Cracks appearing in housing market

A mortgage is not just getting more expensive as interest rates rise. A mortgage is now hard to get full stop, says Jarrod Kerr, Kiwibank chief economist.

Tuesday, January 18th 2022, 1:59PM

by Sally Lindsay

Changes to consumer credit legislation from December 1 is exacerbating the tightening of credit conditions, he says.

It also the view of REINZ chief executive Jen Baird who says there are signs of deceleration in the annual price growth of houses compared to previous months.

“While the market remains confident, the impact of rising interest rates, tighter lending criteria and changes to investor taxation restrictions are starting to shift dynamics.

“In particular, the introduction of the Credit Contract and Consumer Finance Act (CCCFA) on 1 December — which requires stricter scrutiny of borrowers’ financial health — seems to have had an immediate effect. Feedback from several regions notes a falloff in buyer numbers — particularly first-time buyers — as a result.

“Over this year, the impact of these changes and anticipation of further interest rate increases are likely to play out in the market, leading to a gradual slowdown in the pace of price growth,” says Baird.

Median prices for residential property across New Zealand increased annually by 21.5%, from $745,000 in December 2020 to $905,000 in December last year. Though year-on-year growth continues, this was a 1.6% drop compared to a strong November.

The median residential property price for New Zealand, excluding Auckland, rose annually by 20.6% from $630,000 to $760,000 — a 1.3% decline from November.

Additionally, Auckland’s median residential property price increased 25.9% annually from $1,025,000 in December 2020 to $1,290,000 in December last year — down a marginal 0.8% on November.

Seven regions achieved record medians and there was one equal record in December:

Northland increased 13.0% annually from $672,500 to $760,000 — a new record median high.
Bay of Plenty increased 27.8% annually from $720,000 to $920,000 — a new record median high.
Gisborne increased 17.8% annually from $590,000 to $695,000 — a new record median high.
Manawatu/Whanganui increased 23.2% annually from $525,000 to $647,000 — a new record median high.
Tasman increased 25.2% annually from $735,000 to $920,000 — a new record median high.
Nelson increased 23.0% annually from $675,000 to $830,000 — a new record median high.
Southland increased 21.3% annually from $375,000 to $455,000 — a new record median high.
Wellington increased 24.2% annually from $805,035 to $1,000,000 — an equal record median to that previously reached in October
Baird says 19 territorial authorities had median price records in December. This was the lowest number since July.

“December was a solid close to a strong year for the property market. House prices were considerably higher than December 2020, demand and sales activity remained firm, and there was a welcome increase in new listings through November and into the last month of the year.”

Property sales down

The number of sales across the country dropped by 29.4% annually, from 9,573 in December 2020 to 6,755 in December last year. The number of properties sold was also down 21.4% month-on-month.

For New Zealand, excluding Auckland, the number of properties sold in December dropped 26.6% annually from 6,048 to 4,442. While in Auckland, the number of properties sold declined 34.4% annually — from 3,525 in December 2020 to 2,313 in December last year. Month-on-month, there was a 26.6% drop.

Marlborough was the only region to have an annual uplift in sales count with an increase of 5.1%. The number of properties sold in the region rose from 78 in December 2020 to 82 in December last year.
In addition to Auckland, the regions with the greatest annual percentage drop in sales volumes were:

West Coast declined 36.1% annually from 72 to 46 c 26 fewer properties sold. Interestingly, it was the only region to have a month-on-month increase — up 17.9% from November;

Wellington dropped 33.2% from 871 to 582 — 289 fewer properties sold. This was the region’s lowest sales count in the month of December since 2013.

Nationwide, the usual holiday slowdown was less evident and there were reports of sales activity right up until Christmas, says Baird.

“This may in part be due to New Zealand — and Auckland in particular — having fewer COVID-19 restrictions in terms of movement and business operations and the surge of listings in November lending to a flurry of activity in December. However, when we look at the seasonally adjusted numbers from November to December, we see an 11.3% drop

“However, when we look at the seasonally adjusted numbers from November to December, we see an 11.3% drop

“However, when we look at the seasonally adjusted numbers from November to December, we see an 11.3% drop, a result weaker than would be typically expected.”

HPI: house values show deceleration

The House Price Index (HPI), which measures the changing value of all residential property, shows an annual increase of 23.3% from 3,435 in December 2020 to 4,235. This was a 1.0% drop from November last year.

The HPI for New Zealand, excluding Auckland, shows an annual increase in house values of 24.8% from 3,428 in December 2020 to 4,279 in December last year. This was a 0.1% decline month-on month.

While all regions show an annual increase on the HPI, fewer new highs were reached in December compared to the months prior. “We are starting to see the rate of increase decelerate, suggesting buyers are less willing to pay market prices,” says Baird.

Interestingly, for the second month in a row, Wellington had the lowest annual percentage change movement on the HPI, up 18.5% to 4,278. Baird says although this is a high number it is weaker when compared to other regions and is a significant change for the region, which ranked in the top three of all regions for 12 months between September 2020 and August last year.

Only five regions reaching new highs on the index:

Northland increased 26.9% annually to 4,397
Manawatu/Whanganui increased 22.1% annually to 5,348
Taranaki increased 27.2% annually to 4,715
Otago increased 19.1% annually to 4,163
Tasman/Nelson/Marlborough/West Coast increased 21.2% annually to 3,426.

Although Auckland’s house price value increased 21.3% annually to 4,176, the region had the greatest drop from its peak high — down 2.3% on the record set in November last year.

Listing levels up

The total number of properties available for sale nationally increased 29.7% annually — from 12,932 in December 2020 to 16,773 in December last year.

Baird says following long-term supply shortages, properties are selling quickly. Eleven of the sixteen regions have 10 or fewer weeks of inventory available, suggesting supply pressure on prices remains.

“Should stock levels continue to increase at this rate, we would expect it may start to rebalance the supply versus demand scales and, in turn, alleviate some price pressure. However, given market appetite, it will be interesting to see how it plays out,” says Baird

Market consolidation

Kiwibank is forecasting the housing market to consolidate rather than experience a major correction.

The period of record low mortgage rates and seemingly unsurmountable housing shortage is over, says Kerr. “Now the market faces a combination of rising mortgage rates, tighter lending conditions, and rapidly rising housing supply. From here, we expect to see house price growth falling fast, but not a major correction.

Looking at the past 30 years, meaningful corrections typically occur when credit conditions tighten rapidly, and unemployment is rising fast.

“We certainly have tightening credit conditions and rising mortgage rates. Yet, the labour market is a source of strength for households, not weakness.”

The unemployment rate is expected to remain consistent with what would be considered full employment, says Kerr.” With pay packets still coming in, and wage growth rising, mortgage holders can by and large service a mortgage.

“Renters too can cover essential living costs and ensure landlords meet their mortgage obligations. There remain risks to our view of course, but for now we are reluctant to project sustained house price falls in the near term.”

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