The real estate market in New Zealand is shifting, and this change in pace is being felt in all corners of the country. After experiencing a seller’s market with house prices increasing at dizzying rates in recent years, we are now seeing a short, sharp correction in the property market. Price increases are slowing and even plateauing in some areas. There are less properties being sold at auction, and more conditional offers being made, causing the average days on the market to increase. Factors in this market shift include the recent changes to the Credit Contracts and Consumer Finance Act, as well as the changes to tax regulations for income made on rental properties that came into effect early 2021.
Sale prices across New Zealand have been on the rise since 2015/2016, resulting in some regions experiencing vastly over-inflated house prices. However, Auckland has seen a very slight decline in property prices for the first quarter of 2022, as a result of the market correction and the rise in building costs. According to a recent interview with economist Tony Alexander, the price pullback is most likely to be seen in the regions that have reached the more overvalued pricing heights, such as Auckland, Wellington and Hawkes Bay.
The slowing pace is being reflected in the median sale price for the Bay of Plenty with March 2022 sitting at $937,000, which is only a 12% increase on March 2021’s $822,000. By comparison, March 2021 was a whopping 26% increase in median sale prices for March 2020 which sat at $660,000.
Waikato has shown a similar trend with the median sale price for March 2022 sitting at $845,000, only a 16% increase from March 2021. However, the Median price for March 2021 ($728,00) was a 22% increase on the median price for Waikato in March 2020 ($595,000` Whangarei’s median house price for March was $827,500, only a 14% increase from the year prior. However March 2021 at $723,000 was a massive 37% increase from March 202 at $525,000.
Despite the above figures illustrating that prices are still increasing, median sale prices can be influenced by the top or middle range sales prices, if these make up a larger portion of the sales. Greg Ninness, property Editor of interest.co.nz instead examines the REINZ House Price Index, which adjusts for differences in the compositions of the sales each month and can give an accurate idea of overall price movements. The national HPI for March shows a 2.1% decline in housing prices.
ANZ’s pricing forecast predict house prices to fall 10% over 2022, whereas Kiwibank thought a 10% decline would likely occur over a two year period. ASB forecasts a 6% decline in prices for 2022.
The slowing market is also evident in the median days to sell, which shows how long property stock typically sits on the market. The median days to sell has slowed in most regions, with less unconditional sales and more conditional offers being made. Median days to sell for Tauranga in March 2022 was recorded at 36, compared to 22 days for March 2021. Median days to sell for Mount Maunganui and Papamoa were recorded at 35, compared to 26 days in March 2021. Hamilton city recorded 34 days to sell for March 2022, compared to only 21 days in March 2021. Whangarei’s median days on the market was 43, compared to 30 for March 2021. Rotorua’s median days to sell for March was recorded at 28, the same recorded days as one year prior.
What are the factors contributing to the slowing market? There are several, but at the forefront sits the recent changes to the Credit Contracts and Consumer Finance Act, as well as the tax changes that came into effect last year for residential rentals.
The changes to the Credit Contracts and Consumer Finance Act came into effect December 2021 and mean that lenders must follow a more robust process to ensure that borrowers can service loans and mortgages long term. The intention of these changes was to ensure that vulnerable borrowers didn’t find themselves drowning in unaffordable debt, however the collateral of these new restrictions is that people applying for mortgages have found their credit application declined as a result of exhaustive vetting of their personal spending habits, future plans, and the amount of savings they have available. The flow on effect of this means that fewer first home buyers are able to access the housing market, with a reduction in the volume of mortgages approved since the changes came into effect (for more information www.mbie.govt.nz).
The other contributing factor to these market changes is that any residential rental property purchased after 27 March 2021, cannot have interest deducted against the income landlords make from their rental property. Further to this, the introduction of the bright line rule means that if you buy and sell a residential rental within a bright line period, you will have to pay income tax on any profit made when you sell it. The added introduction of the intention rule also means that investors and people purchasing the property with the intention of improving it and ‘flipping’ it for a profit in the accelerated market will have to pay tax on their profit.
All of these changes imposed on prospective purchasers (and sellers) in the past year have been bought about with the intention of protecting vulnerable people from insurmountable debt and restricting access to the market for investors, to make way for first home owners and owner occupiers. However, the market is currently slowing due to the financial chokeholds felt by all, with the added pressure of higher interest rates fuelling this change in pace.
For more information on the current market, get in touch with your local EVES office. Our EVES salespeople can give you trusted advice on the best time to sell your home and what to expect in the current real estate climate.
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