Concerns over the country's heated housing market reached fever-pitch this month. While Auckland remains the focus of much of the worry, supercharged price growth and increasing pressure can be seen in a number of markets around the country.

These trends are evident in the latest round of data, a fair swag of which points the spotlight away from New Zealand’s largest city. A spreading “halo” effect from Auckland may be a significant factor. But, whatever the case, the impact on financial stability is bothering the Reserve Bank and it is tightening the screws on investors in response.

Falling Interest

Auckland’s prices have reached a point which is putting many property buyers off, Realestate.co.nz suggested on the release of their June data. Their data shows the city’s average asking price reached a record high of $888,493 in June.

Realestate.co.nz CEO Brendon Skipper says this price was almost out of reach for the average income earner. Further, as prices continue to rise, theoretical yields for Auckland property investors continue to drop. These factors could constitute a turning point for the SuperCity market, he says.

In fact, Realestate.co.nz’s data shows that many property buyers are already looking away from Auckland. The number of users searching Auckland houses “for sale” fell by 19.33% in June, as compared to the same time last year. Engagement measures also fell by more than a third across the Auckland region in June, as compared to June 2015.

Skipper says it appears buyers are moving away from looking in the Auckland area in favour of other regions. For example, searches for properties in Northland, Hamilton, Tauranga and Queenstown were up significantly in June, as compared to the same time last year.

Soaring Values

While interest in Auckland property may be falling, that has not stopped the city’s values rising. And that ongoing ascent is one of several factors contributing to increasing nationwide values.

According to the latest Quotable Values (QV) data, Auckland values increased by 4.7% over the past three months and by 16.1% year on year. This leaves them at $975,087 which is 78.4% above the 2007 market peak. Once adjusted for inflation, the annual increase drops to 15.6%, which leaves values 52.1% higher than in 2007.

Nationwide values rose by 5.6% over the past three months and by 13.5% year on year. This leaves them at $590,909 which is 42.6% above the 2007 market peak. Once adjusted for inflation, the annual increase drops to 13.0%, which leaves values 21.6% higher than in 2007.

QV national spokesperson Andrea Rush says many housing markets around the country are being driven by strong investor demand, low interest rates, rapid price growth in the Auckland market and strong net migration. But it was the Hamilton market which saw the highest growth with a 29.0% year on year increase in values.

Tight Supply

As has been well-noted, constricted supply is a key part of the equation. Further confirmation of this came in Barfoot & Thompson’s latest data. It shows increases in both Auckland’s average sales price (to $908,343) and its median sales price (to $839,500) in June.

But Barfoot & Thompson managing director Peter Thompson says prices have edged up slightly – and this is largely due to limited supply. He says the number of sales (1168) and new listings (1170) are consistent with the same period last year.

“The moderate increases in the average sales and median prices are a measure of a very tight supply situation. At month’s end we had 2936 properties on our books, which is marginally lower (2.6%) than the previous month’s 3013.”

In Thompson’s view, the fact prices are only up moderately demonstrates purchasers are maintaining a level head in terms of the value they see in the properties on offer. “These are signs that vendors are similarly realistic, even in a constrained market.”

Increase Rate Slowing

Auckland’s prices may have continued on an upward trajectory, but the pace has slowed in recent times. Trade Me Property’s June data provides more evidence that the heat could be coming out of the market.

Head of Trade Me Property Nigel Jeffries says since June last year, the average asking price across all the properties on the site has increased by over $46,000. “That’s an easing. For example back in September we saw a 12-month jump of over $80,000. This is a sign that the foot may be coming off the accelerator.”

Significantly, the change was most noticeable in Auckland, where prices were up 0.7% on May to a new high of $848,100. Jeffries says that while Auckland’s asking prices were up almost $75,000 year on year, that is significantly down on August 2015 when there was a leap of $130,000 in a year.

“For now it looks like the incredible surges we’ve seen in Auckland may be slowing down. That’s not to say the market is stalling, but we’re seeing the market take a bit of a breather after sprinting ahead for months.”

While Auckland was easing in June, its immediately surrounding regions powered on. The average asking price in the Waikato hit $435,000 in June, up $78,000 on June 2015. In the Bay of Plenty, the average asking price went up $88,400 in the past year to hit a record $543,800. And in Northland the average asking price rose 14% to $445,500, up $54,700 on June 2015.

No Let-Up

Meanwhile, the latest Real Estate Institute of New Zealand (REINZ) data shows prices rising and supply constricting in regions around the country. Five regions hit new record high median sale prices in June – although the national median price dropped by 1% to $500,000, as compared to May.

The five regions which reached record highs were Auckland (up to $821,000), the Waikato/Bay of Plenty region (up to $438,000), Northland (up to $360,000), Otago (up to $295,000) and Central Otago Lakes (up to $730,050).

However, the number of sales in June 2016 dropped to 7,864, which was down by 13% on May. Once seasonally adjusted, the number of sales fell 3% from May to June. This indicates that sales were weaker than expected for this time of year.

REINZ spokesperson Bryan Thomson says that although there is much discussion about increasing new build supply, the fact remains that the vast majority of the supply comes from the sale of existing properties.

“The inventory data continues to show rapid declines in the volume of properties available for sale right across the country, with a number of regions, such as Wellington and Hawke’s Bay, recording very low levels of properties for sale.”

This places pressure on the market and, in turn, has an impact on sale numbers along with the prices achieved.

Auckland’s influence on the national picture is waning due to its own weaker sales and the strong growth in sales in other regions, Thomson adds. “Auckland’s peak share of national sales was 39.7% in January 2014, however, its share is now just over 33.8%. Over the same period Waikato/Bay of Plenty’s share of national sales has increased from 14.3% to 19.0%.”

Financial Stability

House price inflation in Auckland has long been a worry for the Reserve Bank, which sees it as a risk to the country’s broader financial stability. More recently, the strength of house price growth in markets around the country has also been a bother.

At the Reserve Bank’s June meeting, it was indicated that the introduction of further macro-prudential policy, to curb investor activity and thus the housing market, was likely towards the end of the year. However, evidence of the spreading heat of the Auckland market, and the related political and public pressure, seems to have prompted the Reserve Bank into earlier action.

In July, the Reserve Bank released a consultation paper proposing changes to LVRs to further reduce risks to financial stability arising from the current boom in house prices. One of the proposals is to restrict bank lending to investors around New Zealand to an LVR of greater than 60% - ie: to a deposit of 40%.

Reserve Bank governor Graeme Wheeler says the banking system is heavily exposed to the property market with residential mortgages making up 55% of banking system assets. “Investor lending has been increasing rapidly and is a significant contributing factor to the current market strength. The proposed restrictions recognise the higher risks associated with such lending.”