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It's Payback Time

Kiwibank has warned all the data points to a housing market paying for last year’s excesses, writes Sally Lindsay

By: Sally Lindsay

31 May 2022

The housing market downturn intensified in April, according to REINZ latest housing market figures. The House Price Index (HPI) fell another one per cent in the month. Annual house price growth dropped to 6.3 per cent, down from just over 30 per cent eight months ago. And the median house price of $875,000 is down $50,000 from its peak back in November. In Auckland the median selling price of $1,170,000 is down by $130,000 from its peak in November last year.

On the activity side, the 4,860 sales recorded by REINZ were 35 per cent down on last year and well below the 30-year average for an April month of 6,500. Sales were down a whopping 53.6 per cent in Marlborough over the year to April, followed by Auckland at 41.3 per cent, Hawke’s Bay 39.2 per cent and West Coast 38.3 per cent.

The median number of days to sell a property across Aotearoa (seasonally adjusted) is back up to the REINZ average of 39 days.

There’s no two ways about it, the data points to a housing market paying for last year’s excesses, says Kiwibank. It’s also clear, says the bank, the housing market is in for a rough ride over the year ahead. The market is adjusting to the new reality of rising housing supply, investor-related tax changes, and far tighter credit conditions.

Price Falls

Westpac Bank is now predicting a 15 per cent house price fall over the next two years. However, this will only bring average house prices back to where they were at the start of 2021.

The bank’s economics team previously expected a 10 per cent peakto-trough fall in prices over this year and the next. It has now front-loaded the fall, with a 10 per cent drop in 2022 and a further five per cent in 2023.

Acting chief economist Michael Gordon says the forecast is of the national average; the economics team doesn’t forecast house prices by region, but obviously there are some regions that will see a bigger than average decline, and are already on track to do so.

“Our modelling suggests a true ‘market clearing’ price right now would be more than 15 per cent below current levels. However, we also consider the dynamics of the housing market when we form our forecasts. In the absence of distressed sales (which we don’t expect to be a major factor), property owners generally won’t sell at a loss if they don’t have to. This means that some of the adjustment will come in the form of lower turnover instead of lower prices,” says Gordon.

He says the housing data has validated the bank’s view the market has turned. House prices have been falling since the end of last year, and at a fairly rapid pace compared with history, considering that any drop in prices is a rare occurrence.

Lending Drops

Although new mortgage lending was up to $1.3 billion in March from $1.1 billion in February, it was an annual drop of 44 per cent, the latest Reserve Bank figures show.

Investors accounted for 17 per cent of new mortgage commitments, down from 18.5 per cent in February, making this the first drop since December last year. And lending to investors with high loan-to value ratios (LVRs) of 60 per cent rose from 31.4 per cent in February to 32.1 per cent in March.

Total monthly new mortgage lending topped $7.3 billion in March, up $1.6 billion, or 27.5 per cent, from February, but well down on the all-time high of $10.4 billion advanced in the same month last year when the market had a huge head of steam.

While the new mortgages value is 17.7 per cent higher than in March 2020, the Reserve Bank says the composition is quite different. Fewer borrowers took out mortgages, but the average size of loans has risen 44.5 per cent. In March the number of mortgages advanced was down 18.6 per cent from 22,631 in March 2020 to 18,424.

A record 5,303 new houses were consented in March, the highest for any month of the year, and is up 26 per cent on March last year, Statistics NZ data show.

In the year to the end of March a record 50,858 new houses were consented, up 24 per cent compared with the previous 12 months. This is the first time the number of homes consented have passed 50,000 in any 12-month period.

‘The slowdown has clearly hit hard across the capital’ Nick Goodall

Also for the first time more multi-unit homes than stand-alone houses have been consented in any 12-month period.

Multi-Unit Popular

Over the year to March, 25,475 multi-unit homes such as townhouses, apartments, home units and retirement village units were consented, overtaking the 25,383 stand-alone houses consented in the same period.

CoreLogic’s House Price Index has dropped 1.6 per cent in Auckland. This drop reverses the 1.4 per cent growth in March.

At a more granular level, the old Auckland City Council area, which has the highest average value of the Super City at $1.72 million, had the largest fall in values, of 2.5 per cent over April. Waitakere (1.9 per cent) and Manukau (1.5 per cent) also experienced noticeable drops. Meanwhile, some growth persisted in Franklin (0.6 per cent) and values in Rodney fell by a very minor 0.1 per cent.

However, the average values of Christchurch and Dunedin properties have meant the two cities are drifting further apart. This is a revealing change given Dunedin’s average value was greater than Christchurch as recently as September last year, says Nick Goodall, CoreLogic’s research head.

The 2.9 per cent fall in Dunedin values over the past three months is the greatest quarterly drop in more than 13 years, when the market was still in retreat from the global financial crisis (GFC).

Similarly, the two per cent fall across the Wellington region in the past three months is also a record since the GFC. Lower and Upper Hutt are key contributors to the regional deterioration, with three per cent and 2.6 per cent drops over the month respectively.

However, all five of the main Wellington localities had declines in their average values over April and the last quarter. “The slowdown has clearly hit hard across the capital – perhaps reflecting the impact of tightening credit on first home buyers who typically account for a relatively high share of sales compared to other main centres,” says Goodall.

Outside the main cities there appears to be particular weakness across the Manawatu/Whanganui and Hawke’s Bay regions with the Hastings market falling 2.4 per cent, Whanganui down 2.3 per cent and Palmerston North dropping 1.5 per cent in April.

Auckland Figures

House sales in Auckland dropped nearly 50 per cent last month.

The latest data from Barfoot & Thompson, the region’s biggest real estate agency, shows the greatest impact the changed economic conditions had on the property market in April was the 615 sales, a 47.9 per cent drop on March.

“Buyers are now showing a greater reluctance to meet vendor expectations,” says Peter Thompson, Barfoot & Thompson’s managing director.

At the same time property prices have dropped. The April median price at $1,141,000 was a fall of 3.3 per cent and the average price at $1,212,376 was a fall of 1.8 per cent. However, prices remained well ahead of those 12 months ago.

When compared with the average prices paid over the previous three months, the median price in April fell 1.7 per cent and the average price fell 0.7 per cent.

“For vendors, the positive news is that the prices at which sales are being made are still well in excess of those prevailing 12 months ago,” says Thompson.

“April’s year-on-year median price is 8.7 per cent ahead of that in April last year and the average price is up 8.8 per cent.”


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