The commonly accepted and repeated story since the Reserve Bank's introduction of high loan-to-value restrictions in October is that the proportion of houses being sold at the low end of the market has plummeted.
But new research from property information, analytics and services provider CoreLogic, and published on the QV.co.nz website, suggests that's not actually the case at all.
CoreLogic's head of research Jonno Ingerson said rather than the bottom end of the market plummeting since the LVR speed limits came on,"activity has actually stayed stronger than long term averages and above the same time last year".
He said that "clearly" the number of properties worth less than $400k has dropped, and in Auckland quite dramatically.
"But a corresponding drop in the number of sales does not mean that the bottom end of the market has fallen away, just that there are fewer to buy."
Ingerson said a better way to look at the bottom end of the market was to consider the lowest 10% of properties, independent of arbitrary dollar value ranges.
In greater Auckland, the lowest 10% of properties currently had a median value of $430k. A year ago the lowest 10% were worth $375k, in 2007 it was $330k and ten years ago $222k, he said.
To see if the bottom end of the market was in fact less active, CoreLogic looked at what percentage of all sales came from that lowest 10% of properties.
"In the first three months of this year 11.7% of all sales in greater Auckland were from that lowest 10% of properties.
"A year ago it was 10.1%, and around the time of the LVR speed limits there was a slight surge up to 12.1% as people rushed to get in before the limits came into force. The picture is similar across parts of Auckland."
Ingerson said based on CoreLogic's 'E-Valuer', which gives an estimate of current market value for every property, it can be seen that a year ago there were 714,000 residential properties nationwide worth less than $400k.
"Now, with nationwide values rising over the past year, it would stand to reason that the number of properties worth that much would have declined. Sure enough there are now 656,500 of them, a drop of 8% over the past year. So definitely a drop, but nothing spectacular. Looking back a little further and we can see 805,000 properties in 2007 and 973,000 in 2004.
In greater Auckland "the focus of much of this discussion around the number of low value sales" there were currently just over 62,000 houses, flats and apartments worth less than $400k.
"A year ago there were 91,000. That's a drop of 32% in just 12 months. The drop is most significant in North Shore and Waitakere where the number of properties worth less than $400k has dropped 55% in the past year.
"At that lower end there are currently less than 1800 properties in North Shore (the vast majority of which are apartments) and 8500 in Waitakere, whereas last year there were 3900 and 19,000 respectively. Looking back a little further and at the previous market peak in 2007 and there were nearly nine times as many low end properties in North Shore and four times as many in Waitakere.
"When looking at how many sub $400k properties have sold, sure enough Auckland has dropped, with just over 1000 in the first three months of this year compared to 1700 a year ago and 4300 in 2007. In North Shore there were only 45 sales in the first three months of this year, compared to 476 in 2007.
"In cases such as this where the base stock is changing a better measure is percentage turnover. That is, the percentage of properties in an area selling during a given time period. In the first quarter of this year 1.7% of low end (< $400k) properties sold in greater Auckland. That's only slightly down from 1.9% a year ago, but well below 3.0% at the previous 2007 market peak. Interestingly, during the 2009 recession turnover dropped to 1.2%," Ingerson said.
7 Comments
Nice work.
I've been wanting someone (other than myself) to do this.. correct for rising values by looking at % of a price catagory sold rather than absolute numbers sold in each price catagory..
There needs to be some accountability for the Jonno of QV's and the Helen O'Sullivan's of the world who instead of just providing raw data (what they are qualified to do), decide to throw in there 2 cents of how the economy and everything else is tracking.
They are not qualified to give this advice. Sure if they were a journalist/commentator, then they could get away with it, but people hear Helen say 'big drop off in sales of lower priced properties as FHBs become effected by LVR restrictions' and believe her thinking her role at REINZ gives her unique insights into macro-economic trends. And turns out shes wrong, so she can't even interpret her own data to make accurate conclusions.
I don't see how this analysis tells us anything - sure the lowest price bracket might still be selling, but how do we know it is first home buyers rather than investors who are buying the properties?
Another conclusion could be that if the massive drop in high LVR hasn't impacted the bottom end of the market then the big 90%+ LVR loans were not buying the cheap properties anyway. All the more reason for the LVR rules to be introduced.
Interesting, but I'm not sure the conclusions are correct.
This seems more in the line of CoreLogic Research
[the CoreLogic] home-price forecasting model measures the level of house prices that are fundamentally supported by per capita income. This long-run fundamental level of prices has historically been shown by a large body of economic literature to be a strong predictor of home price growth in the long run.
As a supplementary questions to core logic could include:
1. Do CoreL think the above long run fundamental holds in NZ (if not why not)
2. Within their sea of data where do such predictors lie for the main property markets in NZ.
a chart of the population weighted average percentage deviation of the actual price level relative to the fundamental price level over time for the largest NZ markets would do.
3. Does NZ market meet the US benchmark of on average folk selling their home once every seven years?
4. Does it hold that as rates rise, less properties come on the market as existing home owners with lower than new loan rates refuse to re mortage at now new higher rates?
5. Are new homes really more expensive? - Given that new homes not only became bigger, but they came with additional features such as more bedrooms, bathrooms, fireplaces, etc. Would adjusting for those differences in quality reveal better buying of new rather than existing, or other way round?
6. What do Creditlogic think is housings contribution to GDP? Being the three specific expenditures: residential investment (the construction of new single- and multi-family houses), spending on housing services (rent, owner’s equivalent rent and utilities) and spending on furnishings and durable goods.
7. Of bank lending/credit applied to housing what proportion would not show as a contribution to GDP?
help anyone plz?
Just did.
Look at the drop off in sales of auckland property under 200k!! Lucky I don't own any of those! I'd never sell it!! No one wants low priced housing in auckland since the lvr restrictions are in!
Complete nonsense.
Without considering the fact that there is no such thing as a property in auck under 200k anymore, you can not comment on how well they are selling.
A graph of value distributings would show this. Although I'm satisfied with core logics methods which explicitly illustrate what's happening.
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