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Market Fails To Thaw As Springs Arrives

Sally Lindsay discovers a regional uptick in listings amid a hesitant and uncertain market.

By: Sally Lindsay

30 November 2022

Northland had the biggest uptick in listings, up 48.8 per cent.

The housing market slowdown continues with October sales down 4.3 per cent on September and a massive 34.7 per cent down compared with October last year.

REINZ’s latest data shows 4,892 sales were made nationally in October compared to 7,486 in the same month last year. Adjusting for seasonality, October’s sales were down 9.5 per cent. The month performed poorer than expected as there is usually a notable increase in sales during spring.

In Auckland sales were down 8.2 per cent and for the rest of the country 2.4 per cent down compared to September.

Hesitancy and uncertainty are pervading the market where there was certainty and confidence last year, says Jen Baird, REINZ chief executive.

At the end of October the total number of properties on the market was 26,577, an annual increase of 74 per cent, from 15,217 in October last year.

Four regions had a listings uptick of 20 per cent or more. Northland had the biggest increase, up 48.8 per cent, followed by Waikato (36.5 per cent), Nelson (31 per cent) and Marlborough (20 per cent).

However, the pace of house price falls could be stabilising. The national median price is $825,000, down 7.5 per cent compared to October last year, but up 1.9 per cent compared to September. The median residential property price for the country, excluding Auckland, dropped 3.4 per cent, from $750,500 to $725,000, but it was a month-on-month increase of 1.5 per cent from $714,000 in September.

Auckland’s median price dipped 12.7 per cent compared to October last year, from $1,249,000 to $1,090,000. The region has recorded six consecutive months of price declines for the first time since August 2008/January 2009. All seven Auckland districts had annual median price falls, with the North Shore down 18.2 per cent,
followed by Papakura, down 17.3 per cent.

The REINZ House Price Index (HPI), which measures the changing value of residential properties across the country, is down 10.9 per cent compared to October last year and down 12.4 per cent compared to its November peak, but up just 0.2 per cent on September.

Wellington was down 12.7 per cent on the index compared to July last year, the biggest annual drop in the region’s HPI since records began in 1992. Wellington has now ranked in the bottom two of all regions on the HPI for nine consecutive months. Auckland had an annual drop on the index of 7.1 per cent

CHANGES ON THE CARDS

Real house prices will fall 30 per cent back to pre-pandemic levels, erasing any recent gains, say Westpac economists.

In the bank’s November Economic Overview, the economists say the weakening in the housing market has been widespread, but it has been particularly stark in larger centres. Notably, prices in Auckland have fallen 16 per cent, while prices in Wellington are down a whopping 18 per cent. With interest rates increasing,

Westpac is forecasting house prices nationwide will fall by a further 10 per cent over 2023 and 2024 combined. Coming on the back of the falls already seen, that will leave prices down 20 per cent from their peak in 2021. The bank’s previous forecast was a 15 per cent fall.

Because the downturn in house prices comes at the same time as other prices in the economy are rising, including building costs and wages, “real” house prices are set to fall 30 per cent from their 2021 peak.

Big changes are also on the cards for the building and construction sector as financial conditions are becoming increasingly unfavourable. In addition to higher financing costs, material prices have skyrocketed, rising by more than 10 per cent over the past year. The sector is also struggling to source the skilled labour it needs, which has seen labour costs climbing rapidly.

Many prospective buyers are nervous about buying new builds, and developers are becoming more hesitant to bring new projects to market. Several small to mid-size construction firms are already reporting a drop-off in forward orders, and some planned projects being shelved.

Westpac is forecasting a 12 per cent decline in home building over the next few years. However, this is a drop from historically elevated levels of activity. And rather than a sudden drop, the downturn is likely to be gradual, with more than 50,000 new dwellings consented over the past year

MARKET MORE COMPLEX

Mortgaged property investors have plunged into the new build market, with the highest number of purchases since 2004.

CoreLogic figures show 32 per cent of new property sales went to mortgaged investors in the third quarter of this year. The average over the past five years has
been about 25 per cent.

CoreLogic research head Nick Goodall says the trend is expected to continue as interest rates rise and the profitability of buying new, as opposed to existing, increases because the ability to deduct mortgage interest payments against rental income still applies to new builds.

However, across the overall market (new and existing properties) mortgaged investors’ activity reached an all-time low of 20 per cent in September.

“With prospects of capital growth, especially in the short term dropping, combined with increased costs, it’s getting harder for investors to make the finances work for another investment property,” says Goodall.

“They may well be considering other investment options, as interest rates rise … a one-year term deposit now averages 4.1 per cent.”

He says the property investment market has definitely become more complex to navigate, with more regulation and prices falling, but investors haven’t completely abandoned it. “Opportunities are still around and reduced competition means for anyone with the ability and wherewithal to buy has a bit of power in their hands.”

Investors have decidedly stepped back from across the entire residential market, the latest survey of real estate agents by economist Tony Alexander and REINZ shows. However, there is no mass exodus of investors from the market either. For the time being at least, they appear to be sitting on the sidelines.

The survey of real estate agents shows the biggest impact of the recent lift in mortgage rates on the overall market has been a 20-point deterioration in the number of agents seeing investors, from minus 28 per cent to minus 48 per cent.

“Investors have decidedly stepped back from the market anew over the past month. However, while investors remain rare in the market, the degree to which they are absent is less severe than earlier this year when credit conditions were tighter and prices had not fallen as far as they have now.”

However, the survey shows there has been a further rise in agents saying they are seeing more investors looking to sell.

That percentage now sits at 6 per cent, compared to minus 12 per cent in August. But Alexander says this cannot be called a wave of selling. “Still, the correlation of this shift with the rise in borrowing costs suggests that interest rates and the dropping ability to deduct mortgage interest expenses when calculating taxable income are making some investors rethink their property holding time frames.”

There is also no improving trend in expectations for price gains, and fewer agents now report investors seeking to buy are hopeful of getting a bargain.

‘Mortgaged property investors have plunged into the new build market’

CONSENTS DEFY GRAVITY

Medium density developments are pushing consents higher. Building consents across the country rose 3.8 per cent in September for a total of 50,700 consents over the past year. That’s an increase of 7 per cent on the previous year.

A total of $33 billion of residential and non-residential building work has been consented in the September year, despite the property market downturn which started kicking in from February.

Statistics NZ data shows 4600 new homes were consented in September, the highest number since March and up 1.7 per cent compared to September last year.

Although stand-alone houses are still the favourite dwelling type and more than 22,697 were consented in the September year, their numbers are down 10.9 per cent compared to a year ago, while the number of townhouses and units are rising.

There were 20,779 townhouses and units consented in the year in the September year, up 27.2 per cent compared to the previous 12 months. Apartments are also on the rise with 4372 consented, up 4.3 per cent in the September year.

Auckland remains particularly strong for consents with 21,985 new dwellings consented to the September year, up 10.6 per cent from the previous year, even though population density and housing affordability remain ongoing challenges.

Auckland isn’t the only region where consent issuance has been running hot. There is also strength in Canterbury where consent numbers are up 18 per cent, Wellington 10 per cent, Gisborne 14 per cent, Nelson 30 per cent and Otago 10 per cent. In all these cases it’s medium density developments that are driving the strength in consent numbers.

Auckland’s average weekly rent rose by just half a per cent during the third quarter of this year, reaching $626.08 at the end of September, up $3.64 on the average at the end of June.

Year-on-year, to the end of September, the Auckland average rent of $626.08 a week is up $20 (3.35 per cent) from last year’s $605.77 for the 16,500 properties managed by Barfoot & Thompson, the city’s biggest real estate agency.

Rents have been steady in the central suburbs and fringes, with increases between 0.02 and 2.23 per cent. The lowest average increase was just 11 cents a week for a central city apartment, for example.

At the same time rents for homes further to the east and south are increasing near and above 4 per cent. In Franklin and rural Manukau the year-on-year rent rise reached 6.49 per cent, about $30 more a week on average.

WHAT’S DRIVING HOUSE PRICES?

HOUSE PRICES: DOWN

The national median price is $825,000, down 7.5 per cent compared to October last year, but up 1.9 per cent compared to September. The median residential property price for the country, excluding Auckland, dropped 3.4 cent, from $750,500 to $725,000, but it was a month-on-month increase of 1.5 per cent from $714,000 in September. Four regions had median price rises, with Marlborough reaching a record, up 20.7 per cent to $781,000.

OCR: UP

The Reserve Bank has increased the OCR by 75 basis points to 4.25 per cent.

INTEREST RATES: UP

Most mortgage borrowers are now opting for a two-year fixed rate. Of the smaller better known banks only Heartland and ICBC are offering rates under 6 per cent at 5.65 per cent and 5.95 per cent respectively. The big four banks are well over 6 per cent.

BUILDING CONSENTS: UP

Building consents across the country rose 3.8 per cent in September for a total of 50,700 consents over the past year. That’s an increase of 7 per cent on the previous year.

MORTGAGE APPROVALS: DOWN

A total of just 14,578 mortgages were issued in September, down 27.2 per cent from September last year and a record low for a September month since 2013. The average-sized mortgage fell for the fourth consecutive month, down 1.75 per cent from August to $352,243. Investors borrowed $809 million, down from $905 million in August and $1.232 billion in September last year. First home buyers were loaned $1.064 billion, down from $1.124 billion in August and owner-occupiers borrowed $3.207 billion, down from $3.320 billion in August.

RENTS: UP

Stats NZ stock measure shows rents rose 0.3 per cent in October compared with September and were up 4.1 per cent for the year.

MIGRATION: UP

Stats NZ data show immigration moved into positive territory in September with 10,200 migrants arriving compared to 8000 leaving, making a monthly total gain of 2200.

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