Miserable end to summer for the housing market, especially in Auckland where March sales volumes were down 18% compared to March last year

Miserable end to summer for the housing market, especially in Auckland where March sales volumes were down 18% compared to March last year

The housing market appears to have had a miserable end to summer with the number of sales in March slumping by 12.9% compared to March last year, according to the latest data from the Real Estate Institute of NZ.

In Auckland the situation was even worse, with sales volumes in March down 18.2% compared to March 2018.

Sales in all other parts of the country (excluding Auckland) were down 10.5% compared to March last year (see the interactive Volumes Sold chart below for the full regional and national trends in sales).

The sales figures are particularly concerning because March is traditionally the busiest month of the year for the real estate industry and the slump in sales comes at a time when mortgage interest rates remain around record lows and show no sign of increasing in the short term.

However the trend of falling sales is not a new one. 

The number of national sales in March has fallen compared to the previous March every year since 2017 and has now dropped by 27% since 2016.

The all time peak for March, since interest.co.nz began collating the figures in 1992, was in 2004 when 11,292 properties were sold, compared with 6938 in March this year.

The slump in sales at a time when mortgage rates are low and there is considerable unsatisfied demand for housing from first home buyers, suggests affordability continues to be a major issue weighing on the market.

The ongoing decline in sales is affecting prices in the country's biggest real estate market, with Auckland's median price in March hitting $856,000, compared to $880,000 in March last year and the all time high of $900,000 in March 2017.

That means the median price in Auckland is now down 4.9% from its peak.

However prices are firmer in the rest of the country with the national median price hitting an all time high of $585,000 in March, up 4.5% compared to March last year.

In Wellington the median price droopped back from its record high of $643,5000 in February to $620,000 in Martch which was up 5.1% compared to March last year.

In Canterbury the median price was $460,000 in March, down slightly from its peak of $465,000 set in October last year but up 2.2% compared to March last year (see the interactive Median Price chart below for the full regional and national price trends, and also the chart showing the percentage growth trends in median prices).

"At a time when sales volumes are normally very strong and total sales figures are typically well over the 7000 mark, with 6938 sales this was the lowest number of properties sold for the month of March since March 2011," REINZ chief executive Bindi Norwell said.

"Despite some extremely competitive mortgage rates on offer from the banks and the high chance of an OCR cut in the near future, it appears the legislative changes on the horizon and the difficulty accessing finance are now really starting to impact the housing market in terms of sales voilumes," she said.

"Hopefully, as we gain more certainty over the coming months, particularly in relation to CGT, we'll start to see the volumes pick up.

"However winter is normally a quieter time of year, so time will tell what happens with sales volumes going forward," she said.

Volumes sold - REINZ

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Median price - REINZ

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Median house price growth

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We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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128 Comments

As per the Herald, "Belief in a Auckland housing market crash is a bit like belief in the existence of the Loch Ness Monster." https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122...

29
up

Bahaha.
They do have quite the lineup of experts at The Herald, don't they...
Hosking, Hawkesby, Alexander, and Church.

Herald, are the probabiliies increasing Nessie could make an appearance soon? Just putting it out there....

Oneroof is certainly good entertainment value. Bunch of clowns!

In my humble opinion, some of the protagonists that have hyped this bubble have been very irresponsible.

21
up

I'll bet this was intentionally timed, knowing what the REINZ figures were likely to show. It really is amusing to see how his messages seem to be targeted at the financially illiterate, with overly simplistic concepts, little to no actual data or analysis, just folksy analogies about mythical creatures.

It's fairly embarrassing to watch.

So what are your thoughts now Double GZ? Last year you were talking up the market big time.

Fritz, nothing has changed too much. A well presented property in a desirable location (not necessarily DGZ) will always attract buyers, some at premium prices like this one on Kenny Rd which was sold last weekend at the onsite auction. https://youtu.be/jTQPqoiJEgA

Yes but is anyone game enough to have a swim in Loch Ness lake?

Yep, It was a tad cold for my liking.

I'm guessing they'll take that video offline after a while, for that guy to save face. He's dreaming.

Another way of looking at it, could be like Nassim's Taleb's Thanksgiving turkey who extrapolated history ...

https://www.businessinsider.com/nassim-talebs-black-swan-thanksgiving-tu...

A couple of others extrapolated price history and that caught out a couple of Nobel Laureates at LTCM in 1998 ...

Be aware of Black Swan events and risks ...

So if houses are the most unaffordable they have ever been, banks are tightening their lending criteria, foreign buyers cannot buy in NZ, sales rates are dropping.

What happens if interest rates rise. May not happen this year or next, but it will happen. Its like cracks in a dam, once one starts, then other little tiny cracks start appearing.

But hey NZ different.

FYI - Warren Buffett on the cause of the US housing and credit bubble.

On May 26, 2010, Warren Buffett was interviewed by the Financial Crisis Inquiry Commission (FCIC). In transcripts released in 2016, we see that the FCIC asked Buffett several questions regarding what he thought caused the housing and credit bubble, which eventually popped and pulled the economy into the worst recession since the Great Depression.

Brad Bondi, then Deputy General Counsel of the FCIC, asked Buffett, “What do you think it was, if you were to point to one of the single driving causes behind this bubble?”

Buffett began his brilliant response by quoting his mentor Benjamin Graham, who also literally wrote the book on security analysis. Here’s Buffett: “…Ben Graham, made an observation, 50 or so years ago to me that it really stuck in my mind and now I’ve seen evidence of it. He said, ‘You can get in a whole lot more trouble in investing with a sound premise than with a false premise.'”

When you have a sound premise, you may also have a “This can’t go wrong” mentality. And when you add money to that equation, things quickly get out of hand.

“It’s a totally sound premise that houses will become worth more over time because the dollar becomes worth less,” Buffett said. “It isn’t because, you know, construction costs go up. So it isn’t because houses are so wonderful.

“It’s because the dollar becomes worth less, and that a house that was bought 40 years ago is worth more today than it was then. And since 66 or 67 percent of the people want to own their own home and because you can borrow money on it and you’re dreaming of buying a home, if you really believe that houses are going to go up in value, you buy one as soon as you can. And that’s a very sound premise.”

That’s how it starts.

“Soon the price action — or at some point the price action takes over, and you want to buy three houses and five houses and you want to buy it with nothing down and you want to agree to payments that you can’t make and all of that sort of thing, because it doesn’t make any difference: It’s going to be worth more next year,” Buffett said.

And it’s not just the homebuyers.

“[The] lender feels the same way,” he said. “It really doesn’t make a difference if it’s a liar’s loan or you know what I mean? [Unintelligible] something because even if they have to take it over, it’s going to be worth more next year. And once that gathers momentum and it gets reinforced by price action and the original premise is forgotten, which it was in 1929.”

The financial crisis triggered by the housing bubble was orders of magnitude worse than past stock market crashes. Buffett articulated: “…the price action becomes so important to people that it takes over the — it takes over their minds, and because housing was the largest single asset, around $22 trillion or something like that, not above household wealth of $50 trillion or $60 trillion or something like that in the United States. Such a huge asset. So understandable to the public — they might not understand stocks, they might not understand tulip bulbs. But they understood houses and they wanted to buy one anyway and the financing, and you could leverage up to the sky. It created a bubble like we’ve never seen.”

Bubbles continue to be obvious only in hindsight, largely because something based on a “sound premise” surely couldn’t be a bubble. Unfortunately in the markets, a premise is sound until it isn’t.

Source: https://finance.yahoo.com/news/warren-buffett-explains-why-market-bubble...

Ashley Church's underlying premise is that house prices in Auckland will not fall by much, and majority of people in New Zealand have this underlying belief. This was the underlying belief that led to the US housing and credit bubble. Here are Warren Buffett's words ...

From the May 2010 FCIC interview with Warren Buffett

MR. BONDI: As I mentioned at the outset, we’re investigating the causes of the financial crisis. And I would like to get your opinion as to whether credit ratings and their apparent failure to predict accurately credit quality of structured finance products, like residential mortgage-backed securities and collateralized debt obligations, did that failure, or apparent failure, cause or contribute to the financial crisis?

MR. BUFFETT: It didn’t cause it, but there were a vast number of things that contributed to it. The basic cause, you know, embedded in psychology –- partly in psychology and partly in reality in a growing and finally pervasive belief that house prices couldn’t go down and everyone succumbed –- virtually everybody succumbed to that. But that’s –- the only way you get a bubble is when basically a very high percentage of the population buys into some originally sound premise and –- it’s quite interesting how that develops –- originally sound premise that becomes distorted as time passes and people forget the original sound premise and start focusing solely on the price action.

So every -– the media, investors, the mortgage bankers, the American public, me, my neighbor, rating agencies, Congress –- you name it -– people overwhelmingly came to believe that house prices could not fall significantly. And since it was biggest asset class in the country and it was the easiest class to borrow against, it created probably the biggest bubble in our history.

24
up

*makes a hot chocolate and puts feet up*

Comments from our resident spin doctors are going to be hilarious on this article.. or are they going to take the ignore and pretend it hasn't happened approach?

Hi Pragmatist,

You write above: *makes a hot chocolate and puts feet up*

If you aspire to putting your feet up and drinking hot chocolate, how on earth are you going to get a house of your own?

House ownership is a reward for effort - hard work and disciplined saving.......

Or do you want to end up like the DGM??

TTP

Doing quite well thanks, money going into various savings/investments every pay cycle so deposit is growing nicely.
Not looking at paying the daft prices on the Auckland sh*tboxes on the market.. and for now it is definitely cheaper to rent. Rent on this place is less than the interest on the mortgage would be, and the rent hasn't gone up since we've been here ( just shy of 18 months). Will re-assess when we get back from our Europe trip at the end of the year.. maybe by then there will be some signs of the Auckland downtrend ending? *shrug*

There is no correlation between feet up with a hot chocolate, and home ownership...

How dire are things where having a rest and drinking a mug 'o hot choccy prevents one from getting a house?

Your insight is astounding. I would love to buy your book.

17
up

As per the Herald (https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=122...), thinking that the market here would EVER 'mirror' Sydney is like believing in Nessie... Silly you! Nessie has NEVER EVER shown up! There is no past evidence of the market here ever going down. It just does not exist. The market here IS different. We have 'demand' and..., low interest rates.., and more demand... And just an early winter kicking in. Lets blame winter. Chinese new year is around the corner. The Chinese need to come back to the table. Please....!?!

House prices continue to firm through most of NZ.

In Auckland, where the previous market upswing ended in October 2016 (i.e. 2.5 years ago), there has been a textbook soft-landing....... And that's despite the overseas buyers ban, the highly-publicised threat of a capital gains tax - and tighter regulations for rental properties.

Many here will be reflecting on the tenacity of the NZ housing market - regretting that they didn't purchase 5 years ago.

TTP

...A textbook soft landing?
Where in the textbook does it say that an ~20% decrease in the number of sales (while listings are increasing) is a 'soft' landing?
In the North Shore listings are down ~25% and median prices (although we should be careful reading too much into those) are down ~6.5%. Is that another 'soft landing'?

North shore city and Auckland City HPIs are down 4.2 & 4.3% YoY.. more reliable than medians. Will see if i can find the peak numbers for the Auckland HPIs.

Yea. Naturally; hence the note.
Just found the HPI report. Funny how ya have to go looking for that one, eh.

FYI:
Auckland Region HPI is down 2.96% from its peak in March 2018

North shore City HPI down 4.9% from its peak in Nov 2017
Auckland City HPI Down 4.75% from its peak in Oct 2017
Rodney HPI down 3.74% from its peak in Dec 2017
Manukau City HPI down 3.77% from its peak in April 2017
Papakura HPI down 0.9% from its peak in March 2018

Waitakere HPI down 1.52% from its peak in Sept 2018 - much later than most of Auckland
Franklin HPI is at peak

Caveat: I've only got HPI data back to March 2017, so if there were higher peaks before that they've been missed by me. Possibly Manukau city?

I saw that Joe Wilkes quoted some analysis the other day originating from homes.co.nz. Apparently 7.5% of first quarter 2019 Auckland sales were at a loss! That doesn’t even include conveyancing and marketing costs. They sold at a loss! WOW! https://www.youtube.com/watch?v=2-x083r42kE

To be fair/charitable, if the price drops stopped here then it would be a fairly soft landing. That's a pretty big "if" though!

If that was all that happened that would be a soft landing for sure, its just not likely the end of the correction.

Hi nymad,

With all due respect, it's apparent from your contribution above that you're not clear on the meaning of "textbook" or "soft-landing".

It's now 2.5 years since the peak of the last upswing - in which Auckland house prices increased by more than 90 percent in 9 years - yet the market continues to sustain itself.

The much-vaunted "crash" - that so many people here proclaimed would have occurred by now - has simply not eventuated.

Enjoy the weekend.

TTP

It appears you are confusing descent with landing. It's unclear whether you feel it's landed yet.

Don't get that wrong on a plane eh.

if you take into account inflation at around 2% a year, in real terms Auckland house prices are down around 10% from peak.

Wow TTP, you are really painting yourself into a corner here. Notice how in Australia the same thing happened with regional prices as NZ, but then they started to turn following Sydney, Melbourne and Perth. It's what happens, the biggest city leads, then smaller place follow, just as it did on the way up.

TTP you appeals to the power of FOMO are no match for the power of a housing price correction.

There is no landing yet, soft or otherwise.

So true, they're arguing about whether its a soft landing or not and we are still circling the outer marker waiting for landing clearance.

Negative, we are just pushing over the top for the steep dive for oxygen.

Maybe.. we'll have to wait and see. I don't think its going to be a 30% crash.. but we are down 5% already in parts of Auckland, and i think it going to go at least that far again, unless the govt puts all hands to the pumps.

Auckland houses are still more expensive than any Australian city except Sydney, even though our incomes can't compare. it's a high perch from which to fall. https://www.rba.gov.au/speeches/2019/sp-dg-2019-04-10.html

I did, purchase 6 years ago, sold 2 years ago. Can buy back in @ 15-20% discount if i want to - same house! HODL'ers are losers - like with bitcoin. SMART investors are sitting with cash on the sideline...

Depends on when you bought if you are a bitcoin loser. I know a couple of whales still holding since 2010 - they are up a million percent or something. Anyone who has been dollar cost averaging for the last few years (like myself) is doing just fine. Heck BTC is up 20% in 1.5 weeks.

I hope you paid your tax sir, because that is a taxable sale.

Looks like he held it for more than 2 years, and sold before 2018, so neither 2yr or 5yr brightline apply.. So I would say you are wrong.

Tothepoint,

Since Auckland is a buyer's market and you are very confident of house prices increasing and house prices in Auckland not being in a bubble, are you taking advantage of the opportunities available to you in the property market? Just wondering if you are walking your own talk and buying more investment properties in Auckland for your property investment portfolio? After all, you might have regret in 5 years, if you don't buy now.

25
up

Well, well, well this was going to happen at some point, house prices could not go up forever and at that "some point" there was going to be resistance to prices by buyers, or a resistance by Banks to keep feeding the roulette wheel, or investors deciding it was not worth the hassle or risk.

Because at the price levels we were seeing , this was gambling, plain and simple .

The link between the asking price of new builds and the intrinsic value of the property being sold had become disconnected , quite simply the market had got ahead of itself .

So this is a correction , albeit a small one , and it could become a significantly larger one if the " noise "gets louder , and by " noise " I mean things like CGT , foreign buyer bans , ring-fencing losses , lower immigration numbers , and Phil Twyford banging on about how he plans to flood the market with sections for sale (although quite how he intends to do this is a mystery to me )

11
up

Yes and all those sheep conned by the property industry and mainstream media, the B.S. mantra of TV shows and training courses (Ritchmastery, Property Apprentice and the like) with agents willing and waiting up the back room, lured by untold wealth.
Commissioned based Independent mortgage brokers lying on ability to pay, based on some intrinsic value. Banks have woken up late to the problem and trying to deleverage out.

Yes the boom lifted the value of some really crappy properties to ridiculous levels.

In reality alot of those properties are hardly worth more than the land value.

There is a heap of these dumps for sale at the moment and this is where I expect to see a crash, potentially some of them are upwards of $200K over valued.

16
up

From the report, this is the most telling statement:

"... and the difficulty accessing finance are now really starting to impact the housing market in terms of sales volumes."

This is in an environment where the LVR restrictions were recently reduced, an OCR cut is increasingly likely, low rates and high employment. Yet the banks are starting to restrict credit? This either tells me they know (despite public protestations) that prices are likely to undergo a correction similar to whats happening in Australia. The other possibility is that they are already adjusting to the proposed RBNZ capital requirements changes.

Either way the result will be the same. Credit drives house prices, and credit is now drying up.

From what I hear the other factor is the responsible lending rules. After the fall out from the Royal Commission in Australia there has been more responsibility placed on banks if and when things go wrong. Therefore, banks are much more cautious in lending.

14
up

Some good news for young savers who have been renting. With a 4.9% decline since peak in the Auckland median their rent has not been wasted.

Hi RickStrauss,

On the contrary - with rents for reasonable 3 bedroom houses in Auckland being about $600per week = $30,000per annum (and sometimes more) anyone would have been far better off purchasing a house.......

And that's just the financial benefit. There are many other benefits of a non-financial (intangible) kind in owning the roof over your head!

TTP

11
up

TTP your analysis fatally ignores that borrowed money costs about 2.5 times the original principle to pay back over a generation including interest.

10
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Except that $600/week rental was worth (/sarc) about $900k to buy, so if they had less than a 20% deposit they still would have been paying about the same amount of "money rent" aka interest to the bank in mortgage payments (on a 25y mortgage @ 4.2%). and also been responsible for maintenance and upkeep, extra insurance costs, rates etc.

They have been financially better off renting and throwing the extra money in a savings/investment account of some sort.

$30k in rent vs. the combination of lost equity and interest cost (plus maintenance, rates etc.).

How would they have been far better off?

Purchase price of reasonable 3 bedder a year ago circa $1m, assume they managed to have a 20% deposit, that's a $800k loan, average interest rate of 4.5% = $36,000. Plus rates & insurance would add at least $4k, so let's sat $40,000 before any principal. Also have to count the lost returns on the $200k deposit.. in a TD that would have got 2.6% after tax (another $5k) and you have a differential of $15k over the year. That's before adding in any capital loss.

Then there is the principle repayments, let's say at the beginning of a loan it's about 2% in Year 1 - that's $16k that could be saved in another asset class.

Now, add to this the fact the renter may have left the funds in Kiwisaver, shares, or ETF, which have all performed strongly in the last 12 months and your assertion they are far better off has no foundation in reality. At least financially speaking, in Auckland, right now.

It's true there are non-financial benefits, like stability. Some of these can be attained renting via long fixed term leases ( REAL landlords like these). There are the benefits though also of not owning - no stress over maintenance or other costs. Flexibility when life changes, etc. Your continual drum beating on the virtues of ownership (and the assertion across many of your posts that only an idiotic financially illiterate person wouldnt jump on board the $1m loan train) is tiring.

And before you respond with usual 'oh, DGM this and that'. I am not making any prediction on directional movement of prices outside of observed data points... I am just responding with more analysis.

SMH.

In 2016, were going to buy a 3 bedroom home in Meadowbank for $970K. That same house on homes.co.nz is now valued at $900K. The interest we would have been paying on that mortgage was considerably higher than our rent.

Anecdotally, if we'd bought that home, the home value would be circa $70K less than when we purchase. (now feel for the other couple that won the auction). We'd have paid off little to no principal & we'd have spent far more on interest than rent. So in 2 years, we'd have been circa $100K down. I'm liking our renting & growing equity situation. Far more than owning said house and currently watching equity diminish.

Prices aren't going up right now. We're not paying interest to banks for the sake of it. Growing equity. And are ready to act when the time is right.

Good on you mealsonmeals.

FYI, here is a rent vs buy comparison based on the above numbers. All potential owner-occupiers should be doing a similar calculation.

A) Buy 3BRM house in Meadowbank at $970,000
1) equity deposit 20% = $194,000, mortgage of 80% = $776,000
2) rates and insurance ownership costs of say $3,880 per year
3) P&I payments based on 30 year term at 4.5% interest rate is $47,640 per annum
a) in year 1, annual interest cost $34,920, principal repayments $12,720
b) in year 2, the split is annual interest cost $34,348, principal repayments $13,292)
So at end of year 2, mortgage outstanding is $749,988
With house price of $900,000, and mortgage of $749,988, the equity value in the house is $150,012 (vs initial equity deposit of $194,000, so a loss of $43,988 or 22.7%)
4) total costs paid out for ownership - $51,520 per year (being $47,640 mortgage payments and $3,880 rates and insurance costs)

B) Rent option
1) cash of $194,000 (same 20% deposit as above used to buy house) deposit in bank earning 2.5% interest
2) let's spend the same amount as cost of ownership of $51,520 above, so the annual cashflow payments are exactly the same. This is allocated in the following way:
a) rent 3BRM house in Meadowbank - $38,480 per year ($740 per week rent as per median trademe listing)
b) save remaining $13,040 into bank.

After 2 years, the renter has $230,227 cash in the bank ($194,000 initial cash balance plus 2x $13,040 saved as cash differential and bank deposit interest income at 2.5% interest rate)

Comparison of financial outcomes of identical cashflows (have $194,000 cash at 2016, spend $51,520 per annum for 2 years), live in 3BDRM house in Meadowbank:
1) Owner-occupier has equity value of $150,012
2) Renter has equity value of $230,227 cash in bank to use as deposit in future

Conclusion
Renter is better off than the owner occupier by $80,215 or 53% ...

PS: if the renter chose to buy at the current house price, then they could use the $230,227 as a deposit and take a smaller mortgage of $669,773 ($106,227 less than the other buyer). Total costs of ownership would be lower at $44,998 per annum (compared to $51,520 per annum above - which is $6,521 per annum (for 30 years) in lower ownership costs). Such is the benefit of taking on less debt to buy a house when it has a cheaper price.

Mealsonmeals,

Would like to continue the rent vs buy comparison of this property in Meadowbank over the next few years and update the analysis given so that you and others can see the financial comparisons of that decision not to buy in 2016. I'll share the updated analysis on this thread and news story.

Would you mind sharing the address of the property under discussion so that I can monitor the estimated market value on homes.co.nz for the purpose of updating the analysis.

Sounds good to me.

We couldn't have bought before 2016. Lived overseas & built a business instead. So obviously getting in a lot later than some of our peers. But holding off at the time, so far has been the right move.

RS, indeed, and there will be a lot more of the decline to go yet. Renting is the way to go at the moment for potential FHBs. Notice how rents are dropping in Sydney too, as housing values decline.

Funny that rents do not always behave as people expect. In the Arizona GFC crash when houses dropped in value by up to 60% from peak, rents also started to decline a couple years after the crash started. They have only just started to recover - 10 years later. When cash is scarce and people are worried about the economy (which a property crash often precipitates) people are more frugal about everything and more prone to home share, live with relatives, and make do with smaller properties. There is some misconception that landlords set rents - they do not; they charge what the market will bear, like any other commodity.

So buyers aren't prepared to pay the asking price or close to it,and sellers aren't prepared to accept anyything below their minimum price.
Result No Sale.
Thats how it works.
No problem here ,next.

Until you account for the ones that don't have a choice and have to sell (death, divorce, etc).. They have to settle for what the buyers are willing and able to pay. Then your medians and indexes start falling.

Exactly and if the recorded sales are only those who have to settle then the statistic drop and those trying to wait it out get spooked and settle for an even lower price and that is how it snowballs.

There becomes a problem when people go to re-fix at a good interest rate and the bank tells them that they are no longer eligible for the reduced rates because they dont have any equity in their property. Without a good Loan to value ratio the good rates disappear. It will be the catalyst that forces many to sell. Many have bought homes banking on 4-5% loans. And other banks wont touch them with no equity in their property. Things would start getting very stressfull very fast.

So far we have had a minor correction in price from the peak in March 207. However, the question is how much further is the correction? The usual suspects will say the correction is over and it is a great time to buy and the other usual suspects will say that the correction has only begun. Only time will tell.

I agree NF
There are still the DGMers predicting - without any substantive reason - that here will be a collapse/bubble burst (i.e. a sudden and significant fall in prices).
Migration figures (albeit with some degree uncertainty) out today with many migrants destined for Auckland, indicate that there will be pressures on housing supply and consequently providing some support for prices. Both KiwiBuild which is more and more been seen as a failure in relieving housing pressures, and continuing low (some fall?) in mortgage rates will also continue to provide support.
I am expecting a seasonal downturn in Auckland activity and prices, but not the unsubstantiated collapse claimed by many. The interest.co graphs above indicate that over the longer term, the current correction is similar to that following previous periods of rapid housing inflation. All in all I am expecting up to a 10% correction which is consistent with previous such events.
For FHB buying "below market value" (investor terminology as a result of have bought/need to sell, death, moving city) is likely to be of more significance and importance than any short term market correction.
I suspect that those claiming a significant collapse/bubble burst just have a love of blood sports but unfortunately in this case they are likely to be disappointed.

Anyone who argues Auckland is 'steady' either have strong vested interest to spruik things (ie. they are agents like TTP), or are simply stupid.
This data proves conclusively that the market is very very weak.
Auckland is down 5% from peak, which is consistent with my predictions over the last 1.5 years.
I expect it to fall at least another 5%, but wouldn't bet on to what extent it might fall beyond that.

Hi Fritz,

You say the Auckland market is "........very, very weak."

In fact, the evidence over the last decade (or longer) shows that the Auckland housing market is "very, very resilient".

The most obvious losers at present are real estate agents (due to relatively low sales volumes). Agents, however, represent only a small proportion of the population. Fortunately, I have never been one.

TTP

you are hilarious

Property spruikers are lucky interest rates are going down and not up. 12 months ago it looked like we might see them climb 1% now they look like they could fall 0.5-1%. With falling interest rates the ridiculous mortgages are a lot more stable. So yeah, we are down 5% which for someone with $200k equity on a $1M home is still a 25% loss of equity. Will it fall further. I think 10% is plausible but if interest rates drop I think 20% is unlikely. What we’ll probably see is a 10% nominal fall and a 20% real drop over 5 years. That seems fair but who knows.

Ah TTP is an agent? I didn't know what, makes sense now. Livelihood depends on it.

He denies it, and denies having any investment properties too IIRC. Your choice whether you believe him or not, but if it looks like a duck, quacks and shakes it feathery butt...

How about a mortgage broker? Same vested interests as an agent.

One or the other.

So with a 10% fall from peak, someone who bought an AKL median priced house in March 2017 with a 20% deposit, will likely have lost half of it.

The question now is: how many unsuccessful vendors can afford to hold on?
With prices not falling much but such low sales rates, there's clearly a large pool of overpriced properties.
I'm guessing that a large percentage of those bought in the last few years, and purely on the basis of expected capital gains. eg: the 'ghost houses' of the North Shore. The property I rent, and the one before it, (Balmoral/Sandringham) are both owned by Chinese investors (sorry to perpetuate the cliche, but it's true) who will be making a loss on the property if they're counting on rental yield alone. The previous place, who kicked us out to sell, have now gone to auction unsuccessfully twice. How many are in that position? What percentage purchased for capital gain and what percentage purely as a safe bolthole with any capital gain a bonus? Are they sufficiently capitalised to grit their teeth and wait ten years for capital appreciation, or will there be a mass move to the exits?

How many of these foreign owned "ghost" or otherwise properties are laundered funds. They might not be in a rush to sell, but merely see the peak of the market as the time to sell.

Even if they lose 5 - 10% of what they originally put in it's still a 100% gain, meanwhile dragging the rest of the property values down with them.

The foreign buyers giveth the large price increase and they taketh away.

How many property investors who own multiple properties in Auckland are in a negative cashflow position similar to Eddie? (how many are in a similar negative cashflow position and no access to additional capital)?

https://www.youtube.com/watch?v=eb9U7PwXBew&t=7s

Auckland house prices steadily falling. Nothing to see here.

CHCH market is hot hot hot, make sure you buy the below market value and you will have a string of potential tenants line up willing to rent!
You're welcome!

You been hacked by The Man?

Hi Chairman Moa,

Wellington and Palmerston North markets are also hot, hot, hot........ both for sales and rental.

I'm told by friends in Wellington that it's almost impossible to purchase a good family home in the city suburbs - and that rents are through the roof.

In Palmerston North, where developers are now very active, there's a dire shortage of building sites in the preferred suburbs (such as Hokowhitu).

TTP

YoY prices in wellington have slowed drastically. March prices were actually down 4.5% on the previous month. Stock has increased in wellington and sales have fallen, despite March normally being a very busy month. You are living in a land of make believe.

You forgot Gore.

Interest.co: Really like your interactive graphs - very valuable.

17
up

The article omitted the most important objective measure of the Auckland market, i.e. the HPI. 2823 for March, which is approximately 2.9% down YoY. This is significant because the last couple of months it was only down 2% YoY.

Looking at the past 8 months (of YoY HPI change for AKL) paints an interesting picture: [-0.49%, -0.10%, -0.48%, -0.55%, -1.81%, -2.13%,, -2.04%, -2.96%].

I don't know where things are going to end, but the low sales figures would suggest there are more falls to come.

Good data layout there .. showing the trend.
Appreciate the objectivity.

The Gold rush has ended.

Lower sales equates to more desperation from owners. The owners will sell under financial duress, driving prices down. This is great news for NZ as it will result in property returning back to realistic prices- not the reputation of having the highest property prices in the World. Average kiwis like myself were driven away from our homeland because of the absolute greed of the wealthy, using property as their meal cards.

Today,the Committee has been given the green light.

Still positive. Lol.

CGT for resdinetial housing does exist even now - if one sell a house less than 5 years has to pay tax, if it is not a family home.

Giving false hope and think that all who do not have holding capicity should sell now instead of taking the hope from the above article/expert opinion.

Vested Interest.

Yeah people tend to forget the 5 year bright line test, effectively a cgt (but with a time limit).
It’s got to be a deterrent for quite a few investors. Because many buy and then want to flick. Even for those who might ‘intend’ to buy for the longer term, for some there is always the thought that they might have to sell within 5 years.
It wouldn’t be an issue if it looked like we were going to have an ‘eternal boom’. But anyone who has even a snippet of intelligence can see that at best future gains are likely to be muted. So then you effectively lose a chunk of any of your small gain, plus of course agent fees. So limited gain, likely poor yield and potentially lots of tenant hassles. Why would you do it?

Auckland down 4.9% from peak puts it in a close third to Sydney (-14.9%) and Melbourne (-10.7%). This time last year the "experts" were talking about a "soft landing" for those two cities and predicting a 5-7% decline. Fast forward a year and now the same experts are talking a 20-30% fall. Sydney had about a 9 month head start on Melbourne, and Melbourne looks to have a 9 month head start on Auckland. So in about 18 months we'll be looking at Sydney level price drops and wondering if 20% will be the "soft landing".

Let's see what happens this winter. From my seat it looks like an orderly leveling off period in the big smoke. Can we keep it there? Who knows. Where we live (outside the big smoke) the boom/lift has lasted less than 3 years. Prior to that the market was pretty flat for 5-6 years (after the GFC). Prior to that we had 4-5 good years after 5 tough/flat years. If you have to sell, then you have to sell. If you can guts it out then stay put. The longer you can stay put the better.

Hi Long John Martin,

It's hard enough to get into property in NZ - as I've found out personally.

So you're absolutely correct - once in, stay put - and the longer you stay put the better.

These days, of course, nearly everyone knows that....... and they behave accordingly.

TTP

"It's hard enough to get into property in NZ - as I've found out personally."

Just wondering about your personal experience as to why it is hard enough to get into property in NZ? What are the constraints you are facing?

Hi CN,

Suggest you find something ethical and productive to do with your time - rather than delving into other people's business.

I will say, however, that history shows that many (perhaps most) people struggle to acquire their first home - and subsequent homes. But few seem to regret the hard work and disciplined savings needed to succeed.

TTP

Pretty harsh reply, given you opened yourself up. He is unethical for asking about a comment you made?

Brokerage business struggling eh? That lack of commissions makes the banks wary to lend to you?

Agent TTP, I think CN's question is an excellent one. Why you've reacted overly defensive just serves you to the wolves as more of a flake than someone who backs up his comments with real life experience!

Tothepoint,

Merely seeking clarification and further general details of your comment - was never asking about specific details.

Given that you have been looking at property in Auckland for over 50 years, was very interested in how you are finding it hard enough to get into property in NZ.

1) There is a 21 year old here who is able to buy multiple properties (he owns 11)- https://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=121...
2) Here is a story of an immigrant from China who has also amassed a property investment portfolio - https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115...
3) I know of another guy who left school at 15, who only got School Certificate, yet he has managed to also trade many properties in New Zealand.

So if an immigrant, a 21 year old, and a school leaver with minimal school qualifications can buy multiple properties in New Zealand, it seems unusual for someone who has been looking at property in Auckland for over 50 years to find it hard enough to get into property in NZ - the two circumstances that come to mind are 1) insufficient deposit to buy, and 2) unable to meet bank lending criteria. Perhaps there is something else that I am overlooking?

The other reason that house ownership might be difficult for owner-occupiers in Auckland is due to lack of affordability at current price levels currently. Current valuations of Auckland houses at house price to income of 8.6-9x is very unaffordable for most first home buyers (without the help of the bank of mum and dad)

Also an owner occupier on the Auckland median household income of $94,000 who purchases a property at the median Auckland house price of $856,000 with an 80% LVR mortgage of $684,800, has to spend almost 45% of their household income to service the mortgage (assuming a 30 year P&I mortgage at 4.5% interest rate). Note that banks use to conservatively allow 25% of household income to service a mortgage, which was more recently raised to 33%, so the 45% level is exceptionally high by those standards.

The 45% level leaves very little financial flexibility if unexpected events occur (such as relationship separation, permanent illness or death of household income earner, job loss due to recession, etc)

Data speaks : Was checking the auction result of Harcourts in Manukau area.

Harcourt had 5 Auction on 6th April and only One went that too because was sold 18% below CV (Genuine Sellers).

Moral of the story : House will still sell provided Vendor/Agent has realistic expectation.

Otherwise will be in market for few months before being pulled out of the market or some vendors may change the agent and some after few months will sell at a much lower price then that was possible earlier.

It is still hard for FHB as houses which were 1.1 or 1.2 or 1 million have fallen in 900s orin early 800s but houses in 700s - mostly Units are more or less same as earlier - though slow but not that much fall as one would expect or in million dollar bracket.

FHB should look for genuine sellers to get a deal and not Vendors who are just testing the market and most of them falls in to second category.

FHB should also not rush as have already missed the bus in current boom so why make hasty purchase. Houses in next few years may or ma not go down (Most probably will go down) but one thing is for sure that is not going up.

Buyers who are in 900s Plus bracket, may find good deals but in mid to high 800s mostly weatherboard old house selling in full section (like in Pakuranga) will burn their hands, if they buy now, as they still have a lot to fall. FHB should try to get the most out of their $$$ instead of blindly rushing.

Hi richard1965,

You don't need an agent to sell a house.

You're better off doing it yourself - if you're the time and a bit of commonsense.

These days the on-line sites (TradeMe etc) make it much easier to sell privately.......

Seize the opportunity - you'll save money (from not paying agent's commission and all the add-ons) and gain a sense of satisfaction!

TTP

...unless of course you're a Palmerston North based vendor. TTP recommends you utilize the service of an agent (himself)

Earlier it was Million $ houses that was going much below CV or not selling but now as can be seen from Auction result even 2 Bedroom who are asking more (what would have feteched in 2017) are not getting so the next step is that even units / houses that were going in 700s will now go in 600s - good for FHB.

FHB shoul defenitely wait and not be in a hurry to enter at this stage.

FYI, house price to income multiples across the country

https://www.interest.co.nz/property/house-price-income-multiples

1) The cheapest on this metric are Whanganui and Invercargill at 3.1x and 3.6x respectively.
2) The most expensive based on this metric are Queenstown-Lakes District at 12.16x, Auckland at 9.01x, and Tauranga at 8.02x.

Look at the Auckland median and HPI graphs on pages 15 and 16 respectively. FLAT.

https://www.reinz.co.nz/Media/Default/Statistic%20Documents/2019/Residen...

Should have gone to Specsavers!

How would you describe those graphs? Flat as a slightly wonky pancake to me.

It's amazing what you can do with a broad Y axis range.

I wonder why they chose to scale from 0 to 3500, when the operating range is ~500.

Charting 101.

Auckland HPi down 2.96% in a year,
Auckland Median down 2.7% in the same time.

Its amazing how the property spruickers understand leverage and %s when when its interest rates drops and price increases.. but when things are going the other way they just don't seem to compute all of a sudden.

If property prices went up by that much in a year I’d call the market basically flat.

You’d only call it flat if it was exactly 0% year on year? Look at those graphs I mentioned - how would you describe that?

Do you admit that prices are rising nationally?

10 point penalty for goal post move. We were discussing Auckland HPI.
Feel free to look at the upper North island graph in the HPI release.. it was flat like a wonky pancake, then it took a significant step down.

My entire comment except for the last sentence is about Auckland HPI. Again, look at the Auckland HPI graph, how would you describe it? It is flat as a wonky pancake. Would you only say HPI is flat of year on year change was 0%?

Same data. without the stupidly stretched X axis. Flat as a lumpy pancake for 2 years or so, then a step down.
https://imgur.com/a/dyrSqFb

Complains about stretched Y axis and then promptly proceeds to shorten the Y axis beyond all recognition - and it still didn’t give you the result you wanted :) Oh my, look at the glory years pre 2017 on your squashed graph, looks like the trajectory of Falcon Heavy taking off.

Its the graph from the REINZ HPI report.. , no alterrations, just clipped from the PDF.. go blame the REINZ.

Hey David/Greg, you seem to have a programming error.. or my last post was made before I was born.. 1 Jan 1970 dates on all posts from the last 8 or so hours.

So do the graph’s that I referenced, so you can write to REINZ complaining about those and thanking them for the squashed one. I won’t bother because I’m satisfied that both show the same thing - a wonky pancake. The Invisible Hand is going to flip the pancake into the air come 2021/22, so I trust you will light a fire under it when it comes to your house hunt - flat market won’t last forever.

BLSH, do you still stand by your Jan 2019 year end prediction for Auckland? "Residential Property: Auckland HPI: +1%, Auckland Median 0% and OCR: 1.75% all year.

Absolutely. Are you standing by your predictions that NZ property nationally will be -2% (currently +4.5%), and OCR 1% (even dovish experts are saying only one cut this year, most saying none).

Yup :) It certainly looks like its coming to fruition too! BTW, you also omitted my prediction that Auckland property prices come in at -6%, unemployment rate @ 5.7%, and NZX-50 at 5600. I'm happy to concede my NZX-50 is looking too bearish when it's currently at 9768! BLSH, when annualized, both the Auckland HPI and median are down. You must be predicting a significant pick up in spring - hmmmm!

FYI, using your Auckland HPI number above:

Nominal price returns:
1) House price: NEGATIVE 2.96%
2) Equity of owner occupier (who financed purchase a year ago with 80% LVR interest only loan) : NEGATIVE 14.8%
3) Person who held off buying and remained renting, deposited the initial equity deposit of 20% of purchase price of above owner occupier into a bank account on time deposit): POSITIVE 2.5%

Real returns (i.e inflation adjusted) - CPI 1.9% as per RBNZ
1) House price: NEGATIVE 4.8%
2) Equity of owner occupier (who financed purchase a year ago with 80% LVR interest only loan) : NEGATIVE 16.4%
3) Person who held off buying and remained renting, deposited the initial equity deposit of 20% of purchase price of above owner occupier into a bank account on time deposit): POSITIVE 0.6%

So the person who held off buying and rented is about 20% better off (in real inflation adjusted terms) than the owner occupier who bought a year ago - as the owner occupier went backwards, and the non buyer renter just stood still by putting their money in a bank. And that is on a nominal house price move of only 2.96% ...

Interesting times where property prices are dropping and yet mortgage interest rates and unemployment is very low.

Could the Chinese buying frenzy of 2012 to 2016 (which National denied existed) have artificially inflated values and now the values are returning to the norm?

In years from now people will look at the trend line and wonder what was that spike in values between 2012 and 2016.

The market hasn't even landed yet and Agent TTP has made the "call" its landed softly. It's his same old FARCE on another bad reporting day. There's mounting evidence that absent a crash, this drift could easily carry on for 8-10 more years before sane fundamentals are reached. By that stage, adjusted for inflation, Auckland could be down more than 30%! It's such early days whereas those who bought in 2016 onwards are already starting to cra* themselves. The longer this endures and where there is equity to be realized, emotions on the back of FONGO" will bring more and more sellers to the exit gate. Auckland median is now down -4.9% from its peak. Adjusted for inflation, thats near on -7% already!

FHB's who waited will be watching their term deposit savings grow in strength!

Market still looks the same to me, just like the people on here. DGM's using the apparent "Bad News" to justify why they are still not buying a house. There is never a bad time to buy a house if you have a long term outlook and make that commitment.