Low interest rates are tipped to be a driver of a hot property market, particularly in Auckland, this year.

Banks are offering borrowers rates below 5% and Reserve Bank governor Graeme Wheeler has given a clear indication that there are no official cash rate rises looming.

Real Estate Institute figures show 6,898 homes were sold in February this year, up 12.6% on February 2014 and the highest number of sales in any February since 2007. All regions reported an increase in sales volume compared to January. Year-on-year, nine regions had more sales in 2015. Waikato/Bay of Plenty had the biggest jump, up 40.6%.

The national median house price rose $4,000 from January to $430,000 in February. Auckland’s median house price increased to $675,000, the Real Estate Institute said.

Quotable Value data also showed rising prices: It reported nationwide values up 6.4% year-on-year in February, and Auckland’s up 12.2%.

Westpac chief economist Dominick Stephens said data from the banking system showed strong levels of mortgage approvals and housing credit growth. He is forecasting a 7.5% increase in nationwide house prices this year. He said Auckland would likely exceed that rate of growth, while the rest of the country, including Christchurch, would come in under it.

We’re tremendous­ly busy, the banks are offering great deals and are very competitive with each other – David Windler

Wheeler put the blame for price inflation squarely on low interest rates. “These are among the lowest mortgage rates New Zealanders have seen in a generation. And we see no scope for the Reserve Bank to push mortgage rates higher again this year. Consumer price inflation is awfully low, and that obliges the RBNZ to keep interest
rates low.”

Great Deals

Broker David Windler, of the Mortgage Supply Co, said he was seeing strong levels of investor activity. That was buoyed by banks working hard to lend to borrowers with more than 20% equity. “We’re tremendously busy, the banks are offering great deals and are very competitive with each other,” Windler said.

The main concern for investors was whether they were spending above the odds for a property and whether an investment would stack up from a cash flow perspective, he said.

Property commentator David Whitburn, of property investment company FUZO, said buyers were extra buoyant since the March official cash rate announcement. Any concerns about the prospect of a rate rise had been eliminated and some were considering the possibility that the next move in the rate could even be down.

Whitburn said it was important not to underestimate the influence of Chinese buyers in the Auckland market. Many people with money invested in China were worried about the outlook there and wanted the security of putting their money in the Auckland housing market, he said. Buyers were coming in with millions of dollars to spend and the market looked affordable compared with such places as Hong Kong.

Picking Up

Realestate.co.nz reports very low levels of inventory, which could also be expected to put pressure on prices. But Barfoot & Thompson data for February showed Auckland’s listings activity may be picking up slightly.

The agency reported 1,771 new listings in February, up 47.7% on January and the highest number in 16 months. Its average selling price for the month fell by 1.3% on January to $747,521. The median price fell by 1.9% to $686,500, from $700,000 in January.

Managing director Peter Thompson said that did not indicate a decrease in market activity. February was one of his agency’s busiest on record, with sales up by 9.3% on those for the same period last year.

“The level of sales activity shows that, while there is still strong buyer interest, for the time being buyers felt property was fully priced.”

Property in the $750,000 to $1 million bracket was in high demand.

Whitburn expected another strong year for the Auckland market. Strong population growth coupled with an undersupply would boost demand and there would be no interest rate rises to put pressure on. “There’s no slowdown any time soon,” Whitburn said.

No Change

But he said there had not yet been any evidence of the boom spreading in any significant way beyond Auckland, as it had last decade. Between February 2014 and February 2015, the Real Estate Institute reported no change in median price for regions outside Auckland.

Chief executive Colleen Milne said this underlined again the view that there are two distinct real estate markets in New Zealand – Auckland and the rest of the country.

“While politicians and policy makers focus on solutions to the Auckland region’s housing supply problems, they will also be right to reflect on the need to ensure that any national application of new policies doesn’t have an adverse effect on the rest of the country,” Milne said.

But there are signs that investors may be starting to look to other markets to purchase.

Stephens said Hamilton had noticeably picked up. Tauranga was starting to move, albeit from a very slow start. Hamilton’s prices were infected by the increases of its bigger neighbour.

QV reported that over the past three months, Hauraki District values went up by 6.5%, Waikato District values went up by 3.9%, Kaipara District values went up by 3.0%, and Thames-Coromandel District values went up by 2.3%.

Rush said this trend was probably because of the “Auckland effect” as buyers looked for more affordable property.

The Reserve Bank was pondering a new restriction that would require banks to hold more capital against loans to property investors. Stephens said this measure alone would only have a limited effect on the interest rates investors faced, but it could be the start of further restrictions on investor borrowing.

“If those restrictions are significant, there could well be a noticeable impact on the housing market” Stephens said. “We consider property investors the marginal buyer at the lower end of the housing market, meaning they are the most important drivers of the price.”

Access To Capital

Property investors enjoy tax deductible mortgages, whereas first homebuyers do not, and they have plenty of access to capital. This means that property investors set a price-floor at auctions – if a first-home buyer wants to buy a particular house, they must pay more than that house is worth to a property investor, tax deductions included.

Whitburn said the restrictions might push the banks to ask for 30% equity for property investment loans. “What can investors do? Fix now. I’m fixing for longer terms.”