Property Report: The bottom is perkier than you think

There were 714,000 properties worth less than $400k for sale nationwide a year ago. That's dropped 8 per cent. Photo / NZH

The lower end of the market hasn’t plummeted since the LVR speed limits began.

There has been talk that the LVR speed limits have caused a dramatic drop in sales at the lower end of the market. It seemed to me that in the current rising market the actual number of properties worth less than, say, $400k would be decreasing, so it should be no surprise that the number of sales would also drop.

Based on our E-Valuer, which gives an estimate of current market value for every property, we can see 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 - a drop of 8 per cent over the past year. So, definitely a drop but nothing spectacular. Looking back further, we can see 805,000 properties in 2007 and 973,000 in 2004.

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Auckland has been the focus of much of this discussion around the number of low-value sales, so let's now look at that. There are just over 62,000 houses, flats, and apartments in greater Auckland worth less than $400k. A year ago there were 91,000. That's a drop of 32 per cent in just 12 months. The drop is most significant in North Shore and Waitakere where the number of properties worth less than $400,000 has dropped 55 per cent in the past year. At that lower end there are fewer than 1800 properties on the North Shore (the vast majority of which are apartments) and 8500 in Waitakere, whereas last year there were 3900 and 19,000 respectively. At the previous market peak in 2007, there were nearly nine times as many low-end properties on the North Shore and four times as many in Waitakere.

When looking at how many sub $400,000 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. On the 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 per cent of low-end (less than $400,000) properties sold in greater Auckland. That's only slightly down from 1.9 per cent a year ago, but well below 3.0 per cent at the previous 2007 market peak. Interestingly, during the 2009 recession turnover dropped to 1.2 per cent.

What does all that mean? Clearly the number of properties worth less than $400,000 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. It does of course raise affordability questions, but let's leave that for now.

A better way to look at the bottom end of the market is to consider the lowest 10 per cent of properties, independent of arbitrary dollar value ranges. In greater Auckland, the lowest 10 per cent of properties have a median value of $430,000. A year ago the lowest 10 per cent were worth $375k, in 2007 it was $330,000 and 10 years ago $222,000. Just to scare you a bit, the lowest 10 per cent of North Shore properties are currently worth $545,000!

To see if the bottom end of the market is, in fact, less active, we looked at what percentage of all sales came from that lowest 10 per cent of properties. In the first three months of this year 11.7 per cent of all sales in greater Auckland were from that lowest 10 per cent of properties. A year ago it was 10.1 per cent, and around the time of the LVR speed limits there was a slight surge up to 12.1 per cent as people rushed to get in before the limits came into force. The picture is similar across parts of Auckland.

So rather than the bottom end of the market plummeting since the LVR speed limits came on, activity has stayed stronger than long-term average and above the same time last year.