Prices sag as house sales slow

House prices in Auckland city have dropped by nearly 5 per cent over the past four months, confirming predictions the property bubble may finally have burst.

Latest sales figures from the Real Estate Institute - which it insists are the most reliable and up-to-date available - show the median price for Auckland city has dropped for each of the past four months, after peaking in March at $435,000.

The $20,000 drop follows an incredible boom that saw median sale prices jump almost 60 per cent in four years.

Average prices for the Auckland region as a whole have also dropped, from $372,000 in March to $366,500 in June. The number of houses sold also dropped in June, down to 2496, compared to 2615 last year.

Manukau, North Shore and Papakura continue to enjoy a buoyant market, but falling sales figures in Waitakere and Auckland dragged the regional average down.

The fall bucks the national trend, which saw the national median house price continue to climb to $284,500 last month.

The figures come after predictions from PMI Mortgage Insurance and forecaster Infometrics that prices are likely to drop across many regions over the coming year.

A recent article in the Economist magazine described property prices as "the biggest financial bubble in history" and listed New Zealand as one of nine countries where house prices are at record highs compared to rents and income.

Kirsty Stevenson of Bayleys Real Estate said the Auckland residential market had reached a steady plateau.

"Good property is selling well, tougher property is a bit tougher, and places that are priced in the market are selling really well."

She said intense media coverage of the property boom and higher interest rates had made buyers more cautious and properties were now staying on the market for longer.

Westpac chief economist Brendan O'Donovan said the slow-down in urban areas was largely due to investors looking around elsewhere for better purchases.

Buyers seeking investment properties were looking to areas where their rental yield - the rent they could charge compared to the original cost of the property - would be higher than in expensive inner-city markets, he said.

Real Estate Institute president Howard Morley conceded the Auckland property market had "levelled off" but said he did not think a serious decline was under way.

"From the information we're getting from our licensees there is no massive decline coming up or happening," he said. "You have to see a thirty, forty or fifty thousand dollar change on a monthly basis to say there's a massive decline."

He said the drop in median sale prices in Auckland city could be attributed to the increasing number of sales of low-cost apartments.

The market was likely to be quiet until September as potential buyers put off making big decisions until after the election, he said.

- HERALD ON SUNDAY