Is the property market cooling off?
31 Oct 2016
There’s been much discussion and commentary about the booming property market in New Zealand over the last two years with almost daily media reports of increasing median house values, first home buyers finding themselves locked out of the market, investors flipping properties and regions close to Auckland enduring a sudden increase in housing demand. But are things starting to cool down?
Spring is traditionally a time when house listings increase and the market is strong. But the last few months has seen quite a different trend emerge.
myvalocity figures released to the end of September show the number of new residential mortgage registrations have declined by 21 percent at the same time last year. Auckland saw the largest reduction in the number of new mortgage registrations, down 26.2 percent. The North Island's other metro centres were also down 15.6 percent.
Wellington and the South Island metro centres bucked the downward trend, seeing a growth of 2.8 percent on the same time last year.
myvalocity’s Chief Executive, Carmen Vicelich says whilst there is already signs over recent months from the company’s median property sales and volume data that the market is pulling back, mortgage registrations provide another reliable metric to gauge the state of the market.
"Mortgage registrations are a good indicator of the financial performance of the market as it tracks the behaviour of all active buyers rather than just what is actually selling at the time. The sharp decline in mortgage registrations is one of the most interesting trends we have seen for a while as, despite good migration, record low-interest rates, and the price pressure that still exists in the property market, the number of mortgage registrations has consistently declined in recent months.
This is something we have not seen before. The property market is, to some extent, seasonal and traditionally we expect to see a rise in mortgage registrations in Spring, however, this has not been the case so far this year."
myvalocity data shows mortgage registrations peaked in October 2015 and then saw a dramatic decline between December 2015 and March 2016. Whilst it recovered slightly, the last few months has seen the gap on last year’s registrations widen to its largest yet.
Mrs. Vicelich says the trend indicates the Reserve Bank’s additional LVR restrictions coupled with an ongoing lack of supply are having an impact.
“Our data shows the number of active investors in the market has declined in recent months at a higher rate than any other buyer type - particularly in Auckland. The number of active investors in the market is down 19% nationally on the same time last year which indicates the brakes are starting to come on the market,” she says.
“The decline in the number of mortgage registrations is also a reflection of the current lack of stock or supply which is lower than the same time last year. Fewer homes for sale means fewer people moving and requiring new mortgages.”
myvalocity data for September 2016 shows the current market forces at play are having the biggest impact in Auckland. Investors in Auckland were down 35.3% on the same time last year. Most other buyer sectors declined in September – including refinance/switchers (those moving lending providers) which declined by 11.3% on the previous month. Mrs. Vicelich says Auckland’s first home buyers were the only sector that saw growth in September – up 4% on the previous month – indicating first home buyers may be finding it easier to buy lower priced homes in the region given there are now fewer buyers in the market.
myvalocity data for September shows the number of sales for all property value bands is also below the same period last year - particularly properties valued under $500,000 which have declined significantly in the last three months.
“This is partially due to a lack of available properties for sale in this price bracket. Sales of properties under $500,000 equated to just over half (55.1%) of all homes sold nationwide in the last quarter. This is slightly above the proportion of stock available nationwide (46.2%) valued under $500,000,” says Mrs. Vicelich.
In Auckland, properties over $1 million accounted for 30.3% of all sales in the last quarter which is below the proportion (41.2%) of stock valued in that price bracket in Auckland, with the majority of sales sitting in the $500,000 to $1million value band.
“What this means is as the skew of sales is sitting in the middle as opposed to the top tier or bottom tier, the current median sale price is likely quite reflective of the actual market. As opposed to when we’ve seen a high volume at the top end which further pulls any figures up,” says Mrs. Vicelich.
Despite a slowdown in property sales, the building sector remains buoyant with new building consents and renovations across the country significantly ahead of the same period last year.