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REINZ HOUSE SALES: NEUTRAL
Housing turnover has slowed but that should not necessarily be taken as a sign that house prices may follow. The likely cause is a listings shortage.
INTEREST RATES: UP
Interest rates have started to move up but are still low.
OCR: UP
Still on hold, the OCR is unlinkely to move from 2.5% until early next year.
IMMIGRATION: UP
Net Migration has reached the highest level in four years, with 2300 more arrivals than departures in June.
BUILDING CONSENTS:
UP, TURNING NEUTRAL
The latest statistics show the 26 month-on-month increase in a row for consents for new houses.
MORTGAGE APPROVALS: UP, TURNING NEUTRAL
The number of mortgage approvals seems to be slowing but is coming off very fast growth earlier in the year.
RENTS: NEUTRAL, TURNING DOWN
Government data indicates a year-on-year drop.

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News of the week has clearly been Fonterra’s dirty pipe in processing their whey back in May last year and the global fall out from this recall. The on flowing damage to New Zealand’s “clean and green” image is clear, and will take some time for us to regain confidence in the market.
Further news has been the anticipated response by the Reserve Bank placing restrictions on the LOAN-TO-VALUE ratio. This is the Reserve Bank’s response to their concerns in relation to our economy with house price inflation but also the high risk lending. The central bank has settled on a ‘speed limit’ approach to proposed restrictions on high loan-to-value ratio mortgage lending, effectively reducing the volume of low-equity lending banks can offer in a given period rather than banning it outright.
The general consensus from economists is that first home buyers will end up bearing the brunt of this, which is obviously not the outcome any of us want. There is expected to be an increase in First Home buyers seeking to secure a loan or property before the above comes fully into effect on September 30th, 2013.
BNZ Chief Economist Tony Alexander does not believe this move by the Reserve Bank will have the desired effect of slowing the house prices. He said that “house prices would likely continue to rise for at least another three years.”
The National Government has responded with changes to the Loan-to-value Reserve Bank restrictions through changing the First-home subsidy through Kiwi Saver, these are outlined below:
What: $1000 subsidy for every year of saving, up to $5000 each ($10,000 for a couple).
Current criteria: Combined income up to $100,000; house worth up to $400,000 in Auckland or $300,000 in most other places; no minimum deposit required.

New criteria: Combined income up to $120,000; house worth up to $485,000 in Auckland or $300,000-$425,000 elsewhere; 10 per cent deposit required

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The NZ Herald (Monday 4th June) printed significant data and statistics which reveals that Auckland property boom is causing a widening gap from the rest of the country. They go on to state that many provincial towns have not fully recovered from the national housing boom in 2007, before the global financial crisis hit.
This is backed up by reports from regional First National offices that some provincial towns are still struggling to achieve the ‘boom’ prices. Prices were pushed up during this time and many vendors still have these expectations. Provincial towns such as Tauranga, Rotorua and Taupo are still down on the prices received during 2007 between 10-13 %.
Median house pricing across the country does not provide an indication of where the market is for many regional and provincial towns and cities. However, with a general shortage of listings at the moment, you have an opportunity to achieve a better sale price.

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Don’t wait for spring, because you will be competing with many other sellers who are also waiting to bring their property onto the market.
List your property ‘now’ when the stock of unsold homes on the market tightened to an all-time low of 25 weeks, based on the rate of sales, well down on the long term average of 38.1 weeks. The number of new listings in June represents an 18% fall and it is the lowest number of June listings for 7 years.
The housing market remains in favour of the sellers. This is driven by a shortage of listings for sale and low inventory across many regions which include Canterbury, Waikato and Central Otago. Wellington’s stock has fallen to 15.4 weeks, the lowest since 2009.
It remains a sellers’ market across 15 regions of the country. With supply of stock so low in many regions, the economics of supply and demand influences property prices upwards.
The asking price fell in June to $450,178 down 1% on the previous month lead by Auckland experiencing a slight fall; however, this was tempered by Wellington and Canterbury where the asking price rose.

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In Australia the whole mood is one of woe is us. Informed commentators are writing articles about appalling fiscal mismanagement involving continually soaring spending and overly optimistic assumptions about revenue, poor productivity growth previously covered by the boom but now revealed as a major structural weakness, and chooks coming home to roost for a protected car assembly sector which should have been put out of its subsided misery years ago. And this is with an unemployment rate of 5.5%, up from 5% a year ago. Our rate is 6.2% from 6.7% last year. Imagine how much they’ll be beating themselves up when our rate goes below theirs within a year. Imagine what that will do for migration flows and then NZ house prices.
-BNZ Weekly overview, Tony Alexander BNZ

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Across New Zealand, 11 regions reported asking price increases from April, most significant Manawatu/ Wanganui region up 11.9%. Other areas with increases were Northland, Coromandel, Wellington, Nelson, Otago and Southland.
Most regions saw a decline in listings coming to the market compared to last year, with the exceptions of the Central North Island.
[Data: NZ Property Report]

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In May the level rose in properties coming onto the market by 5.9%, however it is still down by 7.2% on last year. In the last 12 months, 131,053 new listings have come onto the market up 1%, REINZ reports sales up 17% on the same 12 month comparison.
The inventory of unsold houses on the market was down 6% at the end of May when comparing the data to April. Once again record low levels of inventory of 25.4 weeks are well below the norm of 38 weeks historically.

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Seasonally truncated mean asking price rose 4.3% from May 2012.
For those of you interested in statistics, there has been a lot written recently regarding the accuracy of the mean pricing as a true indication as to the state of the housing market and prices. A truncated mean is considered a more accurate measure than using the average price or mean pricing. The truncated price removes the top 10% and bottom 10% of the listings in each data set. An average or mean is then calculated.

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The message is loud and clear buyers are still out there and very keen to have a home. The lack of supply and high asking prices continues to drive seller’s expectations and confidence when selling. This rise in asking price is now not isolated to Auckland and Christchurch, which to be honest we had become tired of hearing about. Over half of New Zealand is now recording record new highs in asking prices.
High Demand and lack of supply has driven asking prices to a new record high.
Asking Prices

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1. Record House Prices- in May $454K
2. Historic Low Interest rates
3. Official Cash Rate (OCR)- Not expected to rise until next year
4. Mortgage Approvals – Bank approvals are up 13% on same time last year
5. Immigration neutral – Fewer Kiwis leaving for Australia
6. Building Consent – Increased strength in construction
7. Supply and Demand – imbalance continues to push prices up.
These are the building blocks that under pin the driving house prices we are experiencing.
“We are reaching the stage where people say, as they did strongly last cycle, that house prices will fall because gains do not match rent gains however the key determinant of rent levels in New Zealand is not always yield but what people can afford to pay. Most investors are looking to capital gain. Simply investors want someone to occupy the property, cover most of their running expenses and not damage it.”
(Tony Alexander BNZ Economist)

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