March solidified the market changes of the past three months as pressure on property prices eases, inventory levels rise, demand softens and sales activity drops.

The latest REINZ data shows house prices dropped 4.8 per cent between February and March on a seasonally adjusted basis.

Median prices across New Zealand increased 7.9 per cent annually, from $825,000 in March last year to $890,000 in March this year.

The median residential property price for the country, excluding Auckland, increased 14.1 per cent annually from $679,000 in March last year to $775,000 in March this year.

REINZ chief executive Jen Baird says prices are easing and the market is returning to a more settled pace.

“The rate of growth is slowing, sales activity is down and median days to sell is up. The impact of tighter lending criteria, LVRs, and increasing interest rates, coupled with inflation, continue to reduce the pool of buyers who are willing and able to pay market prices.”

She says the Reserve Bank’s OCR increase by 50 basis points in April will do little to alleviate concerns and it will slow the market further as buyers reassess their ability to meet higher mortgage repayments should the dial be turned up further.

“House prices tend to be more sticky when dropping rather than rising, which is what we are seeing now. As demand drops, vendors tend to choose to wait longer to sell their property rather than sell below those expectations.”

She says those who must sell often have to drop their price to meet demand. That tends to be the general experience at this stage of the property market cycle where market power is leaning towards buyers.

Cash Talks

Equity or cash will be king as the housing market moves to a buyer’s hunting ground.

After a period where cheap money has boosted a lot of property buying, the next year or two could see activity slant towards those people who have been in the market longer, but who also feel comfortable keeping or increasing their debt levels at a time when mortgage rates are rising.

CoreLogic’s latest Buyer Classification Report says part of that also seems to be a mind set change, with vendors not necessarily waiting for multiple offers anymore, and credit-approved buyers feeling a much stronger degree of pricing power.

Kelvin Davidson, CoreLogic’s senior property economist, says in terms of overall sales volumes this year, CoreLogic’s forecasting model points to a drop of about 5 per cent from 2021 levels, to a total of about 91,200, before a further fall towards 88,500 in 2023.

Those numbers are lower than the 2020 cyclical peak, which were close to 100,000, and also below the long- term average. “These figures are not a disaster as volumes averaged about 89,000 per year over 2017-19,” says Davidson.

The mortgaged investors’ market share is lower than it has been in the past as they’ve been contending with higher deposit requirements and the phased removal of interest deductibility and low gross rental yields.

Whats Driving House Prices

House Prices: Up

Median prices for residential property across NZ increased 7.9 per cent annually, from $825,000 in March last year to $890,000 in March this year. Moving from February to March, the median property price rose a marginal 0.6 per cent. However, the seasonally adjusted figure shows a drop of 4.8 per cent, indicating a weaker price increase than expected moving from February into March.

OCR: Up

The Reserve Bank has lifted the official cash rate (OCR) by 50 basis points to 1.5 per cent. The bank is expected to lift the OCR again this month.

Interest Rates: Up

The country’s biggest home lender, ANZ, raised its mortgage interest rates as soon as the OCR increased last month. Its one-year rate is 4.55 per cent, two-year 5.25 per cent, three-year 5.55 per cent and five-year 6.45 per cent. The bank passed on the full 50 basis point OCR rise in its floating rate, which now sits at 5.54 per cent.

Building Consents: Up

Statistics NZ data shows the number of new dwellings consented rose to 49,773, up 25 per cent from February last year. During February the seasonally adjusted number of new dwellings consented rose 10 per cent after falling 8.7 per cent in January. The 4,195 new dwellings consented during February comprised 1,950 stand-alone houses; 1,842 townhouses, flats, and units; 218 apartments and 185 retirement village units.

Mortgage Approvals: Up

RBNZ data shows total new mortgage lending to investors was up in February to $1,059 billion from $812 million lent in January, but well down on lending of $1,856 billion in February last year. Mortgages for first home buyers were also up to $954 million from $819 million lent the previous month and down from $1,182 billion in February last year. New mortgage commitments to other owner- occupiers was substantially up to $3,630 billion from $2,985 billion lent in January, but down on $4,511 billion borrowed in February last year.

Rents: Up

Stats NZ stock measure shows March rents were up 0.4 per cent, compared to February and by 3.7 per cent annually for the March year.

Immigration: Down

The number of migrants arriving in NZ in the year to the end of February at 45,500 was down 26 per cent, while departures were up 2 per cent at 52,200, meaning an annual migration loss of 7,600, down from a net gain of 9,500 in the same month last year. The diminishing number of migrants was driven by a net loss of 9,700 non-New Zealand citizens, partly offset by a net gain of 2,100 citizens, Stats NZ latest figures show.

Building Values

A dramatic rise in the value of construction work last year came alongside the 48,899 building consents issued that broke 1974’s 47-year record of 40,025.

Stats NZ data show the total value of building work consented was $29.38 billion, up $6 billion from 2019. Over the past seven years the value of building work has doubled from $14.63 billion in 2014.

In the December quarter last year alone total building value was $8.1 billion, up 17 per cent from the December 2020 quarter. Total building volume rose 8.9 per cent compared with the September quarter. From that residential building rose 5.2 per cent and non-residential was up 16 per cent.

Construction prices keep rising and in the December quarter lifted 4 per cent for residential building and 2.2 per cent for non-residential building, as measured by the capital goods price index.

It is not just residential construction value that is increasing. Three years ago the total value of non-residential building work consented was $7.46 billion, but by last year that figure increased to $8.19 billion, up 9.8 per cent compared to pre- Covid levels.

Much of that work is for new warehouse, storage and manufacturing facilities, while office and retail projects have fallen away because of new hybrid office working arrangements, shops under restrictions and a shift to online consumer spending during the pandemic lockdowns.

The volume of building is not expected to slow over the next few years. MBIE’s National Construction Pipeline report released at the end of last year forecasts the total value of construction work to be worth $48.3 billion in 2024.

Rent Break Records

Median rents across the country rose 8.5 per cent or $45 to hit a record- breaking $575 a week, the biggest annual increase in seven months.

Trade Me’s latest February Rental Price Index shows rents in several regions hit a new high with Bay of Plenty up 6.4 per cent year-on-year to $585, Northland up 9 per cent to $545, and Taranaki up 22 per cent to $550, reaching a new record.

‘House prices tend to be more sticky when dropping rather than rising, which is what we are seeing now’ Jen Baird

While rents are rising there are also fewer rental homes on the market. Nationwide, the number of rentals dropped 6 per cent compared with the same month in 2021.

The biggest drops in rental supply were in Nelson/Tasman, down 39 per cent year-on-year, Canterbury, down 32 per cent and Taranaki, down 29 per cent.

Auckland was the only region to buck the supply trend with a 4 per cent increase in the number of rental properties on the market.

The QV House Price Index had its largest drop in more than a decade over three months to the end of March.

Nationally, the average home dropped 0.6 per cent to sit at $1,046,636, down from the 2.3 per cent rise in quarterly growth in February.

Even though there has been a drop, average house price growth equalled 18.6 per cent over the past 12 months to the end of March.

The main centres are taking the brunt in the price growth slowdown caused by rising interest rates and tightened bank credit.

In the Auckland region the average value now sits at $1,503,922, falling -1.5% over the past three-month period, with annual growth of 18.6 per cent, down from 23.2 per cent in February.

QV general manager David Nagel says with the massive rise in listings over the past couple of months the balance of power has shifted firmly into the hands of buyers after such a prolonged period of it being a sellers’ market.

Earning Power

Although ANZ Bank has lifted its prediction of house prices falling by 10 per cent from the 7 per cent it forecast last month, it says its optimistic view is any greater drop will be tempered by household incomes.

“We’re simply not forecasting a household income (employment) shock that would necessitate the forced sale of properties and exacerbate the downturn,” says Sharon Zollner, ANZ’s chief economist.

The bank’s house price forecast still leaves house prices up a whopping 30 per cent at December this year compared to December 2019, pre- pandemic. In that light, the bank’s relatively pessimistic forecast seems rather optimistic.

Relative to the past few business cycles, this time may be a little different for the housing market, says Zollner.

If house owners think the RBNZ has their back and will act to prevent house prices from falling too much, they may be unpleasantly surprised — if inflation remains well in excess of the 1-3 per cent target band for too long that is. “It’s all uncertain, but we think this is a risk well worth outlining,” says Zollner.

The most significant shift in Auckland’s property market last month was the growth of property listings, data shows from Barfoot & Thompson, the city’s biggest agency.

The agency had 1,994 new listings in March, boosting properties for sale at the end of the month to 4,816, the highest number on its books in nearly three years.

Barfoot & Thompson managing director Peter Thompson says the level of listings ensures buyers not only have a good level of choice, but it gives them additional time to make measured decisions.

“It also means vendors who are prepared to be flexible as to the price they will accept will create the opportunity to reach agreement on price.”

Contrary to economic forecasts, the average and median sale prices of Auckland residential property showed resilience rather than decline. The average sales price for the month at $1,234,572 was up 3.2 per cent on that for February and 11.4 per cent higher than in March last year. The median price at $1,180,000 was up 5.1 per cent on that for February and 13 per cent higher than in March last year.

Thompson says while sales prices in March are the third highest on record, too much should not be read into one month’s trading and the dominant sentiment around where prices are heading remains uncertain.