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Last Article Uploaded: Friday, December 3rd, 11:25AM

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House price growth on the downward slide

House price growth has dropped from a quarterly rate of 8.1% in April to 4.8% by September.

Thursday, October 28th 2021, 11:56AM

“That is still strong growth,” says CoreLogic chief property economist Kelvin Davidson.

“Even so, the slowdown is genuine, and has further to run. Some parts of the country have actually seen average values go backwards in the past couple of months.”

Davidson says CoreLogic’s Property Market and Economic Update for the third quarter shows the market has definitely peaked, with sales activity and price growth set to ease further over the coming months.

“The lockdowns over August and September have muddied the waters, and when Auckland frees up a bit more the national figures for sales and prices could see a mini-bounce, however it should be short lived.

“Sales activity and property value growth have been cooling for a few months now, with stretched affordability likely to have been one factor subduing demand and leading to a few would-be buyers holding back, says Davidson.

He says It wouldn’t be a surprise to see single digit gains in property values next year, perhaps at about  the 5% mark.

“My hope is borrowers don’t get complacent about mortgage rate rises given a typical one or two year fixed rate could be above 4% next year.

“Although that’s low by past standards, it’s a big jump from where they have been and hence a large rise in mortgage repayments too which could have a more significant impact on household expenses than some might be expecting,” Davidson says.

“Certainly, the combination of higher mortgage rates, low gross rental yields and tighter regulation such as 40% deposits and the phased removal of interest deductibility is having a strong effect on mortgaged investors’ appetite and activity.
Borrowers can be locked down but not out

However, despite Auckland being locked down for more than 70 days, it has not deterred people from buying houses. The latest Reserve Bank figures show $6.9 billion of mortgages were lent - which is just $400 million short of September last year’s record total.

Investors, who have had everything apart from the kitchen sink thrown at them by the Government this year to try and discourage the buying of existing houses, borrowed  $1.239 billion in September.

For the first time since April investors borrowed more than first home buyers and their share of mortgage borrowing was 17.9%, up from 16.9% in August. First home buyers share remained at 17%, while other owner-occupiers share was down from 65% to 64%.

Davidson says CoreLogic’s figures show the investor market share of property purchases nationwide dipped from 29% in the first quarter this year to just 24% now, the lowest figure since the second quarter last year.

“Given the pressures they’ve facing, it wouldn’t be a surprise to see this market share figure drop towards 20% in the coming months.”

It’s not all bad
On the plus side for investors, Davidson says at least there is now clarity about what a new-build property is and how long it will be classed as new, as well as the continued ability to claim mortgage interest as a deductible expense for investors within the first 20 years of the property’s life. The exemption from the LVR rules also makes new-builds attractive for investors.

Meanwhile, first home buyers have remained active in the market in the past few months, often using KiwiSaver for the deposit and also taking advantage of the owner-occupier lending speed limit to buy properties with less than a 20% deposit. “That’s about to get a little harder with the low deposit allowance being cut by the Reserve Bank from 20% of lending to only 10% from 1November,” says Davidson.

Looking ahead, he says the themes for 2022 are shaping up to include sharply rising construction costs and higher mortgage rates, with further regulation unable to be ruled out either.

“Additional macro-prudential measures in the form of debt to income ratio limits and/or minimum serviceability testing rates could still be on the cards.

Even so, there is still low unemployment and, although large numbers of new houses are currently being built, cost pressures in the construction industry could dampen that momentum soon – meaning shortages could persist. Therefore, a slowdown in value growth still looks more likely than outright falls in prices.

“And just possibly, 2022 could be the year  when tight listings ease as more sellers come forward to ‘lock in’ their recent gains,” says Davidson.

« REINZ: House prices nationwide continue cooling10 regions hit record high sales prices »

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Lender Flt 1yr 2yr 3yr
AIA ▲4.60 3.65 4.35 4.69
ANZ 4.79 4.25 4.95 5.35
ANZ Blueprint to Build 2.03 - - -
ANZ Special - 3.65 4.35 4.75
ASB Back My Build ▲2.29 - - -
ASB Bank ▲4.60 3.65 4.35 4.69
Avanti Finance 4.55 - - -
Basecorp Finance 5.49 - - -
Bluestone 3.74 3.54 3.89 4.09
BNZ - Classic - 3.65 4.35 4.69
BNZ - Mortgage One 5.15 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Rapid Repay ▲4.95 - - -
BNZ - Std, FlyBuys ▲4.95 4.25 4.95 5.29
BNZ - TotalMoney ▲4.95 - - -
CFML Loans ▲5.35 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 3.59 4.09 -
Heartland Bank - Online 2.25 1.85 2.35 2.65
Heretaunga Building Society 5.25 4.00 4.60 -
HSBC Premier 4.49 2.19 2.45 2.69
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 4.15 3.29 3.85 4.19
Kainga Ora 4.43 2.88 3.28 3.59
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank ▲4.25 ▲4.54 ▲5.20 ▲5.54
Kiwibank - Offset ▲4.25 - - -
Kiwibank Special ▲4.25 ▲3.69 ▲4.35 ▲4.69
Liberty 4.84 - - -
Nelson Building Society 4.95 ▲4.29 ▲4.85 -
Pepper Essential 4.79 - - -
Lender Flt 1yr 2yr 3yr
Resimac 3.39 3.54 3.89 4.09
SBS Bank 4.79 3.65 4.19 4.25
SBS Bank Special - 3.15 3.69 3.75
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - ▲3.45 - -
The Co-operative Bank - Owner Occ ▲4.75 ▲3.65 ▲4.35 ▲4.69
The Co-operative Bank - Standard ▲4.75 ▲4.15 ▲4.85 ▲5.19
TSB Bank 5.34 4.09 4.74 4.99
TSB Special 4.54 3.29 3.94 4.19
Unity 5.65 4.15 4.60 -
Wairarapa Building Society 4.99 ▲3.65 ▲4.05 -
Lender Flt 1yr 2yr 3yr
Westpac 5.09 ▲4.29 4.95 5.29
Westpac - Offset 5.09 - - -
Westpac Special - ▲3.69 4.35 4.69
Median 4.77 3.65 4.35 4.69

Last updated: 3 December 2021 8:16am

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