Even though lower quartile house prices remain at or near record highs, falling interest rates have come to the rescue of first home buyers

Even though lower quartile house prices remain at or near record highs, falling interest rates have come to the rescue of first home buyers

By Greg Ninness

The ongoing decline in mortgage interest rates means the Auckland region is now within a hair’s breadth of being considered affordable for first home buyers, in spite of the region’s lower quartile dwelling price sitting at a record high.

Interest.co.nz’s latest Home Loan Affordability Reports show the average of the two year fixed mortgage rates offered by the major banks in March was 4.02%, the lowest it has been since interest.co.nz began compiling the data in January 2002. The peak during that period was 9.64% in March 2008.

The Real Estate Institute of New Zealand’s lower quartile selling price for Auckland (the price at which 25% of sales are below and 75% are above, representing the area of greatest interest to first home buyers) peaked at $680,000 in March 2017, before dropping back to $640,000 in August 2017 and steadily increasing back to $680,000 in February this year and staying at that price in March.

However in March 2017 when Auckland’s lower quartile price first hit $680,000, the average of the two year fixed rate was 4.8%. This meant the mortgage payments on a lower quartile-priced home would have been equivalent to $733.84 a week.

But the mortgage payments on a home purchased for the same price in March this year would have been $666.45 a week, a reduction of $67.39.

Over the same period, interest.co.nz estimates the median take home pay for an Auckland couple where both were aged 25-29 and working full time (the standard model used in the Home Loan Affordability Reports’ first home buyer calculations), would have increased from $1597.12 a week to $1663.29.

The combined effect of lower interest rates and higher take home pay means the amount of their weekly income a typical first home buying couple would need to set aside for the mortgage payments on a lower quartile-priced home dropped from 45.95% in March 2017 to  40.07% in March this year, with payments of 40% or less considered affordable.

That means that Auckland is on the cusp of once again being considered affordable for typical first home buyers, and large parts of the city already are.

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

Mortgage payments on lower quartile-priced homes would take up less than 40% of the take home pay of typical first home buyers in Waitakere (38.08%), Manukau (38.21%), Papakura (34.76%) and Franklin (34.26%).

But typical first home buyers might still struggle to get into their own home on the North Shore, where the mortgage payments would eat up 48.57% of their take home pay, and in Rodney (41.06%) and Auckland Central (also 41.06%).

Rest of country affordable, except Queenstown

Around the rest of the country, lower quartile dwelling prices remain well within affordable limits everywhere except Queenstown, which is the second least affordable place in the country for first home buyers after Auckland’s North Shore.

The most affordable region in the country is Southland where the mortgage payments on a lower quartile-priced home would be $198.74 a week, taking up just 12.42% of a typical first home buying couple’s take home pay.

Individual Home Loan Affordability Reports are available for each region by clicking on the link for the appropriate region at left.

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We know that higher take home pay is soon neutralised as it is a cost to those that have to pay it so it is soon added onto goods and services.

And we know that lower interest rates, or any saving in building costs is soon capitalised into land prices where land is restricted, as it is.

I don't know why interest.co.nz does not produce a running overlaid graph showing all the variables, eg interest rates, consumer price index, LVRs, mortgage to income multiples and house price to income multiples.

Is it because, as your name indicates, you more interested in the 'interest' part?

Dale, none of those sentences ring true, except the one that starts off with "I don't know...". I'm sure you don't. As far as your other claims go - what can be asserted without evidence can be dismissed without evidence.

For it not to 'ring true' for you, this must be more than just a 'feeling,' so enlighten us.

I mean have you never seen any evidence that costs are part of the price of a good or service, and that increased costs get passed on?

And since, "I don't know...." - do you or anyone at Interest.co.nz know?

If you produce more goods than before then the cost of your pay increase does not have to be passed on to the cost of purchase.

The recent increase in the minimum wage was not conditional on anyone producing more goods, why should it be?. All things being equal, costs are almost always passed on.

Minimum wage increases don't reflect productivity, which is one of the reasons such laws are a market distortion. Your argument may apply to minimum wage increases, which are often passed on to the consumer, but your original comment didn't say "minimum wages", it said "higher take home pay". Not everyone is on minimum wage and most wage increases aren't dictated by law. To make a blanket statement that "we know that higher take home pay is soon neutralised as it is a cost to those that have to pay it so it is soon added onto goods and services" ignores factors like productivity changes and is just wrong.

New Zealand's average income is NZ$52,100, while Australia's is NZ$87,168. That's 67% higher, but goods/services aren't 67% more expensive in Australia. Productivity is a factor. Shamubeel Eaqub has done good work on how low productivity explains the difference in wages between New Zealand and Australia. Long story short, higher take home pay is not necessarily neutralised through more expensive goods and services if there is a proportional increase in productivity. We should be aiming for what the Australians have done, not be resigned to thinking that any wage increases will only ever match inflation as has been the case recently.

You also said that "...any saving in building costs is soon capitalised into land prices". Why do you think this?

You've gone off track, the point I was making is the article assumes that the increase in wages and lower interest cost is all available to offset the mortgage and/or give them more disposable income to spend on other things.

'The combined effect of lower interest rates and higher take home pay means the amount of their weekly income a typical first home buying couple would need to set aside for the mortgage payments on a lower quartile-priced home dropped from 45.95% in March 2017 to 40.07% in March this year, with payments of 40% or less considered affordable. '

The reality is for most employers, increase in wage costs have to be past on, and there is no reason to assume or expect productivity will increase to offset the wage increase.

As for your last point re savings in building costs being capitalised into land prices, this is because with the saving a builder can use this extra money to outbid other builders in purchasing the section he needs to build his next house, remembering that sections are in general in limited supply, in short with lower interest rates and increase in capital from building cost savings, demand for the sections/houses is increased, but not the supply, and within a very short time the price of sections/land is bid up to neutralize these savings. The principle of all this is in the readings as noted in the following previous thread.

I just disagree with your statement that "we know that higher take home pay is soon neutralized as it is a cost to those that have to pay it so it is soon added onto goods and services" because this simply isn't always the case.

I really don't think cheaper building costs would lead to higher land prices. The savings would passed on to the consumer in the form of cheaper houses because they are competing with other builders/developers who are also incurring lower building costs. And if there isn't enough competition to cause that, the savings are more likely to be pocketed by the developer/builder than to be used to pay a higher price for their next land purchase.

BLSH - One of the best one article explanation is found in Emmanuel, D. (1985). “Urban land prices and housing distribution” https://journals.sagepub.com/doi/abs/10.1080/00420988520080841 but it is not as easy to access. Allan W Evans, is more accessible. Pick a book. https://www.amazon.com/Alan-W.-Evans/e/B001HPT73S%3Fref=dbs_a_mng_rwt_sc...


Interesting perspective but isn't FTB buying primarily limited by deposit requirements? It doesn't matter if the interest rate is 0% if the entry point is 5x annual per capita income housing is not affordable.


Getting more affordable by the minute... So no need for the young to hurry in! Anyone ever played Jenga?


Falling Interest rate but Loan is Loan and is not for few years but mostly for 30 Years.

Low interest rate should be temptation if given for 15 years and not 5 years.

This type of suggestion gives false hope to FHB and when the interest rate will go up will be ............

House price has to fall.

I suspect the majority of the narrative that low interest rates are a good thing for First Home Buyers comes from people who have seen increases in the paper value of their own homes as well as a drastic reduction in their mortgage servicing costs.

Wonder when NZ banks will start offering 30 year mortgages @ < 5% like they do in the U.S. if there's so much confidence that low interest rates are here to stay?

It is interesting isn't it. In the USA it seems you are a bit of a muggins if you take a mortgage that doesn't have a rate fixed for the entire life of the mortgage, yet over here i've never heard of a bank offering such a mortgage, and if they did i'm sure it would be at one hell of a premium over current rates.

In the US banks can immediately sell their 30 year fixed rate mortgages to Government backed securitisers (Freddie Mac, Fannie Mae, Ginnie May), who turn them into mortgage bonds and sell them to investors. The US banks do not carry the risk of a 30 year mortgage on their books, private investors do. Australian/NZ banks do carry mortgages on their balance sheet for 30 years.

I can't believe the 30 year mortgage thing. It's the most common mortgage type in the States and has average interest rate of only 4.9%. Sign me up.

Very low interest rates with still near (just past in Auckland it seems) peak bubble prices, and taking on a massive mortgage for decades to buy at these prices, does not make for affordable buying. I think most people who read this site have seen my comments on that by now, so I’m nearly done with it until we get to the other side.


This particular formulation of 'home affordability" still seems remarkably generous to me.

-raw price (in AKL) still at 8x affordability, still absurd by historical norms
-FHB demographic likely to be earning less than the average used in the calculation
-wage inflation persistently low
-FHB demographic likely to have income interrupted by children
-idea that it's somehow sensible, when calculating how much debt you can take on, to assume current (unprecedentedly low) interest rates will remain low, even though it's impossible to fix the rate.

I think it's another example of the narrative being driven by a different generation, for whom prices were low and interest was the main enemy. They simply can't believe that there is such a thing as 'too expensive' when it comes to real estate. They've also worked for decades in a job market where incomes can be expected to rise throughout a career and where jobs were generally secure. I'm in what should be the FHB demographic (mid-30s, married, both working in relatively skilled jobs, quite frugal) and the calculations for home ownership still make zero sense - are a literal impossibility (without SUBSTANTIAL freebies from parents) - for us, and for every other 20/30something I know. But then I don't work in finance or government.

What I'm saying is, this simply doesn't ring true, and to buy a house on the assumptions made by this measure would be treacherous indeed.

Good post, but I disagree that interest rates were their main enemy. Those high interest rates were in response to high inflation, a very good thing for a mortgage.
The real interest rate = interest rate – inflation. In fact inflation was sometimes so high they were paying negative real interest rates. They had it much easier full stop.

Real interest rates dont get near enough air time. Interest cost has been less than capital value growth for so long now that it's assumed it always will be. And falling interst rates have helped enormously.

Deposit requirements for a first house in Auckand are now about the same as the total cost of my first home nearly 20 years ago.

But with interest rates so low there is no way the same tail wind will help current first home buyers and having paid off their student loans their debt appetite may actually be lower.


Totally agree. It's absurd for anyone to claim that housing is nearly affordable for FHBs in Auckland. Seriously.


I agree there's a generational thing at play. Lots of baby boomers just don't get it.
There's one at my work who always has me on about not buying. He said he bought when he was 25 and never regretted. He says I just need to jump in.
I tell him easier said than done when I need to spend at least 850k and have a deposit of at least 150k, and service a mortgage of 700k...
He just doesn't get it. Part of that is a lack of empathy on his part, part of it is in-built generational mentality.

The baby boomer is unaware of house price to income ratios.

Assuming the baby boomer is aged 69, then it was 44 years ago when they were aged 25. That takes us back to 1975.

Let's look at valuations of residential real estate in 1975.

According to this article - https://www.interest.co.nz/news/44330/opinion-why-golden-oldies-are-wron...
1) the average gross wage in NZ was $126.88 per week - equal to $6,958 per year
2) the average house price in NZ was $24,300

So the house price to income ratio was 3.7x (on a single household income).
Versus the current house price to income ratio in Auckland of 9.0x (using a double household income)

Also in 1975, there was a 33% deposit, so a 67% LVR would mean a mortgage of $16,281. The mortgage debt to income ratio is 2.5x (which was typically one household income).
In 2019, a 20% deposit is required and a 80% LVR. At the current median house price in Auckland of $850,000, this means a mortgage of $680,000. That is a mortgage debt to income ratio of 7.2x (which includes both household incomes)

Yes. There's also that whole double income/children thing, which people skirt around because it's uncomfortable.
If you get a mortgage on the assumption that you have two incomes, how exactly are you supposed to have a baby? My wife earns more than me, but she's in a physically demanding job and there's no way she could do it while pregnant or looking after a baby. If we decide to do that, even paying rent will be difficult. Several years of poverty, probably going backwards financially. I wonder why the birth rate is declining??

On a different note - there was yet another Oneroof story straight from Australia about a millennial who miraculously changed his spending habits... and found he could get a house deposit and now he has a house!! INCREDIBLE saving tips about how you don't have to spend all your money on UberEats... and at the end of the article we see he's on AUS$90k. How stupidly profligate do you have to be to not save money on that? It's an insult, an absolute insult, and for those old hands wondering why socialism doesn't look so bad to the youth...

Halfway down this Oneroof article has stats on 70 years worth of housing vs household incomes to 2018. The household income is such a distorted measure it's not funny.

1978 - Average House Price $29,698
1979 - Average Wage $8164 (according to NZHistory.govt.nz), Average Household Income $8204.14 (according to Oneroof)....i.e. they're the same.

2018 - Average House Price $663,668
2018 - Median Wage $56,700, Average Household Income $100,892 (according to Oneroof).

So household incomes in 2018 have increased 78% due to counting of 2 incomes.

Exactly. This is important, and that was the basis of my initial post above, ie:

'I don't know why interest.co.nz does not produce a running overlaid graph showing all the variables, eg interest rates, consumer price index, LVRs, mortgage to income multiples and house price to income multiples.'

I'm not the first person to ask Interest.co.nz to provide this, or why they are reluctant to. It should be easy enough for them to do this.

Maybe their advertisers have some say?

Hi CN I started work in 1975 so can speak from exactly what it was like. I started on $2242/annum as a trainee Telecommunications Tech and a qualified Technician was on $5,000 ( today that same qualified Tech is on $76,000 ) which certainly was well in excess of the average wage at a guess it was probably closer to $3800 and certainly the average house price was around $24,000. Sure the price to income was better around 6.5 on those numbers but the big difference was you had to had a life time savings record with a bank and around 50% deposit which seemed totally impossible at the time. I choose to work overseas for 2.5 years to get that deposit and from memory the interest rate was 7% . My point is that it was never easy then, before then or now. I purchased in 1983 in Auckland for $64,000 ( average price then ) and the max the bank would lend was $28,000 on a first mortgage and I didn't qualify for a second mortgage so I had to have a $36,000 deposit. It was difficult hence there are plenty of Babyboomers that never bought and rent today. Stories about cheap houses in the past are true enough but I think those stories are purchases in provincial NZ .

What we didn't have then are all the other things like cellphones, internet, cafes, restaurants, cheap travel - return to UK in 1979 was $2000 same or more than today average wage was $10k then !

So my point was and is it a huge silly mistake to assume/believe things were better or easy in the past your past or mine go see Daffodils movie it's a reminder that life in the 60's was infact crap. Plenty of people won't buy ever but the one's that strive and find away to achieve it will always end up in a more secure place later in life.


Thank you for sharing your personal experience with this forum.

When purchasing your house in 1983, you had to put down a 56% deposit. Very large proportion in this day and age. Just out of interest:
1) what was your income in 1983 when you purchased your house? (trying to determine how much debt you had to take on relative to your household income level, and the amount of your deposit relative to your household income level.)
2) where was your house located? (trying to determine if it was an average priced house, or in a high socioeconomic area)

FYI, a current median house price in Auckland,
1) at a LVR of 80% requires a debt to household income of 7.2x (i.e 7.2x both household incomes)
2) requires a deposit of 1.8x household income ( i.e. 1.8x both household incomes)

It would be extremely difficult for a single person on the median income of $56,700 to buy a house in Auckland (without the assistance of the bank of mum and dad) in the lower quartile price of $680,000. It would mean taking on a debt to income of over 9.5x, assuming an 80% LVR. Not sure what the circumstances in 1983 would have been as a comparison.

Low interest rates only help those who already own homes. Under Responsible Lending rules those looking to take out a mortgage have to pass mortgage servicing assessments that are based on a 7% interest rate, not what the current mortgage rate is.

Re Auckland FHB debt borrowing capacity

If you apply the mortgage payment of $666.45 per week, this is equivalent to $34,655 per year.

Assuming these payments to a 7.0% interest rate and 30 year term on a P&I mortgage, the maximum borrowing capacity is $430,040.
Add to that the deposit of $76,384, gives you a maximum purchase price of $506,420 which is 26% less than the assumed purchase price of a lower quartile house of $680,000.

Cheap money is a wolf in sheep's clothing. Cheap money suckers you in & then before you know it, it changes. It's the cycle of capitalism regardless of what the politicians tell you. Change is the only constant, remember.

Affordable FHB in Auckland.....must be a joke....good one

re Auckland FHB incomes

1) weekly net take home pay of $1,663.29 per week
2) that is equivalent to net take home pay of $86,391 per year
3) that is equivalent to gross take home pay of approximately $103,500 (assuming 2 income earners of $51,750 gross)

Two questions:
a) that is higher than median household income for Auckland $94,567 (refer https://www.interest.co.nz/property/house-price-income-multiples) - is that right??
b) that is higher than median household income for North Shore in Auckland $100,248 (refer https://www.interest.co.nz/property/house-price-income-multiples) - is that right??

That is correct, and those imaginary FHBs have got above the median while they are still early in their career....

I would be very interested to see a demographic breakdown of who is earning that much.
How many are under 40?
I have a friend - MA in electronics engineering, highly skilled - works for one of the biggest in the field - even he doesn't get that much.
I'd be genuinely interested to see income stats by age cohort if anyone knows where to find them.

The $103k household income assumes two income earners, both earning $51k, or some other split, such as one full time worker and one part time. If your buddy is not earning more than $51k a year then I suggest he change fields.

Anyone buying a house will have a higher than average household income, because if you don't you cant afford to buy a house. The average also includes people who are not in the market to buy such as welfare beneficiaries, part time workers, students, temporary immigrants, etc. This is why Kiwibuild houses are being sold to doctors and other professionals.

RE Auckland FHB.

It is assumed they would have saved $76,384 to use as a deposit
To buy a home at Auckland’s lower quartile price they would need a mortgage of $603,616.

Total purchase price is $680,000 ($76,384 deposit plus mortgage of $603,616)
That means a LVR of 89% and equity deposit of 11%. So this is assuming that the FHB is eligible under bank new lending requirements of 20% allowed for low deposit loans.

FYI - As of 1 January 2019, LVR rules state up to 20% of a bank’s new lending to owner occupiers can be for low deposit loans (deposits below 20%)

This also seems to ignore the fact that many potential FHBs aged 25-29 will be saddled with student loan debt that will a) limit their ability to save a deposit and b) limit their ability to service a mortgage.

More top flight comedy from The Church:



6. And house prices will remain flat for a few more years

On top of all of this Auckland prices will continue to be relatively flat for a few more years, and may even decline in some areas. Parts of the country where house price growth is still strong will also come off the boil over the next 18 months.

7. But there’s good news for those with patience!

If you can endure the challenges above, and hang on in the market for a bit longer, your patience will be rewarded. The next cycle can be expected to start, slowly, probably sometime between 2021 and 2022, with house prices increasing more rapidly until the peak of the next cycle which will be in around 2026 or 2027. If the experience of the previous four cycles is a guide, house prices can be expected to increase by between 75 per cent to 100 per cent over that time and your faith in your property, whether it be your home or an investment, will continue to prove to be well founded.

So he’s saying prices could be double current prices by 2026/2027.
The man is the best comedian in the land.
But actually just a vested interest ignoramus/idiot

Lets look at those numbers..

Taking Gregs lower quartile Auckland price of $680k, and doubling it, we get $1.36m as a FHB price. Assuming a 90% mortgage over 25years, even if interest rates drop to 3.5% (at 90% LVR!), then weekly servicing costs on that mortgage are $1413, or $73,400 per annum.

So to meet Gregs 40% affordability limit, they'll only need a combined take home pay of... $183,500. Or a gross pay in the vicinity of quarter of a million bucks depending on how much they get taxed to support the retired population and their healthcare and govt super costs.

Whats the problem?... it only requires annual wage/salary inflation of ~10% for the next 7 years to make any sense at all. Thats only triple the long term average for Auckland according to the QES data. Simple, quit yer whining you over-entitled millennial (/sarc)

Yes that does seem not doable the way you have explained it. In the early 90s there were friends who looked at me sideways when I discussed million dollar average house price. Regardless of your view it is highly possible there will be someprice increases...so maybe jacinda better do a take two on the cgt announcement.

House prices will hit a million dollars, unless we rebase the currency somehow, the question is when, and where wages have gone in the meantime. Million dollar average house price in 50 years time is not only possible, but likely, even with ~3% wage inflation. Million dollar (national) average house price in a decade like Ashley church is flapping his lips about? It'll take some serious wage inflation going to make that happen.

If Ashley is correct and wage inflation hits 10% p.a. to support these new house price increases then wouldn't the overall Inflation Rate also go up, and then the OCR? And then Bank Lending Rates? What goes down when bank lending rates go up? Mortgage Serviceability? What enables people to allocate future earnings to buy houses? Mortgages.

I can't think of any other driver today (aside from QE) that would enable house prices to rocket up again as Ashley suggests, so it's Wage Inflation. Maybe we can have high wage inflation and low lending rates????

Yep "If Ashley is correct" we will only know the answer to that when it has happened and by then it will be too late to buy in on the ground floor. Those who do well out of property are not those who over analyse to death. They are the ones who take opportunities by the b#lls and make positive reasoned decisions.

Positive reasoned decisions = stepping in front of an oncoming speeding fire truck with full sirens on?

Hahaha good one but neither positive nor reasoned.

You mean it doesn't agree with your/Ashleys it only goes up "logic".

What if the decision to buy is based on faulty / incorrect reasoning and logic and an incorrect attribution of cause and effects?

Such as extrapolation of historical property price increases into the future ....

And what if the decision to not buy is based on faulty logic? When you're 50 its too late to change your mind. I know plenty of people who took your position and they are now retired or near retirement and reality of no home is staring them in the face.

You only need a one or two examples to disprove the Ashley Church theory of future property price expectations based on extrapolation of past property price rises.

There are 6-7 countries that come to mind offhand where extrapolation of historical property prices into the future lead to disastrous financial outcomes for those that believed it. Property prices fell anywhere between 30-60%. These outcomes were even worse due to leverage.

In two recent instances, many of the house buyers who purchased have either had to realise losses as they were forced to sell (such as forced to downsize due to inability to continue mortgage payments or mortgagee sale) or are still holding on and only just getting out of negative equity and are still in a loss position on their initial deposit after 10 years of mortgage payments.

FYI, there was a market where it was commonly espoused that based on historical property prices that property prices would double every 10 years into the future. We can use that as one example to disprove the Ashley Church theory of future property price expectations based on extrapolation of past property price rises - that house market is Sydney.

But Sydney pulled back from recent highs .... so it doubled from ten years before ... what it will be ten years from now no one can say. Before you start finding examples of rotten housing markets from the third world or communist countries let's just say this is nz, a very desirable and popular safe country that tourists and immigrants flock to in large numbers.

You have actually applied your mind and sound logic, unlike Mr Church who has applied the flawed logic that history will simply repeat itself

Where is the evidence that it will not "repeat itself"? Probably Ashley Church has firsthand experience of that phenomenon because he didnt miss out after using flawed logic

It's flawed because the Starting point for Mr Church's doubling of prices over the next 6-7 years is very very different to the starting point we had in 2005.
I won't waste any more time trying to explain that further as you are clearly blind to logic / reason or are a troll

Well it wasn't just from 2005 till now. There is probably two hundred of years recurring history in nz on which to base opinion. You are entitled to your biased position.

Let's see whether or not you are capable of responding to logic, with logic...
Prices roughly doubled between 2005 and the peak of the market in Auckland in 2015/2016. Church's argument is that prices double every 10 years, as if it was some kind of unbending universal truth...
He's saying that between now and 2026, prices could double, or nearly double.

As others have alluded to here, that prediction has major problems, unless we assume huge income growth (which won't happen)

In 2005, mortgage rates were typically upwards of 8-9%. One of the reasons property boomed after 2009 was that mortgage rates were slashed.

Given that mortgage rates are at all time lows, and probably can't go much lower, and mortgage serviceability is maxed out, what do you think can be done to create a boom leading to a doubling of prices by 2026? Also remember that we now have the foreign buyer ban, a brightline test, and further imminent changes that will impact on investors.

I would suggest it is you who is the biased one, but maybe you can convince me with impeccable logic and reasoning as to why Church's views are not a load of nonsense and why we could see a doubling of prices by 2026...

I wait with anticipation.

Fritz you've made a rather large assumption on interest rates..........try plugging a halving into your calcs and see what that will do. Ashley is more likely to be right than wrong IMO as others like Phil Anderson of land value cycle theory predict similar, ie a rest now mid-cycle then a second-wind surge to the approx 2025-6 peak.

Halving interest rates doesn't make that much of a difference when they are already that low. Using the example I gave above, halving the interest rate from 3.5% to 1.75% only drops the mortgage servicing cost by 18%. So it drops the couples required post tax income from $183k to $150k. So for that to be workable you require interest rates to halve, AND wage inflation to average about double what it has been in the last decade over the next 10 years.

Ashley Church hasn't talked once about the change in macro-economic environment leading to the historical property price changes. For example, the lending changes which have been previously mentioned - these are unsustainable with respect to Auckland house prices.

Property prices can get way ahead of affordability levels, which increases the risk significantly for property buyers.

If you're looking at long term price moves, that is fine if you are using 100% equity finance (i.e using no borrowings to finance the purchase) - you can continue to hold on in most circumstances.

If a purchaser is using 80% LVR mortgage debt to finance the purchase of the house, and buying at an inflated property price, then the question is can they hold on, and continue to meet the mortgage payments under all economic conditions? If they need to sell when property prices are falling (and before property prices recover to their purchase price), then that is when losses could be realised.

Some examples for you of changed circumstances:
1) economic recession leading to unemployment of a household income earner
2) death or illness of a household income earner
3) retirement before property price recovers to their purchase price - in some instances it has been 10 years and property prices still haven't returned to their price levels
4) you've subsequently found out that your house is a leaky home and is in need of major repairs
5) you've subsequently found out that your house is structurally unstable due to an earthquake eight years ago and is in need of major repairs

Another factor is demographic change. There's plenty of good economic evidence to suggest that the ageing of the baby boomers could have a significant dampening impact on the property market.

I'm not sure why I have the feeling that youre a Boomer or close to it Fritz. Missing out and not owning a house probably explains why you are bitter about property prices.

As expected, you cannot respond to my logic dismissing Church's nonsense, hence you resort to a cheap ad hominem comment.
As expected.
I'm not interested in discussions with real estate trolls.
Good evening and have a good Anzac Day.

I just sunk your battleship. Btw I have never said I agree wholeheartedly with ashley church's statement so its misleading to suggest I do. You say that Ashley has no evidence to back himself but then neither do you Fritz, you argue for an unhealthy property market because it suits your back pocket.

This is where the extra information for comparison that I have suggested Interest.co.nz provide would be useful.

You mention about the last two hundred years of data, and you would be mainly correct that the average of that time of how houses prices have increased in correct. Taking into account the longer the time frame the smoothing of the data, which hides greater + or - that have occurred.

If the house price to medium income multiple had been shown, it would have shown that even though house prices increased as you said, the medium multiple stayed at a constant 3x, up until the early 1990's when they started to decouple with Auckland now sitting at 8x plus.

This makes a big difference to present day affordability.

"the medium multiple stayed at a constant 3x, up until the early 1990's"
The median multiple (stupidly or by design) does not factor in falling interest rates. In 1992 interest rates were 16 percent. By 1993 they had dramatically fallen to 6 percent before rising modestly and then continuing their downward trend. So clearly the falling interest rates have a big impact on affordability and that fall in interest rates coincides with your dates for the rise in the median multiple.

In the 1960's interest rates were in low single digits and in mid 1980's early 20's, yet the medium multiple in both cases were 3x, As long as the multiple is around this 3x multiple (which indicates a balanced land supply to demand response with no rentier manipulation), then irrespective of the interest rate at the time, the house will be affordable.

Thats true but the 60s had other factors affecting affordability Dale Smith. One income per household, more mouths to feed and the relative cost of living excluding housing was exponentially higher then. All pretty irrelevant anyway and theoretical and only used to debate whether houses and rents should be cheaper. It was a different time with different costs to the 21st century. Housing cycles based on social and psychological factors are relevant.

Ah yes that infamous last word, 'different.' Different time, different costs, this time is different etc.

As I said you are so far off track your arguement is starting to get incorreherant. You were the one that made reference to the past two hundred years of house price increases to justify your comments.

Go read up on the evidence links you asked for that I provided, and then if you don't agree, come back with your own evidence.

None of what I mentioned are my original ideas and are not contentious amongst experts in land and housing economics.

So to dale smith the 1960s is not different to the 21st century. Everything is the same and will never change. Btw you are listening to the wrong "experts", probably an institutionlised intellectual who doesnt know how the real world operates and has never been successful. If you want advice then talk to people who are actually successful and been there.

The other option is the extend and pretend option... 25 year mortgage? No, how bout 40 years? 50? But as with lowering interest rates its an asymptotic thing.. every step longer/lower has less effect. ie the $1.36 million house above, at 25 years with zero interest still requires weekly payments of $1047. (which is ~4.5% annual wage growth for 10 years to meet the affordability criteria based on the stated median young couple income in the above article if my quick calcs are correct).

Jebus.. MPs trying to get the govt to offer 97% mortgages? Did they elect BLSH and Houseworks?

"As it happens, I didn’t get any help with my deposit when I bought my home. I didn’t need it as I got a 40-year 100% mortgage from the bank. Of course, I was delighted at the time. But it was bad policy, all that did was drive up house prices more and more and saddle young people with debt and negative equity."
Wise words from the Taoiseach (Irish Prime minister).

What's being overlooked is that interest rates could halve from here, that would make a huge difference to affordability and goose property values. Look at UK interest rates 1.75% for a fixed mortgage.

Difference, yes.. huge, no.
Go play with the interest.co.nz mortgage calculator and see how little servicing costs drop with a halving of interest rates:
From 4% to 2% over a 25y mortgage, servicing costs drop by 20%
From 3% to 1.5% over a 25y mortgage, servicing costs drop by 15.7%
Diminishing effect as interest rates get lower.

So doubling house prices and halving interest rates (from 4 to 2%) is still a 61% increase in mortgage servicing costs.

If we assume that wage/salary increase in the next decade rise at the same rate as in the last decade, then for the median FHB couple above are now taking home 31% more money, but have 61% higher mortgage servicing costs.

Oh, and the other point that some have pointed out, for many its not the mortgage servicing cost, its the deposit that is the problem. What is halving interest rates going to do to those attempting to save a 10% deposit on a $1.3 million "starter home", if their effective interest rate on term deposits drops from the current 2.2% effective rate (3.4% interest- 33% RWT), to 1.1% effective rate?

Ashley Church and many others believe that property prices in Auckland won't go down by much.

1) This was a very common belief held in Australia before property prices started coming down.
2) This was a very common belief held in Ireland before property prices started coming down.
3) This was a very common belief held in the US before property prices started coming down.

This is what Warren Buffett had to say when interviewed by the Financial Crisis Inquiry Commission (FCIC)

From the May 2010 FCIC interview with Warren Buffett, a renowned investor and Chairman and CEO of Berkshire Hathaway

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.

Here is a suburb in Western Sydney, where the comparable property price is down 30% in 18 months. (I think that is the peak price also) Now the impact on a leveraged buyer who bought on a LVR of say 80% is that they would have all their equity wiped out now and would be in negative equity.

Western Sydney has avoided much of the "ripple effect" that has seen house price falls in the inner city transfer to outer ring suburbs, but pockets in the area have been hit hard and in some cases falls have been as severe.

Comparable properties in the western Sydney suburb of Blackett demonstrate the volatility of prices over the past two years.

The three-bedroom, single bathroom house at 53 Franklin Crescent, on 677 square metres sold for $335,000 in mid April. Rewind to August 2017 and 300 metres from Franklin Crescent, a property with almost identical specs and on a smaller block of land sold for $515,000.

That amounts to a 35 per cent drop in price in just over a year and a half.

Even accounting for a $25,000 renovation to Franklin Crescent that would make the property more appealing than its $515,000 counterpart, the house would still be worth 30 per cent less.

Source: https://www.afr.com/real-estate/residential/nsw/pockets-of-western-sydne...

The current epicenter of house price falls in Sydney is the Pennant Hills/Epping/Ryde areas. I think its a bit early to say the rest of Sydney has escaped the fall out.

FYI, Australia faces the biggest and longest property decline in 40 years.

Isn't this longer than Ashley's historical period of 30 years which he uses to extrapolate Auckland property prices into the future - that of property prices doubling every 10 years?


The conclusion of that article is quite positive for someone in my position:

Remember that our property markets are behaving as they always do and some of the best profits are made by investors at this stage of the cycle.

That’s because these downturns are only temporary, while the long term increase in value of well located capital city properties is permanent.

However correct asset selection will be more important now than ever, so only buy in areas where there are multiple long term growth drivers such as employment growth, population growth or major infrastructure changes.

Similarly, suburbs undergoing gentrification are likely to outperform.

"correct asset selection will be more important now than ever"
What about buying Otahuhu and Henderson which wouldn't be my first picks but seems many others disagree. Even Pragmatist mentioned the KB Otahuhu homes.
"Ōtāhuhu, Henderson are top suburbs for millennials in Auckland, Real Estate Institute says | Stuff.co.nz"

For young people it still seems to make sense to buy or even rent a place in Auckland.

Renters, young people, regions missing out on New Zealand's success story

"And wealth prospects seem bleakest in the regions. Young people in the provinces are twice as likely to be struggling financially compared to young Aucklanders. That was a surprising finding, given how tough the Auckland market has been for some time for first-home buyers, but shows that generally lower incomes in the regions are a very real problem."

Forty per cent of young people in regional New Zealand said they were struggling financially, compared to 23 per cent of Auckland young adults.

For the record - https://www.stuff.co.nz/business/112229257/central-auckland-house-prices...

Not strictly comparable prices due to different sales mix in each year. The news story however might get the attention of those who are unaware of the underlying differences. Also might impact price expectations for vendors and potential buyers.

HPI data is a more accurate comparison and would suggest a 2-3% price fall in the last 12 months.

A comment on the above article made

"A friend of mine bought a 1.5m house in Botany, a 5 bed 3 bathroom house, got it revalued and it came back at $1.25
250k gone in less than 7 months, properties aren't selling as fast and for as high as before"

1) that property has experienced a 16.6% price fall from their purchase price - in 7 months.
2) assuming an LVR of 80% for the owner-occupier, that is an 83% fall in their equity value - in 7 months. Their equity fell from $300,000 (20% of purchase price) to $50,000 now.

This is what first home buyers are avoiding by continuing to rent and keep building their savings.

If the purchaser had waited 7 months and the same equity amount of $300,000 was used to purchase the same property now, they would have a mortgage which is 21% smaller than the purchaser who paid the $1.5mn purchase price.

A smaller mortgage debt amount means less monthly mortgage payments. A 21% smaller mortgage also results in 21% less in mortgage payments each month (for 30 years).

That equity fall is more than what we purchased our first home in Masterton for 2 years ago. Yikes!

There a few more of those popping up here and there in various things i'm watching. One of last weeks Barfoots auctions that didn't sell, Bought in March 2018 for $1.87m according to Homes.co.nz, Asking is $1.749m, a loss of $121k in a bit over a year.. or $10k/month once you factor in selling costs.. and thats IF they get close to what they are asking.

The owner-occupier who paid $1.5mn bought it for peace of mind, a house to be their home, to establish some permanent foundation, financial security, and other non financial benefits such as dealing with landlords, rent increases, etc. These are some of the reasons that many owner-occupiers choose to own their own home rather than choose to rent.

The question is do the non financial benefits compensate them for magnitude of their financial loss? Are the non financial benefits worth losing $250,000 in equity and paying 26% more in monthly mortgage costs for 30 years? They originally thought that they would get peace of mind with their purchase but may now have some financial anxiety due to the property price falls, and regret that they could have paid less, and as a result reduced their mortgage payments for the next 30 years.

When property prices were rapidly rising, and there were frenzied buying competition at auctions, there was a fear of missing out (FOMO) as many people believed that they had to buy or property prices would get out of reach. Are these people going to regret their decision to buy now?

One common belief for owning your own home is that rent is dead money. Is renting for those 7 months, dead money in this case?

The person that bought the house for 1.5M likely sold another house at a good profit to purchase that one.

However making the right decision at the right time can make a huge difference. If I had sold up all my properties in 2017 and rented and put the capital into the NZX50 I would likely have in excess of one million dollars more to my name now. I would have got more money when I sold and made more money on the NZX50. That's big money!

It seems so obvious in hindsight. Indeed commenters on this website advised to do just that. Did anyone do that?

Yes. I know residential property owners of property located in Auckland who sold in March 2017 & June 2017. The market values of those properties are now below their transacted prices.

One of them is waiting patiently for investment opportunities.

Where did they put all the money in the mean time? Investing in the NZX50 from mid 2017 to now would have returned 33% gain if I am reading it right. Waiting patiently may have been a mistake!

The mistake was continuing to own the property after property prices had peaked. They had owned their properties for over 20 years, and didn't want to ride the property market down.

They saw many potential warning signs of overheating in the areas that they owned.

I would say mid 2017 was the peak in the current era. How was it a mistake to sell in 2017? Are you saying it was a mistake to have not sold on the very point of the peak? Anyway, it would be interesting to know if they shifted their wealth to term deposits or shares.

Prices have fallen in a Central areas. I thought prices were not dropping and they were stable and steady.


Median price is used but can say about half moon bay where is up by 10.5%, where have observed that most of the house comming to market are high value as a result median is up. Similarly in central suburbs may be low value houses are being sold as a result so high percentage of fall.

Also many houses where the vendors expectation is high are being pulled back from the market like 55 Marendella Drive in Bucklands Beach which has a CV of 1050000 and feedback was from mid 800 to early 900 (if lucky) but vendor had unrealistic expectation of 1150000. May be agent to be blamed as must have given very high hope/appraisal to vendor to get listing. Another house nearby too has high expectation where will be lucky to touch even 900.

If house is in not being sold and is in market for more than 6 weeks indicates that asking/expectation is high so bargain to protect yourself going forward and many time RE Agents lie when they say that are negotiating with few buyer near asking price - Remember that many a time is lie and are only trying to panic you but this tricks were fine earlier but not in this falling market. Not to rush and only offer what suits you.

Houses are definitely going below 10% to 20% CV (some expectation) and anyone buying at higher price are doing at risk going forward (Unless like the house very much).

I understand that market has fallen from peak and is anywhere from 8% to 20% depending upon area and specific house.

Can vouch that this trick of RE Agents mentioning "Are in negotiation with one or two buyers near the asking and will be in touch, if it fails or you too can give offer near asking for multiple offer" is a lie as my friend who is looking for a house in Pakuranga , Bucklands Beach and near by area has got same response from not one one but three agents and all those houses are still in market with no offer after another month.

Another agent in same Marendella Drive area is saying that am negotiating with few buyers but will know if it is a lie, if it remains unsold even after a weeks from here as comparing with other houses in the same area, the expectation is much higher and the house is listed over two months.

It indicates that vendor is not flexible and not ready to meet the market or sometimes waiting for few months, if not desperate may help in getting not what was expected but slightly better than originally offered and helps psychologically rather monetary.

In today's market will waiting helps as the first few offers are normally the best offer.

Well, that's it then, game over. Such impressive use of statistics by the journalists. Takapuna and Onehunga up 20 -30%.

There has been a change in headlines though from 2 years ago where auctions were at 80% +, houses were all going up, and all prices were higher then CV.

Read what you want into it, even by my uneducated mind something has changed. Wonder why? Could it be unaffordable homes of 9 times income.

If people start seeing these price drops, will they panic, and FOLO Fear of losing Out and sell. As we know, human nature is all about greed and fear, rarely does logic come into it.

So interesting times.

Yep they are falling in the Auckland Central regions, you only have to look at the auction results to see that. Here's a few examples of recent sales of hefty declines in the expensive areas:-

* Remuera: 43B Kenneth Small Place, Remuera, Auckalnd. Rating Valuation: (July '17) $1,180,000. Sold for: $800,000 = -32%
* Freemans Bay: 13 Anglesea Street, Freemans Bay, Auckland. Rating Valuation: (July '17) $1,775,000. Sold for: $1,160,000 = -34%
* Newmarket: 5C/23 George Street, Newmarket, Auckland. Rating Valuation: $1,500,000. Sold for: $1,060,000 = -29%
* St Heliers: 19A Tuhimata Street, St Heliers, Auckland. Rating Valuation: (July '17) $2,275,000. Sold for: $1,790,000 = -21%
* Parnell: 4/41 St Georges Bay Road, Parnell, Auckland. Rating Valuation: $1,020,000. Sold for: $855,000 = -16%
* Ellerslie: 25 Robert Street, Ellerslie, Auckland. Rating Valuation: (July '17) $1,200,000. Sold for: $990,000 = -17.5%
* Epsom: 2/632 Manukau Road, Epsom, Auckland. Rating Valuation: (July '17) $1,120,000 Sold for: $865,000 = -23%
* Epsom: 7 Aberfoyle Street, Epsom, Auckland. Rating Valuation: (July '17) $2,375,000. Sold for: $1,950,000 = -18%

Thing to keep in mind is that when you're looking at -20% off prices, technically those are property crash percentages. And the other thing to remember is that judging by that affordability report there's some further significant price falls in the pipe which I think will become far more obvious in next Springs selling season. Because wages and property prices simply don't match up.

Not terribly good examples CJ099.

Kenneth Small - mortgagee sale sold for what they paid for it in 2015.
Anglesea - a complete wreck of a place. Land value only. Behold the bathroom!
George St - apartment sold for 845 in 2014 now 1060, not too bad.
Tuhimata - sold for 1100 in 2015 now 1790 - that's marvelous!
St Georges Bay - sold for 815 in late 2016 now 855
Robert St - no history put a good price at 990
Manukau Road - no history but not DGZ and just a 2 bed B&T - 865 is a good price
Aberfoyle - no history, seriously a do up, and vendor got a good price

RVs are not the best measure as has been discussed in these venerable threads ad nauseam.

However I do see two properties near me that are asking well below, like two hundred thousand or more than what they paid one or two years ago. I did think at the time they paid too much though. Expect to lose if you bought only a year or two ago.

It depends on the purchase price but many for reason better known to them have paid a bomb....

41 Luton Avenue was a deal at 930 though a do up property was bought by some so called investor and is reselling in 2 months as bought at a deal - may breakeven even if does not make a profit. Someone should check who is speculating and will not be surprised to see who loves to gamble. Also with no CG most probably will get away with BLT - All thanks to Labour.

Another houses listed :

House sold for 530 in 2011 and the same house was bought in 2016 for 1350 - Was it investor who paid such a price in 2016 or FHB - Doubts ?


Now in market again - Will it fetch the sell price of 1350.

If one checks sell history of many houses can vouch that money laundering bill, should help to curb such activity besides ban on Foreign buyer should go a long way.

No point in arguing. Point is market is down and getting worse every week.

Agree that the market is down although we are looking for some good examples. That Half Moon Bay house looks as though it may have had a bit or work done. The louvres over the deck are expensive. Will be interesting to see what it gets. It's an interesting location. I think it will get around 1.3M.

Yeah I knew you would bite Zachary. Remember Labour are clamping down on money laundering in this country and are very likely to bring in further measures, so it doesn't matter how much you try to dress up the figures from their 2017 RV values, prices are clearly headed down and massively in the expensive areas. You should have sold up when you saw Mr Key running for the door.

The reality is that prices certainly in your area have no bearing on wages, so it's inevitable. Plus those mortgagees are going to be popping up with more and more frequency. Don't keep deluding yourself and others, time to give up on your Auckland Elysium.

Also don't forget you have your beloved Mr Trump to thank for your significant property price falls with his tariffs on a certain country.

So now in certain area houses are going between 15% to 35% below CV. Wow:)

Eye opener for FHB to wait and buy to get max value for your $$$

Yes FTB's should wait for the property market to bottom out. It is really unfair to expect them to pay to maintain massively over inflated house prices especially in the central city areas. I would very much advise them to look at the false economy that was generated by National over the last few years, to see the damage that was done. This documentary really helps to clarify how it happened: Who Owns New Zealand Now? https://www.youtube.com/watch?v=HzSAmOQuyjU

Who own New Zealand Now ?

People who can buy 41 Luton Avenue and speculate in 2 months, on this market.

Money Money...........

There are currently 2,079 3BRM houses listed on trademe.co.nz for rental in Auckland.

The video showing groups of families sleeping in cars in Auckland at parkup4homes illustrates that Auckland is in need of AFFORDABLE housing. The family sleeping in their car interviewed here mentions that they just can't afford to rent - https://youtu.be/HzSAmOQuyjU?t=111

This is why we need a DTI restriction on lending based on one income. Taking on 500k+ of debt on the basis that interest rates are low now is madness, especially on a 30 year term. Housing is not affordable, fiddling the measures (counting multiple incomes + extending the term of the mortgage) ain't fooling me.

90% of what is on market for sale on RE NZ in Hibiscus Coast is over $800k
What in Auckland do you think is affordable, and where is it?
What is 3b average price in Hobsonville or Henderson for example.
Saying "Auckland" is as unrepresentative and as useful as saying "average"