House sales fall in July, led by cheaper properties amid weaker winter demand

REINZ chief executive Helen O’Sullivan

New Zealand house sales fell in July as winter cooled the appetite of house hunters while a drop in properties selling for $400,000 or below likely reflected the Reserve Bank’s moves to cool the market.

Sales fell 13 percent in July from the same month of 2013 to 5,893, but were up 2.3 percent from June, according to the Real Estate Institute of New Zealand. The national median price rose $31,000, or 8.1 percent from a year earlier, to $416,000 and was about 2.6 percent lower than in June. 

Last October the central bank introduced restrictions on high loan-to-value mortgages to take the steam out of the housing market in Auckland and Christchurch which it said could stoke inflation. Since then governor Graeme Wheeler has embarked on a tightening cycle, starting in March, which has lifted the official cash rate to 3.5 percent. 

“Reports on the effects of the LVR restrictions continue, particularly from the regions, where the reported lack of able buyers is filtering up the price points and on to vendor behaviour,” REINZ chief executive Helen O’Sullivan said in a statement. 

“It is worth nothing that Auckland and Canterbury/Westland accounted for more than 100 percent of the increase in the national median price between July this year and July last year, a further indication that the ‘national price’ is being driven by these two regions alone,” she said.

“Rising interest rates and the forthcoming election are probably also influencing buyer behaviour,” O’Sullivan said.  

The number of sales below $400,000 fell by 22 percent in July, from a year earlier, following a 17 percent drop recorded in June. Sales between $400,000 and $599,999 fell 8.6 percent from a year earlier, while sales between $600,000 and $999,999 edged up 0.2 percent and $1 million-plus sales rose 9.4 percent. 

The number of days to sell rose by two to 37 in July, compared to a year earlier, and was two days shorter than in June. 

“Sales volumes picked up a little in July compared to last month but this about in line with the normal seasonal pattern,” O’Sullivan said. 

The stratified median housing price index fell 0.7 percent from June.

In Auckland, prices rose 0.7 percent on that measure, the Christchurch index increased 3.5 percent and the Wellington index advanced 2.1 percent. Over the year the national index increased 5.9 percent, compared to July last year, with the Auckland index up 12.2 percent, the Christchurch index rising 13.9 percent and the Wellington index declining 2.3 percent. 

The total value of residential sales, including sections, was $3.06 billion in July, compared to $3.31 billion a year earlier and $3.08 billion in June. For the 12 months ended June 30 the total value of residential sales was $39.34 billion.  


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Poor fools that are still buying at the current inflated prices. When you take a look at Barfoot's website you see that in Auckland, there are now a lot of suburbs that are yielding a number starting with 2%. This compares to interest rates of c6% demonstrating how ridiculous things have become (ie for an investor to service the mortgage, they would need more than a 60% deposit...owners have to cover rental void periods, insurance, maintenance, management fees etc).
And unlike Christchurch, price rises are not driven by a housing shortage. In Chch, rents have risen by nearly 11% in the past year, demonstrating the demand for housing relative to supply. In Auckland the annual rise was around 3.8% and in fact in the past month Auckland average rents FELL (see article on
Now Try this investor maths: let's say looking forward you can squeak out the c6.3% annual price movement Auckland delivered on average over the past 5 years (Reinz median price has gone from 450k in Aug 09 to 610k in Jul 14) incidentally this was during a period when interest rates fell from 7.2% to a low of 4.85% and are now rising making such price rises unlikely to be repeated...but i digress.
Now given you realistically need a 70% deposit to service a mortgage and pay ownership costs at current yields, you might scrape out a 9% total annual return on your equity, which INCLUDES capital gains (but only if prices keep rising at the same rate). Now what if house price growth falls to 4% per annum (realistic even for the blind optimists, given rising interest rates?). Well, this gets you a total return of around 5.75%, including capital gain.
By the way, you can get 5.75% from a 5 year term deposit today in a AA- rated big four Aussie bank. And a deposit with ANZ or Kiwibank etc has a very different risk profile to a rental property in an Auckland suburb.
Now those who argue that you pay tax on interest but not on property gains, ask yourself this: if you buy a property at a 2% net yield and face interest costs >6%, how long do you think you can argue with the IRD that you bought the property for rental income and not for resale?
The IRD can see the same maths you can.

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I applaud your analysis. I would also add that there is a good chance the market is in a significantly worse shape than the headline stats tell us. The national median headline stat fell 2.6% MoM, while the number of sales at the low end fell significantly and the number of sales at the high end rose. This suggests a greater like-for-like fall in the national median price -- ie had the makeup of the data stayed roughly similar.

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