RBNZ takes gong as housing froth evaporates

ScreenHunter_08 Jul. 01 09.14

By Leith van Onselen

The Real Estate Institute of New Zealand (REINZ) has released its July house price results, which registered a third consecutive monthly fall in values, as well as another slowing in annual growth.

In the month of July, the national stratified median price fell by 0.7% to around $437,500. However, prices were up in each of the major capitals – i.e. up 3.5% in Christchurch, 2.1% in Wellington, and by 0.7% in Auckland. Over the quarter, prices fell by 2.2% nationally, with Wellington down 7.0%, Auckland down by 0.9%, and Christchurch down 0.7%:

ScreenHunter_3725 Aug. 12 14.31

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

ScreenHunter_3726 Aug. 12 14.32

Annual house price growth slowed to 5.9% nationally in the year to July 2014 to be 14.9% above the November 2007 peak. Prices in New Zealand’s largest city, Auckland, rose by 12.2% in the year to July to be 33.3% above their July 2007 peak. This was followed by New Zealand’s second biggest city, Christchurch, where prices rose by 13.9% over the year to be 24.3% above their 2007 peak. Finally, prices in the capital, Wellington, fell by 2.3% in the year to July and were 2.9% below the September 2007 peak.

The below chart shows the annual price growth in trend terms (3-month moving average) in order to smooth volatility, with annual price growth clearly weakening:

ScreenHunter_3727 Aug. 12 14.35

The weakening price growth amid the strengthening domestic economy and rising population growth suggests the RBNZ’s macro-prudential curbs on high risk mortgage lending and recent interest rate increases are working.

Other indicators support this contention.

According to the REINZ, sales volumes were 13.0% lower than July 2013. In a similar vein, New Zealand housing loan approvals are falling, as shown below:

ScreenHunter_3728 Aug. 12 14.38

Well done RBNZ for taking concrete action to cool New Zealand’s frothing housing market.

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