Published in NZ Herald Property Report, 8 September 2014.

We are now nearly a year on from when the Reserve Bank signalled Loan to Value (LVR) limits and interest rate rises to cool down the property market. The changes we have witnessed since are not necessarily what has been widely reported.

One of these recurring stories is that sales of properties worth less than $400k have declined and that this is a sign that the LVR speed limits are shutting out first home buyers.

I addressed the issue of sub $400k sales in this column three months ago; but let's revisit it. Yes, the number of sales of these properties has declined over the past year, both nationwide and particularly in Auckland. However, during this time property values have been rising, rapidly in Auckland, and so the number of properties worth $400k or less has decreased also. We measure this every month by estimating the current market value of every property in the country using our automated valuation model - E Valuer. From this we can see that the number of properties worth $400k or less has dropped in line with the number of sales. In other words the turnover of these properties has hardly changed.

A better way to look at how the lower end of the market has been affected is to put houses into relative value bands and track activity in these over time. We have allocated properties into three groups based on value - the lower 30 per cent (the lower end), the middle 40 per cent and the top 30 per cent. During the previous 2003 to 2007 boom, nationwide sales of properties at the lower end, at that time worth around $240k and less, contributed 30 to 32 per cent of all sales. After the GFC this dropped to 25 per cent but since 2012 has been recovering and is now 28 per cent and rising. This low end group is now worth $255k and less.

The trend is much stronger in Auckland where the lower end contributed 25 per cent of sales in 2010 and was worth $410k or less, in comparison to now where they contribute 33 per cent of sales and are worth $570k and less.

This increasing contribution from the lower end properties both nationwide and in Auckland has been virtually unaffected by the LVR speed limits and increasing interest rates.

There is no question that the overall number of sales has dropped compared to this time last year, but this has affected the whole value range, and the lower end continues to gain strength.

What about first home buyers? We carry out analysis that categorises every property buyer either as a first home buyer, a mover, a multiple property owner, and so on. Using this we can see that first home buyers made up about 20 per cent of the market before the LVR speed limits came into effect in October. There was then a brief increase in activity before they dropped to around 18 per cent. That's only a 2 per cent drop. It's not first home buyers being shut out of the market! It's the same story in Auckland, and across much of the rest of the country.

As is nearly always the case, a drop in sales volumes tends to lead to a drop in values and we are now beginning to see the first signs of values easing across the country. In my view this drop in sales activity won't last long as we were only just beginning to recover from a low base, and in Auckland particularly there is still good demand for property with supply generally tight.