Bottom falls out of New Zealand’s housing market

It is wall-to-wall bad news for New Zealand’s housing market.

First, major bank ASB has joined ANZ in increasing the rate at which it stress tests mortgage applicants. ASB lifted its stress test rate by 50 basis points to 7.35%, which follows the nation’s largest mortgage lender, ANZ, increasing in its stress test rate by 45 basis points to 7.15%.

The changes reduce the maximum amount that can be borrowed by around 5%, which will obviously mean less demand for New Zealand property (other things equal). Other banks are expected to follow suit.

Commenting on the changes, Mortgage Lab chief executive Rupert Gough noted “fewer buyers, less demand, house prices go down. And already the buyers were pretty thin on the ground.”

Property investor Steve Goodey likewise noted that the mortgage changes would knock more people out of the market, claiming “it’s gone to the point of being a little bit ridiculous to get money approved”.

Already, New Zealand mortgage demand was falling with the size of the average New Zealand home loan dropping roughly $25,000 (6.8%) between December and March, according to credit bureau Centrix. The overall amount of mortgages lent were also down by almost a third in March compared to the same time in 2021.

New Zealand mortgage demand

Centrix analytics general manager Stuart Baxter noted that “the recent dips are showing us that the property market has transitioned into a buyer’s market”, and that “asking prices have dropped in many regions”.

Next, auction clearance rates across New Zealand have collapsed, with only 23% of homes going under the hammer in the week ended 29 April selling, and only 20% in Auckland:

New Zealand auction clearances

Reflecting this, Auckland’s median dwelling price plunged by 3.3% in April, according to Barfoot & Thompson, with sales volumes also down 47.9%.

Barfoot & Thompson managing director Peter Thompson summarised the situation with the observation that “buyers are now showing a greater reluctance to meet seller expectations”.

After New Zealand experienced one of the world’s biggest housing booms in 2021, it is now clear that the bottom is falling out of the market.

Unconventional Economist
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  1. “Don’t worry! Chris Luxon (the Opposition Leader) will come to our rescue when he gets in next year. Just sit it out until he reverses all of this!”
    That’s the current deluded thinking, and the reason we find ourselves in this mess – Political vote currying.
    I accept that politics isn’t a calling, but just another job (that attracts those who otherwise wouldn’t make it anywhere else?) but unless the current Labour Government has the courage to separate itself from politics, then we are condemning our country to a doomsday future.
    Ardern needs to get away from short-termism and, say, scrap GST on all food – but bring in a Wealth Tax to compensate (NB: I know she’s ruled that out). Bring in a Land Tax, instead if you like, as Land is the one asset that is not portable – someone, somewhere owns it, and will be the recipient of a tax bill each year.
    Politics got us into this mess, ignoring it is our only chance of escape.

    • kiwikarynMEMBER

      Look, Jacinda has more important things to do. Like rolling out her brand new vaccine pass system. Yes, thats right, while other countries have completely dropped theirs, NZ is a getting a second one. Meanwhile we are all still living under Covid restrictions, no events larger than 200 people, masks compulsory everywhere, mandatory isolation for contacts of people with Covid …. She fully intends to drag this out all the way to the 2023 election where she will lose because people are sick and tired of it.

  2. Hugh PavletichMEMBER

    New Zealand: Why do the NZ political / planning authorities run the urban land market like the Sri Lankan authorities run their used car market ? …

    … Get the land price wrong … then everything else is wrong …

    … When can we expect land supply restrictions to be lifted and infrastructure properly debt financed, so that housing affordability is restored to 3.0 times annual household incomes requiring sensible mortgage loads of about 2.5 times … as it was for previous generations ? …

    Sri Lankan Kiwi journalist Dileepa Fonseka opines today …

    Wealth inequality debate is really an argument over land … Dileepa Fonseka OPINION … Stuff New Zealand

    OPINION: Irish economist David McWilliams quipped recently that “it’s very, very easy to burn the house down, if you don’t own a house”.

    If you want to know why wealth inequality is back on the agenda, in a way that it wasn’t even during the financial crisis, you just have to look at the way the housing and land markets have been run.

    Housing has been run much like the secondhand car market in Sri Lanka.

    That country is currently going through the worst economic crisis in its history, foreign reserves have dried up, industries like tourism have been cut off at the knees, electricity is available only for one hour a day in some instances, and people are having to line up for hours to access food, water and milk powder.

    But despite the cut in incomes, second-hand cars are more valuable in US dollar terms than before the crisis.

    Agence France-Presse (AFP) reported the going rate for a 2017 Toyota Land Cruiser recently hit US$312,500 – nearly half a million New Zealand dollars – despite declining incomes.

    The reason? Alongside other longstanding restrictions and duties, the Government put a two-year ban on the importation of cars, slowing down the pipeline of new cars coming on to the market. … read more via hyperlink above …
    … A helpful short video history of Sri Lankas economic downfall (google search ‘Sri Lanka’ too) …

    The Economic Crisis in Sri Lanka … Asianometry … Youtube

    … Expect aspirational and desperate Kiwis to flee to Australia and elsewhere in droves … for more affordable housing, lower cost of living and higher incomes …

    London calling: Inside the fight to halt the exodus of Kiwi workers … Jane Phare … New Zealand Herald
    … behind paywall …

    Nothing’s going to stop thousands of cooped-up young Kiwis from heading off now the borders are open but their departure can only exacerbate critical shortages of skilled workers. In the first of a five-part series, Jane Phare looks at what employers are doing to retain skilled workers, and what part the Government will play in terms of immigration.

    Newly trained occupational therapist Jenelle Thomson doesn’t hesitate when asked why she left New Zealand in February to take up a job in Brisbane.

    “It was the money,” she says. That and the cost of living in New Zealand, and the possibility of buying a house in Queensland much more easily than in Auckland. Thomson, 25, hasn’t looked back since heading across the Ditch. She left behind the prospect of a job as an occupational therapist earning $55,000 a year at Middlemore Hospital after graduating from AUT.

    In Brisbane she started on $76,340 in a private practice. If Thomson transfers to clinical work in a hospital, she is likely to earn more than $100,000. Her Kiwi partner, a civil engineer, is earning $30,000 a year more than his previous job in Auckland.

    Their weekly grocery bill is $140 for themselves, and includes cooking two meals a week for two flat mates, compared to more than $200 a week in New Zealand. The couple are saving to buy a house about half an hour out of the city for $545,000. … behind paywall … read more via hyperlink above …

  3. Hugh PavletichMEMBER

    Unsustainable housing market poses risk to economy – Reserve Bank … Radio New Zealand
    … h/t DK …

    The Reserve Bank says a larger housing correction could be on the cards, as house prices remain above sustainable levels.

    House prices have declined 4 percent since their peak last November, after rising 48 percent over two years.

    The central bank’s half yearly financial stability report, said recent buyers with limited equity are vulnerable to declines, and a large fall would significantly reduce wealth and lead to less consumer spending … read more via hyperlink above …