Supersize me: Where upsizers should look for big homes

Now the price gap has narrowed, buyers looking to upgrade urged to act now or miss out.

Buyers with growing families and money in the bank are being urged to act now to secure a bigger and better home.

OneRoof and CoreLogic have run the numbers and identified the best suburbs and regions for buyers looking to upgrade.

In Auckland, the top suburbs for “upsizers” are clustered around Manukau, Papakura, East Tamaki and on the city’s fringes.

Outside of Auckland, the regions where buyers should focus their attention are the Far North, Rotorua, the Western Bay of Plenty, Upper Hutt, the Kapiti Coast, Upper Hutt and Timaru.

Although prices for all property types have increased over the last five years, prices for 4+ bedroom houses in the regions highlighted are relatively cheaper compared to other house types.

OneRoof editor Owen Vaughan said: "A rising market is a positive for most homeowners, but for those looking to upsize, surging values can be challenging.

"Even though they'll be able to, in most cases, secure a good price for their own home in a seller’s market, they’ll have to pay a premium for that next, larger property.

"In a rising market the gap between the price they'd get for their existing home and they'd pay for their dream home progressively widens, making the move up the property ladder that more difficult.

"But in a flat or slowing market, there's the opportunity to move up if the value of your next property has grown slower than the value of your current home.

"In some regions, as the figures show, the potential savings upsizers could achieve is substantial."

According to data supplied by CoreLogic, the growth gap between 4+ bedroom houses and 2-bedroom houses was most pronounced in Rotorua, at -26 percentage points. Not far behind was the Far North, where the gap -23 points. The median value of larger houses in both regions is just under $630,000, and those who have held 1-3 bedroom properties over the last five years will have seen good capital growth - enough to potentially fund a move up the ladder.

Other regions where the growth gap between 2-bedroom and 4+ bedroom houses was -10 percentage points or more were: Auckland Manukau (-18 percentage points); Auckland Papakura (-15); Kapiti Coast (-12); Timaru District (-12); Upper Hutt City (-11); Western Bay of Plenty (-11); Whangarei District (-10). All of those regions bar three - Manukau, Papakura and Western Bay - had median values for 4+ bedroom houses of less than $700,000.

In Auckland, there are 41 suburbs with a high percentage of 4+ bedroom houses, but of those, 11 had median values for larger homes of less than $1.3 million. Goodwood Heights, in the city’s southeast, had the lowest median value for a 4+ bedroom house, at $926,000. Neighbouring suburbs of East Tamaki, The Gardens and Flat Bush also offered value, with median values for 4+ bedroom houses ranging between $1.05 million and $1.24 million.

Median values for 4+ bedroom houses were also relatively low in Karaka ($1.14 million); Oteha ($1.24 million); Hobsonville ($1.25 million); Golflands ($1.28 million); Northcross ($1.28 million); Shelly Park ($1.28 million); Browns Bay ($1.28 million); and Beachlands ($1.29 million).

OneRoof analysis shows that 4+ bedroom Auckland properties escalate in price the closer they are to the CBD, with the most expensive suburbs to buy a large home identified as Herne Bay ($3.42 million); Remuera ($2.51 million); and Epsom ($2.39 million). However, a subdued market has meant that even properties in this price bracket could be more affordable now than during the boom years.

Mr Vaughan said: "Flat market conditions could mean that property-owners who have benefited from the price boom of the last five years don’t need to save for as long or borrow as much to upgrade to a bigger home.

"Buyers in the current market can in many cases afford to be more selective. The fear of missing out no longer applies and buyers can take their time to choose the right property rather than settle for a home that doesn't tick all their boxes.

"With many vendors forced to re-adjust price expectations, there's the potential for savvy buyers to negotiate hard on price."

Unlimited Potential directors Grant Lynch and Barry Thom said that under current market conditions, upsizers can proceed with a certain amount of confidence.

"The cost of money is a huge factor in people's property decisions and the Reserve's announcement that it is keeping the OCR on hold for at least until 2020 will give many buyers confidence.

"The upsizing dream is more achievable if the market has cooled a bit. In a more sedate market, like we are in the moment, that gap can narrow, as the value growth of more expensive properties slows, so now is a good time to move up.

However, Mr Thom cautioned: "Property-owners should always be aware of the amount of debt they are carrying. Those who have managed to clear their mortgage or paid off a chunk of their mortgage will have more purchasing power, and can feel quite confident about upsizing.

"But if you are trying to move while still carrying a lot of debt from the previous home, you should act with caution."

CoreLogic and OneRoof looked at the performance of houses across the country, gauging demand by measuring the changes in median values. Smaller Territorial Authorities were excluded from the analysis as stock volumes were too small to draw meaningful conclusions, leaving a sample of 48 TAs.

CoreLogic senior researcher Kelvin Davidson said: “Nationally, larger homes have seen huge lifts in value over the past five years, but there are only a handful of regions where they have outperformed other house sizes by a large margin: Southland, Auckland’s North Shore and Waikato District.

“In Southland, the median value of four to six bedroom homes jumped from $276,000 in 2013 to $451,000 in 2018 - a rise of 63 percent - while the median value of two bedroom properties grew at a slower rate over the same period, from $183,000 to $244,000.”  

“The growth gap between 4+ bedroom homes and 2-bedroom homes in Auckland’s North Shore was  18 percentage points while the gap in Waikato District was 17 points.” 

Mr Davidson said another 11 Territorial Authorities saw 4+ bedroom houses grow slightly more than 2-bedroom homes or at least perform the same, including Auckland Rodney (where the gap was nine points), Central Otago (four points), Auckland City (two points) and Wellington City (zero points).

“Perhaps the key part of all this is that 34 of the 48 areas analysed saw 4+ bedroom house values underperform those of 2-bedroom house values – an indication of where buyers looking to upgrade should focus attention.”

Mr Davidson said: “The figures underscore what we've seen from other recent studies - that affordability is a problem. The deposits required for smaller houses tend to be smaller than those for larger houses, and banks typically ask tougher questions when it comes to the bigger houses and larger mortgages. The LVR rules also tend to work in favour of smaller (cheaper) houses too.”

According to CoreLogic figures, those already on the property ladder have consistently been the dominant buyer group for larger properties since 2005, and increased their share of the market from 34.5 percent in 2013 to 36.5 percent now. Mortgaged investors are the next biggest group, and are responsible for 22.5 percent of sales, but their activity in the market has dropped sharply following the introduction of new LVR rules in 2016.

First-home buyers have increased their share of the market since 2013 and now account for almost 18 percent of larger house sales.

“It's worth noting that although movers (i.e. existing owner-occupiers who might be trading up) have consistently been the key buyer group for 4-6 bedroom houses, investors still make up a large part of market. However, the introduction of tighter credit controls on investors has seen that share shrink. Of course, investors may have made a conscious choice to target smaller houses over larger houses.

“It's conceivable that the relatively smaller price pressure for bigger houses since 2013 is related to the drop-off in investor activity, but other factors may be at play. After all, the movers and first-home buyers who have increased their share of the market might be paying exactly the same prices as the investors would have paid.”