Special report – Shocking news from the ANZ and the Reserve Bank

Shocking news from the CEO of New Zealand’s ANZ bank David Hisco where he essentially warns of the New Zealand housing bubble bursting.

This is a Property Podcast special.

Shocking news from the CEO of New Zealand’s ANZ bank David Hisco where he essentially warns of the New Zealand housing bubble bursting.

Within minutes of seeing this, I am sent a press release from the Reserve Bank with more dire warnings about the economy and real estate.

Hisco’s comment, 21 July 2016 is below, and the Reserve Bank warning is below Hisco’s piece.

David Hisco is the CEO of ANZ New Zealand, the country’s biggest bank.

Auckland house prices and the New Zealand dollar are over-cooked.

Having been in banking since 1980 I have seen this movie before. The ending is pretty much the same – sometimes a little plot twist, but usually messy.

This one has some different characters involved. Record low interest rates in New Zealand, 40 houses being built a day in Auckland yet the city needing 60, deflation in some of our trading partners, political turmoil in Britain, Australia and the US, some banks in Europe in trouble; the list goes on.

In the quick snack media world we live, sadly many are making decisions based on the last headline or quote rather than research and facts. Here is a fact: property markets can and do go backwards.

Reserve Bank Deputy Governor Grant Spencer says the solution to Auckland’s housing problem is a team game and that not all the heavy lifting can be done by them. He’s right. Spencer has also suggested immigration policy needs to be looked at. Our creaking infrastructure might do with a period of catch up.

The Leader of the Opposition says we need to build more homes faster. That makes sense, too, if we have the resources and approvals to do it.

The Auckland Council says we need a unitary plan that allows us to build up and out. That’s logical but unpalatable to a vocal few.

The Prime Minister recently told the Reserve Bank to get on with tightening loan to value ratio (LVR) rules. Part of the delay in it happening may be the Reserve Bank demonstrating that it won’t be told what to do by politicians.

Record low interest rates have played their part in this problem. But, because New Zealanders aren’t good savers banks have had to borrow from offshore to fund this rapid expansion in housing lending. And this funding supply is not endless unless banks want to pay higher prices for it. I doubt banks can keep lending at the current huge volumes anyway.

SO HOW DO WE SOLVE THIS PROBLEM?

At ANZ it’s not uncommon to find ourselves in complicated situations where different parts of the business have a solution to a problem. Breaking the impasse requires collaboration, leaving egos at the door, and a willingness to move from your previously held position and try something different. Most of all, it requires the fortitude to make a recommendation that everyone can live with (versus 100 percent agrees with). Then, like with all good strategies, it requires military like precision in its implementation.

Finance Minister Bill English recently told an ANZ post-Budget breakfast that the

Auckland housing market was overheated and that some investors would end up losing money.

That may be true but New Zealand’s issues go beyond housing. The strong Kiwi dollar, while great if you’re heading overseas on holiday, is impacting our exporters. It’s not helping with the recovery of the dairy industry. It also makes NZ tourism, one of our largest industries, far less attractive for overseas tourists.

The softness in the Australian economy, coupled with the fundamental changes they are going through with the end of the mining boom, makes our largest trading partner vulnerable. With the possibility of parity between the New Zealand and Australian dollars how long before they start buying their goods from cheaper sources?

There are storm clouds on the horizon for sure and when they break who knows what will happen.

One thing is certain, if employers start laying off staff because exports to an uncertain world are dropping, those people won’t be able to afford their mortgages and when that happens they will sell their houses. If unemployment rises and the dollar drops, overseas investors will cash in their chips and sell, most probably in a stampede.

The Baby Boomers who have become property investors in recent years based on shallow deposits will soon realise what I’m already seeing – more and more rental properties where owners either can’t find a tenant, or the rent can’t cover the mortgage. Salaries and wages have hardly changed whilst house prices have risen – this can’t continue so it’s a matter of when, not if, the market adjusts.

Eventually, landlords will realise that getting a measly yield is not worth it, nor is leaving a property empty, and they will try to sell and take any possible capital gain. Nobody knows where the top of the market is but, as they say, nobody ever went broke taking a profit.

The solution probably lies in pulling many levers which will no doubt trigger other consequences. But things we can do right now include:

Heavily increase LVR limits for property investors. The Reserve Bank wants most property investors around the country to have 40 percent deposits in future. We think they should go harder and ask for 60 percent. Almost half of house sales in Auckland are to property investors. Taking them out of the market will be unpopular amongst investors but it may end up doing them a favour. Of course this would mean less business for us banks but right now the solution calls for everyone to adjust.

Weaken the New Zealand dollar. The Reserve Bank should look to weaken the dollar, making our export industries more competitive. That’s good for employment and our balance of trade in the long run. The Reserve Bank in Australia are already examining unconventional measures to do this. The longer our dollar is out of step with the rest of the world we will slowly drift towards being uncompetitive. Rising unemployment and rising house prices can’t co-exist.

Voluntary tightening of lending criteria by banks. Since the GFC banks have been more conservative than ever on lending. But the current situation will see ANZ implement even tougher criteria for investment loans as house price inflation spreads from Auckland to other regions.

Review immigration policies. Immigration has been great for New Zealand. We are a harmonious, diverse and inclusive society. But Auckland’s housing, roads, public transport and schools are struggling to cope. Let’s have an honest and sensible debate about immigration using facts rather than prejudice to see if we should push the pause button.

Have a strong focus on infrastructure build, particularly in the growth regions. We always seem to play catch up in this country relying on bureaucratic formula to work out demand. There are smart ways to fund infrastructure that can spread cost across the generations if we choose to go that way.

New Zealand is a great country and we’ve come out of the Global Financial Crisis well compared with many. But logic tells me things cannot continue to run this hot.

Low interest rates give borrowers the best chance to repay their debt and that is what they should do, not use them as a chance to borrow to the max.

Now is the time for New Zealand to navigate carefully if it wants to remain as one of the world’s better performing economies.

ENDS

Reserve Bank releases economic update (21 July 2016)

Prospects for growth in the global economy have diminished despite very stimulatory monetary policy and low oil prices. Significant downside risks remain. Financial market volatility increased following the UK referendum and long-term interest rates have fallen.

Domestic growth is expected to remain supported by strong inward migration, construction activity, tourism, and accommodative monetary policy. However, low dairy prices are depressing incomes in the dairy sector and weighing on farm spending and investment.

There continue to be many uncertainties around the outlook. Internationally, these relate to the prospects for global growth and commodity prices, the fragility of global financial markets, and political risks. Domestic uncertainties relate to inflation expectations and the potential for continued high net immigration, ongoing pressures in the housing market, and the high New Zealand dollar exchange rate.

The trade-weighted exchange rate is 6 percent higher than assumed in the June Statement, and is notably higher than in the alternative scenario presented in that Statement. The high exchange rate is adding further pressure to the dairy and manufacturing sectors and, together with weak global inflation, is holding down tradable goods inflation. This makes it difficult for the Bank to meet its inflation objective. A decline in the exchange rate is needed.

House price inflation remains excessive and has become more broad-based across the regions, adding to concerns about financial stability. The Bank is currently consulting on stronger macro-prudential measures aimed at mitigating risks to financial stability from the current boom in house prices.

Annual CPI inflation was 0.4 percent in the year to June 2016. Headline inflation is being held below the target band by continuing negative tradables inflation. Long-term inflation expectations are well-anchored at 2 percent, but short-term inflation expectations remain low.

Despite rising capacity pressures and some recent increase in fuel prices, the stronger exchange rate implies that the outlook for inflation has weakened since the June Statement.

Monetary policy will continue to be accommodative. At this stage it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data.

Auckland home shortage bites hard

When I got home the other night I found a note from a real estate agent saying she had buyers for properties in my street.

As any Auckland house-hunter can testify, there are slim pickings at the moment — it’s something I mentioned a few months back when the trend started to emerge. But the shortage of houses for sale has become a lot worse, leaving wannabe buyers starved of choice and at least some real estate agents scratching around for something to sell.

When I got home the other night I found a note from a real estate agent saying she had buyers for properties in my street.

As any Auckland house-hunter can testify, there are slim pickings at the moment — it’s something I mentioned a few months back when the trend started to emerge. But the shortage of houses for sale has become a lot worse, leaving wannabe buyers starved of choice and at least some real estate agents scratching around for something to sell.

Industry players tell us that homeowners with a view to selling are sitting tight. It could be they don’t want to go to market seeing there is so little to buy, or they are waiting for the spring surge and hoping for a higher price.

Higher LVR

The Reserve Bank’s Graeme Wheeler is raising the loan-to-value requirement for property investors  to 40 per cent  from September 1, but expects the banks to adopt  the change  right away.

The new rule will apply across the country and loans to construct new dwellings  will continue to be exempt.

Wheeler says:  “A severe fall in house prices could have major implications for the functioning of the banking system and cause long-lasting damage to households and the broader economy.

“We expect banks to observe the spirit of the new restrictions in the lead-up to the new policy taking effect.”

It’s looking likely the Reserve Bank will reduce the OCR to 2 per cent on  August 11.

Median values up

According to the Real Estate Institute the national median value of a home is $500,000. In Auckland it’s $821,000, Northland  $360,000 and in Central Otago Lakes it’s a hair over $730,000.

REINZ’s Bryan Thomson says: “Although there is much discussion about the housing market and increasing new build supply, the fact remains that the vast majority of the supply comes from the sale of existing properties.”

There will be no quick fix to the housing issue. As Finance Minister Bill English said earlier this year, it “will take 10 to 15 years to sort out”.

Crisis

Over at property data firm CoreLogic, its head of research, Jonno Ingerson, says pressure has been increasing on the Government to admit there is a “housing crisis”.

He writes that the Government has countered  with claims it has a “comprehensive plan” which includes increasing housing supply, especially in Auckland, and working with the Auckland Council.

He says: “That helps to tackle supply but they have also talked about the need to constrain demand. Demand can come in the form of more people entering the country/Auckland, or it can come in the form of more people having access to mortgage finance.”

Bold plan needed to solve Auckland housing crisis

The Property Council has welcomed Labour’s plan to build 100,000 affordable houses over 10 years and sees it as a game-changer in alleviating the housing affordability crisis.

Under the opposition party’s plan, half the homes will be built in Auckland and

Worker working on the roof of a house under construction
Labour plans to build 100,000 new affordable homes over 10 years if it wins the 2017 general election.

The Property Council has welcomed Labour’s plan to build 100,000 affordable houses over 10 years and sees it as a game-changer in alleviating the  housing affordability crisis.

Under the opposition party’s  plan, half the homes will be built in Auckland and sell for up to $600,000. But the plan relies on the party forming a Government in 2017.

Alex Voutratzis, the Property Council’s director of policy and advocacy says: “In Auckland, we have a housing affordability crisis and this is because we are not building enough houses to accommodate a rapidly growing population.

“We are seeing the results of the housing deficit across Auckland, with people living in sub-standard houses, garages and cars.”
Voutratzis says the country needs a bold  approach to housing affordability to create healthy, positive and sustainable communities.

Immigration
This week I take my hat off to Grant Spencer, deputy Governor of the Reserve Bank.

The job of the RBNZ is to prevent inflation getting out of hand, while having just the right amount of economic growth to keep the economy bouncing along. Housing, is not its primary concern.

So when Prime Minister John Key told the RBNZ to get on and do something about house price inflation last week,   Spencer   suggested that  Key’s Government reduce immigration numbers. In other words, we can’t fix the housing supply issue overnight, so let’s manage the demand for housing.

During the past three years 160,000 people have moved to New Zealand — half settling in Auckland — putting pressure on infrastructure, housing, schools and health services.

According to research by the University of Otago, in 2013 there were more than 41,000 people living in severely overcrowded houses,  sleeping in cars or on the streets.

The Auckland City Mission and the Salvation Army have called for a national inquiry into homelessness. Last week, the Government said there was no need, maintaining it had a plan to deal with it.

Hamilton rising
Property valuation firm Quotable Value says home values across Hamilton City rose 29 per cent in the year to June. The average value there is $492,403.

The firm  says values in the surrounding districts are also rising, with Waikato values up by 26.4 per cent year on year.

QV valuer Stephen Hare says:  “We are continuing to see high levels of activity and demand at the lower value end of the market, in the price bracket of $400,000 to $600,000, from first home buyers and investors.”

$1bn loan won’t solve Auckland’s housing crisis

For a man who routinely says that throwing money at problems is not the answer, Prime Minister John Key’s $1 billion offer to help solve the country’s housing crisis is a huge U-turn.

For a man who routinely says that throwing money at problems is not the answer, Prime Minister John Key’s $1 billion offer to help solve the country’s housing crisis is a huge U-turn.

Key told TV3 news on May 16 that: “Throwing more money at Auckland’s housing crisis isn’t the answer and freeing up land supply is.”

But he has now offered an interest-free $1 billion loan to local councils to pay for infrastructure such as roads and utilities to pave the way for new housing developments.

However, the offer is late, it’s no where near enough money and will increase the rates of any council that accepts the loan. Not one cent will be used to build homes.

It’s not really interest-free money of course because the Government is borrowing it from somewhere. The piper will need to be paid.

Land snatchers

The other week I mentioned that developers were sitting on land because rising values mean they make more money doing nothing than building much-needed homes.

This week Housing Minister Nick Smith says he may compulsorily purchase land from land-bankers.

We are living in interesting times when the party of free enterprise, business and self-determination talks about snatching people’s property. A dictator would have done this years ago, but things run a bit slower in a democracy.

Look north

Northland is the new hot spot for home buyers according to realestate.co.nz.

The firm’s CEO Brendon Skipper says interest in the Auckland property market has dropped with average asking prices having risen last month to more than $888,000.

He says the number of users searching Auckland houses “for sale” fell by more than 19 per cent compared to the same time last year.

“It could be a turning point for Auckland,” says Skipper. “With prices now at an all-time high, they’re almost out of reach for the average income earner, with first-home buyers the hardest hit.”

He says hot spots in Northland are Waipu, Whangarei Heads, Paihia and Tutukaka.

“Whangarei Heads is the suburb to watch,” he says, with searches for property in the district on realestate.co.nz up 42 per cent on a year ago.

“The message seems to be getting through that with the shortage of listings and the speed with which properties are selling. It’s a sellers’ market.”

Damp Wellington

One in eight houses for sale in the capital is thought to have major maintenance problems with more than half being dangerously damp, according to Dr Nigel Isaacs of Victoria University.

Researchers analysed a random sample of 70 building reports spanning 12 years that were carried out by home inspection firm Buildsure Associates.

Dr Isaacs, a senior lecturer in Victoria’s School of Architecture, says one in eight houses has major maintenance problems that exceed general wear and tear.

Common problems include asbestos, corrosion, timber decay, [faulty] electrics and wall moisture. Isaacs says the problems are commonly seen in stand-alone timber housing.

Ticking time bomb of interest-only home loans

Statistics from the Reserve Bank show more people are opting for an interest-only loan when buying a home.
In January, 30 per cent of loans to owner-occupiers were interest-only, but by May it had drifted up to 33 per cent.
An interest-only loan will typically have lower repayments than a principal and interest loan — because repayments only cover the interest. The downside is that payments do not reduce the amount borrowed by a single cent.

Woman with financial problems

Statistics from the Reserve Bank show  more people are opting for an interest-only loan when buying a home.
In January, 30 per cent of loans to owner-occupiers were interest-only, but by May it had drifted up to 33 per cent.
An interest-only loan will typically have lower repayments than a principal and interest loan — because repayments only cover the interest. The downside is that payments do not reduce the amount borrowed by a single cent.
All can be well until one of two things happen. Interest rates go up or the interest-only period ends and the borrower is forced into a principal and interest loan — which can add hundreds of dollars to monthly repayments and deliver a payment shock.
Borrowers on a tight budget risk not being able to make these higher payments, causing all sorts of financial stresses.
If you opted for an interest-only loan to buy your home, keep an eye on when the agreement ends and what repayments will cost if it is converted to a principal and interest loan.
Interest-only loans are popular with property investors as interest payments are tax deductible. But there is a risk if they are used to buy a home you wouldn’t otherwise be able to afford. According to the RBNZ, 28 per cent of all mortgages are interest-only.
Gone south
We learned this week  the Transport Agency has decided against a heavy rail link between Auckland CBD and the country’s largest airport. Although a light rail system is apparently being considered. Woopdee-do!
This is so short-sighted because a rail network out to the South Auckland airport would not only serve travellers, but anyone working there, as well as people living along its route working in the city. Think of the hundreds of cars it would take off the Southern Motorway.
A light rail system simply won’t be fast enough to move enough people efficiently, it will just trundle along like something out of Thomas The Tank Engine, a toy-town solution for the engine room of the country.
A world-class city with the severe congestion we face every day on the roads needs a world-class train network.
And what’s currently on offer falls well short of what we need.
Apartments
Apartment building is ramping up according to property firm CBRE. It says in 2013, less than 500 new Auckland apartments were planned but that figure jumped to 1000 during 2015. It says that up to 2500 new units could be completed this year, and that next year 4000 units are planned.
Interest rates
The ASB has raised its floating mortgage rate by 10 basis points, taking it to 5.65 per cent. The bank has not said why it raised its rate, but there are no apparent reasons — even taking Brexit into account.  KiwiBank’s floating rate is 5.45 per cent.
Among the better fixed-rate deals include ASB’s and BNZ’s 4.19 per cent for two years.
Famous home
If you are into real estate trivia, then you might be interested to know that the Philadelphia home where Oscar-winning actress Grace Kelly grew up is on the market for US$1 million (NZ$1.41 million). The home was built in 1935 and is an historical landmark.

Standards for P tests needed and solar panel owners are penalized

When police were alerted to half a tonne of methamphetamine on a beach last week it highlighted the problem New Zealand has with illegal drugs such as P.
It seems the drug is so widespread that anyone seriously contemplating buying a home needs to have it tested for P contamination — even if the property looks pristine.

 

Solar panel installation
Solar panel owners in Hawkes Bay are being asked to pay more for their power.

When police were alerted to half a tonne of methamphetamine on a beach last week it highlighted the problem New Zealand has with illegal drugs such as P.
It seems the drug is so widespread that anyone seriously contemplating buying a home  needs to have it tested for P contamination — even if the property looks pristine.
Unfortunately, there are no guidelines or rules that companies testing for drug contamination need to follow. Home buyers risk paying lots of money for potentially questionable test results and advice on making an infected home safe to live in.
Harcourts’ CEO Chris Kennedy wants the government to set standards for the methamphetamine-testing industry.
He says: “Testers and cleaners have differing views on the severity of contamination and the methods for decontamination.
“We need some standards put into place to protect consumers and the government needs to take the lead on this.”
Kennedy says that just as the leaky building problem has made hiring a qualified building inspector essential, the P scourge should make methamphetamine testing mandatory. Tests should be done before the contract is signed.
If a real estate agent knows a property is contaminated, they are required to tell you.
The blame game
The three-year Auckland Housing Accord, which ends in September, is falling short with a little more than 30,000 housing consents issued or sections created. The figure is well short of the 39,000 target, which Housing Minister Nick Smith says is unlikely to be met.
Smith appears to blame the slack performance on anything he can think to name, from shortages of labour and equipment to concrete firms wanting three weeks’ notice to pour a slab. The only thing he didn’t mention was the supply of structural steel.
Auckland needs 13,000 consents a year to match demand and in the full year to March there were 9566 consents (unfortunately, people can’t live in a “consent”).
Surely, with all these consents pouring in, someone could see what would happen next?
As for the 154 Special Housing Areas, where consents can be fast-tracked … just 1010 homes have so far been built. The reason? Land owners are making more money sitting on the land than developing it.
Meanwhile, more than 68,400 migrants entered the country in the year to May – breaking all records. Based on the current trend, Half of these will want to live in Auckland. Although Treasury says A quarter of arrivals are New Zealand citizens coming returning home.

Home loan warning
Treasury Secretary Gabriel Makhlouf is worried Aucklanders are taking on too much debt as a direct result of   high  property prices.

Speaking at the Committee for Auckland Group Summit he  said  Housing debt is   the largest component of  the  country’s $246 billion of household debt. On average households are spending 163% of  disposable income, the  figure is set to rise and  is already higher  than  that leading up to the GFC of 2008.

Treasury is  worried  that a drop in people’s income, perhaps due to job losses,  or a rise in interest rates – which I don’t think we will  see for another year or two –  may  cause  some  people  to struggle to meet mortgage repayments.

The risk is that if too many people find themselves backed in to a corner financially , repossessions will starts and house prices will fall – sending people into negative equity.

High house prices he says is also preventing people from moving to Auckland to find work. Wages have not risen anywhere near the rate or rents or house prices. High accommodation costs also impacts the government as  rent subsidies rise.

Crossed wires
I often wonder why the building code doesn’t include solar panels being fitted to new homes in suitable areas of the country.
With so much sunshine we could be among the greenest countries on the planet with homes generating a high percentage of the power they need.
We’d all benefit if it were part of the code, which has been changed before to include radical things such as double glazing and insulation.
But what’s this? In Hawkes Bay those with the foresight to invest in solar power  generation  are being penalised by lines firm Unison Networks. The firm — via some twisted logic — has figured that people with solar panels should pay more to be connected to the grid.
By this rationale, if I walk home tonight, Auckland Transport should charge me more the next time I catch a bus.
Next week, more lessons from the North Korean School of Business.

Banks make it tougher for foreign home buyers in New Zealand

Westpac led the charge last week by refusing to recognize the overseas income of foreign wanting a home loan.

Westpac led the charge last week by refusing to recognise the overseas income of foreign home-buyers wanting a loan. The ASB, ANZ and BNZ quickly followed suit. In broad terms, the change means people without New Zealand citizenship or permanent residency can’t rely on their foreign income when making a mortgage application.

Make no mistake, banks are answerable to their shareholders, need to make a profit, and will not be turning business away on a whim.

In reality the amount of business lost is negligible, and many foreign buyers pay with cash, but it’s great PR. Nevertheless, the Government’s banker may have scored a brownie point for being first off the rank.

In my view the banks have plenty to answer for when it comes to house price inflation.

Had the banks opted to lend a bit less, and restricted loans to four or five times a borrower’s annual income then we wouldn’t have such inflated house prices today.

Price drop

According to the Real Estate Institute, the median Auckland house price has dropped 0.9 per cent from $812,000 to $805,000 in the past month, but is up 7.9 per cent on a year ago.

Renting

If Prime Minister John Key is to be believed, Kiwis now prefer renting a home to owning one. I haven’t met a tenant who wouldn’t prefer to own a home, living as they do under the cloud of being given notice to leave and being unable to hang a picture on the wall without written permission.

I’m not sure where Mr Key got this idea from (perhaps he googled it) but, in an interview with RNZ, he claimed that reduced home ownership is a reflection of “societal changes” that include people getting married later and having children later. Or it could be that this change is a result of people spending longer saving their 20 per cent home deposit, and preferring to get settled before having children.

Interest rates

Reserve Bank Governor Graeme Wheeler woke from his slumber last week to announce no change to the OCR — which sits at 2.25 per cent. He’s now hibernating until August 11.

Meanwhile, the economy stumbles along with economists such as ASB’s Kim Mundy saying the “benign inflation outlook warrants further monetary easing”. In layman’s terms: the OCR should be cut.

Mundy is among those who expect Wheeler to cut the OCR to 2 per cent in August.

Auckland median house prices drop $10,000

Is the booming Auckland housing market about to run out of puff? It seems unlikely, but looking at figures released by Barfoot & Thompson one has to wonder.

Is the booming Auckland housing market about to run out of puff? It seems unlikely, but looking at figures released by Barfoot & Thompson one has to wonder.
According to the firm, the SuperCity’s median price for a home — a more accurate indicator than the average price — is down from $820,000 a month ago to $809,500 — a drop of 1.3 per cent. Despite this, the current Auckland median is still 7.9 per cent up on a year ago.
The lower median value is not the result of a lack of buyers, says Thompson.
“In the last two months, the number of sales has not influenced prices,” he says. “In May, turnover was high and in April turnover was low, yet for both months, prices remained relatively static or fell.”
Of all the 1306 properties sold by the firm during May, 464 changed hands for more than $1 million, and 185 sold for less than $500,000 — illustrating the dire need for lower-priced homes (if you can call half a million dollars low-priced or “affordable”).
Too many homes
Over at the BNZ, bank economist Tony Alexander says in his weekly newsletter that in two to three years from now some regions will have seen excess [home] construction compared with population growth, and that some developers and investors will suffer losses.
He says: “Auckland will plateau through the combined effects of prices simply being really, really high, mildly easing migration, higher annual supply growth, and possibly slightly higher interest rates from 2019.”
Instead of raising interest rates, he predicts the Reserve Bank will introduce more controls to reduce the supply of credit by increasing the deposit required by investors in Auckland and elsewhere, and he has a two-way bet on debt to income rules being introduced for new lending.
His advice to investors is to carry on buying — at least until 2018.  Alexander says buying in Nelson, Hamilton, Tauranga, Wellington, and Auckland is fine. But if you look elsewhere, he says, then you need to check population growth assumptions.
Christchurch
Harcourts reports that average property prices in Christchurch hit a record high of $553,000 last month. The firm says the number of properties listed for sale has dropped, which may well be a seasonal issue.
Harcourt’s CEO Chris Kennedy says sales are constantly outstripping new listings. This lack of choice means prices will rise.
Free on Monday
Free with Monday’s Herald is our quarterly Property Report. As usual you’ll see what your home is worth thanks to the latest data from QV.co.nz. Leading figures from the real estate industry share their thoughts on the current state of play and where they think the Auckland market is heading.
There are features covering the trials and tribulations of house-hunting in Auckland, as well as the pitfalls of tapping into your home’s equity.
All that and much more in Monday’s Herald.
Interest rates
There are whispers of interest rates rising to more than 5 per cent come 2019. If it comes to pass, a five-year fixed rate mortgage below the predicted rate may pay dividends.
There are still a few options around. But making a meaningful forecast in these financially turbulent times is near impossible.

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.

Proposed land tax won’t help struggling home buyers in Auckland

BNZ economist Tony Alexander says a mixture of higher property prices, firm economic growth, and lower interest rates could see the tide turn on rising home prices.

“There is an end game,” he says. “It will come. It always does. It usually comes from rapidly rising interest rates. It won’t this time. It will instead reflect a hammering from spreading, strengthening credit controls.”

However, he says it will only become a painful rout if the economy’s growth rate tanks at the same time as these restraining measures start to bite.

This may happen, he says, because the credit control spread will be put in place and not removed “until the economy does tank and excesses in the housing market are cleared out”.

When and if this happens cannot be predicted, but Alexander says the first condition for a correction, namely widening credit controls, is imminent.

Speaking before Thursday’s rate announcement by the Reserve Bank, he speculated that  property investors may require a 50 per cent deposit in Auckland, and 30 per cent everywhere else.

“Be in no doubt,” he says. “Simply raising interest rates to target generalised inflation, and an over-heating housing market, is no longer workable for our central bank and others overseas.”

Foreign buyers

Alexander also predicts that more Chinese buyers are heading our way as leaders in Beijing loosen credit controls and take a more relaxed approach to its people taking money out of the country.

He  says that as Australia tightens up policy on foreign buyers of its real estate, and banks across the Tasman cut lending to offshore buyers, that those buyers will increasingly look to New Zealand.

New Zealand is one of the few places  willing to sell residential real estate to non-residents.

Land tax

A few weeks ahead of a report that will show if foreign buyers have played any part in driving up Auckland property prices, Prime

Minister John  Key, who campaigned  saying there would be no new taxes,  has floated the idea of an annual land tax aimed at making foreign buyers think twice before investing here.

Trouble is, I don’t believe international investors — who think our property is cheap compared to other leading cities — will be too concerned about the tax (that may push up weekly rents).

Key is just throwing a bone to middle New Zealand who are starting to realise their children can’t afford to buy a home of their own, given average prices are well above $900,000 in Auckland.

A land tax may have had some merit three years ago, but even Key can’t afford to see Auckland house prices drop too much, not least because there’s an election next year.

New homes

The number of homes available to buy is at its lowest level in two years, according to Harcourts.

But  a new subdivision at Hobsonville Point  will see 400 new homes.
Up to 80 per cent of the properties will be sold at “affordable” and median prices. The development will  be on land known as the Village Precinct, but is to be renamed  Te Uru.

Auckland housing market out of control

The Auckland property market is out of control once again. Not only are first-time home buyers forced to look outside the city, but investors are too. According to Quotable Value, 45 per cent of all homes bought across the country are investment properties.

High prices lead to high rents, and people paying high rents can find it hard to save the 20 per cent deposit they need to put down on a home of their own.

Obviously, the government and the Reserve Bank are losing the war on property. Yes, the 30 per cent deposit requirement for property investors in Auckland dampened demand for a while, but now those investors are looking elsewhere.

So it’s time to extend that requirement across the nation, and perhaps even make it 40 per cent. But the Reserve Bank could go even further.

To cool the overheated housing market in the the UK, the Bank of England told lenders to restrict loans to 4.5 times a person’s annual income. It’s a simple solution that restricts what people can  pay for a home.

Not only that, borrowers will likely be in a better position to survive financial shocks, such as redundancy, unexpected bills and rising interest rates.  They’ll also have more money to spend in the wider economy.

But can it work here? The grandly named Property Institute  claims that if New Zealand was to follow the UK’s lead, then it  would “kill the market dead”. That is, of course, rubbish. The market is not dead in the UK or anywhere else where sensible lending is practised.
One of the problems is that because house prices are rising so fast, lenders are on a good bet when lending for property purchases.

Even if our  Reserve Bank Governor didn’t care about house prices, he must have concerns about household debt levels.
Average, hard-working Kiwis can’t compete with cashed-up foreigners (who may opt to leave a property empty) or investors leveraging one property against the other to build their portfolio.
Something will have to give if Auckland wants to retain the young people it needs to work in the city.

For an insight into some of the social implications of unaffordable housing, look at the excellent nzherald.co.nz/hometruths.

Nationwide rises

Economists at Westpac are predicting that property values across New Zealand will rise 11.5 per cent this year.

They were surprised by “the power of the housing  market’s rebound” and that rising house prices are becoming widespread.
Rising household borrowing, they say, strongly suggests that low mortgage rates are a powerful driver of the market.

One almost wonders if raising mortgage rates is an option.

Auckland’s median price for a home now $820,000

The University of Auckland is selling its Tamaki Campus to property investment company Tamaki Village.
There’s already chatter the 11.9ha plot in Glen Innes could be used for hundreds of much-needed homes close to public transport and rail links.

Human hand add a  coin in the final row
Auckland  real estate prices are starting to rise again, with the media price for March standing at $820,000.

The University of Auckland is selling its Tamaki Campus to property investment company Tamaki Village.
There’s already chatter the 11.9ha plot in Glen Innes could be used for hundreds of much-needed homes close to  public transport and rail links.
It’s early days, and no announcements have been made, but it could be a much-needed game-changer to help meet demand for new homes.
The bad news is there’s talk of rising prices for new builds on the back of new tougher health and safety regulations in the construction industry.
Prices push up
According to the Real Estate Institute this week, median house prices across the city are sitting at a record high of $820,000.
The institute says record median house prices have also been recorded in Waikato, Bay of Plenty, Wellington, Nelson, Marlborough, Canterbury and Central Otago Lakes.
In Auckland, one in three properties sold are valued at more than $1 million — that’s 35 per cent of the market. The institute says the national median house price is now $495,000, and for the 12 months ended March the total value of residential sales across New Zealand was $55 billion.
Mortgage rates
Citing   low inflation, economists at the ASB predict more cuts to the official cash rate this year, and expect the Reserve Bank to take it down to 1.75 per cent.
When the OCR goes down, so too should loan rates. However, it seems the banks are hedging their bets, waiting to see if the US Fed will  raise its interest rates (which has a bearing on local rates).
Despite all the US fluffery, I don’t believe the Fed will raise rates any time soon. Backed in to a corner at the end of last year it increased rates by the smallest amount it could, just to save face. And while there’s plenty of talk, the US has been kicking the rate hike can down the road  for years.
Frankly, it’s time our local banks started offering much more competitive fixed-rate deals. One of them  must be itching to offer a  two-year deal at less than 4 per cent. There’s certainly scope to do that — it’s just a case who will blink first and start a mini mortgage war.
Pause for thought
BNZ chief economist Tony Alexander says Auckland’s market has ended a pause and is now going up again “underpinned by a worsening shortage of property”.
He says: “Regional markets are well underpinned by investor demand and that is propelling more construction which, in some smaller lifestyle-like centres, will eventually lead to excess supply.
“Falling interest rates will encourage more investors to seek property assets while having little impact on already outbid young buyers. A new wave of out-bidders is coming.”
Queenstown
Queenstown is facing its own housing crisis with a new home and land package at the Bridesdale Farm subdivision being advertised for $755,000.
The subdivision is in a special housing area, and the 360sq m section offered has plans for a 124sq m home.

Building consents in Auckland not keeping up with demand

Strong construction activity continues to boost the regional economic outlook especially in Auckland and Canterbury, say economists at Westpac. They report that building consent data for February, released on 30 March, confirms that Auckland is cranking up production of housing, currently up 23 per cent year-on-year.

Strong construction activity continues to boost the regional economic outlook especially in Auckland and Canterbury, say economists at Westpac. They report that building consent data for February, released on 30 March, confirms that Auckland is cranking up production of housing, currently up 23 per cent year-on-year.
The bank’s weekly economic report says that after January’s breather — following three months of solid growth in the number of building consents for the SuperCity — consents bounced again, and have totalled more than 9500 in the last 12 months.
However, the report’s authors say there is still a long way to go to have consents meet demand.
The economists say: “We have long forecast that Auckland needs to deliver around 11,000 dwellings a year over several years to eat into its housing shortfall, and strong net migration continues to widen this gap.
“Even in Canterbury, where consents fell particularly sharply last month, there was a rebound that was surprising in its scale, although we were already expecting some recovery.”
Wellington is on the up and up. The economists say that after years of little growth in the capital confidence is returning as concerns about government job cuts fade. With the highest salaries in the country, unemployment down, and house prices half those in Auckland, they say there is little reason to be pessimistic.
Population growth
BNZ economist Tony Alexander says demand for housing in Auckland is growing by about 15,000 a year, while actual supply is less than 8000. Therefore, he says “prices rise”.
He says: “The rest of the debate regarding Chinese buyers, interest rate changes and so on is just fluffery.
“Things will get a bit difficult when and if supply is rising over 10,000 a year and population growth has slowed.”
But he doesn’t know when that will happen — but it will one day.
Alexander also theorises that some investors are content to let their properties sit empty as the rise in value is more than the rental yield (and the risk of damage by tenants). In essence, a small proportion of properties are being taken out of circulation — compounding the housing shortage.
Prices up
Property prices in Auckland are starting to rise again, according to Peter Thompson, managing director of Barfoot & Thompson.
He says the average sale price obtained by the firm during March was $866,782, and the median price reached $798,000. The median price is the second highest on record, within $2000 of the all-time high and up 8.1 percent on February’s median price.
“As it has been for the past two years, lack of supply remains the main price driver,” he says.
Interest rates
There’s still talk of two further interest rate cuts, with the official cash rate expected to end the year at 1.75 per cent. One can only hope the banks pass on the full cuts to its floating rate mortgage payers.
Among the fixed rate deals that caught my eye this week is ASB’s 4.15 per cent for 18 months.

Auckland housing shortage getting worse

BNZ chief economist Tony Alexander says Auckland’s housing shortage is getting worse. Last week he wrote that Auckland’s population grew near 3 per cent last year compared with 1.4 per cent for the rest of the country.

He says: “This is largely because Auckland gains over 60 per cent of the country’s net migration inflow which in the year to February was 67,400 people.”

Alexander says that translates into an extra 40,000-plus people in Auckland, and with an average household occupancy rate of three people per house, Auckland needed at least 15,000 houses to be built last year.

However, just 9300 consents for new houses and apartments were issued (many for retirement units with one or two people) and of those, only about 7400 consents added to the housing stock.

“Some houses replace those which have been demolished,” he says. “And some consents do not get acted on. Therefore, Auckland last year needed some 19,000 consents to be issued to stop the shortage worsening. Consent issuance is less than half the level required.”

Check before you buy

Independent expert advice is essential when buying property, says Harcourts’ CEO Chris Kennedy.

He says accepting a vendor supplied report is a good starting point, but that home buyers should carry out their own due diligence, get an independent building inspection, request LIM reports and title checks.

“That way they [buyers] know the source of the information, as well as the credentials and loyalties of the person who has supplied it,” he says. “There’s no advantage in winning an auction if you end up with problems.”

Herald Homes gets an App

Finding more information about properties advertised in Herald Homes is easier than ever, thanks to a free smartphone app from the Google and Apple stores.
It means the days of trying to remember street addresses, web links and agent phone numbers are a thing of the past. Our brand new app makes it a breeze to save properties to your phone for future reference and to share them via email and social sites.
Simply download the free app, point your smartphone’s camera at any Saturday Herald Homes advert and connect straight through to the online listing for a true print-digital experience.

Young home buyers’ 10-year plan

In a survey of more than 500 Aucklanders carried out for real estate firm Barfoot & Thompson, researchers spoke to people aged between 18 and 34 who were yet to buy their first home.

The dream of home ownership is alive and well with 91 per cent of Aucklanders wanting to own a home, although just half are actively doing anything about it.

In a survey of more than 500 Aucklanders carried out for real estate firm Barfoot & Thompson, researchers spoke to people aged between 18 and 34 who were yet to buy their first home.
Of those who took part, just 59 per cent thought owning a home was an achievable goal, with many respondents saying they expected to pay $700,000 for a property in the Super City.

According to the survey, people aged 25 years and older see home ownership as less achievable than those aged 18 and 24. However, many people are pursuing their dream, with 18 per cent putting off having children to save their 20 per cent deposit.
Seventy per cent of those surveyed want their own slice of turf, while 9 per cent (typically 18 and 19-year-olds) are considering an apartment.

Peter Thompson, the real estate firm’s managing director, says: “The apartment market in Auckland is growing with considerable pace, and though there are some first home buyers, there are equally as many luxury downsizers and investors.”
Home ownership is a long-term dream for many, with 31 per cent saying it is 10 or more years away.

“Based on these figures, the aging of the first home buyer market is likely to continue,” says Thompson.

Though most of Auckland’s aspiring home buyers (74 per cent) are looking to buy in the city neighbouring regions are also being considered.

Places such as Waikato (15 per cent), Bay of Plenty (13 per cent), and Northland (10 per cent) were identified by survey respondents as alternatives. People are also looking further afield to Wellington (10 per cent).

Almost a third of respondents are prepared to go it alone, while 62 per cent intend to buy with a partner.
More rate cuts
In last week’s podcast I mused aloud, not for the first time, that the official cash rate might go down to 1.75 per cent.

On Monday economists at the ASB said they expected RBNZ governor Graeme Wheeler to make two further 0.25 per cent cuts to the OCR which currently stands at 2.25 per cent.

When those cust come (likely in June and August) the floating mortgage rate must come down to at least 5.20 per cent. And I still expect to see fixed interest rates at below 4 per cent this year from the main banks.

Banks need to man-up and cut rates

Calculating Interest Rates

Chatter over last week’s surprise cut to the official cash rate by Graeme Wheeler continues to rumble on.

Most people, including yours truly, figured a cut would come on June 9, but the Reserve Bank governor unexpectedly sliced a quarter of 1 per cent off the OCR, taking it to an historic 2.25 per cent.

There’s firm talk of at least one more cut in the pipeline, and whispers of the OCR going below 2 per cent — will we see the OCR drop to 1.75 per cent by Christmas?

However, it seems the days of the OCR having a direct effect on floating mortgage rates are over. With banks drawing on foreign cash to make loans, they have the perfect excuse not to pass on the savings Wheeler hoped would help businesses and floating rate mortgage payers.

The theory is that if people pay less in bank interest, they’ll spend the money saved into the economy (instead of using their credit card), or reduce their debts.

Following the cut, the ANZ reduced its floating rate by just 10 basis points (to 5.64 per cent), the BNZ kept its floating rate unchanged at 5.79 per cent, and ASB reduced its rate by 20bps to 5.55 per cent. The Co-op is the only bank, at the time of writing, to pass on the full cut to its borrowers — its rate is 5.45 per cent.

If banks won’t play ball, then the RBNZ’s ability to massage the economy via the OCR are over. Wheeler even made it pretty clear he expected the banks to pass on the full cut, but they have ignored him.

While the banks should be free to absorb any rises in the OCR to stay competitive, they should pass on any cuts in full. It’s what the Reserve Bank governor wants, and it’s what borrowers want.

High demand

According to the latest Harcourts Market Watch newsletter, 80 per cent of homes taken to auction are selling, and that demand has pushed the real estate firm’s average Super City home sale price to $899,445.

Harcourts’ CEO Chris Kennedy says:  “The central region has 40 per cent less stock than was available last year, and average prices are up 29 per cent. It’s your classic supply and demand situation.”

In Christchurch, based on Harcourts’ figures, prices rose from $437,630 to $509,534 in the 12 months to February.

Fixed rates

HSBC is the only bank offering a fixed rate at below 4 per cent, but I’m hoping we will see plenty of other banks following suit this year. Until then … some of the best deals include ASB’s 4.15 per cent for one year and KiwiBank’s 4.99 per cent for five years.

Auckland real estate market heats up and OCR cut

Shock announcement from the Reserve bank, the OCR is down to 2.25%.

RBNZ governor Graeme Wheeler says: “The outlook for global growth has deteriorated since the December Monetary Policy Statement, due to weaker growth in China and other emerging markets, and slower growth in Europe.

“This is despite extraordinary monetary accommodation, and further declines in interest rates in several countries. Financial market volatility has increased, reflected in higher credit spreads. Commodity prices remain low.

“Domestically, the dairy sector faces difficult challenges, but domestic growth is expected to be supported by strong inward migration, tourism, a pipeline of construction activity and accommodative monetary policy.

“The trade-weighted exchange rate is more than 4 percent higher than projected in December, and a decline would be appropriate given the weakness in export prices.

“House price inflation in Auckland has moderated in recent months, but house prices remain at high levels and additional housing supply is needed. Housing market pressures have been building in some other regions.”

The property drought may be over as listings are starting to rise as we head into autumn. According to Barfoot & Thompson, while the number of properties the firm had for sale during January was the lowest for 20 years, it entered March with more than 2000 new listings.

So it looks like brighter days are here for buyers as more listings means more choice, and a better chance of getting what you want.

Peter Thompson, the firm’s managing director, says there’s an “extremely high number of properties in the pipeline” for settlement in March and April. The company currently has 3318 properties on its books, the highest monthly figure since March 2015.

Based on its sales, Thompson says the average house price is just over $822,000. While the median price, a more accurate figure, is $738,000.

Thompson says: “While prices are down from their record highs, based on past trends, prices in coming months are most likely to build modestly.

“This trend has occurred over the past nine years, where Auckland house prices have followed a cycle of falling in the first quarter of the year and then rising from autumn on.”

Asking prices rise

Meanwhile average asking prices for Auckland property listed on realestate.co.nz reached a new record in February, going up by more than $100,000 in 12 months to $866,000.

The ‘average’ asking price is not the same as sale price, but the firm’s Brendon Skipper says the national average asking price in February was $565,861, a hair below the record high of $568,215 set in August last year.

He says Auckland is not alone in seeing record highs for asking prices, so too is Otago, Hawkes Bay and Coromandel.

However, Skipper says average asking prices need to be seen against a background of relatively low inventory.
New listings for February across the country totalled 11,989. Auckland had 4202 new listings, up 1.4 per cent from February 2015.

Busy month

Jonno Ingerson of CoreLogic says the firm has seen an increase in property valuation activity that suggests an increase in sales, and therefore an increase in property values.

He says: “Of course this is only two weeks of data, but the turnaround is dramatic.”

Ingerson says high demand is being driven in part by Kiwis return from Australia. In addition, fewer people are leaving New Zealand.

“Bear in mind that since 1981 March has been the busiest or second busiest sales month of the year,” he says.

“We therefore expect market activity to be strong at this time of the year, usually right through until May. A lack of listings, evident across much of the country, is likely to help push prices up for some time yet.”

Auckland property prices slide further – down almost 1%

House prices are continuing to drop across Auckland according to the latest figures from QV, it reports they are down 0.7 per cent over the past three months, but the regions are picking up. Nevertheless, the average price of a home in Auckland City suburbs is $1.088 million, and is $925,656 across the wider Super City.

QV’s Andrea Rush says: “There continues to be strong growth in home values in Whangarei, Tauranga, Hamilton, Napier, Wellington and Queenstown. Values in Christchurch and Dunedin are also rising at a more moderate pace.”

However, Harcourts’ CEO Chris Kennedy, writes that despite talk of the market cooling, “high demand and low supply” means prices will continue to climb.

Talking to Herald business writer Liam Dann, Devon Funds Management’s Paul Glass says: “There’s no doubt at all that we have a bubble in housing. The amount of speculative investing that goes into housing is very problematic and needs to be addressed.”

BNZ’s Tony Alexander says Chinese buyers are re-entering the market, but are being a bit more selective about what they buy.

Rate cuts

On interest rates, the BNZ’s Tony Alexander says rates will stay low for “many, many years”.

He says the Reserve Bank will only cut the official cash rate if offshore economies get a lot worse, and that cutting rates “in a futile attempt [by the RBNZ] to get inflation to settle near 2 per cent” is unlikely.

Still, Reserve Bank Governor Graeme Wheeler will need to do something soon to lift annual growth up from its current 0.1 per cent.

The ANZ has joined Westpac economists and others in predicting a cut in the OCR, because of the high Kiwi dollar, lower inflation expectations, receding export prices, and dairy payout prospects. Expect to see the OCR at 2.25 per cent on June 9.

Construction

Annual residential building consents in Auckland rose 21 per cent in 2015, but we are still more than 26,000 homes short of what we need in the Super City.

Economists at Westpac say a construction boom is spreading beyond Auckland to Bay of Plenty and Hamilton, where consents issued in the December quarter were up more than 50 per cent on the same time in 2014.

They say reconstruction spending on housing in Christchurch is well advanced and has started to ease back.

Foreign buyers

More than 37,000 IRD numbers were issued to foreigners between October and February. Because of a rule change introduced in October 2015, non-residents can’t buy or sell a property without one.

Over time, this will provide a clear picture of the percentage of homes sold to foreigners.

Free on Monday

Our quarterly Property Report is free with Monday’s New Zealand Herald. It includes a list of the latest property prices across the North Island, an indepth look at the rental market, why property sellers could be sued and why going West may be best.

Lack of property listings keeps pressure on prices

For the time of year, the number of properties listed for sale is at a 20-year low,  says Peter Thompson, managing director of Barfoot & Thompson.

With so few properties on the market, those that are listed should attract a lot of interest, and should, says Thompson,   “ensure that prices remain solid”.

Sale prices achieved at the real estate agency last month were down on the all-time highs seen in the last quarter of 2015, with the current median price being $760,000, down 5 per cent on December — but 8.6 per cent higher than the same time last year.

During January  the firm sold 893 properties, most sales were in the outer southern and northern suburbs of Auckland.

In January, of all the properties sold by the firm, 20.7 per cent went for more than $1 million, and the number of homes sold for less than $500,000 represented 28.6 per cent of its sales.

A report from Bayleys says the Auckland market has taken a breather over the last 3 months. Even so, the time to sell all inventory is sitting at just 10.3 weeks against a long-term average of 24.5 weeks. An indicator of strong demand.

Tenancy disputes

Figures released by Tenancy Practice Services show landlords across the country lose an average of $1800 in disputes with their tenants — around five weeks’ rent — every year.
Landlords in Auckland are losing an average 5.6 weeks’ rent, in Wellington it’s 5.8 weeks and Canterbury, 4.8 weeks.

Body corporates

Calls are growing for body corporates to be more transparent. Auckland Central MP Nikki Kaye wants to hear apartment owners’ concerns via her website betterbodycorporates.nz.

According to reports, worries raised by apartment owners include a lack of pre-purchase disclosure and allegations of the manipulation of proxy votes at body corporate meetings.

Kaye wants the Unit Titles Act changed, and  intends to produce a report to put in front of her ministerial colleagues.

Stonewood Homes

Stonewood Homes New Zealand went into receivership this week. KordaMentha has been appointed receivers to the company, as well as Stonewood Homes and Sterling Homes. Independently owned Stonewood franchises are not affected.

Affected homes will be completed under the Master Builders guarantee.

Best rate
This week’s best fixed rate is from HSBC, offering 3.95 per cent for 18 months.

Call for lower mortgage rates

ASB chief economist Nick Tuffley says population growth in New Zealand accounts for much of our current economic growth (such as it is) — which is perhaps why the government is not keen to cut migrant numbers and take the pressure off the demand for  housing.

Around 5000 people settle in New Zealand every month, with many spending money on housing, furnishings, clothes and cars. Tourism is masking the downturn in dairy income.

But it is the push for economic growth that’s key here, and lower interest rates is one way to achieve that. In line with many economic commentators, Tuffley expects the Reserve Bank to cut the OCR in June to 2.25 per cent   to boost economic growth —  that should translate into  cheaper loans  as the floating mortage rate should drop in tandem.

Tuffley also says any slowdown in the Auckland housing market due to investor loan-to-value ratio restrictions and tax rules was caused by a knee-jerk reaction.

Having got to grips with the new rules, investors — foreign and domestic — are easing back into the market. As I mentioned in a previous column, the first quarter of this year is a window of opportunity for first time buyers.

Over at the BNZ, its chief economist Tony Alexander says pressure on Auckland housing will continue for the foreseeable future with the population growing 3 per cent a year, and housing construction failing to meet demand.

He is 50-50 on whether the Reserve Bank will extend the 30 per cent deposit rule for investment properties outside Auckland. It all depends how hot the regions get.

Fixed rates
In my opinion the current crop of fixed rate deals from the larger banks are pitiful. The best two-year rate is from the TSB, offering 4.29 per cent.

HSBC has the best five-year rate of 4.99 per cent and it has also just announced a rate of 3.95 per cent for 18 months – but there are strings attached.

if you are looking for a stop gap six month rate, the ASB is among those offering 4.85 per cent.

All up, the current fixed rate deals are higher than they should be, the banks can do better.

January sales
There were 5048 residential sales across New Zealand in January, up 4.3 per cent on January last year according to the Real Estate Institute.

The national median price for the month was $448,000, down 3.7 per cent on December’s figure. Strip Auckland sales out of the data and the national median price falls to $361,250.

The institute’s CEO Colleen Milne says first time buyers are heading to Hawkes Bay and Taranaki to get more for their money.

Canterbury

Fewer people are looking for rental properties in Canterbury, according to Nick Tuffley of the ASB. He says rebuilding work has peaked,  and “prices are settling”.

Auckland property prices dip

For the first time in more than a year Auckland property values have dropped in price — to an average $928,921.

For the first time in more than a year Auckland property values have dropped in price — to an average $928,921.

Property valuation firm QV, part-owned by the government, says its House Price Index shows the cost of home in the Super City went down half of one  per cent during January, and that average values for residential homes across the country dropped 0.3 per cent.  Prices similarly dipped in January 2014. Continue reading “Auckland property prices dip”