Property sales across the country dropped dramatically in January, down to 3,665 houses changing hands compared with 5,135 sales in January last year, the latest REINZ data shows.

Sales were the lowest for a January month in 11 years. And 11 years ago, the market was still recovering from the GFC.

The drop of 28.6% over the year highlighted a weaker trend than would be expected for the first month of the year. Month-to-month it was a 5.3% drop.

Sales of New Zealand homes, excluding Auckland, dropped 26.4% annually from 3,184 to 2,342.

In Auckland the number of properties sold dropped 32.2% annually – from 1,951 in January last year to 1,323 in January this year.

REINZ chief executive Jen Baird expects sales volumes to increase during February and March. “However, this does depend on reasonable levels of new listings.”

The REINZ house price index (HPI) also recorded back-to-back monthly falls following an unprecedented run of 18 consecutive price gains.

The HPI fell 1.5% at the start of this year, and annual house price growth slowed further to just below 20% – that’s from a record high of 30.6% as recent as August.

The figures are reflective of the usual slowing down of sales over the holiday period, but also magnified by headwinds such as LVRs, the CCCFA and interest rates impacting the number of active buyers in the market, says Baird.

Not all REINZ data was soft. The median number of days to sell, seasonally adjusted, slipped by just one day to 32 – and still well below the historical average of 39 days.

Credit Crunch Worries

Despite persistent reports the Credit Contracts and Consumer Finance Act (CCCFA) is having a detrimental effect on house prices and sales, Barfoot & Thompson says Auckland sales started the year in line with normal trading.

The agency says there are no signs prices are under pressure from trading bank lending practices or rising interest rates.

What's Driving House Prices

The CCCFA changes didn’t come into effect until December 1, and while there has been anecdotal evidence of banks refusing loans on flimsy grounds, they had been preparing for the change and had already tightened credit criteria along with pulling back low deposit lending.

But it is too early to tell whether this will lead to fewer buyers in the market and if house prices will drop.

“January trading was very much in line with expectations for the first month of the year,” says Peter Thompson, Barfoot & Thompson’s managing director.

“Prices eased marginally from those recorded in December, which is common, sales numbers were excellent and new listings were healthy.”

He says direct comparisons with trading over the past two years are challenging because 2020 and 2021 were disrupted by Covid lockdown restrictions.

“However, based over a five-year trading horizon January’s sales numbers have set the market up for a positive late summer and early autumn trading season.”

The average sales price for the month at $1,230,581, while down 3.8% on December, was 15.2% higher than at the same time last year.

The median price at $1,180,000 was down 4.5% on December’s, but 21% up on January last year.

Sales for the month at 801 were down by more than a quarter on those for last January, but trading last January was abnormally high after the end of a lockdown. This January’s sales numbers are significantly higher than those for the four years preceding 2021.

New listings for the month at 1,135 were strong, and the agency ended the month with 3,827 properties on its books, giving buyers a level of choice not seen for 15 months.

“The rural and lifestyle property markets to the north, south and west of Auckland experienced their most active January trading in the past decade, recording close to $114 million worth of sales,” Thompson says.

Records Smashed

Stats NZ data show new home building consent records were up from the previous 48,522 November annual high to 48,899 for the December year.

Last year, new home consents rose 24% on 2020’s consents.

Previously, the highest number of new homes consented was 40,025 in the year ended February 1974. This record stood for 47 years until the year ended March 2021 when 41,028 new homes were consented.

Consents for new apartments, flats, retirement village units and townhouses rose 36% to 23,335 last year. New stand-alone house consents were up 15% to 25,564.

Multi-unit home consents brought down average new home sizes. The average floor area of all new homes consented in 2021 was 154m2, down from 156m2 in 2020.

The average floor area was 200m2 at its peak in 2010, when more than 80% of all new homes consented were stand-alone houses.

Last year, 52% of all new homes consented were stand-alone houses with an average 195m2, and 48% multi-unit homes with an average 109m2.

Houses Prices Slow

CoreLogic’s latest House Price Index shows properties rose 2.1% over January, a slight increase on December’s rate of 1.9%.

The total value of residential property reached $1.72 trillion at the end of last year, up from $1.35 trillion at the end of 2020. Values rose $370 billion over the year.

Borrowers had mortgages secured against 19% of that value, equating to about $327 billion and the other 81% or $1.4 trillion is household equity.

‘The difficulty for the regulators will be to disentangle the impact of the CCCFA changes, alongside tighter loan-to-value ratio (LVR) restrictions, which have further limited the volume of high-LVR loans’

“Property market activity level has passed its peak, and typically that will lead to a clearer slowdown in values after a lag of a few months,” says Nick Goodall, CoreLogic’s head of research.

“The increased difficulty to secure finance will probably be the greatest influence over the future of the market,” he says.

Following overwhelming feedback that recent changes to the Credit Contracts and Consumer Finance Act (CCCFA) had gone too far and were unnecessarily impacting the ability of credit-worthy borrowers to secure mortgages, the government has asked the Council of Financial Regulators to review the regulations and investigate whether lenders are implementing the new rules as intended.

“The difficulty for the regulators will be to disentangle the impact of the CCCFA changes, alongside tighter loan-to-value ratio (LVR) restrictions, which have further limited the volume of high-LVR loans, and increasing interest rates, which have impacted borrower affordability,” says Goodall.

Trade Me Property says more conditional offers will be coming through because of the changes and buyers’ inability to get pre-approvals.

Goodall says investors will have more to consider as they file their first part-year tax return with interest costs not included. However, a larger tax bill for any capital gain made for those who have owned their asset for less than five years may provide a greater deterrent to selling.

“Meanwhile, for those in the market more than five years, their mortgage and interest costs will likely pale in comparison to the value of their property and with rental growth exceeding 5% in the past year, many investors should have adjusted for the parallel increase in costs.”

He says this should guard against a massive investor sell-off, however the tighter tax rules, alongside reduced accessibility to credit, diminished affordability and low gross yields, could have a material impact on demand from this section of the market, especially for existing properties.

RBNZ data for December showed the drop in lending compared with 2020 data was almost entirely from investors. Lending dropped down to $1,314 billion from $1,534 billion in November and $2,454 billion in December 2020.

Low Rent Rise

The average rent on Auckland properties rose just $17.10, or 2.89%, a week last year – an annual increase among the lowest in a decade.

Barfoot & Thompson, which manages 16,000 properties on behalf of landlords, says average rent increased from $592.79 a week at the end of 2020 to $609.89 at the end of last year. It is about to tip over to $610-plus a week.

The year-on-year price changes Barfoot & Thompson track across its portfolio puts last year in the third lowest position for the rate of rent increases, compared with the movements over the past 10 years. Only 2020’s 1.81% rise – during a six-month freeze on rents in New Zealand’s first Covid lockdown, and 2019’s 2.58% rise, was lower.

The biggest movement in rents was between December 2014 and 2015 when, off the back of constrained supply and significant growth in house prices, the average Auckland rent rose 6.73%, or more than $31 per week, on the year before.

“In contrast, the average Auckland home currently costs around $17 more per week than it did a year ago,” says Kiri Barfoot, Barfoot & Thompson director.

The average rent for a one-bedroom property was $396.42 a week, up 3.13% for the year, while a three-bedroom property cost $615.65, up 3.33% over the year.

“Rental price rises are now more likely driven by increases in the cost of operating a rental property than property values, while other factors, such as increased supply through new builds in Auckland, help to balance that dynamic,” says Barfoot.