Property gauges show market on a decline

Four of the eight indicators look negative for house price values, whilst only one shows any sign of positively influencing the market; two show neutral change and one shows neutral-to-negative change.

The negative indicators pushing prices down include affordability, serviceability/indebtedness, interest rates, and consents and house sales.

Affordability, which remains over-extended, shows “extremely expensive levels.” The bank says, “Price increases are showing signs of slowing, but mortgage rates have increased.” This combination is having an impact on housing market activity.

The level indication given for serviceability of loans and indebtedness also remains “high” this month. “Household indebtedness and the debt servicing burden keep hitting new highs and show no signs of consolidating yet.” This affects existing homeowners.

Interest and fixed-term rates, which affect both the affordability of new houses and the serviceability of existing mortgage payments, are still at a “high”. The bank believes, “with the Reserve Bank still concerned about inflation, little relief is in sight.”

Consents and house sales, which are both key gauges of activity in the property market, seem to be leveling out. The bank says, “looking through recent volatility, ex-apartment consent issuances has been stable. Time to sell is lengthening.”

The only indicator showing signs of a neutral-to-positive indicator is Liquidity, which remains abundant. But the bank believes “global financial market volatility and changing attitudes towards risk have increased the likelihood that diminishing appetites to lend could be pending from certain pockets.”

The supply-demand balance shows a neutral direction for house prices, with “medium”, “close to balance” levels.

Globalisation, which plays such a vital role in NZ’s property cycle, also shows neutrality; the level recorded as being “not very cheap”. The bank says, “Median house prices in New Zealand are more expensive compared to the US (based on current exchange rates), but cheaper than in Australia.”

Migration, a key source for the demand for new housing, shows a neutral-to-negative direction, and “medium” levels. Migration inflows appear “softer…remaining below historical averages.”

The bank concludes by saying, “The housing market and consumer spending are slowing. The Reserve Bank is now waiting for signs that this slowdown is translating into reduced inflation pressure from the non-tradables sector.

“They will remain cautious until they see conclusive evidence of this.”