ANZ Property Focus

ANZ Property Focus assesses the state of the property market in New Zealand, providing investors and prospective homeowners with an independent appraisal of recent developments.

November 2015: Crystal ball gazing (PDF 160kB)

Governor Wheeler has effectively ruled out OCR hikes to counter housing market strength, but the RBNZ has acknowledged they are very mindful of housing excesses and are now also watching some regional housing markets more closely. October sales figures, however, showed that regulatory changes intended to slow investor demand are impacting, with a regionally broad-based fall in sales activity and lower annual house price inflation. The hope is that such measures will provide more time for the lift in dwelling supply to deliver greater balance to the Auckland market in particular, but with net immigration inflows still booming, this is a moving target. Credit growth has followed the housing market and households are re-leveraging off already high debt levels.

October 2015: Borrowed money and borrowed time (PDF 136kB)

An increased RBNZ toolkit has provided more options for addressing housing market buoyancy, but Governor Wheeler reminded markets that OCR settings are not completely divorced from housing market developments. Despite the pending introduction of measures to clamp down on investor demand, the property market continues to dance to its own tune, with sales volumes at an 8-year high and annual house price inflation at an 11-year high. Net immigration inflows remain strong, but housing supply is responding, with annual Auckland residential consent issuance the highest level in more than a decade. Credit growth has firmed, but the easing off in mortgage approvals signals a pending housing market lull.

September 2015: Topping out (PDF 208kB)

The Reserve Bank cut the Official Cash Rate by a further 25bps to 2.75% in September and maintained an easing bias. Despite the economy slowing and affordability stretched, the property market continues to dance to its own tune, with sales volumes and the days to sell at their strongest in eight years. Annual house price inflation has hit an eleven-year high, with the top of the North Island leading the charge. Net immigration inflows remain very strong. After a period of disappointingly flat issuance, residential consent issuance surged in July, to the highest level since April 2008. With the gain again led by Auckland, this is exactly the supply response officials are hoping to see. Credit growth has firmed, but the easing off in mortgage approvals signals a pending housing market lull.

August 2015: A look at the regions (PDF 160kB)

Sales volumes, the median days to sell and annual house price inflation in July were all the strongest since 2007, with sales activity in the upper North Island strengthening. The RBNZ stated that interest rate rises would not be appropriate to dampen the Auckland market, but that speed limits to slow investor demand in Auckland will be here in November. Nationwide residential consent issuance (supply) has essentially flat-lined over the first half of this year, although the growth baton is clearly in northern hands. Record net immigration and low mortgage rates are key supports for now. Construction has flat-lined and is low relative to population needs. Household credit growth has picked up and is running ahead of household incomes.

July 2015: A tale of two cities (PDF 156kB)

The RBNZ cut the OCR by another 25bps to 3% and signalled that some further easing is likely. Given the softening growth picture, poor outlook for the terms of trade and low inflation environment, a lower cash rate is justified and we expect the OCR to fall to 2.5% by early next year. REINZ data showed annual nationwide house price inflation firming to an eight year high, with high Auckland house price inflation contrasting with falling prices in Canterbury; the former has a shortage of houses and the latter an emerging excess. Record net immigration and low mortgage rates are key supports, although we expect pending changes to LVR policy and property taxation to weigh on Auckland investor demand. Construction has flat-lined and is low relative to population needs, curtailing the supply-side. Household credit picked up and household debt to income has now hit a new all-time high.

June 2015: Trend versus the cycle (PDF 208kB)

The RBNZ cut the OCR by 25bps and signalled at least one further cut to offset the expected weakening in demand from the lower terms of trade and to ensure inflation climbs back to the middle of its target range. The Auckland housing market is currently running hot, with REINZ data showing annual house price inflation in the region at a 19-year high, supported by record net immigration and low fixed mortgage rates. There are fears that an OCR cut will provide an unwelcome boost to Auckland prices, but we expect that pending changes to the LVR speed limit policy and the Government tax initiatives for investors will help bring greater balance to the Auckland property market.

May 2015: Joining forces (PDF 148kB)

The RBNZ and the Government have combined forces to rein in investor demand in the Auckland property market via a tightening of the LVR speed limits and changes to taxation. Auckland annual house price inflation rose to an 11-year high last month, supported by record net migration and low fixed mortgage rates. The pace of dwelling supply rebounded, but remains low relative to population needs. Household credit growth picked up, but remains bounded by income growth so far. Low inflation and a deteriorating risk profile across the economy looks set to be matched by a lower OCR.

April 2015: Throwing down the gauntlet (PDF 132kB)

The RBNZ has thrown down the gauntlet and called for broader policy action, including a capital gains tax, to address what it perceives as growing financial stability risks from an overheating Auckland property market.  REINZ data shows Auckland annual house price inflation hitting an 11 year high. The pace of dwelling supply growth is slowing. Strong net immigration inflows and low fixed mortgage interest rates are providing impetus to the market. Household credit growth has started to pick up.  Low inflation tilts the balance of risks towards an OCR cut, although the RBNZ is likely to hold the OCR for the time being.

March 2015:  Pressure building (PDF 188kB)

Residential building activity is trending up, but this has not been sufficient to materially dent housing shortages, with high rates of annual house price inflation in Auckland prevalent. Strong net immigration inflows and low fixed mortgage interest rates are providing impetus to the market. Household credit growth has started to pick up, but remains bounded by income growth. The RBNZ is looking at supplementary measures to address housing market buoyancy, with the message from the March MPS being a period of stability in OCR settings.

February 2015: Third wind (PDF 156kB)

While house sales eased in January, the underlying picture remains strong, with the average days to sell down and prices up. Building consents are trending up but the pace is still not sufficient to materially dent the Auckland-centric shortage. Migration inflows remain strong. Credit growth has started to pick up, but households are still deleveraging; credit growth is not outstripping income growth (yet). The RBNZ is on hold, weighing up competing issues: a wobbly global scene, a still-high NZD, and housing market strength. Inflation is low so they can afford to be patient



December 2014: Sticking to the script (PDF 376kB)

Residential building consents rebounded from their September dip, but the short-term trend remains downward. We expect a lull in activity in late 2014 and early 2015. Housing market activity continued to pick up in November, with an element of buoyancy returning to parts of the market.

November 2014: Movin' on up (PDF 200kB)

Despite what we suspect was an election-related fall in consent issuance, housing market activity rebounded in October, which along with increasing mortgage approvals is expected to result in a subsequent increase in household lending from 2-year lows. Cuts to fixed mortgage rates and net PLT immigration at record highs are providing strong support.

October 2014: Sugar and spice (PDF 132kB)

The month in review:

Dwelling approvals were patchy in August but the course is still upward, with the trend lifting to its strongest level since the Global Financial Crisis. House sales also registered a modest improvement despite the uncertainty surrounding last month’s election, obvious affordability concerns, and the gloomier outlook for dairy prices. House prices are, however, flat-lining. Meanwhile strong inward migration flows continue, though much of it is a reducing emigration (people leaving) story as opposed to an immigration one.

September 2014: Jittery juncture (PDF 148kB)

The month in review:

Pre-election jitters look to have had an impact, with the property market taking a step back in August. Every region recorded an annual fall in sales volumes, the median time to sell lengthened to a 2½-year high, and annual nationwide house price inflation eased. Building consents were relatively flat in July. Strengthening net migration inflows and a solid employment backdrop should help support the market despite stretched property valuations.

August 2014: Looking for direction (PDF 148kB)

The month in review:

Construction and real estate statistics lifted a little in the month, although when viewed from a wider vantage point nationwide house prices have flat-lined. Housing lending statistics show restraint. Support is continuing from strengthening net immigration, but the combination of rising variable mortgage interest rates, low affordability and LVR restrictions are likely to keep the nationwide market under wraps, although the still low median days to sale in Auckland and Canterbury highlight regional divergences.

July 2014: Giddy up and hold tight (PDF 188kB)

The month in review:

Amidst monthly volatility, residential building consents continue to lift, a critical dynamic to address shortages in some key regions. Low levels of real estate market activity and rising interest rates are translating into a moderation in house price inflation. However, rising net immigration, the improving labour market backdrop, and the still-low housing inventory are providing key elements of support. Household borrowing remains modest.

Feature article: An update on regional rental yields

Since the early 1990s there have been pronounced falls in rental yields nationally and across the regions, which suggests a common underlying driver. Falls in mortgage interest rates have been the major catalyst. However, a recent widening of yields throughout the regions suggests that regional-specific factors have an important role to play. Data on rental yields demonstrate that Auckland’s house price challenges are far from solely shortage-driven (rents would be moving up sharply if that were the case), whereas rising yields in Canterbury are more consistent with our estimates of a shortfall of dwellings in that region.

June 2014: 'Tis the Saison (PDF 188kB)

The month in review:

The volume of house sales is trending down, and now selling prices are also starting to succumb. Leaning against this trend, the property market has been buoyed by rising net immigration, an improving labour market backdrop, and a low inventory. But times are a-changing, not least with a turnaround in interest rates, but there are also the first signs that the labour market may be cooling. The further removal of interest rate stimulus has been widely flagged, with an increasing likelihood of a follow-up lift in the OCR next month.

Feature article: Rural property market update

There is a strong correlation between residential property prices and rural land prices, and the latter are hugely important for the regional residential market. This is hardly surprising considering both reflect common underlying drivers, and the primary sector is the economic backbone of many regions. Recently rural property prices and activity levels have picked up. This has supported the diffusion of some of the strong commodity prices into the broader economy and residential property prices. At this stage it is difficult to see rural land values pushing too much higher in the medium-term, with many of the traditional valuation metrics for the different farm types looking stretched, interest rates on the way up, and the milk price on the way down. Throw in increasing environmental regulation and general inflationary pressure on farm costs, and it would seem 2014/15 will be a year of consolidation at best. That's not to overlook positives though. There is still plenty of confidence in the long-term food story; rises in interest rates are likely to be modest; productivity growth is accelerating once again and foreign/corporate buys are still active.

May 2014: Betwixt and between (PDF 438kB)

The month in review:

The property market has slowed in response to rising mortgage interest rates and the LVR speed limits imposed last year. However, the low sales activity has yet to fully translate into a moderation in house price inflation, although the first signs are starting to appear. With rising net immigration and an inadequate inventory of houses keeping prices supported, and the broader economy strong, expect another tap by the Reserve Bank on the real estate market brakes – the OCR.

Feature article: Housing demand – supply balance

The demand and supply for housing in New Zealand is broadly in balance. However, there are clear regional differences. Auckland, Christchurch, Wellington and the Bay of Plenty have a shortage of stock; conversely the rest of New Zealand has a surfeit of supply. While Auckland has a clear housing shortage, updated estimates using last year's Census figures are not as dire as previously thought and help explain, in part, why the rental market has not followed general house price trends and gone ballistic.

April 2014: Way to go (PDF 180kB)

The month in review:

House prices continue to move up, though headline house price figures tell an exaggerated story given shifts in the composition of housing (i.e. more higher priced units selling in Auckland). Easing volumes, a slight up-tick in average days to sell, and a slight moderation in credit imply the market has softened. Building consents continue to trend up, and we need more of the same if semblances of supply-demand balance are going to return at some stage, particularly with net migration trends extremely buoyant.

Feature article: The property market in pictures

It is now nearly seven months since the Reserve Bank introduced measures to cool the housing market. Stricter high-LVR lending restrictions, introduced in October last year, led the way. These were backed up with a 25 basis point hike in the Official Cash Rate last month. In this issue we supplement our range of property gauges presented on page four with a more in-depth commentary on the current state of the property market and wider domestic economy.

March 2014: Up and at ‘em (PDF 152kB)

The month in review:

A well-flagged rise in the Official Cash Rate is now reality. Expect more to come. Sure house sales had been cooling since the introduction of LVR lending restrictions and credit growth has showed signs of easing. But, excepting some form of global meltdown, the bigger plan has always been to return interest rates to more neutral levels. With migration rising strongly, strong demand-style impetus to the housing market remains.

Feature article: Interest rate outlook

The OCR is now moving up, the first increase in nearly four years, and for many borrowers, this will be the first rate hike they have experienced. Furthermore, the RBNZ warning that "the OCR will need to rise by about 2 percentage points over the next two years" suggests big changes in the borrowing landscape are afoot. We discuss what this all means for the future of interest rates, and consider which variables borrowers ought to keep an eye on when making the decision to fix or remain floating. Interest rates are heading higher, but this expectation is now largely "in the price". But higher US interest rates are a risk.

February 2014: Enforcing the follow-on (PDF 232kB)

The month in review:

It's been several months since the Reserve Bank's introduction of LVR lending restrictions. Over the past four months we've seen the volume of house sales slow, prices retrace slightly, and the median time taken to sell lengthen. The brakes will be applied more forcefully once the Official Cash Rate is hiked, most likely next month. The supply of housing has started to crank up but it needs to increase a lot further to make an impact, especially considering net immigration flows are lifting.

Feature article: Migration Update

Large swings in external migration have historically been one of the key drivers in economic and housing market cycles in this country. Much of the recent turnaround in net migration has been due to a sharp fall-off in departure numbers to Australia, with the stronger employment outlook encouraging would be emigrants to stay off the plane. The steady pick-up in immigrant arrivals largely reflects a strengthening in non–NZ residents, with the importance of China and other non-OECD destinations increasing. While the conventional wisdom is that increasing migration inflows will add more to inflationary pressure, increased migration flows present an opportunity to expand productive capacity and smooth through some of the frictions in the economy.

January 2014: Back to the future (PDF 112kB)

The month in review:

The Reserve Bank will take heart from a moderation in housing market indicators in December. The volume of houses that have sold has eased eight percent since the introduction of LVR lending restrictions. However, prices continue to move up, with the low inventory of properties on the market keeping the median days to sell low. Monthly mortgage lending has remained steady over the last few months, but mortgage approvals are lower than average for this time of year as the LVR restrictions bite. While the RBNZ held fire in January, the message is that lifts in the OCR are coming "soon". We expect 75bps of hikes over the first half of the year, starting in March.

Mortgage Borrowing Strategy:

ANZ's fixed mortgage rates have not changed since December. Financial market prices show an expectation for the OCR to rise by over 1 percent by the end of 2014 and by a further half percent over 2015. This is a factor borrowers should take into consideration when making the decision to fix. While further increases in mortgage rates are inevitable, breakeven tables show that stiff rises in rates are needed to fix for longer than 2 years, making 1 year and 18 month terms, where pricing is more attractive. That said, some borrowers may wish to consider fixing a small portion of your mortgage for longer terms for the sake of certainty.

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