Are Property Market Dynamics Shifting In New Zealand?

Monday, 21 February 2022, 5:24 pm
Press Release: Kalkine

Summary

• Price pressures have built up in the New Zealand property market, fuelling affordability concerns.
• Property prices have begun to show a subtle yet significant slowdown, bringing some respite to anxious homebuyers.
• While tighter lending restrictions have eased some demand-side pressure, it has prompted an exit of more first-time homebuyers out of the market.

The New Zealand property market has been observing a gradual decline in housing affordability, which has plummeted to an all-time low. The recent report from CoreLogic suggests that the average property in the country was valued at 8.8 times the average household income over the three months to December 2021. This puts into perspective how deep the affordability concerns run in the current climate.

With inflation riding high in the backdrop, unaffordability in the property market has only aggravated the consumers’ woes. Meanwhile, price pressures have built up in the property market and across major consumer goods. However, recent data indicates a change might be underway, bringing some good news for an average consumer in the market. As the economy advances in its recovery journey, the property market seems to be taking a much-needed breather.

On that note, let us look at a few indicators hinting towards a slowdown in the property market, which may act as a speedbump against skyrocketing prices:

GOOD READ: Kiwis fret as fuel prices reach $3 per litre

Easing price growth

Property prices have begun to show a subtle yet significant slowdown in the growth rate, bringing some respite to anxious homebuyers. Reports from the Real Estate Institute of New Zealand (REINZ) indicate that signs of deceleration were visible in annual price growth in December 2021, relative to the previous months. Essentially this means that while prices continue to rise, their pace of growth is decelerating with each passing month.

Part of this slowdown can be credited to lending restrictions becoming stringent in the country. In fact, recent amendments made to the Credit Contract and Consumer Finance Act (CCCFA) in December 2021 have contributed almost immediately towards easing the demand side pressure. These amendments revolve around assessing the financial health of borrowers, aimed at protecting borrowers from loan sharks. Meanwhile, these changes have been in the works for around a year to prevent people from taking an unaffordable debt.

Tighter restrictions have come alongside a surge in new homes being consented. A rise in housing supply is expected to augment buyers’ search for desirable property, cooling off the pent-up demand built in the property market.

Sales activity slowing down

The Real Estate Institute of New Zealand (REINZ) report shows that the number of residential property sales plummeted by 28.6% in January 2022 relative to January 2021. This further proves that demand-side pressure is cooling down in the property market, possibly due to stricter lending restrictions. Excluding April 2020, the sales data for January 2022 represents the lowest sales count for the country as well as New Zealand excluding Auckland since January 2011.

According to some experts, January 2022 sales figures have also been affected by the amendments made to the CCCFA early on in December 2021. Moreover, the observed drop is consistent with the decline in sales numbers seen during the holiday season. Generally, buyers focus on holiday spending during January, and property sales are not as apparent.

Notably, property sales in Wellington, Marlborough and Hawke’s Bay bucked the trend and rose in January 2022. However, property sales in Auckland declined steeply by 32.2% annually. It is worth noting that auctioning was at a standstill due to reduced activity from first-home buyers and investors last month.

Declining share of first-home buyers

A significant outcome of the rise in lending restrictions is the unproportionate decline in first-time buyers relative to property investors. From one perspective, lending restrictions have helped curb the strong growth in prices. However, closer inspection of the statistics suggests that more first-time homebuyers have had to exit the property market than other buyers due to such restrictions.

As per CoreLogic, the share of first-home purchases dropped from 26% in late 2021 to 24% in January 2022. The property consultant mentioned that new lending rules appear to be keeping first-time homebuyers out of the housing market. Thus, the policy, which was aimed at protecting first-time buyers’ interest, has inadvertently hurt them the most out of all market participants.

Notably, the cities of Auckland, Wellington and Christchurch have also resonated with the national trend, with the share of first-time buyers declining in these regions.

One can say that buyers who do not require any lending to buy a property have been significantly better off than those depending on mortgages. Thus, wealthy investors and buyers, who are likely in possession of the property, have been able to retain their market share despite lending restrictions. Experts are hopeful that the decline in the share of first-home purchases may remain a long-term trend in the given situation.

While the property market might be embracing a slowdown in prices, it is to be understood at what cost the same has been achieved. The government can still help curtail the red-hot property market by bringing out reforms specifically aiding first-time buyers since comprehensive reforms seem to be doing little to help this segment of buyers.

GOOD READ: Economies with record-breaking inflation

© Scoop Media