Housing Commentary

Rising house prices show no sign of stopping

BY SALLY LINDSAY

House prices are rising, even as lockdown levels continue to restrict the entire country and listings drop.

QV’s latest House Price Index shows the average value of houses increased 3.6% nationally over the past threemonth period to the end of September, up slightly from the 3.3% quarterly growth in August.

The national average value now sits at $977,456. This represents an increase of 26.3% year-on-year, down a fraction from 26.6% in August.

QV general manager David Nagel says he regards this as an aberration. In the previous three months there had been a reducing rate of growth. Nine of the 16 urban areas QV monitors have shown a slight rebound. Queenstown values rose at a significant 9.4%.

In the Auckland region, the average value now sits at $1.391 million, rising 3.3% over the past three-month period, with annual growth of 23.9% dropping slightly from August’s year-on-year growth of 24%.

The strongest value gains for the main cities over the past three months have come from Queenstown Lakes District at 9.4% growth in value, well up from 2.9% value growth last month, followed by Christchurch at 7.7% growth, building further on the strong growth of 5.8% in August.

None of the major urban areas QV monitors have seen a decline in average value, but Rotorua continues to slow at 0.8% compared to its rolling threemonthly growth rate of 1.9% in August.

Central New Zealand continues to show the strongest annual rate of value growth, with three of the four fastest growing regions all in the lower North Island. Values in the Manawatu- Whanganui region have grown 35% in the past year, while Hawke’s Bay and greater Wellington regions have experienced annual growth of 33.2% and 32.3% respectively.

West Coast has the strongest annual rate of growth in the South Island at 32%. The three lowest annual growth rates are all in the South Island, with the Southland region experiencing a still-significant 20.3% increase, the Tasman region showing 22.3% and Otago at 23.3% annual growth.

Big step up in mortgage interest rates predicted

Mortgage interest rates could be pushing 4% by the end of next year on one and two year rates and 4.5% into 2023, says CoreLogic.

These rates are still low by past standards, but a large proportional increase from existing levels.

The major trading banks have already started increasing interest rates since the Reserve Bank’s lifting of the official cash rate (OCR) this week by 0.25% to 0.50% and a clear indication it would have been increased in mid-August had it not been for Covid lockdowns.

ANZ, the country’s largest bank, will increase its floating and flexi home loans by 0.15% from October 12 or new loans and from October 26 for existing loans.

Kiwibank says will pass on the full 0.25% OCR increase to mortgage borrowers, although it has pointed out its rates are still below other major banks. The ASB says it will hold rates.

CoreLogic senior economist Kelvin Davidson says higher mortgage rates clearly mean borrowers are going to have to divert more money towards paying their mortgage, and some may not be able to access as much home finance as before,” says Davidson.

“There is already the sense some property deals have started to get a little stuck, with buyers just pulling back a little but vendors not budging on the asking/reserve price,” he says.

Rents remain at all-time highs despite lockdown

Rents nationally remained at an all-time high of $550 a week in August despite the country entering a nationwide lockdown.

Trade Me’s latest Rental Price Index shows the national median weekly rent matched the record high first seen in July and rose 8% on the same time last year.

Records were broken in Southland ($395), Waikato ($500), Bay of Plenty ($560), and Canterbury ($490).

The median weekly rent in the Wellington region was $600 in August, up 9% year-on-year. This is only the second time rents have reached the $600 bracket after reaching an alltime high of $615 in January. Demand for rentals in the Wellington region was down by 25% last month when compared with the same month last year, while supply was down by 16%.

In the Auckland region, the median weekly rent in August remained at $595 for the second month in a row. “This marks a 4% increase on the same month last year. Auckland City’s median weekly rent was $570. The most expensive districts in the region were North Shore City ($630), and Papakura ($620) and Manukau ($605).

Trade Me property sales director Gavin Lloyd prices were expected to slow considering tenants and landlords were stuck at home for most of the month. Instead, the rental market charged on. Every region in the country had an annual increase in rent.

However, there was an 18% drop in the number of properties listed on Trade Me for rent across the country when compared with the same month last year. Southland was the only region to flout this, with a 10% increase in supply when compared with the same month last year.

National demand also dropped by 16% year-on-year in August, mirroring what has happened in past lockdowns. There were some exceptions. Marlborough (11%), Bay of Plenty (4%), Canterbury (3%), and Manawatu/Whanganui (2%) had increases in demand last month when compared with August last year.

Growth in house prices to fall significantly next year

House price inflation is expected to fall back to single-digit levels next year.

ASB says higher mortgage rates will be a gamechanger but most of their impact will not be felt until next year.

Chief economist Nick Tuffley says two of the biggest supports for house prices of the past two years will flip into restraints.

“First, the rise in mortgage interest rates has begun and, in time, will tilt momentum. About three quarters of mortgages nationwide are due to refix over the coming 12 months and the Reserve Bank clearly doesn’t want the mortgage curve to droop.”

A change in the supply picture will also remove some of the support for house price increases next year.

The combination of slowing population growth due to the closed border and the recent frenzied pace of residential construction should, finally, put paid to the supply air pocket that’s been a feature of the market this year.

In Tuffley’s view, 2022 will be the year these shifting dynamics are reflected in a slower rate of house price inflation. “This is ultimately a good news story to the extent the long-running housing shortage is materially reduced.”

Areas where it is cheaper to buy than rent dwindling

There are still several areas of New Zealand where paying a mortgage cheaper than renting, but a lot fewer than a year ago.

Lower Hutt, Tauranga, and Tasman are some examples of areas where paying a mortgage has switched from being lower than rent a year ago to more expensive now, the latest CoreLogic research shows.

CoreLogic has taken the median price in each area and assumed buyers have a 20% deposit, servicing that debt over 30 years at a current 2.8% mortgage rate. It has then compared those fortnightly repayments to the median rent in each area.

As things stand, it’s still cheaper to buy than rent in 42 parts of New Zealand. For example, in Rotorua, the fortnightly difference between paying a mortgage versus rent is about $206 lower.

However, a year ago it was only a small handful of the most expensive parts of New Zealand where a buyer would pay more on the mortgage than rent – e.g. Thames Coromandel, Wellington, Queenstown, and Auckland, he says.

The national difference a year ago was -$138 (i.e. cheaper to pay mortgage than rent). But as values have boomed across the country and the buy-rent margin has switched from negative to positive in more areas, the national figure is now +$22.

It’s no surprise to see that many of these areas have been at the forefront of the upswing over the past year. In Porirua, for example, whereas a year ago there might have been savings of about $220 per fortnight on offer to a buyer if they owned rather than rented, that figure has now tipped the other way and buying is about $90 more per fortnight. ✚

What’s driving house prices?

UP

• OCR

The Reserve Bank has increased the OCR by 0.25% to .0.50 and indicated it will lift gradually until it hits 2% in 2023.

• RENTS

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

• INTEREST RATES

With the lifting of the OCR, ANZ, the country’s largest bank, increased its floating and flexi home loans by 0.15% from October 12 on new loans and from October 26 for existing loans. Kiwibank has passed on the full 0.25% OCR increase to mortgage borrowers, although it has pointed out its rates are still below other major banks. The ASB as held rates.

• IMMIGRATION

The Government has opened up a new fast-tracked one-off simplified residency pathway through its 2021 resident visa, and an estimated 165,000 migrants are eligible for it. Applications have been opened up to migrants on most temporary work visas between December last year and July this year. Critical workers who crossed the border before the end of July are also eligible.

• MORTGAGE APPROVALS

RBNZ data shows total new mortgage lending to investors was down in August to $1.379 billion and substantially down from the high in March of $2.325 billion. In August a year ago investor mortgage lending was $1.452 billion. Mortgages for first home buyers slumped to $1.391 billion down from $1.605 billion in July. New mortgage commitments were down to other owner occupiers at $5.309 billion compared to $5.655 in July.

• BUILDING CONSENTS

Residential building consent numbers continue to break records. Statistics New Zealand figures show 4,490 new dwellings were consented in August. This is an all-time high for any month during a year - up 42% on the same month last year. The number of new dwellings consented in the year to August was at a record 46,453, up 24% in the 12 months from August last year.

SLOWING

REINZ HOUSE PRICES

Although median residential house prices nationwide were up 15.4% to $795,000 in September compared to $689,000 a year ago, the gain was 6.5% down on the month of August. The REINZ House Price Index reached a new national high of 4,088.