Kim Anderson-Robb explains why a loan to renovate her house was turned down. Video / Otago Daily Times
The Real Estate Institute says agents have linked credit law changes to a big drop in house sales in the last month.
January's national house sales volumes fell 48 per cent from December, Auckland's fell 45 per cent and prices were down too, the institute said today.
New Zealand house sale volumes fell from December's 7080 to 3665 last month and in Auckland were down from 2411 to 1323, which REINZ said today was "weaker than a typical first month of the year".
Jen Baird, REINZ chief executive, cited agents linking the credit law change late last year to the changes.
The Credit Contracts and Consumer Finance Act requires banks to closely vet mortgage applicants' spending habits and personal finances.
That has meant banks were investigating people's spending habits and denying them loans.
Numerous reports have emerged of would-be home-buyers having mortgage applications rejected due to their spending habits including the number of takeaways or restaurant meals they bought or their domestic travel habits.
Month-on-month, the national median fell 2.2 per cent from $900,000 in December to $880,000 last month and in Auckland 6.3 per cent from $1.28m median to $1.2m.
"January figures usually reflect the holiday slow down, the data suggests compounding factors are influencing a decrease in sales activity and easing of price growth nationwide," REINZ said today.
Annual sales fell 28.6 per cent from 5135 last January to 3665 last month.
Northland, Canterbury and West Coast sales fell to their lowest levels since 1992, REINZ said, down 36 per cent in the first two areas and 55 per cent on the coast.
Listing numbers fell nationally 1.7 per cent.
Baird said the pandemic restrictions changing to the red traffic light setting had less of an impact on activity than the law change.
Fewer first home buyers and landlords were active, agents said.
"Many agents point to access to finance, exacerbated by changes introduced in December to the Credit Contracts and Consumer Finance Act, currently under review," she said.
"Hard evidence is lacking."
A survey last month by Tony Alexander with REINZ showed predominant concern for buyers was not the availability of homes for sale but financing, Baird said.
Data from credit reporting agency Centrix found home loan applications approved dropped from 39 per cent in October to 30 per cent after December, Baird said.
Minister of Commerce and Consumer Affairs David Clark has called on a planned investigation into new home loan regulations to be brought forward amid concerns banks were adopting too hard a line with the guidelines.
She expects February and March sales numbers to recover "but this does depend on reasonable levels of new listings".
On falling prices, Baird said: "While we do note a deceleration in the rate of price growth, it does follow a particularly strong year. Historically low interest rates and a supply deficit saw heightened demand and kept house prices rising through 2021. However, with the Reserve Bank increasing interest rates, inflation rates being at their highest in 30 years, tighter lending conditions, and Government regulation, market dynamics are shifting."
The house price index which measures the changing value of residential property nationwide showed an annual increase of 19.9 per cent from 3474 last January to 4164.
REINZ data for January is out and it shows big drops. Photo / Michael Craig
This was a 1.5 per cent decrease from December and down 2.6 per cent from its peak in November. The index for New Zealand excluding Auckland showed an annual increase in house values of 20.8 per cent from 3509 to 4239, down 0.8 per cent month on month.
The Herald has reported how the Government was repeatedly warned for more than three years that changes to lending laws could cut people off from mortgages they could afford.
Since new lending changes, people have reported having mortgage approvals declined for reasons as simple as buying KFC, using Uber, a trip to Bunnings, or having too many subscriptions, despite being apparently creditworthy.
In 2018, the Government announced a review of lending laws, as part of a drive to clamp down on payday lending, and people taking on debts they could not afford.
Banks, the organisations that do the most lending, have warned since the 2018 review about the risks of getting those regulations wrong. For more than three years, banks warned that overly prescriptive regulations would see them trim back lending more than what the Government intended.
But not all today's data showed drops. All regions showed annual price growth and most was double-digit. Only Nelson and Southland saw annual growth of less than 10 per cent at 7.4 per cent and 9.7 per cent.
Wellington house sales rose 9 per cent annually, Marlborough's were up 7.7 per cent and Hawkes' Bay up 2.5 per cent.
Prices were up in Northland from $625,000 last January to $810,000 last month. Bay of Plenty prices rose 22.8 per cent from $767,000 to $942,000 which was a new record median high.
Mike Jones of ASB said demand was no longer running ahead of supply.
"We've long been expecting a marked slowdown in house price inflation in this year, driven by the confluence of three major macro negatives – higher mortgage rates, tighter credit conditions, and rising supply. These are now all in play. But the extent of the apparent credit constriction amounts to an extra handful of sand in the market's gears that we didn't previously allow for," Jones said today.
Westpac's Michael Gordon said: "A tightening of loan-to-value limits and new responsible lending requirements are also weighing on housing demand right now. However, we suspect that these will be more short-lived factors while the new rules are being bedded in."
Jeremy Couchman from Kiwibank's economics team said if the January data was anything to go by, 2022 was shaping up to be a challenging year for the housing market.
