growth is coming from poorer parts of the population with higher birth rates, or from mass low skilled and low wage immigrants, that hardly bolsters house buying, does it? Remember that much of the large immigration that occurred in the 2000s and bolstered prices came from places like the UK, when the pound was 3X the NZ dollar, and housing is was comparatively cheap compared to the UK.

To cut a long story short, it's far too simplistic to throw around these generalisations to support the notion of high house prices, without digging under things and looking at the real trends.

Having said that, I think Auckland will be fine in the medium - long term. Prices won't crash, and after a dip they will stabilise and even increase again. But I think those expecting, or more importantly relying, on another boom will be sorely disappointed.

If you can't afford Ponsonby and other people can't afford property, then who's going to buy when prices increase, overseas buyers. Oh hang on one sec.

Me

Why the assumption that most of these are being bought by FHBs rather than investors?

Are you suggesting investors aren't thinking it's a good time to buy at the moment?

Of course investors will be at play too. Although not sure how much. Hard to see too many investors interested in apartments with gross yields of circa 4-5%, less body Corp etc etc and with limited likelihood of capital gain

“Clearly, the younger generation (FHBs) have a great deal of confidence in the housing market”

And why wouldn’t they – during their relatively short tenure on this planet they haven’t really seen or experienced economic tough times – loading up on hosing debt has proven to be a big winner through their eye’s.

The GFC pretty much blew by NZ leaving it relatively unscathed – the country hadn’t really participated in some of the nonsense that left others particularly vulnerable.

So NZ enjoyed some benefit of the overseas relief that it didn’t actually require – and then Mr Key brought in some extra pumps just to be extra sure we’d be smiling for as long as it took.

I have no doubt FHB’s have a great deal of confidence – I just trust it’s warranted that’s all.

Hi Custard,

Let's not forget that many FHB's form their views based on what they glean from their parents, grandparents and sometimes great-grandparents - some of whom lived through the 1930's depression and WWII.

That FHBs' families may also serve as guarantors for borrowed money suggests there are reasonable checks and balances being carried out within families.

Finally, many FHB are savvy - astute professionals and smart/entrepreneurial. But even those FHBs who are less-blessed with talent/education can see the long-term (social and economic) benefits of owning the roof over their head.

TTP

Are you sure you aren’t an agent? You sure talk like one.

IDK, I consider it a better option for things like having a family, which I've already put off for years waiting for some magical housing correction.

Amazing news.. you can raise a family in a rented house too!

Cameron Bagrie was always NZ’s best bank economist by quite some margin, in my view.
Now independent, he is still worth reading. It’s another warning for our awful national pastime of lazy complacency:

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

Sobering article re Australia. The ending is rather sobering for NZ too:

Meanwhile, New Zealand is not wearing a clean shirt.

Property values are not as extended in Auckland as Melbourne or Sydney, but they are stretched and prices are falling as affordability, structural changes to the market, tighter lending conditions and the tail end of the cycle bite.

New Zealand has lower household debt than Australia, but high levels of aggregate private sector debt relative to the size of the economy too, largely reflecting high levels of debt in the dairy sector.

Australia might have a deteriorating household savings rate. New Zealand has a negative one.

Both countries have worked hard over post the global financial crisis to improve their financial stability and resilience of the banking sector to potential shocks. That's a plus.

But neither have really seen a material shakeout in the housing market. We've seen dips, but not many material double-digit downward adjustments.

Australia is now experiencing that scenario, and the risk is mounting that it engulfs the broader economy and we see flow-on to parts of New Zealand and especially Auckland.

It is a great time to be buying, provided they are positively geareda nd you are buying under true value!
Opportunities are a,ways there to be taken, and while many preach doom and gloom, the people that take action will be the winners!

Here I'll fix this for you (in reality terms):

It is a great time to be buying, provided your parents put up the short fall in your deposit and you will be buying under true value at this market. Opportunities are always for you will to take extra second or third jobs to meet mortgage payments, and while many preach doom and gloom, the people that take action will be the winners!

You're welcome!

Chairman, our repayments are well less than our costs on every property, including the one we have just purchased !!!

It’s worth noting that fewer houses transacted at the high end necessarily translates to raising lower quartile, and that doesn’t require any price movement.

Also fewer houses selling at the high end drags the average value down even if houses don't sell for less. Example:
5 low end houses at $500k, 3 mid range houses at $800k, 2 high end houses at $1.5M sell = avg $790k
6 low end houses at $500k, 3 mid range houses at $800k, 1 high end house at $1.5M sell = avg $690k
The average has gone down yet no house had dropped in value

Until 2 months later when the owner of that other high end house finally meets the market to offload it so he can move into his retirement village :)

Yes, this really is a key insight.

I was surprised to see a billboard in Auckland advertising living in Timaru with average house price of $350'000

Hi Yvil,

That's the same order of magnitude as Palmerston North.

If you like a nice, easy-living, medium-size town, then take your pick - Palmy or Timaru.

NZ caters for all needs. That's what makes it such a great country!

TTP

I'd take Timaru, at least it's drier.. PN is like Dannevirke with a clock tower! Best kept secret of PN is the wind and the damp..(yes I've done my stint at PN)

Hi Chairman Moa,

Don't believe you.

Since Palmy is quite windy (but with flat terrain) it's most unlikely to be "damp". Dampness occurs in hilly areas, where there's little sunshine and inadequate ventilation.

For sure, Palmy gets it share of rainfall - like most/all of NZ - but to hint that there's a significant dampness problem with the housing stock is bumpkin. That defies the laws of physics.

TTP

I lived in Terrace End near Ferguson St.. Not on the hill!

Showing my age here, but we lived through the 1987 sharemarket crash. It (the Auckland housing market recession) lasted through to 1991. It was tough. We were in the middle & it went down 15-20% on average. It was more at the top end. These things can happen. Be careful out there!

Doom and gloom merchants come in all ages.

I am sure this has been raised before but in terms of interest.co.nz’s basis for first home buyer affordability, it’s pretty heroic to assume 25-29 year old couples can get a deposit together to buy a home, given many will have student loans to pay off, are on lowish incomes etc.
It is also heroic to assume most couples aged 25-29 are ready to make the huge relationship commitment of buying a house together.
You would be better to look at upping that age range by 5 years, 30-34.

That's one, where's the rest.

Whats the median 1.2 mill for a shoebox. So will FHB be buying it, don't think so, only people who have cashed up, or who have businesses. There's only so many of those types of people around, its not sustainable for the prices that are so unaffordable, and for house prices to continually increase. Not sure where the buyers will come from. Certainly not from overseas.

Does Housing NZ buying 30 lower quartile houses a week (at asking prices - provided they meet RV) just in Auckland skew these figures?