Average national house price rises NZ$15,000 in August, while housing lending hits another high!

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Housing lending hits another high as bank deposits rise sharply

Figures released by the Reserve Bank’s lending division show that housing lending nationwide increased by NZ$2,780,000,000 in July alone, bringing total outstanding lending from banks and non-bank lenders to NZ$320,336,000,000. By mid-August this year, total year-on-year growth was 12.1%, the highest annual growth rate since February 2008.

Looking at bank figures alone, the Reserve Bank of New Zealand’s latest lending data confirms the housing market’s overall trend over the past year, showing that lending to investors is currently declining, while owner-occupiers’ purchasing power is increasing significantly.

Beyond housing lending, the latest figures show that business lending has returned to annual growth for the first time since July 2020. This year, business lending rose from NZ$118,300,000,000 in June to NZ$118,700,000,000 in July. These figures cover banks and non-bank lenders, with annual business lending growth of 0.6%. The industry expects lockdown restrictions to affect business lending in August, as the pandemic hits the wider economy.

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Over the past 12 months, agricultural lending edged up from NZ$62,300,000,000 to NZ$62,600,000,000 in July. On an annual basis, however, agricultural lending was still contracting, down 1.1% overall for the year. Housing lending was the only category to show substantial growth over the past year.

The Reserve Bank of New Zealand’s latest deposit figures show that household deposits began growing in June this year. In July, total household deposits increased by NZ$3.8, a rise of 0.2%. Although modest, the increase broadly suggests that people’s incomes are gradually stabilising after the pandemic. By August this year, total household deposits nationwide had reached NZ$205,800,000,000, an increase of NZ$89,500,000,000 from NZ$1963 a year earlier.

One interesting observation is that—

the data shows deposits rose substantially over the past year, when the pandemic was at its worst. This also reflects large amounts of spare money continuing to flow into housing amid the pandemic, with interest in buying a home increasing significantly.

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8 month: national average house price rises NZ$15,000 in a single month

In 2020, the pandemic caused sharp fluctuations in many assets worldwide. Yet global housing markets remained remarkably resilient, with New Zealand house price growth in particular reaching its highest level in years.

CoreLogic’s House Price Index indicated that the national average house price has continued to rise sharply since last year. At the end of August, it stood at NZ$940,000, up NZ$15,000 from July. Over the 12 months to the end of August this year, New Zealand’s average house price increased by 30%.

The report said that although national average house price growth remained very high, it was slowing, with some areas even recording falls. Hamilton’s average house price fell from NZ$810,000 in July to NZ$780,000 in August. In August, the city’s average was 0.5% below its level three months earlier. Rotorua’s average house price fell from NZ$650,000 in July to NZ$640,000 in August, a decline of 2.8% compared with three months earlier.

Hamilton and Rotorua’s housing markets have been popular with investors in recent years, but the recent price falls in both cities may be linked to new tax policies and loan-to-value ratio (LVR) restrictions. The nationwide Level 4 lockdown introduced in mid-August has also prompted many prospective sellers in these areas to postpone listing their homes, severely affecting market activity in both locations.

However, once lockdown restrictions ease, both markets are expected to return to more normal levels, with even a possible further modest rise.

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Will New Zealand house prices rise sharply again after lockdown?

Throughout the pandemic years of 2020 and 2021, despite economic fluctuations between stagnation and recovery, buying a home has remained on people’s minds. Will house prices continue to climb after this lockdown? In particular, will Auckland house prices keep rising?

Last Tuesday, S&P Global Ratings discussed the outlook for New Zealand’s housing market after the latest lockdown at a conference of economists. New Zealand economists and S&P Global Ratings global chief economist Paul Gruenwald said that although COVID had severely affected daily life, governments and reserve banks worldwide had provided sufficient economic and monetary policy support to keep house prices rising steadily in most countries and regions in 2020. New Zealand’s sharp house price increases over the past year also demonstrated the strength of its economic activity during the pandemic.

Since last year, industries across New Zealand have been hit hard by the pandemic, yet house prices have risen by as much as 30%. This has led many to wonder whether prices will surge again after the current lockdown ends. Most economists say house price growth comes in waves, and a repeat of last year’s pattern will be difficult this year. This is because the government has introduced tax reforms this year that have had a considerable impact on highly leveraged investors, prompting investors to leave the residential market. If the Reserve Bank continues to raise the OCR, a substantial proportion of investors in the market will decide to reduce their property portfolios.

 “Clearly, home ownership is one of the most successful and largest sources of wealth creation, particularly for those on lower incomes. Without a home, you cannot build wealth,” said Mark Fleming, chief economist at First American, the world’s largest international title insurance company and America’s largest provider of business information.

Drawing on data stretching back more than 100 years, Nobel laureate Robert Shiller exclaimed, “Real house prices have never been this high!” Amid concerns that housing is becoming increasingly unaffordable, the booming market has already attracted close attention from New Zealand human rights organisations.