- The REINZ market report for January confirmed that activity is slowing, and house price growth is cooling fast.
- Sales activity fell in every region, and total sales were the lowest recorded for a January month in 11 years.
- The REINZ house prices index has now recorded back-to-back monthly declines. Annual house price growth slowed to just under 20% in January.
- The market is finally responding to the policy changes thrown at the market in 2021. However, it appears that updated consumer credit law is the change that has tipped the market over the edge.
A challenging year lies ahead.
If January data from REINZ is anything to go by, 2022 is shaping up to be a challenging year for the housing market. Activity is cooling and house price growth is falling fast. Sales of 3,665 recorded by REINZ were particularly light for a typically quiet January month down 28.6% on last year. In fact, sales were the lowest for a January month in 11 years. And 11 years ago, the market was still recovering from the GFC. The REINZ house price index (HPI) has now recorded back-to-back monthly falls following an unprecedented run of 18 consecutive price gains. The HPI fell 1.5% at the start of 2022, and annual house price growth slowed further to just below 20% - that’s from a record high of 30.6% as recent as August.
Not all the REINZ data was soft. The median number of days to sell, seasonally adjusted, slipped by one day to 32 – and still well below the historical average of 39 days. However, January’s result was still higher than the low of 29 days hit six months ago. An ongoing lack of listed property is likely behind the ongoing below-average time to sell. According to realestate.co.nz data the total available listings is only slowly starting to lift from recent record lows. And total listings remain low by historical standards.
Nevertheless, the stock of listed property for sale will continue to grow as activity cools. The scarcity of listed property was a feature of the market last year but will be less so for 2022. Rising supply and choice for buyers will add continued downward pressure on house price growth over 2022. The ratio of sales to listed property took a much larger than typical seasonal tumble in January (see chart below).
Looking at the regions, sales, seasonally adjusted, fell in every corner of the country. While there are numerous factors weighting on activity, changes to the Credit Contracts and Consumer Finance Act (CCCFA) are likely to have held back sales at the start of 2022. There were some regional exceptions to the national trend of course. Regions such as Canterbury, Southland and Taranaki seem to be managing a soft landing. For instance, house price growth eased 1%pt in Canterbury to record a heady 32.7%. Northland stood out in January as the only region to see annual house price growth actually increase. House price growth hit 28.3% from December’s 27.1%, although growth was still down from September’s high of 33.6%. Finally, the regions that underscored the excesses of 2021 look to be recording the fasted falls in price growth. Wellington’s house price growth has plummeted to a mediocre 12.2% - That’s mediocre by recent standards.
Finally responding to policy levers.
It’s clear that the housing market is responding to the numerous policy decisions thrown at it in 2021. Tax changes have been brought in to target investors, such as tightening the bright line test. Also, credit conditions have rapidly worsened. LVR restrictions have been tightened and mortgage rates are rising as the RBNZ embarks of removing emergency stimulus. But of all policy changes, it appears that CCCFA changes have unintentionally tipped the market over the edge at the start of 2022. A new mortgage is not only more expensive to service, it’s also more difficult to get hold of in the first place.
On top of tightening credit conditions, an expected jump in new housing supply should also help cool the market. However, while the pipeline of building work is chock-a-block, widespread shortages of standard materials such as Gib board will likely push out the timing of new housing supply. Moreover, it’s likely that NZ’s omicron outbreak will exacerbate material and labour shortages in the building industry – in the short-term at least.
As we have previously mentioned we expect the housing market to continue to slow over 2022. However, we are still forecasting the housing market to consolidate rather than experience a major correction. That is, house prices will post modest annual falls over the second half of the year. A strong labour market should offer protection from significant price falls.