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Just What The Doctor Ordered

There are more check-ups to come, but it appears the property market is on the mend, writes Sally Lindsay.

By: Sally Lindsay

1 October 2023

In most of the main urban areas values continue their downward path, Tauranga bucked the trend at 0.6 per cent in the black.

Nationally, the median sales price dropped 4.1 per cent year-on-year from $800,000 to $767,000 during August, latest REINZ figures show.

Regionally, median sale prices remained down year-on-year except for five regions: Nelson +0.7 per cent; Canterbury +0.8 per cent; Southland +2 per cent; Northland +3.6 per cent and Gisborne up 14.8 per cent year-on-year and up 13 per cent month-on-month.

Auckland saw its median sale price move back up over the $1 million mark to $1,010,000, increasing 2 per cent month-on-month, but declining 8.2 per cent year-on-year.

Wellington had month-on-month increases with the median sale price up 2.3 per cent from $733,000 to $750,000, and a 16.9 per cent increase in the number of properties sold from 438 to 512 month-on-month. Days to sell month-on-month dropped from 52 to 38, a 14-day decline.

The total number of properties sold across New Zealand last month were up 9.2 per cent from 5,047 to 5,509.

The amount of time it’s taking to sell properties dropped by six days year-on-year and five days month-on-month, a change from the trend of rising days. The biggest drop in selling days was in Nelson, which declined 18 days from 60 days to 42 days.

REINZ chief executive Jen Baird says higher interest rates and the ongoing cost of living continue to impact the market ahead of the looming election. There is a sense that the market has seen the bottom both in terms of prices and sales volumes.

The Housing Price Index (HPI) stood at 3,588 in August, showing a 0.9 per cent increase compared to the previous month. When compared to the same period last year, the HPI reflects a 4.7 per cent decline. The average annual growth in the HPI over the past five years has been 5.7 per cent per annum. It remains 16.1 per cent below the peak.

Quotable Value’s (QV) latest HPI shows a modest level of home value growth in the quarter, boosted primarily by first-home buyers outside the country’s main urban areas.

The average home increased nationally by 0.5 per cent to $893,639, marking its first quarter of positive growth since the downturn began in late 2021. But overall values continue to track downwards across most of the main urban areas, with just Tauranga at 0.6 per cent, Marlborough at 0.2 per cent, Christchurch 0.1 per cent, Queenstown 0.8 per cent, and Invercargill 1.5 per cent in the black this quarter.

The HPI shows the rolling three-monthly rate of decline has slowed in Auckland (-0.5 per cent), Wellington (-0.6 per cent) and Palmerston North (-0.3 per cent), and increased by less than a percentage point in Whangarei (-2 per cent), Hamilton (-0.7 per cent), Rotorua (-1.4 per cent), New Plymouth (-0.1 per cent), Napier (-1.6 per cent), Hastings (-2.5 per cent) and Dunedin (-1.7 per cent).

QV operations manager James Wilson says by taking a good look at the housing market at a high level, things are beginning to look a little healthier. “For the first time in a while we are seeing value increases in some areas, especially in places where there is strong demand for entry level housing.”

He says it is a case of the more affordable end propping up the market overall, with areas coming off low value bases continuing to be among the strongest performers.

The obvious exceptions among the main urban areas monitored by QV are Tauranga and Queenstown, although in both places values at the lower end of the market are growing while values at the upper end are still soft.

Big Leap In Sales

After being in the doldrums, house sales took a big leap in August when 879 properties were sold, 20.9 per cent more than in July, 22.1 per cent higher than the average number of monthly sales for the previous three months and 52.1 per cent more than for August last year.

Not only did the number of sales during the month increase significantly, but the median sales price at $982,500 was also up 3.4 per cent on that for July.

“Against where the market has come from, August’s results are only a modest step forward, but the level of buyer motivation was the best it has been for more than two years,” says Peter Thompson, Barfoot & Thompson’s managing director.

“Once this month’s general election is behind us, we can anticipate sales activity increasing and a good, steady market through to year-end.”

The average sales price at $1,088,457 was up 2 per cent on the average for the previous three months of 0.9 per cent. New listings for the month at 1,577 rose 30 per cent on those for July and were up 13.1 per cent on the same time last year as vendors felt the mood of the market changing, Thompson says. At month end the agency had 4,155 properties on its books, 1.9 per cent more than at the end of July. Anything above 4,000 gives buyers an excellent range of properties.

The growing number of apartments for sale, combined with the market downturn experienced since November 2021, has seen the re-emergence of properties selling for under $500,000.

In August, 18.7 per cent of agency’s sales were of properties selling for under $500,000, while 6.4 per cent sold for $2 million or more, and 2.4 per cent sold for $3 million or more.

Mortgage Lending

New and interesting figures have been released by the Reserve Bank on the purpose of new residential mortgage lending.

Of the $5 billion taken out in mortgages in July, property purchases accounted for $3.2 billion, changes in loan provider $1 billion, top-ups $0.6 billion, and the remainder was for other purposes, including bridging finance.

Total borrowing was down $400 million on July last year and is only a month shy of two years of dropping mortgage lending.

The value of purchases was down 5 per cent in the year to July, top-ups down 13 per cent, but bank switches up by 1 per cent as borrowers chase the best deals, which often include cashbacks.

The average size of a new loan in July was $362,200. For property purchases the average loan was $546,300, falling 7.1 per cent from $587,900 in July last year. For changes in loan provider the average loan size was $600,500, and for top-ups it was $104,900.

There were 13,795 new mortgages taken out in July, with 40 per cent of borrowers taking out tops-ups, while 42.7 per cent took out loans for property purchases and 12.6 per cent of borrowers changed loan provider. The average share of the value of new mortgages for buying property was 63.3 per cent between January 2017 and July.

For changes in loan provider the average share was 16 per cent between January 2017 and July this year. This share has been elevated above the long-run average since June 2022. In March there was a spike in the share of the value of new mortgages due to changes in loan provider, at 26.1 per cent.

New mortgages for top-ups of existing lending came to 11.6 per cent in July. The share of new lending for top-ups has dropped over time. The lowest share since the series began in January 2017 was at 10.7 per cent in June.

The value of top-ups in the 12 months ended July was $7.7 billion. By comparison, in the 12 months ended July 2021, top-ups had a value of $13.6 billion.

Affordability

Mortgage repayments are still eating up nearly half of borrowers’ income and could rise as banks raise interest rates, even though the OCR remains at 5.5 per cent.

Although mortgage repayments as a percentage of gross annual average household income dropped from a peak of 53 per cent in the fourth quarter of last year to 49 per cent in the June quarter this year, they remain well above the long-term average of 38 per cent.

Each of the main centres still has mortgage repayments as a percentage of gross household income at least eight percentage points higher than their own long-term averages, with Tauranga the most stretched and Wellington the least.

Properties are now valued at 7.2 times the average household income, down from 7.8 six months ago.

This figure has fallen in recent months as property values have dipped and incomes continue to rise amidst a strong labour market backdrop but remains above the long-term average of 6.1.

The latest figure of 7.2 is significantly lower than the first quarter of 2022’s peak of 8.8 and is the lowest since 7.1 in the fourth quarter of 2020, CoreLogic’s Housing Affordability Report shows.

“In other words, a lot of the strain that emerged post-Covid has been easing but remains elevated by longer-term historical levels,” says Kelvin Davidson, CoreLogic’s chief property economist.

Tauranga remains the least affordable main centre, with a value-to-income ratio of 9.5 in the second quarter of this year, followed by Auckland, Dunedin, Hamilton, Christchurch and Wellington.

“After a period of stretched affordability, the sharp falls in Wellington city house prices lately have seen this part of the country get markedly better in terms of purchasing power and it retains the title of most affordable from Christchurch for the second consecutive report,” Davidson says.

Rental Market

The rental market has cooled with rents stagnant, demand down and supply falling.

Trade Me’s latest Rental Price Index shows the national median weekly rent held at $620 for the second consecutive month in July.

Compared with July last year, tenants are still paying $40 more per week in rent, and Auckland tenants have faced the biggest increase at $70 more per week.

Nationwide, supply and demand for rental properties was down in July, with 3 per cent fewer listings, and 2 per cent fewer enquiries compared to June.

Trade Me’s property sales director Gavin Lloyd says even though winter is a traditionally slow time for the rental market, it is even quieter than usual. “It will be interesting to see if landlords respond to the lack of demand with lower rents.”

A few regions bucked the nationwide trend, including Canterbury which had a 7 per cent lift in listings and 13 per cent more enquiries. Rents reached a new record in July of $550 per week, up 10 per cent on the year prior.

Marlborough, a popular region for rentals, had 29 per cent more listings last month and 20 per cent more when compared to last year.

Wellington rents have been sitting stagnant at $650 per week since March.

Following the region’s record-high median weekly rent recorded in January at $660 per week, rents in the capital have dropped $10 per week, and have remained at $650 for four months to the end of July.

Compared to last year, Wellington tenants are now paying $40 a week more. The most expensive Wellington areas are Porirua at $680, Lower Hutt at $650, and Wellington city at $650.

Urban options in city centres remain popular, with apartments, townhouses and units in strong demand. For the second month in a row, Auckland and Christchurch urban properties have set record highs.

The median weekly rent for an Auckland apartment is $580, up 16 per cent. Likewise, units are $540, up by 8 per cent.

Townhouses in Christchurch hit a record high of $540 per week, up by 9 per cent.

Auckland and Wellington urban properties (apartments, townhouses and units) are creeping towards the $600 mark, with Auckland city at $595 and Wellington $590.

Building Consents

The emerging downturn in residential construction is gaining speed again, with a 5.2 per cent seasonally-adjusted drop in consents in July compared with June. This followed a 3.4 per cent rise between May and June.

Stats NZ says there were 3,058 new homes consented during July, down 25 per cent compared with the figure for July last year.

On an annual basis there were 43,487 new homes consented in the year ended July 2023, down 14 per cent compared with the year ended July last year.

In the year ended July this year, the number of new dwellings consented per 1,000 residents was 8.4, compared with 9.9 in the year ended July last year.

In July there were 1,183 stand-alone houses consented, down 32 per cent compared with July last year, and 1,875 multi-unit homes, down 21 per cent over the same period.

What’s Driving House Prices?

House Prices: Mixed While house prices are still down across the country, the market is turning. In Auckland, the country’s largest property market, the median sale price moved back up over the $1 million mark to $1,010,000, increasing 2 per cent month-on-month in August, but declining 8.2 per cent year-on-year. Wellington had month-on-month increases with the median sale price up 2.3 per cent from $733,000 to $750,000. Regionally, median sale prices remained down year-on-year except for five regions: Nelson, Canterbury, Southland, Northland and Gisborne.

Ocr: Steady The Reserve Bank’s official cash rate has been at 5.5 per cent since July after the RBNZ indicated it was at the end of its tightening cycle, although some economists believe it will need to rise further to stem inflation.

Interest Rates: Up ASB has become the only big retail bank charging more than 7 per cent for its two-year fixed mortgages, creating a sizeable gap between it and the other banks. ASB increased a range of its mortgage rates, including its two-year fixed rate which went up to 7.05 per cent, the highest in 14 years. ASB also hiked its one-year, four-year and five-year rates by between 0.16 and 0.20 per cent.

Building Consents: Down New building consents continue their downward slide with a 5.2 per cent seasonally-adjusted drop in consents during July compared with June. There were 3,058 new homes consented during July, down 25 per cent compared with the figure for July last year. On an annual basis, there were 43,487 new homes consented in the year ended July, down 14 per cent compared to the same time last year.

Mortgage Approvals: Down July’s total monthly new mortgage commitments were $5 billion, down $700 million (12.1 per cent) from $5.7 billion in June. Mortgage lending in July was the lowest on record for a July month since 2017. Lending to owner-occupier movers fell 13.5 per cent from June to $2.8 billion. Lending to investors fell 9.1 per cent from June to $900 million, while lending to first home buyers fell 10.6 per cent from June to $1.2 billion. There were 13,795 new mortgages taken out, down 11 per cent from 15,498 in June. The average value of new mortgages fell to $362,200 in July, down from $366,900 in June. The average value has fallen from $379,100 in July last year.

Rents: Up Stats NZ stock measure shows rents rose 0.4 per cent in August compared with July and were up 4.1 per cent for the year.

Immigration: Up Annual migration records have been smashed, with a record net migration gain of 96,200 in the July year, according to Stats NZ. The 208,400 migrant arrivals are the highest number on record for an annual period. This equates to a net gain of about 19 people per 1,000 population, but the number of Kiwis departing also rose, to an annual loss of 39,400, approaching the record loss of 44,400 in the February 2012 year.


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