HOUSING COMMENTARY

Govt torpedoes fail to sink market

Despite the Government’s best intentions and policy shifts Kiwi’s positive expectations of house price growth are hard to sink, Sally Lindsay writes.

There has been a further modest decline in ASB’s housing confidence survey, but Kiwi’s perceptions of house price growth remain around a level seen during the peak of price confidence in past housing booms.

The latest ASB survey shows in the three months to July a net 58% of people expected house prices to rise over the following 12 months, down from a net 64% in the three months to April and a net 73% historical peak in the three months to January. The current net balance is made up of 65% expecting prices to increase and 7% expecting declines.

This is despite widespread predictions from economists of a slow down or even a price drop.

Because of this hard-to-shift mindset about house prices, the ASB has revised its annual growth upwards to 22% this year, mainly reflecting how resilient prices have been to date.

ASB chief economist Nick Tuffley says, however, the tide is going out, and there will be just 2% growth next year as price growth becomes dead in the water.

From a government policy perspective, a number of torpedoes have been fired at the housing market this year and a fresh salvo is being loaded into the tubes.

As yet the housing market has only taken on a little bit of water: month-to month growth has slowed only slightly from its February/March peak frenzy, and annual house price growth has hit 30%.

It is of little surprise that perceptions of whether it is a good or bad time to buy a house are still weak, says Tuffley. A net 20% of respondents see now as a bad time to buy, little changed from a net 21% in the three months to April.

The latest result had 11% of respondents seeing now as a good time to buy a house, with 31% seeing it as a bad time (making the net -20%).

Interestingly, Auckland is less downbeat overall with a net 13% seeing now as a bad time to buy, against a net 25% “bad” for the rest of the North Island and a net 21% “bad” for the whole of the South Island.

Climb continues

August’s lockdown threw up some surprising results in the housing market. While sales were down 26.5% from last August, house price growth hit a new record of 31.1% across the country.

House prices appear impervious to anything thrown at them. According to the REINZ House Price Index (HPI), prices still managed to climb 2% in August.

However, the data was distorted by lockdown and will remain so while Auckland is in level four lockdown, says Kiwibank’s economics team.

Median prices for residential property across the country increased by 25.5% from $677,400 in August last year to a record $850,000 last month, REINZ data shows. Four from 16 regions reached new record median prices and 25 districts reached new record median highs.

‘The contrasting outcome seems to be explained by fewer days in lockdown over August, and the completely different climate in the market this time around’

Jarrod Kerr

The median house price for New Zealand, excluding Auckland, increased by 22.8% from $570,000 in August last year to a new record of $700,000 last month.

Auckland again underpinned the strength of the housing market hitting a record median house price last month of $1.2 million – up 26.4% from $949,500 in August last year.

This growth was reflected throughout the region with five from seven districts reaching new record median prices – Rodney District ($1.28 million), Manukau City ($1.157 million), Waitakere City ($1.12 million), Franklin District ($950,000) and Papakura District ($940,000).

The rises contrast with last year’s lockdown that generated a cautious contraction in prices, says Kiwibank chief economist Jarrod Kerr.

“The contrasting outcome seems to be explained by fewer days in lockdown over August, and the completely different climate in the market this time around.

“There was still significant interest in the housing market prior to lockdown. Also, the real estate industry and supporting services (conveyance, banking, etc) were better prepared to process transactions already in train during lockdown.”

Auckland fared better than any other region in August. It managed to avoid a double-digit fall in sales during the month – only -9.3% – and annual house price growth of 27.9% was the fastest pace of growth in almost six years. Elsewhere, sales fell much faster, in the range of 15-30%. There were some eyewatering house price gains in places like Canterbury and the Hawke’s Bay.

However, the total number of properties available for sale across the country dropped year-on-year by 31.9% in August to 12,249, down from 17,974 in August last year – 5,725 fewer properties. This is a 3.4% drop from July and it is the lowest level of listings ever seen. It was not unexpected as the normal spring lift in listings has been delayed by the lockdown.

Meanwhile, auction rooms may have gone quiet when alert level four was dropped on the country, but the latest data indicates this just meant a shift to online auctions. Last month 26% of all properties sold by auction. This is the highest percentage of New Zealand homes sold by auction for an August month since records began.

Affordability woes

The average property value across New Zealand is 7.9 times the average annual household income, a record high in CoreLogic’s Housing Affordability Report’s 18-year history. It is published every six months.

The figure for the second quarter of this year is up sharply from the 7.4 times recorded just three months ago and 6.6 times of 12 months ago. The long-term average is for property values to be 5.8 times the average annual household income.

Property values rose 15% during the first six months of 2021, well ahead of the increase in gross average household income which rose just 1.0%, illustrating the country’s acute affordability challenges.

CoreLogic’s chief property economist Kelvin Davidson says since the last report in late February, the New Zealand economy and property market have generally remained buoyant.

The report also found it currently takes 10.6 years to save a house deposit, beating the previous first quarter high of 9.9 years. It takes almost three years longer to save for a house deposit than the long-term average of 7.8 years.

On average, households who take out a new home loan spend 38% of their income on their mortgage repayments, compared to tenants, whose rental payments absorb 21% of household income. Despite historically low interest rates, average mortgage payments as a proportion of household income have increased from 32% a year ago.

“However, this is not to say that renting is easy either – that figure of 21% is also above average. It’s also worth noting that the typical income for a renting household may well be lower than the overall average, which would imply a much higher figure than 21% of their income being spent on accommodation costs,” Davidson says.

“Mortgage repayments are now back to levels last seen in early 2018, when typical fixed mortgage rates were much higher, above 5%.” ✚

What’s driving house prices?

UP

• REINZ HOUSE PRICES

Median prices for residential property across the country increased by 25.5% from $677,400 in August last year to a record $850,000 last month.

• RENTS

Stats NZ stock measure shows April rents were up by 0.2% in August, compared to April and by 3.2% year-on-year.

• INTEREST RATES

ASB has hiked mortgage rates by up to 30 basis points. The bank’s sixmonth fixed term goes from 3.29% to 3.55%. One year rates increase from 2.55% to 2.85%, 18 month rates increase from 2.79% to 3.09% and two year rates increase from 2.95% to 3.25%. Kiwibank’s one year rate goes up to 2.65%, its two year rate was raised only +10 bps to 2.89%. This is the lowest of any of the main banks.

• IMMIGRATION

The latest migration figures show a net gain of 1,139 people in July, more than double the net gain of 527 in June and almost 15 times the net gain of 76 in July last year. July was the fifth consecutive month that the net migration gain increased. The increases have come from a steady reduction in the number of people leaving the country long term, while the number arriving long term has been relatively stable.

• MORTGAGE APPROVALS

RBNZ data shows total new mortgage lending to investors was slightly up in July to $1.472 billion. In June it had shrunk to $1.436 billion down from the high in March of $2.325 billion. A year ago investor mortgage lending was $1.451 billion. Mortgages for first home buyers were $1.605 billion, down from $1.649 billion in May and new mortgage commitments to other owner occupiers were up slightly to $5.655 billion compared to $5.365 billion in June.

HOLDING

• OCR

The Reserve Bank has held the OCR at 0.25% – the rate it has been at for more than a year. Economists are predicting it to rise in October.