Demand for Auckland houses underestimated by 3000 properties

The Reserve Bank may have been underestimating the number of people moving to New Zealand, and therefore not correctly formulating the effect they are having on housing.

The Reserve Bank may have been underestimating the number of people moving to New Zealand, and therefore not correctly formulating the effect they are having on housing.
BNZ economist Tony Alexander has been looking through the RBNZ’s Financial Stability report and notes its reference to a net migration gain for Auckland in the year to March 2015 of about 30,000 people.
Alexander quite rightly points to data from Stats NZ which shows a net inflow to Auckland of 31,230 people — Not much different on the face of it. However, he says its ‘not applicable’ category shows a net gain of 15,500 people, of which he estimates 60 per cent would likely have settled in Auckland.
The implication is that the bubble heads at the Reserve Bank underestimated Auckland’s population growth by more than 9000 people — or around 3000 homes.
Alexander says: “Even at the most senior level of housing market analysis in this country, people are still under-estimating the rate of growth in demand for housing stock in Auckland.
“As realisation of this little bit of extra undercounting gets through to the Reserve Bank policymakers, the feeling of a need to get a new tool in place to hammer back down the rate of growth in home lending in our biggest city will grow.”
Meanwhile, National’s Building and Housing Minister Nick Smith says negotiations have concluded on three sites in Auckland for an estimated 740 new homes —  first mentioned in last year’s Budget.  It’s taken a full year just to get the land.
Smith expects the first of these homes to be available in 18 months’ time. It’s a good start, just 19,260 houses to go.
Test for meth
Harcourt’s CEO Chris Kennedy says some home buyers may be skipping an essential step during their due diligence — testing the home for P.
“When it comes to testing for P many buyers assume they can judge whether it has been affected by meth use,” he says. “So-called P houses can be found in any neighbourhood and can look as well cared for as any other house.”
Tell-tale signs of meth contamination can include strange smells, chemical stains around the kitchen sink, laundry tubs and toilets, as well as yellow-stained floors, walls and ceilings. Testing for meth can cost between $100 and $500, says Kennedy.

People moving to New Zealand should be forced to build a new home

Violin

The first hint of a shortage of housing stock in Auckland goes back about five years, when building firms began saying there was a lack of skilled workers in the SuperCity. Many had skipped off to Christchurch to help with the post-quakes rebuild (there is now an oversupply of property there).

Then, three years ago, the housing market in Auckland showed solid signs of warming up. By the end of 2014 it had reached boiling point, and despite all the vocal concern about rapidly rising prices in the SuperCity, neither the government, nor the Reserve Bank, nor Auckland council did anything meaningful to turn down the heat.

One of the issues seems to be that the Reserve Bank, and the Government appear unable to react with any speed to emerging trends. Rather than use common sense, they wait until there is a fully documented and peer-reviewed problem before dreaming up half-baked solutions that seem more to do with politics than people.

And Land Information’s attempt at measuring the sales of homes has delivered — at best — questionable data.

Government tell us it is a supply problem, we need to build more houses. That is a problem that can’t be fixed overnight.

Others want immigration reduced to take the strain off housing, schools, the health service and infrastructure. Last week, it was all the fault of land-bankers, some of whom don’t live here.

So what’s left? More rules on borrowing money? That doesn’t stop cash buyers. Debt-to-income ratios? That would have been good two years ago, but is unworkable now, particularly in Auckland. All that’s left is to follow Australia’s lead.

Across the Ditch, only Aussie citizens and Kiwis can buy existing homes — everyone else has to build new. It means every family moving to settle in Australia has to build a new home or rent one. What could be simpler? Homes are constantly built to meet demand.

Meanwhile, Graham Wheeler, Governor of the Reserve Bank is (yawn)  “closely monitoring developments to assess whether further financial policy measures would be appropriate”. Young home buyers can sleep tight then — our best man’s on it.

Lifestyle

Sales of lifestyle properties totalled 2376 during the three months ending April, up 22 per cent on the same time last year according to the Real Estate Institute.
It  says the national median price for lifestyle properties is $562,000, up $10,000 in 12 months. The national median number of days for a lifestyle property to sell is 67 and the Auckland median is 45 days.

Interest rates

Whispers are the Reserve Bank will cut the OCR to 2 per cent on June 9, which could see floating mortgage rates slip to around 5.35 per cent. Among the better fixed-rate deals today is ASB’s 4.19 per cent for two years, and the Coop’s 4.99 per cent for five years.

Foreign buyer data questionable and New Zealand land tax idea scrappped

The New Zealand housing market dipped in April with the national median price declining by 1 per cent compared to the month before.

New figures released by the Real Estate Institute of New Zealand showed the median house price across New Zealand in April was $490,000, an increase of 7.7 per cent compared to April last year.

Compared to March, the national median house price fell by $5,000 or 1 per cent.

The number of sales and the median price in Auckland declined in April compared to March. Sales fell 13 per cent with the largest falls occurring in Auckland City, North Shore and Waitakere. However, on a seasonally adjusted basis sales increased by 17 per cent.

In Auckland, the median price, $812,000, declined 1 per cent compared to March, and 0.6 per cent when seasonally adjusted. Compared to April 2015 prices grew by 13 per cent.

REINZ chief executive Colleen Milne says: “The listing situation has tightened again, with the number of weeks of inventory dropping back to 10 weeks – a near-record low. The adjustment period after the LVR is over, and demand remains strong.”

 

Details of the number of foreign home buyers were released this week by Land Information NZ, covering   sales during the first three months of the year. However, the data may not reflect the true picture.

Figures appear to show that just 3 per cent of home buyer’s pay tax abroad. But Land Information’s CEO Peter Mersi told Radio NZ that tax residency is not an indication of nationality.

He said: “The 3 per cent measures those people who reported having overseas tax residency, that doesn’t tell us anything about citizenship. That wasn’t the purpose of the collecting this information.”

Ten per cent of property transactions in the first quarter were exempt from declaring their tax status as the purchase began before January. Mersi also said he has no confidence in some of the information Land Information  received from home buyers.

The statistics show that of the 1089 properties sold to non-residents during the first quarter, 321 were bought by Chinese buyers, 312 by Australians and 99 by people from the UK. Home purchase stats will be released every quarter by Land Information.

Building and Housing Minister Nick Smith said a land tax for foreign home buyers is now off the table.

Tougher rules for agents

People wanting a real estate agent’s licence will have to allow the Real Estate Agents’ Authority (REAA) access to their police records.
Thanks to a decision on  April 22  at the High Court in Wellington, the REAA — which issues licences to estate agents — now has the right to see the criminal history and details of pending criminal charges of people wanting a real estate agent licence.

The court’s decision means that anyone applying for a real estate licence must release details of their criminal convictions, pending charges, a record of any discharges without conviction and charges which have resulted in diversion to the REAA’s registrar.

REAA’s CEO and registrar Kevin Lampen-Smith said: “We are trusting real estate agents with what is, for most of us, our most important asset and we let them into our homes so it is vital that agents are well vetted.”

Auckland

April sales numbers at real estate firm Ray White were 1478, providing a net turnover of more than $820 million — a record for the company. Its average sale price increased by 1 per cent to $621,515.

The firm’s CEO Carey Smith said the strength of the Auckland market is helping property sales across New Zealand — as some Auckland sellers go on to   buy elsewhere in the country.

Housing and dairy risks to financial stability
Reserve bank Governor, Graeme Wheeler, says
“House prices have begun increasing strongly in regions across New Zealand, although house prices outside Auckland are generally much lower relative to incomes.

He says the Bank is concerned that a future sharp slowdown could challenge financial stability given the large exposure of the banking system to the Auckland housing market and says further efforts to reduce the imbalance between housing demand and supply in Auckland remain essential.

He wants to see more intensive housing developments and well as greenfield housing developments.

Deputy Governor, Grant Spencer, says New Zealand’s banking system faces challenges.  Not least the  level of problem loans in the dairy sector which is expected to increase significantly over the coming year.

“While the moderation in house price inflation has been transitory, the LVR restrictions have substantially reduced the proportion of risky housing loans on bank balance sheets.  This is providing an ongoing improvement to financial system resilience
The reserve bank is now considering loan to debt ratios – something I suggested it do 18 months ago and a suggestion I repeated just a couple of weeks ago.

If introduced a typical household would only get a mortgage of  $405,000 . Meanwhile the average home cost is around $800,000,  and you’ll be lucky to find anything worth buying under $500,000 in Auckland.

Auckland property listings down, prices up and how to get an interest free mortgage

Barfoot and Thompson sold fewer properties in April than at any other time in the past 4 years.

The agency sold  944 properties in April, down almost 30 percent on its March figure and  almost 12 per cent  down  when compared with April 2015.

Peter Thompson, Barfoot’s managing director, says  the likely cause of the drop in turnover  was buyer caution around high prices and  restricted choice due to the low number of properties on the market.

Barfoot’s  average selling price for April was  almost  $874,000  up  0.8 per cent on the figure for March. For the past year the  monthly year-on-year increases have been  around 12 percent.
New listings in April at the agency was 1496,  down more than 20 per cent on March.

According to quotable value,  average values on Auckland North Shore’s and across Auckland City  stand at $1.1 million.

The latest monthly QV House Price Index shows that nationwide residential property values for April have increased 12.0% over the past year. Values rose by 2.1% over the past three months and are now 37.1% above the previous market peak of late 2007.

When adjusted for inflation the nationwide annual increase drops slightly to 11.6% and values are now 16.9% above the 2007 peak. The average value nationwide is now $568,058.

The Auckland market has increased 16.5% year on year which is a slightly slower annual rate than we saw in March, when it rose 16.9%.  Home values in the Super city have risen a total of 1.5% over the past three months reversing a downward trend in values seen in the previous quarter.

Values there are now 72.5% higher than the previous peak of 2007.  When adjusted for inflation values are 16.0% over the past year and are 47.1% above the 2007 peak. The average value in the Auckland region is now $942,760.

How do you fancy having the bank pay you to have a mortgage? It is not as silly as it sounds, and is already happening in Europe as interest rates are placed into negative territory.

You may have heard about negative interest rates, where some banks actually charge ‘‘savers’’ a percentage of their electronic bank deposits.  In Switzerland, the bank deposit rate is  minus 1.25 per cent for wealthy savers.

Negative interest rates have been adopted by central banks in Japan, Sweden, Denmark, Switzerland and the European Central Bank.

The theory was that by imposing a negative interest rate on banks they would either lend money or lose it.
Central banks hoped this cheap money would be lent to people wanting to start businesses that employ people who would  spend their wages into the economy.

Unfortunately, cheap loans have mainly been used to buy real estate the world over, and by listed companies to buy back their shares  (some critics claim this has artificially buoyed the markets). Few new jobs have been created.

Now the next natural step has occurred.  According to the Netherlands’ consumer financial products watchdog, a customer of lender Achmea NV should have been paid when the interest on their mortgage slipped to minus 0.3 per cent. (Yes, you can scratch your head at this point).

The mortgage was in Swiss francs, with a variable rate of 0.7 per cent above the (Swiss Libor) OCR. When the OCR fell below minus 1 per cent in January  last year, the customer asked the lender to pay them. The lender refused, saying there would instead be no interest charges on their loan.

The financial watchdog came down on the side of the borrower and ordered Achmea to pay €971 ($1600) in back interest and expenses.
Achmea spokesman Stefan Kloet wouldn’t tell Reuters how many of the firm’s customers would be affected by the watchdog’s decision.

It now seems that when loan rates go into negative territory, not only do savers get hit, so  can lenders.
With interest rates in the UK at 0.5 per cent, some commentators fear Britain could be the next stop for negative rates.

There’s no hint anything like it will happen in New Zealand. But you can bet our local banks are enjoying access to this cheap money.
As for our official cash rate, there was no surprise when the Reserve Bank kept it at 2.25 per cent last week.

But Governor Graeme Wheeler is walking a tightrope with low economic growth on one side and high house prices on the other.
Nevertheless, with calls for increased economic growth, expect Wheeler to lower the OCR to 1.75 per cent, to match Australia, before spring.

Feel free to  squeeze your lender for a better-than-advertised rate on your next home loan.