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New Zealand housing market differences highlights regional opportunities

Tags: Research Residential

Many of regional New Zealand’s house prices are now increasing faster than Auckland, according to one of the country’s leading financial and real estate analysts.

By property reporter Katharina Charles

ANZ chief economist Cameron Bagrie said that the City of Sails’ residential real estate market was getting tougher for both first-home buyers and investors, as housing affordability became a major point of contention for prospective buyers.

Speaking in the bank’s latest New Zealand Property Focus report, Mr Bagrie says: “Auckland house prices have risen to around nine times the average household income. Elsewhere in New Zealand, the ratio is around five times the average household income”.

“Of the main urban centres, price growth remains the strongest in Wellington at 19 percent year-on-year. In Auckland and Canterbury the equivalent rates of growth are 8.1 percent and 2.7 percent year-on-year respectively. Of the smaller regions, Gisborne and Hawke’s Bay are experiencing the strongest price growth, both at 21 percent year-on-year.

“So the regions are now outperforming Auckland.

“It takes a long time to save for a deposit in Auckland, and house prices to incomes are high. More debt and higher mortgage interest rates are not a great combination,” Mr Bagrie said.

“Interest rates are still low, but have risen above their record ‘lows’ and that changes home buyer psychology.”

Mr Bagrie added that new mortgage lending bounced up in March, but had followed a wider trend of lower lending statistics highlighting a greater level of confident cautiousness.

“In seasonally adjusted terms, new mortgage lending was up five percent to $5.3 billion, which is only the second monthly increase in the past eight months. However, mirroring the fall in housing turnover, new lending is down 8.9 percent.”

The ANZ data indicates that would push lending rates back to 2015 levels, which highlights the influence of latest RBNZ changes as well as credit tightening from the banks.

“The latest tightening of the high loan-to-value lending restrictions, together with increased credit rationing by banks – appear to be having a marked impact on both house sales and credit availability. Add in recent modest increases in mortgage rates, with widespread expectations of more to come, and we can expect to see mortgage lending growth remain at this more moderate pace over the coming months.”

Mr Bagrie said mortgage repayment variations between Auckland and the regions was becoming more apparent. 

 "We estimate that for a purchaser of a median-priced home the average mortgage payment to income level nationally is around 34 percent at the moment compared to 51 percent in Auckland,” he said.

Turning his attention to the supply-demand balance, Mr Bagrie noted that the fundamental mismatch between supply and demand continues.

“Demand is outstripping supply and the latter looks to be slowing. There are not enough builders to lift supply materially,” he said.

“Housing supply is behind the ‘8-ball’ as less credit, higher construction costs and no labour equals less supply.

If this situation continued, it could point towards further price rises. However, Mr Bagrie added that if a shortage of supply were the major influence on the market, rents would have taken off many years ago, but that had yet to occur.

The ANZ data indicates that median weekly rents, although trending upwards since 2010, had been lacklustre in recent months at around five percent growth over the past year.

Bayleys national residential manager Daniel Coulson adds that the latest analysis shows many factors are in play in the housing market at the moment.

“As the market continues to battle through the myriad of push and pull factors over the coming months, it would seem that we will be in a period of change that will see active purchasers remain confident, but cautious over coming months.

“Although much of the focus has been on how much house prices have appreciated over recent months, ANZ’s report indicates that changes in rents could be a prominent leading indicator for us all to watch”.  

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