NZ residential rental market news, June 7

Bank puts a stop to $1 reserve auction, Construction slump hits, and House prices stumble but remain stable overall.

Too long; didn't read? Here're this week's TLDRs...

Subdued Housing Market Expected to Continue Through 2024

Home values fell by 0.2% in May, following a 0.1% fall in April. 
CoreLogic's House Price Index shows an average property value of $931,438, up 1% from last year but 11% below the peak. 
Major centres show varied conditions: Auckland fell 0.8%, Wellington 0.6%, Tauranga 0.5%, while Christchurch rose 0.5%, and Hamilton and Dunedin increased by 0.8%. 
Recent regulatory changes include scrapping first home grants, easing LVR rules, and introducing DTI caps. 
High mortgage rates are expected to persist, affecting market momentum. 
High stock of listings gives buyers more bargaining power, subduing prices. 
Shortening of the Brightline Test may bring more properties to market. 
Borrowers have coped well with higher mortgage rates due to a strong labour market, but less job security may impact future housing activity and prices. 
Auckland leads the recent slowdown, with most sub-markets declining; only Rodney showed growth over the last three months. 
Wellington's market also weakened, with Kapiti Coast showing a 1.8% gain and other areas declining. 
Regional markets show mixed results; some areas like Whanganui, Rotorua, and Queenstown grew, while others like Invercargill, Hastings, and Nelson fell. 
High mortgage rates and migration issues impact provincial markets. 
The housing market is expected to remain subdued in 2024, with sales volumes and property values variable across regions.  
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Auckland and National House Prices Fall for Second Month

Housing market rally stumbles with Auckland and national prices falling for the second month. 
Auckland’s average home value fell 0.8% in May to $1.28 million. 
Wellington values fell 0.6% to $920,551. 
National prices dropped 0.2% to an average value of $931,438. 
CoreLogic chief property economist Kelvin Davidson notes a clear market shift despite small price drops. 
High mortgage rates are contributing to the market's loss of momentum. 
Government tax relief and regulatory changes are unlikely to alter the trend. 
Homeowners have coped well with rising interest rates due to a strong job market. 
Job losses could pressure the economy and stop any short-term rally in house prices. 
Auckland saw the biggest price falls, except Waitakere, which remained flat. 
Manukau had the largest decline at 1.4%, followed by North Shore at 1.2%. 
Auckland's prices fell 1.1% over the past three months. 
Market challenges include the scrapping of the first home grant and incoming DTI ratio rules. 
RBNZ warns that interest rates will stay higher for longer than previously forecast. 
Higher interest rates may benefit first home buyers by delaying rising prices. 
Loosening of LVR rules from July 1 will allow more low-deposit lending.  
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Housing Market Enters Winter Slump with Lower Listings and Prices 

The housing market is heading into its usual winter slump. 
New property listings and total stock levels are declining. 
Realestate co nz received 9225 new listings in May, down from February’s peak of 11,788. 
May's listings were up 25% compared to last year. 
Total stock of properties dropped to 32,598 in May from 33,815 in April. 
Average asking price dropped to $845,454, down from February's $927,312. 
Vendors are lowering price expectations, indicating a buyer's market. 
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NZ Property Prices Stable Amid Economic Challenges 

New Zealand property prices have remained stable despite economic challenges. 
The national average asking price has fluctuated between $860,000 and $890,000 since November 2022. 
Increased supply and demand balance contributes to price stability. 
Auckland's average asking price dipped by 1.6% year-on-year to $1,062,110 in May. 
The West Coast hit an all-time high with a 21.4% increase in asking prices. 
Wellington's average asking price fell by 14.1% year-on-year due to job security concerns. 
National stock levels rose by 22.2%, offering buyers more options and better bargaining power.  
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Barfoot & Thompson Sales Surge as Vendors Lower Asking Prices

Barfoot & Thompson sold 916 properties in May, up 30% from April and 27% from last year. 
This is the highest May sales since 2021. 
Average selling price fell to $1,182,630, down $30,198 from April. 
Median selling price rose slightly to $1,011,900 in May. 
High stock levels persist, with 5763 properties available, the highest in 13 years. 
Increased sales attributed to vendors lowering price expectations. 
For every home sold, six remain on the market. 
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Bank Halts $1 Reserve Auction of Onehunga Home, Now Listed at $779,000

Bank intervention halted a $1 reserve auction for a plaster home in Onehunga. 
The owner needed a quick sale to free up equity for a new home purchase. 
Ray White agent Rubal Singh stated the owner was motivated for a quick sale. 
The bank instructed the owner to set a higher reserve two days before the auction. 
Interest in the property dropped from 18 to 5 potential buyers. 
The property failed to meet the new reserve, with the highest bid reaching $400,000. 
The property is now listed at an asking price of $779,000. 
The top bid was below the 2021 CV of $900,000 and the $520,000 purchase price in 2014. 
This was the second auction attempt for the property within a year. 
The owner is selling four more rental properties to fund a new purchase. 
Increase in $1 reserve auctions due to owners wanting to stand out in a crowded market.    
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Queenstown-Lakes Suburb Records First $2-Million Plus Sale 

A suburb in Queenstown-Lakes recorded its first $2-million plus sale. 
A six-bedroom new-build property in Shotover Country sold for $2.1 million. 
The previous record for the suburb was $1.865 million. 
Six registered bidders competed in the fast-paced auction. 
The property was listed as a home-and-income property. 
High interest was shown, with 79 groups attending open homes. 
Enquiries came from Australia and Singapore. 
New owners split their time between Auckland and Queenstown. 
They plan to use the main house as a base and rent out the unit. 
Shotover Country was initially aimed at young families and first-home buyers. 
The high-spec Walton Way property was unique to the area. 
Entry-level budgets for a stand-alone home in Queenstown start at $1 million. 
Another property in Shotover Country sold for $1.2 million to a first-home buyer. 
Shotover Country and Hanley’s Farm remain popular with first-home buyers. 
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Building Work Slowdown Hits New Low in Two Years  

Building work downturn may be starting to take effect. 
Decline in building consents anticipated slowdown, now becoming actual. 
Q1 2024 building work value was $8.439 billion, down 1% from Q1 2023. 
High cost inflation may have inflated revenue figures despite less work. 
Seasonally adjusted figures show building work down 4% from a year earlier. 
Residential construction work declined by 4.8%, non-residential by 2.8%. 
Q1 2024 saw the lowest building work volume in the past two years. 
Retail sales of hardware and building supplies also decreased by 2.8% in Q1 2024. 
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New Home Consents Hit Lowest Levels in Years

New home consents continue to decline, with 2926 issued in April, almost unchanged from March. 
Consents have decreased steadily over the past two years, from 50,688 to 35,401 annually. 
April saw the lowest number of apartment consents since October 2018, with just 98 units. 
Total value of new dwelling consents dropped to $15.9 billion, down from $19.2 billion last year. 
Townhouses and home units are the most popular new dwellings, with 16,133 consented in the past year.  
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Job Worries and Market Sentiment Slow Housing Recovery 

Coalition Government's first Budget has minimal immediate impact on economic growth, inflation, interest rates, and the housing market. 
Government plans add some economic stimulus, but it is overshadowed by larger factors. 
ANZ’s Business Outlook Survey shows a net 42% of businesses plan to raise prices, down from previous highs. 
Long-term average for price rises is 25%, still too high for monetary policy easing. 
Reserve Bank may cut the OCR before the end of the year, but a 3% fall over 3-4 years is optimistic. 
New Zealand's productivity growth rate is worsening, leading to higher average inflation. 
Unemployment rate may temporarily rise above 5%. 
Latest real estate agent survey shows further deterioration in housing market measures. 
FOMO among buyers is almost absent; net 55% of agents feel prices are falling. 
Employment concerns are rising, with a record net 55% of agents noting buyer job worries. 
Interest rate falls likely won't impact the housing market until job security improves. 
Only a net 5% of agents see more first-home buyers, down from 21% last month. 
Young buyers are stepping back due to job worries and abundant property listings. 
Winter and spring expected to be quiet for the housing market. 
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Budget Benefits Landlords, Tightens Lending, and Impacts Housing Market Dynamics 

Budget restores interest deductibility for residential rental properties, costing $729 million. 
Tax breaks for landlords over four years will total $2.9 billion. 
First Home Grants scheme scrapped, saving $245 million over four years. 
$140 million allocated for 1500 new social housing places from July 2025. 
Ministry of Housing cut $391 million from its baseline, exceeding its $109 million savings goal. 
Warmer Kiwi Homes scheme scaled back, ending subsidies for hot water heating. 
$45 million allocated for adjusting the bright-line test, reducing tax break cut-off to two years from July 1. 
RBNZ activates DTI rules and loosens LVR restrictions from July 1. 
Banks limited to 20% new lending for owner-occupiers with DTI over six and investors over seven. 
LVR changes allow 20% low deposit lending to owner-occupiers and 5% to investors. 
Growing belief among households that interest rates will fall, despite ASB's view that it's premature. 
ASB housing confidence survey shows 55% believe it’s neither a good nor bad time to buy a house. 
House price growth expected to be 1% in 2024. 
Home loan interest rates have risen from 2% to over 8%. 
Experts suggest fixing loans for 12 months for better flexibility. 
Real estate sector struggling to find buyers, with agent numbers decreasing. 
Active real estate licenses dropped to 15,460 from 16,053 in April 2023. 
Real Estate Authority sees 21.6% growth in licensed branch managers. 
Renters report issues with cold, mouldy homes despite healthy homes compliance. 
Property Investors' Federation encourages tenants to use the Tenancy Tribunal. 
Calls for government to increase weekly accommodation supplements. 
Residential building consents dropped 1.9% in April, indicating a construction sector downturn. 
Consent numbers fell 27% in Auckland, 30% in Wellington, and 16% in Canterbury.    
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New Lending Rules Aim to Stabilise Housing Market Growth 

OCR released, Budget announced, and DTI ratios start on July 1st. 
DTIs will limit borrowing, especially during boom times, stabilising house price growth. 
New rules aim to prevent large price booms and busts. 
House prices expected to grow smoothly, around 5% annually. 
High interest rates, not DTIs, are currently limiting mortgages. 
Banks are already scrutinising applications at high-interest rates. 
DTIs set above current lending practices, so immediate impact is minimal. 
New Builds are exempt from DTIs, offering faster portfolio growth.  
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Homeowners Seek Homestay Students and Flatmates

Rising living costs and high mortgage rates push more Auckland homeowners to seek homestay students and flatmates. 
Companies report increased registrations for financial reasons. 
Erikah Lyama hosts a student to cover increased mortgage repayments. 
Homestay hosts receive $325 a week, providing meals. 
Increased diversity in hosts, including pensioners seeking company and income. 
Some families rely on homestay income to meet costs. 
First-time homeowners also rent out rooms to manage mortgage repayments. 
High demand for flatmates and homestay students continues.   
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Short-Term Fixed Mortgage Rates Remain Popular Amid OCR Uncertainty

Short-term fixed mortgage rates continue to be popular among borrowers. 
Many borrowers prefer one to two-year fixed terms for better flexibility. 
The RBNZ's OCR decisions influence interest rate expectations. 
Economists expect the OCR to peak soon, with potential cuts in late 2024 or early 2025. 
Borrowers opt for shorter terms to refinance at potentially lower rates. 
Interest rates for short-term fixed mortgages remain competitive. 
Long-term fixed rates are less attractive due to higher interest costs.  
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Non-Performing Housing Loans Rise, Mortgage Arrears Drop

Non-performing housing loans increased in April 2024, the first rise in three years. 
The rise is attributed to higher mortgage rates and inflation impacting household budgets. 
Non-performing loan rate remains low at 0.36%, up from 0.34% in March. 
Monthly mortgage arrears dropped, with fewer borrowers missing payments. 
Total arrears fell to 0.79% in April from 0.82% in March. 
Economists suggest the trend may continue if economic pressures persist.     
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New Schemes Support First Home Buyers After Grant Removal 

A private financial services company, Aera, offers alternatives to the scrapped First Home Loan Grant. 
Aera provides investment accounts and $10,000 credits for first home deposits. 
Savings products with returns up to 7.15% unlock deposit credits through milestones and learning modules. 
Aera’s programme has no regional price caps and aims for 5,000 accounts initially. 
Squirrel Mortgages' Launchpad helps buyers with a 5% deposit by topping up to 20%. 
Kāinga Ora's first home loan scheme allows lower-income households to buy with a 5% deposit. 
The removal of the First Home Grant impacts fewer FHBs due to restrictive criteria.     
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Debating Whether Homeownership is Truly an Investment 

Homeownership is a common aspiration but has debatable investment value. 
Graeme Fowler argues a personal home isn't an investment since it doesn't generate income. 
An investment should produce income, such as rental properties or a business. 
Westpac's Kelly Eckhold believes a house provides returns by eliminating rent costs. 
Equity in a home can be leveraged for other investments or purchases. 
A mortgage-free house aids financial stability in retirement. 
Downsizing can fund retirement but may not always be desirable. 
House prices are not guaranteed to increase significantly over time.     
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