Have NZ house prices hit the wall?

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By Leith van Onselen

The Real Estate Institute of New Zealand (REINZ) has released its July house price results, which registered falls in New Zealand’s two major markets and nationally.

In the month of July, the national stratified median price fell by 0.5% to $413,124, with prices in Auckland and Christchurch – New Zealand’s two biggest cities – falling by 4.4% and 4.1% respectively, whereas Wellington – New Zealand’s capital and third biggest city – recorded a 1.3% increase in values (see next chart).

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The price changes are shown more clearly in the below chart, which shows the values in index form since 2005:

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On an annual basis, house prices rose by 8.6% nationally in the year to July 2013 to be 8.5% above their November 2007 peak. Prices in New Zealand’s largest city, Auckland, surged by 13.9% in the year to July 2013 (but have clearly moderated) to be 18.8% above their July 2007 peak. This was followed by New Zealand’s second biggest city, Christchurch, where prices rose by 5.4% over the year (but have also moderated) to be 9.2% above their 2007 peak. Finally, prices in the capital, Wellington, rose by 3.7% in the year to July but were still 0.6% below peak.

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There are reasons to believe that New Zealand house prices could come under pressure over coming months.

First, housing loan approvals look to be faltering, with both rolling annual and year-on-year growth of loan approvals turning down over the past three months (see below charts).

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Secondly, the average mortgage size has fallen:

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Finally, the latest ASB Housing Confidence Survey has registered a marked downturn in the numbers of people picking now as a good time to buy a house, with Auckland leading the falls.

The perceived headwinds come as the National Government has pledged to relax terms for first home buyers (FHBs) using KiwiSaver (retirement) funds as home deposits, in a bid to prevent FHBs from being locked-out of the rising market and by the Reserve Bank of New Zealand’s (RBNZ) expected restrictions on high loan-to-value ratio (LVR) mortgage lending. While the Government will relax the price caps and income limits on KiwiSaver funds, it is also increasing the minimum required deposit to 10% (from 0% currently), which should temper the inflationary impact from the changes.

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Leith van Onselen

Comments

  1. FHB’s using retirement savings to avoid being locked out of owning a home.
    It only takes a 10% correction in the average house price and those retirement savings have been wiped.
    If you ask any Detroit citizen would you prefer a house or retirement savings, they would prefer retirement savings, those houses in Detroit are worthless.
    Detroit was once more productive than any NZ city.

    • Dead right. The name of the financialisation game is for the finance industry to get people to bring out their equity so the finance parasites can take a risk free bite (often a big bite).

      Leverage is just the best tool to achieve this at the moment.

      • RENT BOYCOTT

        This is where people need to pick a date to boycott rent to bring it all down. Say December 31st, after that day everyone in NZ and Australia just stops paying rent. It would break the system. And renters would have nothing to fear as so many landlords would be running around the market dropping their rent prices to get anyone in to cover rent. Lets face it, many are over extended and rely on rental incomes.

        RENT BOYCOTT, along with the current BOYCOTT BUYING HOMES would create so much panic, investors!, as soon as they got wind of it would start to offload property.

    • Very very good point, Mitch.

      A house as a surrogate for retirement savings is only any good if there are buyers paying top dollar for it when you move into a retirement village. If you don’t move into a retirement village, the house ain’t a retirement income, and if there aren’t buyers for it at top dollar, it ain’t a retirement income.

      Better to have an actual, real, “retirement income” in some other form – and this is precisely how it does work in the US cities where house prices remain anchored at an affordable median multiple, by the fact that there is no planning-enabled racket in urban fringe land.

      • Agree, it’s a racket, lets face it, when you have the PM of this country with a port folio with 10 to 20 million in property investments do we really think it’s going to come down anytime soon if they can help it.

        NZ prices have slid though a few percent in the last couple of months. It pays to keep an eye on this as Australian banks are heavily exposed to the NZ property market and the NZ government won’t bail out the major 4 banks in Australia if the NZ market crashes. This would have a huge impact on the Australian economy as the Australian government would need to bail out the banks there, with the 2 Trillion of debt in Australian banks from personal and mortgage loans the government would have to cut government jobs, social services etc… which would drive GDP down.

        And with the rumor that the Australian government may seize personal funds if this happens, just like what happened in the EU with Cyprus your funds could be in danger, so a fast withdraw from the banking system is the safest way to ensure your money is safe if the NZ property market starts to slide.

    • If you ask any Detroit citizen would you prefer a house or retirement savings, they would prefer retirement savings, those houses in Detroit are worthless.

      You threw me with this comment. Recently Detroit went bankrupt and so many ex-workers of the Detroit government will be losing the pension that the government promised them. So these retirement savings are truly worthless. The Detroit house can still be lived.

      Perhaps gold or baked beans buried in the backyard would be better still.

      • The Detroit house can still be lived.

        Not when the neighbourhood/suburb around you is dying, or dead, or foreclosed.

        As much as “worthless” as they may be, with no money – you’re as good as dead – winter will take care of that aspect.

        But hey – I guess you die in your own house, no? That could account for something!

      • 40% of the streets in Detroit have no functioning street lights

        That is terrible. Luckily SatNav units now come with backlighting, so you should still be able to find your way around.

      • That is terrible. Luckily SatNav units now come with backlighting, so you should still be able to find your way around.

        Yeah, I also hope they have bullet-proof satnavs for when you venture on one of those streets.

        Or they might as well adopt the old map way of warning the traveller:
        Hic Sunt Dracones! ( http://en.wikipedia.org/wiki/Here_be_dragons )

  2. Yet here we get in our press “New Zealand house prices rose in July … suggesting first-home buyers are trying to secure properties ahead of possible Reserve Bank restrictions on buyers with low deposits. The median house price rose 6.6 percent to $385,000 in July from the year earlier month, with all 12 regions posting an increase, according to the Real Estate Institute of New Zealand. ”
    http://nz.finance.yahoo.com/news/house-prices-july-buyers-ahead-220900677.html

  3. reusachtigeMEMBER

    One and only solution – a major bust-up! Please!! Retirement savings being used so the young can “compete”? Oh FFS! Time to rot.

  4. I think the banksters are very clever. Once young people are caught in this deadly housing mesh baksters know they won’t be able to save for their retirement and the only option to finance it will be reverse mortgage. In this way home today young home owners will pay double interest on their overprices home and banks will be blaze with high reverse interests on a lesser home value in the future. What a scam…., what greedy bastards!!!!

  5. After FHB purchase the house using KiwiStarter can they go and sell the house after a year or something for example and “cash” out all the Kiwistarter money and spend it?

  6. Would be good to overlay Sydney on those kiwi graphs – just to show the utterly ridiculous nature of prices.