There has been a modest decline in housing confidence, but Kiwi’s perceptions of house price growth remain around a level seen during the peak of price confidence in past housing booms, a recent survey reveals.

The latest ASB survey shows in the three months to July a net 58% of people expected house prices to rise over the following 12 months, down from a net 64% in the three months to April and a net 73% historical peak in the three months to January. The current net balance is made up of 65% expecting prices to increase and 7% expecting declines.

This is despite widespread predictions from economists of a slow down or even a price drop. Because of this hard-to-shift mindset about house prices, the ASB has revised its annual growth upwards to 22% this year, mainly reflecting how resilient prices have been to date.

ASB chief economist Nick Tuffley says, however, the tide is going out, and there will be just 2% growth next year as price growth becomes dead in the water.

From a government policy perspective, a number of torpedoes have been fired at the housing market this year and a fresh salvo is being loaded into the tubes.

As yet the housing market has only taken on a little bit of water: month-to month growth has slowed only slightly from its February/March peak frenzy, and annual house price growth has hit 30%.

It is of little surprise that perceptions of whether it is a good or bad time to buy a house are still weak, says Tuffley. A net 20% of respondents see now as a bad time to buy, little changed from a net 21% in the three months to April.

The latest result had 11% of respondents seeing now as a good time to buy a house, with 31% seeing it as a bad time (making the net -20%).

Interestingly, Auckland is less downbeat overall with a net 13% seeing now as a bad time to buy, against a net 25% “bad” for the rest of the North Island and a net 21% “bad” for the whole of the South Island.

Climb Continues

August’s lockdown threw up some surprising results in the housing market. While sales were down 26.5% from last August, house price growth hit a new record of 31.1% across the country.

House prices appear impervious to anything thrown at them. According to the REINZ House Price Index (HPI), prices still managed to climb 2% in August. However, the data was distorted by lockdown and will remain so while Auckland is in level four lockdown, says Kiwibank’s economics team.

Median prices for residential property across the country increased by 25.5% from $677,400 in August last year to a record $850,000 last month, REINZ data shows. Four from 16 regions reached new record median prices and 25 districts reached new record median highs.

The median house price for New Zealand, excluding Auckland, increased by 22.8% from $570,000 in August last year to a new record of $700,000 last month.

Auckland again underpinned the strength of the housing market hitting a record median house price last month of $1.2 million – up 26.4% from $949,500 in August last year. This growth was reflected throughout the region with five from seven districts reaching new record median prices – Rodney District ($1.28 million), Manukau City ($1.157 million), Waitakere City ($1.12 million), Franklin District ($950,000) and Papakura District ($940,000).

The rises contrast with last year’s lockdown that generated a cautious contraction in prices, says Kiwibank chief economist Jarrod Kerr.

“The contrasting outcome seems to be explained by fewer days in lockdown over August, and the completely different climate in the market this time around. “There was still significant interest in the housing market prior to lockdown. Also, the real estate industry and supporting services (conveyance, banking, etc) were better prepared to process transactions already in train during lockdown.”

Auckland fared better than any other region in August. It managed to avoid a double-digit fall in sales during the month – only -9.3% – and annual house price growth of 27.9% was the fastest pace of growth in almost six years. Elsewhere, sales fell much faster, in the range of 15-30%. There were some eyewatering house price gains in places like Canterbury and the Hawke’s Bay.

However, the total number of properties available for sale across the country dropped year-on-year by 31.9% in August to 12,249, down from 17,974 in August last year – 5,725 fewer properties. This is a 3.4% drop from July and it is the lowest level of listings ever seen. It was not unexpected as the normal spring lift in listings has been delayed by the lockdown.

Meanwhile, auction rooms may have gone quiet when alert level four was dropped on the country, but the latest data indicates this just meant a shift to online auctions. Last month 26% of all properties sold by auction. This is the highest percentage of New Zealand homes sold by auction for an August month since records began.

Affordability Woes

The average property value across New Zealand is 7.9 times the average annual household income, a record high in CoreLogic’s Housing Affordability Report’s 18-year history. It is published every six months.

The figure for the second quarter of this year is up sharply from the 7.4 times recorded just three months ago and 6.6 times of 12 months ago. The longterm average is for property values to be 5.8 times the average annual household income.

Property values rose 15% during the first six months of 2021, well ahead of the increase in gross average household income which rose just 1.0%, illustrating the country’s acute affordability challenges.

CoreLogic’s chief property economist Kelvin Davidson says since the last report in late February, the New Zealand economy and property market have generally remained buoyant.

The report also found it currently takes 10.6 years to save a house deposit, beating the previous first quarter high of 9.9 years. It takes almost three years longer to save for a house deposit than the long-term average of 7.8 years.

On average, households who take out a new home loan spend 38% of their income on their mortgage repayments, compared to tenants, whose rental payments absorb 21% of household income. Despite historically low interest rates, average mortgage payments as a proportion of household income have increased from 32% a year ago.

“However, this is not to say that renting is easy either – that figure of 21% is also above average. It’s also worth noting that the typical income for a renting household may well be lower than the overall average, which would imply a much higher figure than 21% of their income being spent on accommodation costs,” Davidson says.

“Mortgage repayments are now back to levels last seen in early 2018, when typical fixed mortgage rates were much higher, above 5%.”

Building On A Roll

For the first time in a single quarter building work across the country has passed $7 billion.

Statistics NZ’s latest quarterly survey shows the strong growth in construction work has been driven by residential building.

The survey shows total construction work was up 2% reaching $7.214 billion of new building started in the second quarter of the year, up from the previous record of $6.74 billion in the last quarter of last year.

Residential building work was up 4.2% at $4.258 billion and non-residential work was down 1.5%, following a 4.6% rise in the first quarter of this year. Spending on commercial projects has been easing back for some time.

Home building continues to be encouraged by low interest rates and strong capital gains, says Satish Ranchhod, Westpac senior economist.

“Increases in house building have been widespread with Auckland leading the way but sizeable gains in many other regions. It is off the back of low interest rates and the related strong gains in house prices.”

He expects that overall construction activity will remain strong over the year ahead. That’s being underpinned by a large and growing pipeline of residential projects, with new dwelling consent numbers running at record highs.

“Even though mortgage rates have remained low, albeit they’re now starting to rise, housing affordability has simply become worse, and that’s from an already stretched position. Those higher mortgage rates themselves will exacerbate the situation in the coming months, but they should eventually aid affordability by dampening house prices.”

Rent Rise

Rents nationally remained at an all-time high of $550 a week in August despite the country entering a nationwide lockdown.

Trade Me’s latest Rental Price Index shows the national median weekly rent matched the record high – first seen in July – and rose 8% on the same time last year.

Records were broken in Southland ($395), Waikato ($500), Bay of Plenty ($560) and Canterbury ($490).

Trade Me property sales director Gavin Lloyd says prices were expected to slow considering tenants and landlords were stuck at home for most of the month. Instead, the rental market charged on. Every region in the country had an annual increase in rent.

Unlike house prices, the alert level restrictions resulted in a marked drop in both market supply and demand last month, as prospective tenants could not view or visit properties.

There was an 18% drop in the number of properties listed for rent onsite across the country when compared with the same month last year. Southland was the only region to flout this, with a 10% increase in supply when compared with the same month last year.

National demand also dropped by 16% year-on-year in August, mirroring what has happened in past lockdowns. There were some exceptions. Marlborough (11%), Bay of Plenty (4%), Canterbury (3%) and Manawatu/Whanganui (2%) had increases in demand last month when compared with August last year.

Lloyd says he expects the rental market to make a quick recovery. “It has been running hot since coming out of the first nationwide lockdown last year, despite many predicting it would slow down. “We’re expecting this time won’t be any different and we’ll see listing numbers make a swift recovery in the next couple of months.”