July 2017 REINZ housing data, Westpac seasonal adjustment

Analysts at Westpac explained that NZ house sales and prices continue to fall as higher mortgage rates bite.

Key Quotes:

"House sales: -3.6% (-24.5%yr)

House price index: -0.4% (+1.2%yr)

House price index ex Auckland: 0.0% (+7.5%yr)

The latest REINZ housing report showed that the New Zealand housing market continued to weaken in July. House sales fell by 3.6% in seasonally adjusted terms, taking them to a three-year low, while prices continued to soften.

The REINZ house price index fell by 0.4% for the month. Prices in Auckland continued their gradual decline (now down 4% from their peak), and prices were flat in the rest of the country for the second straight month. There are still some pockets of strength, such as Northland, but prices are off their peaks in a growing number of regions.

The slowdown in the housing market has been larger and more persistent than we’ve observed in the past when loan-to-value limits have been tightened (or when buyers may have been nervous about an election outcome). We have long emphasised the role of interest rates in determining house prices; the rise in mortgage rates since late 2016, following two years of steady declines, appears to have had a significant dampening effect on the housing market.

We expect the rise in mortgage rates to persist, as they are the product of factors that are beyond the control of domestic monetary policy. That points to the housing market remaining very soft over the next year or two. The Reserve Bank’s forecast of even a relatively modest 4% rise in prices this year looks too high."

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