House prices moving on up

Seven years since the peak and burst of the housing bubble, residential housing prices around Otago are again at similar highs. Senior business reporter Simon Hartley looks at new Quotable Value data spanning those past seven years, and the effects in 27 towns and suburbs around Otago.

House values around Otago have clawed their way back to levels last seen during the 2007 market peak.

Quotable Value Dunedin-based valuer Duncan Jack said since the previous peak, in 2007, the average increase for Dunedin suburbs was around around 2%, while during the past two years most city suburbs were up around 4%-6%.

''The majority of suburbs are now showing steady growth since the drop in values post-2007 and the onset of the global financial crisis,'' he said.

Traditionally strong suburbs such as St Clair and Maori Hill have shown ''reasonable growth'', particularly during the past two years.

House values in Maori Hill stood at $476,300 in October 2007, fell to $431,000 for the same month in 2010, and as at March this year were $492,400.

Quotable Value spokesperson Andrea Rush said the Queenstown market was not ramping up nor ''flying ahead by 20% per annum'' as it did before the previous peak of 2007.

''After 2008, the market in the region did drop and it has only been since 2012 that it has gradually been getting better and the distressed sales have exited the market.

''The property market on the whole is ... steady and gradually improving,'' Ms Rush said.

Frankton had become increasingly sought-after due to the new Frankton Primary School, the Remarkables Park Town Centre and the international airport. The suburb was also very sunny, compared with some other parts of Queenstown, she said.

''The hot spots in the area are Arrowtown and Frankton and property values there are showing some significant increases,'' Ms Rush said.

The council had stopped any further residential land development around Arrowtown for the time being, meaning the number of properties available has now been ring-fenced.

''Demand is high for this popular area, so that has pushed values up by around 20% over the past year,'' Ms Rush said.

The Shotover country was very popular for first-home buyers building new homes and sections there had been increasing in value.

Back in Dunedin, Mr Jack said lower-value suburbs, such as St Kilda, South Dunedin and Caversham, remained below the 2007 peak by an average 3.5%, reflective of the housing stock generally and lower levels of demand.

''However, South Dunedin and Caversham have shown better-than-average increases during the last two years, as have Wakari, Mosgiel, Green Island, St Clair and North Dunedin,'' he said.

Gains for many Dunedin suburbs had dropped off during recent months, which may be partly due to the Reserve Bank's loan-to-value ratio restrictions on banks, and rising interest rate increases in recent months.

''Wakari has also been one of the stronger suburbs, with a good mix of low to mid-value dwellings appealing to a broad range of purchasers,'' Mr Jack said.

He noted North Dunedin included the student investment properties, but residential price movement figures from Quotable Value did not show such large movements in value, which can be skewed by some particularly high value sales amid a small number of sales.

Since 2007, national housing debt has grown a further 24%, or more than $35 billion.

Analysts are out on the question of a new housing bubble being under way, but a price correction could be on the cards if there was another crisis in the global economy.

New Zealand's national housing debt in 2000 stood at $65.2 billion and by the 2007 peak had swollen to $153.7 billion. As at April 2014, it was $191.2 billion.

With the Reserve Bank further tightening the interest driving official cash rate on Thursday, up 25 basis points to 3.25%, households will soon be paying more to service floating mortgages or when renegotiating fixed mortgages.

Capital values on houses in the early 2000s leapt anywhere from 40% to 80% - or more than 100% in some instances - seemingly creating overnight wealth to borrow against or use as collateral to buy a bigger house.

With the global financial crisis - New Zealand's version being the finance company multibillion-dollar meltdown - came record mortgagee sales and house prices plunged for three to four years, until 2012.

ASB economist Christina Leung said on the question of a housing bubble forming, the strong increase in house prices since 2012 was concerning, particularly since it was well ahead of income growth.

''This suggests the housing market is vulnerable to a sharp correction in the event of any external negative shocks.

''However, with housing demand supported by strong population growth, given strong net migration inflows, there are fundamental factors supporting housing demand at the moment,'' Ms Leung said.

She estimated 18,000 houses needed to be built in Auckland over the next couple of years to keep up with population growth.

In the wake of the global financial crisis, households had focused on paying off debt.

''This saw household debt as a percentage of disposable income fall from over 150% in 2008 to a low of 143% in early 2012.

''Since then, household debt has started to pick up again, reflecting higher consumer confidence, which is encouraging households to take on more debt,'' Ms Leung said.

BNZ senior economist Craig Ebert said the fact could not be ignored that house values were at 2007 levels or more, and many mortgage-holders were ''again finding themselves stretched''.

While there were examples of ''sky-high'' Auckland prices, strength in Canterbury and ''creeping up elsewhere'', Mr Ebert emphasised that, since 2007, factors such as natural house price inflation and increased wages had contributed to the latest prices.

While not dismissing the validity of a new housing bubble in the making, he was not expecting any ''house price crash''.

''The [last] global problems were led by low mortgage interest rates, through 2003-07,'' he noted.

For that reason, banks and economist saw the extremely low interest rates of recent years as no longer necessary and possibly quite damaging, he said.

In October last year, the Reserve Bank introduced loan to value ratio (LVR) restrictions on banks, cutting back the number of people who could get a mortgage of more than 80%. That hit first-home buyers particularly hard.

The move limited banks from lending too much to a market segment where values could again decline, putting the banks and customers' savings at risk.

The restrictions had skewed housing data in different ways through fewer people buying houses in the lower end of the market, giving prominence to more expensive home sales and bumping up median and average prices.

Ms Leung said since the LVR's introduction, new bank lending to borrowers with less than 20% deposit ''has fallen substantially'', from more 25% last September to around 5% for the three months to April. The Reserve Bank noted the effects of the LVR restrictions were greater than it had expected.

House sales had declined markedly, concentrated at the lower end of the market, but given continued tight housing supply, the effect on house prices had been more modest. While the Reserve Bank had always said LVR restrictions were meant to be a temporary measure, it had indicated it would not consider removing LVR restrictions until late this year ''at the earliest'', Ms Leung said.

''It is likely the limit for banks' high LVR lending as a proportion of new lending will be lifted from the current 10%, before it is removed altogether,'' she said.

- simon.hartley@odt.co.nz

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