Unrealistic vendors could face some tough choices as winter approaches

Property

Sales particularly soft at Barfoot & Thompson's North Shore and West Auckland auctions

7th May 19, 1:32pm by Greg Ninness

There were very mixed results at Barfoot & Thompson's residential property auctions last week (April 29-May 5).

The agency marketed 109 properties for sale by auction and achieved sales on 29 of those, either sold on the day or immediately prior to or after the auction, giving an overall sales rate of 27%.

However sales rates varied widely between auctions.

At the smaller auctions where just a handful of properties were offered the sales rates ranged from zero (Kerikeri and Mortgagee/Court), to 50% at the Shortland Street auction on May 1, and 42% at the Shortland St auction on April 30.

It was a similar story at the larger auctions where at least 10 properties were offered.

At the big North Shore auction the sales rate was just 14%. And at the Shortland St auction on May 3, where most of the properties offered were from west Auckland suburbs such as Titirangi, Massey, Glen Eden and Henderson, just one of the 10 properties was sold.

At the Manukau auction the sales rate was 28%, and on-site auctions had a 27% sales rate, while the Shortland St auction on April 30 achieved 58%.

Auction sales results on the North Shore have been soft for some time but last week's 14% sales rate would have been particularly disappointing.

The low overall sales rate suggests buyers remain extremely cautious, and vendors who have inflated expectations of the price that could be achieved for their property are likely to be disappointed.

That means unrealistic vendors could face some tough decisions with the winter months rapidly approaching.

The table below shows the results of the individual auctions, while details of the individual properties offered are available on our Residential Auction Results page.

The comment stream on this story is now closed.

**Barfoot & Thompson Auction Results 29 April-5 May 2019**
Date	Venue	Sold	Not sold	Total	% Sold
29 April-5 May	On-site	3	8	11	27%
30 April	Manukau	9	23	32	28%
30 April	Kerikeri	0	2	2	-
30 April	Shortland St, CBD.	7	5	12	58%
1 May	Mortgagee/Court	0	3	3	-
1 May	Shortland St, CBD.	2	2	4	50%
2 May	North Shore	4	25	29	14%
2 May	Shortland St, CBD.	3	3	6	50%
3 May	Shortland St, CBD.	1	9	10	10%
Total	All venues	29	80	109	27%

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45 Comments

by Pragmatist | 7th May 19, 1:37pm 1557193047

Still waiting for the mad rush after the CGT was canned..

by tothepoint - d… | 7th May 19, 2:31pm 1557196267

Hi Pragmatist,

Patience is a virtue.......

I think the Auckland housing market will remain soft for a while yet.

But a bull-run will occur again.

TTP

by Pragmatist | 7th May 19, 2:56pm 1557197788

You'll have to be very patient for that one.. it has a long way to fall, or a very long wait for incomes to catch upwhile the housing market stagnates before it takes off again.

by CourtJester | 7th May 19, 4:08pm 1557202091

"But a bull-run will occur again."
When?

by tothepoint - d… | 7th May 19, 6:35pm 1557210954

Hi CourtJester,

When?

Probably when you're not looking ;-)

TTP

by alittle | 8th May 19, 9:48am 1557265698

Once in 8 to 10 Years, we have a bull run so even if we see 2016 as peak than another Bull run should be between 2024 to 2026 that is based on past history but no harm in hoping and being positive.

So you are correct that bull-run will occur again but important question is When ?

by Lanthanide | 10th May 19, 12:09pm 1557446949

Just because that's historically been the case, doesn't mean it'll happen again.

If you consider that homes will be increasingly owned by baby boomers looking to down-size to smaller houses, or simply sell to free up cash for retirement or because they're moving into a home, then there will be increasing selling pressure for the next couple of decades. That may ensure that there is not another bull-run in prices.

by BuyLowSellHigh | 7th May 19, 5:44pm 1557207878

Still waiting for the crash after FBB

by house hunter | 7th May 19, 9:03pm 1557219785

There's lots of talk about crashes, but I suspect it means different things to different people. Care to define what would constitutes a crash to you? Something like market being down X% over Y months. For example, Sydney has fallen about 11% in the last year. Does that qualify as a crash? Alternatively it's down 14.5% since July 2017, does that qualify?

by Voiceofreason | 7th May 19, 10:18pm 1557224334

14.5% is quite a drop in Sydney. If it gets to 20%, and then keeps going to 25-30% , that would most definitely be a crash. It's looking like that could well happen in Sydney and Melbourne. As for the whole of Australia, we'll have to see how widespread it gets. I personally think this is going to be quite a big bust in Australia, it was totally unsustainable.

by kiwiana02 | 7th May 19, 10:59pm 1557226751

Mate, NZ’s (and Auckland’s) house price bubble is much worse than in Australia, according to BIS and other comparator data. Will it be different here?

by Voiceofreason | 8th May 19, 8:14am 1557260053

No, I don’t think it will be different here, in terms of the same result: substantial falls in values.

by house hunter | 8th May 19, 8:12am 1557259921

Yes, I think 25% is a reasonable lower bound for what constitutes a crash. In the 1929 and 1987 stock market crashes the market lost over 30% within a 5 day period. Given the difference in liquidity, perhaps a day in the stock market is more like a year in the housing market. So the proposed definition of a housing market crash is a fall of at least 25% within a 5 year period.

By this definition, Sydney is still in "large correction" territory which sounds reasonable to me.

by theglc | 8th May 19, 9:17am 1557263825

If you bought a house in Sydney 2 years ago for $1m and now its only worth $855k, it would feel like a crash for sure!

Especially if your job is in jeopardy......

by CN | 8th May 19, 12:51pm 1557276684

Especially if you had put down a 10% initial equity deposit to purchase and took on a $900,000 mortgage. At a house price of $855,000, a purchaser would have lost over 100% of their initial equity deposit and now be in a negative equity position. The owner has to pay another $45,000 to reduce debt just to get back to zero equity.

If you had put down a 20% initial equity deposit to purchase the house and took on a $800,000 mortgage, then the owner has lost 73% of their initial equity deposit.

How long did it take for that purchaser to save for their initial equity deposit only to have lost it in a very short time relative to the time it took to save the initial deposit.

If they had waited to buy at a lower purchase price, their initial deposit would have grown further by additional savings (and interest income on that whole amount) and would have resulted in taking on less debt to purchase the property, as well as reduced annual debt servicing costs for 30 years due to lower debt levels. In summary, they would have been in a much better financial position.

Some lessons of potential risks for first home buyers in Auckland to be aware of. Residential property prices can and do reach extreme valuation levels and residential property prices can fall significantly ....

Even a very small house percentage price change, can result in a very large percentage loss in the value of the equity in the house, if the house purchase was financed with a high LVR mortgage - that is the power of leverage - it magnifies the house price change on your equity value - both on the upside and downside.

by Pragmatist | 7th May 19, 9:37pm 1557221835

Its a bit like an avalanche, at first its just a trickle (refer to recent HPI numbers) , then you realise that the soft fluffy snow isn't looking so friendly and is hiding some stonking big boulders in its midst.

(And i'd put it more down to China's clampdown than the toothless FBB, but meh,whatever the reason the outcome is good.)

I await your enlightened commentary when this months REINZ HPI number for Auckland comes in at about 2760 (~5% down YoY)

by house hunter | 8th May 19, 8:21am 1557260503

Curious to hear how you came up with that estimate for April's HPI. I'm not quite so optimistic and am expecting the YoY drop to be in the 3-3.5% range, but really that's just a guess.

by Pragmatist | 8th May 19, 9:33am 1557264827

Its a 2.2% drop from this months HPI, 5% YoY becuase last April was a good month relatively speaking.

by Joe Wilkes | 7th May 19, 6:39pm 1557211175

It’s not coming I’m afraid, Mr Pragmatist.. Sydney, Melbourne, Auckland and in the below article Vancouver, are all suffering from a similar affliction ‘Housing Casino-sis’. It’s a trauma experienced when the roulette table stops spinning, the bar closes and the lights go on.

https://wolfstreet.com/2019/05/06/housing-bust-in-vancouver-steepens-ba…

by tothepoint - d… | 7th May 19, 2:25pm 1557195925

Hi Greg,

There appears to be a mistake made in the table - for Shortland Street (30th April).

Kind regards,

TTP

by Greg Ninness | 7th May 19, 3:15pm 1557198950

Thanks TTP. ;-)

by shawking | 7th May 19, 4:13pm 1557202415

ANZ New Zealand CEO David Hisco says the Auckland housing market may be in a seven to eight year period where it does "nothing.".......The bull is on the other side of the world.

by tothepoint - d… | 7th May 19, 4:58pm 1557205138

Hi shawking,

Yes - ANZ's David Hisco is yet another well-informed person who doesn't foresee a "crash".

Even crash-obsessed Retired-Poppy has now abandoned his crash prophecy. (See: Retired-Poppy | 1st May 19, 8:39am, in Greg Ninness's item about QV values.)

Nobody can predict when the property bull will run again. He's taking a nap.

TTP

by CJ099 | 7th May 19, 8:48pm 1557218905

Really you mean you haven't figured it out yet TTP? The answer to when the next property bull run will start is very, very simple. How about you take a guess and I can tell you whether you're right or not. And yes the slow crash is still on the cards particularly if you look at the current auction poor success rates.

by Retired-Poppy | 8th May 19, 8:13am 1557260032

Agent TTP, my views are CONSISTENT. Your definition of a crash is conveniently different to mine. On here, yours plays out over 12-months with a -30% decline, whereas mine can play out over a number of years. Once you (the starry eyed agent) looks in the rear view mirror, only then can you comprehend its causes. Remember your prediction the FBB would have no effect? Stop staring at the sky buddy.

by tothepoint - d… | 8th May 19, 10:19am 1557267549

Hi Retired-Poppy,

Your comment above that a crash “can play out over a number of years” is a very recent innovation of yours.

Anybody is welcome to do a search of R-P’s comments through most of 2017 & 2018 - when his position was that a large and rapid fall in house prices was imminent........

Because this forecast turned to custard on him, R-P has now come up with a new definition of “crash”. And it’s a corruption of the English language.

TTP

by HeavyG | 8th May 19, 11:38am 1557272307

RP's new definition of a crash.

https://www.youtube.com/watch?v=4-Qj58o87sY

by Retired-Poppy | 8th May 19, 12:43pm 1557276184

Agent Tothepoint's definition of a soft landing, "by tothepoint | 2nd Mar 17, 12:00pm -5 to -10% per annum over the next 3-4 years in Auckland's house prices would be a "soft landing". Agree with you it's not a "massive crash".

What exactly is your definition of a crash? -30-40-50-60% in one year? Ireland, Italy and Greece crashed over several years. Subject to no GFC, the adjustment could play out over say 8-10 years. Anyhow, you're on record as saying the next bull run is iminent. Impossible for the myopic to decide huh?

by CN | 8th May 19, 2:02pm 1557280921

Let's assume that David Hisco is correct and that property prices in Auckland will be flat for the next 8 years.

What is the expected return on purchasing an investment property in Auckland for an investor with a 30% deposit and a 70% LVR loan on interest only terms?

If you work through the maths of it all,
1) median house price in Auckland of $856,000
2) current rental yield of 3.44% per annum
3) rental increases of 3% per annum
4) rates and insurance cost increases of 3% per annum
5) mortgage interest rate of 4.5%
6) 3% sales commission for sale of property at the end of 8 years. (to compare a cash vs cash comparison after all costs)

So an equity deposit of $256,800 (30% of house price) to purchase the investment property, after 8 years of no capital gains on the investment property becomes an equity value of $236,037 (i.e a loss of $20,763 or 8.0% total loss, or 1.0% per annum).

Better to put the $256,800 deposit in the bank and earn 2.5% per annum where the equity value becomes $312,886. In this instance you are better off than the investment property purchaser by $76,849 (or 33% better off than the investment property purchaser)

The difference is even larger after allowing for inflation ...

by John2 | 9th May 19, 10:06pm 1557396417

why would you buy with an yield of just 3.44% per annum?

In a growth market , 2% capital gain p.a makes your loss of 1% loss on deposit minuscule. its called leverage .

by Carlos67 | 7th May 19, 5:01pm 1557205265

The market will stagnate for a bit and lets be honest, there are so many people who try and sell their house for no good reason and when they cannot get what they want they will pull it from the market. I have seen some places for sale for 6 months and then change agents, clearly the vendors are in no desperate rush to move on. Hopefully the market will be flat for a few years and salaries will try and catch up.

by Big_Data | 7th May 19, 5:52pm 1557208337

Maybe. It's a tinderbox situation. All it will take is one little thing to tip this into a full blown crash, and for all we know it's already happening. Slight rate increase, loans resetting, unemployment, immigration decline, investors exiting en masse, overbuilding. There are plenty of vacant homes in Auckland already, and landlords making weekly losses on their rentals. Highly volatile and a terrible time to buy. No wonder buyers are cautious.

by John2 | 11th May 19, 12:18pm 1557533890

Lets get some facts
rates OCR went down by 1.5% - lowest level in recent times
unemployment and immigration steady. Investors not existing enmass - do you have proof ?
Overbuilding - laughable especially in Ak. Wait your Kiwibuild will come to the rescue.
Keep sticking to your narrative.

by Nzdan | 7th May 19, 5:53pm 1557208409

Hopefully salaries catch-up fast enough to enable the potential influx of downsizing baby boomers about to flood the market with the product of their life savings. I guess they’ll just delist until salaries catch up?

by richard1965 | 7th May 19, 6:15pm 1557209751

If houses are not selling fast than those who have to sell will sell at lower price and slowly market will and is falling.

Have seen quite a few houses being pulled out from the market after few months as the gap between what was being offered and what was expected was huge but how many can afford to hold.

Housing market has not crashed so far, is only because of low interest though is falling gradullay and over long run will be bad.

by albinodog | 7th May 19, 8:07pm 1557216437

Well some cannot hold until death, older clients i deal with have been telling me that its harder to move into a retirement home since they cant sell their house. Getting a bit anxious it seems.

by keenaucklandobserver | 8th May 19, 1:10pm 1557277858

Yeah. A couple of my neighbours in St Heliers had their houses listed with some pretty old agents. Not sure if the agents are incompetent (for example bad photos - the houses did look so much better in reality), or the market is just bad for certain houses. Probably a combination of both. Hasn't sold for the past 5 months. They are pretty anxious but still don't want to fire those agents because of friendship. Strange behaviour.

An acquaintance has also told me about the general slowdown in sales at retirement villages - many are trying to sell and failing.

by John2 | 11th May 19, 12:20pm 1557534006

Over long term its always good if you bought right

by Joe Wilkes | 7th May 19, 6:32pm 1557210732

I recently spoke to a senior figure at a NZ bank who couldn’t tell me whether the RBNZ aggregated split home loans taken out against the same property or whether they were kept as separate loans for reporting purposes. I ask because it presents questions about mortgage concentration, a problem now really surfacing in the Aussie market. If anyone from APRA or RBNZ is in the comments thread and can enlighten me, it would be greatly appreciated.

by Dgm | 8th May 19, 4:53am 1557248005

Hello joe,

I'm DataGainsMomentum from the RBNZ. All I can say is that the housing crash is well and truly upon us.

Cheers

DGM

by mikekirk29 | 8th May 19, 8:45am 1557261943

A few readers appear a little coy about forecasting a crash and delineating what that means.
SO, here you go: 25% top to bottom, in the median price, with a large drop in sales preceding it and continuing during the fall. The median in Auckland hit a high between Oct 16 and March 17 at around $900k. So 25% drop would take it to $675k. I expect it to take until mid 2020 before price stops falling. Then I expect it to be flat on the bottom of the curve for another 2 years after that. There are many reasons for this forecast which I will not go into here but a large part of it is due to world economic trends and primarily due to drying up of Chinese funds flowing in since early 2017 (again for. a few reasons, not just OBB) and other factor is negative sentiment of potential buyers who are not "investors" - the self fulfilling prophecy of expectation. ie they expect price to go lower, so wait, and wait etc. Also, the decline in sales of housing directly impacts on rest of economy as spending falls. This causes a self-reinforcing negative loop. The fall of about 15% in Auckland in 2007-11 in prices was stopped by China spending trillions. Not this time. Rest of NZ prices will probably fall more than Auckland, by about 30-35% as they are totally out of whack with incomes in regions. I am an estate Agent in Hibiscus Coast and do analyses on LinkedIn if people want to see more. Thank you for reading

by kiwimm | 8th May 19, 9:30am 1557264646

One thing to note here is that prices are falling without any major external shocks. Should a downturn happen then you can expect the drop to be magnified. With the US sharemarket at its second highest PE10 ratio of all time (higher than 1929, higher than the GFC but still below the dot-com craziness) then a significant shock should be expected in the short to medium term.
https://www.multpl.com/shiller-pe

On a risk management basis, a FHB should hold off before committing their life savings to a house deposit.

by CN | 8th May 19, 1:31pm 1557279115

Similar in Australia - no external shocks, yet residential property prices have fallen in all the major cities from their peaks. More recently in Sydney and Melbourne which are off their peak prices.

Note that there are residential property price falls in the face of continued population growth also ...

What happens if there is a recession, and rising unemployment? What will happen to residential property prices in Sydney and Melbourne? Take a look at residential property prices in Perth as a potential guide.

Vancouver is also in a similar situation - residential property price falls, with no external shock.

One thing I recently read from a renowned investor - "if you look at all the panics and depressions in the United States, they all came from financial collapses, usually preceded by perfectly asinine and greedy behavior"

by keenaucklandobserver | 8th May 19, 1:07pm 1557277657

Probably because many of the vendors have also been given overly high appraisals by unscrupulous RE agents in an attempt to beat them down later on price. Been following this RE agent's blog focused on the Eastern Bays for a few months and she writes pretty interesting stuff: https://nzpremiumhomes.com/helpful-information-for-sellers/appraisals-t…

Doesn't seem to be a denial of a market slowdown on the RE agents' side. The question is whether it will pick up again, and with the current uncertainty around economic conditions, you will be pretty gusty to bet that there will be a market boom in the next 12-24 months.

by John2 | 11th May 19, 12:22pm 1557534139

Plenty of what if's in the comment section but the fact remains - nobody Knows!