NZ residential rental market news, June 16

What does the recession mean for NZ property, where are house prices rising, and the latest REINZ monthly reports.

This week's TLDRs...

REINZ monthly reports - Property Report, Housing Price Index 

Sales counts increased in some parts of New Zealand, while others experienced slower activity. 
The easing of loan-to-value restrictions and stabilising interest rates have brought some positivity to the market. 
National median prices decreased by 8.2% year-on-year but remained unchanged month-on-month. 
Median days to sell increased to 49 days in May 2023, up by 6 days compared to May 2022. 
Nelson and the West Coast saw median price increases, while Grey District and Waitomo District reached record median prices. 
Total properties for sale increased slightly, indicating a potential shift in supply and demand balance. 
Total properties sold in May 2023 slightly decreased compared to the previous year but increased by 30% month-on-month. 
Easing loan-to-value restrictions and increased confidence are attracting more first home buyers to the market. 
New listings decreased year-on-year, but there was a slight increase compared to the previous month. 
The REINZ House Price Index showed an annual decrease in property values both nationally and excluding Auckland. 
Read the report

What does the recession mean for the NZ property market?

Stats NZ data shows a 0.1% drop in GDP in the March quarter, confirming a technical recession after the previous quarter's fall of 0.7%. 
Education, transport, manufacturing, and retail trade were contributors to the latest drop, while construction, IT, and financial and insurance services expanded in Q1. 
The GDP figure is considered "old news" as we are close to the end of Q2, and some forecasters believe GDP will gradually expand over the next year or two. 
The labor market has remained strong, providing insulation for the property market. 
The Q1 recession is unlikely to trigger expectations of renewed or further downwards pressure on property values, as employment is still strong. 
The focus is now on what happens next, and analysts expect the economy to be on a slow but steady growth path. 
The worst in terms of economic performance may now be in the past, as the lagged effects of previous interest rate increases are yet to fully impact household finances. 
Read the report

Property prices rise in more than 10 suburbs

Dozens of suburbs in New Zealand have seen an increase in property values, suggesting the market may be reaching its bottom. 
In the past three months, 128 suburbs experienced value increases, with 71 of them seeing median values rise by at least 0.5%. 
The Kaipara District had two top-performing suburbs, Maungaturoto and Kaiwaka, with value increases of 4.7% and 3.5% respectively. 
Over the past year, 860 suburbs saw a decline in value, with 729 of them down by at least 5%. The softest 18 suburbs were in the wider Wellington area, with falls ranging from 19% to 24%. 
Despite the overall downturn, the decline in house prices seems to be levelling out. 
The property market forecast suggests that while some suburbs may see further increases, a significant boom is not expected. 
Factors such as high mortgage rates, stretched affordability, and upcoming debt-to-income ratio restrictions may limit market growth. 

Auckland:
Property values dropped in all 195 suburbs over the past year, with declines ranging from less than 5% to over 16%. However, in the past quarter, the number of suburbs that fell in value reduced, and some areas experienced slight increases, with Red Hill being the strongest performer.

Hamilton:
All 34 suburbs in Hamilton experienced declines in property values over the past year, ranging from 1.8% to over 11%. In the past three months, four suburbs saw a subtle rise in value.

Tauranga:
Median property values in 20 suburbs of Tauranga fell significantly over the past year, ranging from around 9% to 12%. Only one suburb, Otumoetai, did not see a drop in values in the past three months. Mount Maunganui remains the most expensive suburb, despite a decline, while several areas have more affordable median values.

Wellington:
All 96 suburbs in Wellington experienced declines in property values, ranging from 1.8% to over 21%. Only one suburb, Aotea, saw a rise in values over the past three months. Seatoun remains the most expensive suburb, while Wellington Central is the cheapest due to a higher proportion of flats and apartments.

Christchurch:
Most of Christchurch's suburbs saw declines in property values, with one suburb showing a 3% rise. Over the past three months, 11 suburbs experienced value increases. Fendalton and Kennedys Bush are the most expensive areas, while Waltham, Linwood, and Phillipstown are more affordable.

Dunedin:
All 62 suburbs in Dunedin saw declines in median values, ranging from a modest 0.3% to over 13%. Nine suburbs saw value increases over the past quarter. Maori Hill remains the most expensive area, while South Dunedin is the cheapest.
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25% of borrowers could be stuck in ‘mortgage prison’

Rising interest rates and falling house prices in New Zealand are leading to an increasing number of "mortgage prisoners" who can't meet lending criteria to switch banks. 
Mortgage brokers estimate that up to 25% of borrowers could be in this position, unable to shop around for competitive rates or benefit from cash-back offers. 
Factors contributing to mortgage prisoners include not meeting servicing requirements, paying low-equity premiums for longer periods, and inability to prove 20% equity to remove the margin. 
Refinancing problems are often caused by banks' application test rates increasing, decreased income, declining property value, starting a business, or having a child. 
Being locked in with a current lender doesn't necessarily mean paying significantly higher rates, but mortgage prisoners may miss out on deals and offers available to new customers. 
Borrowers with second-tier lenders may face higher rates and be unable to move to a bank mortgage when it's time to refix. 
Some borrowers with second-tier lenders are rolling onto rates around 10%, and only a small percentage have been helped by recent products to refinance at a lower rate. 
The situation is better for those who have already fixed their mortgages long term, as they are not affected by the current rate increases. 
Mortgage prisoners can approach other banks and present potential deals to their existing lender.
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FHB activity strengthens certain areas

Areas with strong first-home buyer activity have shown relative strength in value growth or stability over the past quarter, typically with average values below $1 million. 
Mortgage adviser firms have reported increased inquiries from first home buyers in recent weeks. 
Signs of a shift in market sentiment are emerging, with first-home buyers and patient "hand sitters" showing interest, and investors becoming more active. 
Building net migration is expected to create demand for residential property, especially in larger centres like Tauranga. 
In Rotorua, first home buyers are realising the market is reaching the end of a decline and showing stronger interest, while in Wellington, they face less competition from investors and easing bank lending criteria. 
The latest QV House Price Index shows a national decrease in home values of 3.4% over the three months to May 2023, with the average value at $888,930, 13.7% lower than the same time last year. 
Investors have adopted a wait-and-see approach, but indications that the OCR has peaked could entice them back into the market. 
Overall, there is a cautious mindset among buyers, particularly "mum and dad" buyer types, leading to weak value levels in previously strong areas. 
Strong net migration may impact the housing market over time, likely affecting the rental market first. 
The upcoming election may bring uncertainty and impact buyer behaviour, but historical data suggests elections typically don't significantly affect the housing market.  
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