As house prices rise, so too are the size of home loans with the value of weekly mortgage approvals just a shade off record high

As house prices rise, so too are the size of home loans with the value of weekly mortgage approvals just a shade off record high

By Gareth Vaughan

Kiwis are gorging themselves on bigger mortgages than ever as house prices in Auckland reach eye watering levels.

The latest weekly housing loan approval data from the Reserve Bank shows $1.521 billion worth of home loans were approved last week - the week to Friday, April 24. That's just $21 million shy of the record high in the Reserve Bank series that dates back to October 2003.

The $1.542 billion high point was achieved in the week ending March 16, 2007 with last week's figure the second highest reached to date.

Interestingly, in the week to March 16, 2007 the volume of mortgages approved was 11,116, just shy of the record high of 11,193 recorded in the week ending December 15, 2006.

Last week just 6,922 mortgages were approved.

What that means is the average value of mortgages approved last week was about $219,700, up $81,000, or 58%, from $138,700 in the week to March 16, 2007.

The latest Reserve Bank sector credit figures, meanwhile, show housing debt at $199.697 billion at the end of March, up 4.9% year-on-year.

Red hot Auckland housing

The growth in the average size of new mortgages comes with Quotable Value (QV) figures showing the average Auckland residential property value rose 14.6% in the year to April reaching $809,200.

"The Auckland market has increased 14.6% year on year, 4.3% over the past three months and 48.1% since 2007.  When adjusted for inflation values are 14.5% over the past year and are 27.0% above the 2007 peak," QV says.       

And the latest Real Estate Institute of New Zealand monthly sales figuresfor March, show fresh national and Auckland median house price records, and the strongest sales volumes in any month since May 2007.

In the red hot Auckland market the March median sales price of $720,000 smashed the previous record high by $42,000, or 6.2%. The Auckland median price rose 13% in the year to March, and 11% in the three months to March. And the REINZ Stratified Housing Price Index, which adjusts for some of the variations in the mix that can affect the median price, showed a 20% annual rise in its Auckland Index.

Although the national median price was up $35,000, or 8%, to $475,000 in the March year, when the Auckland effect is stripped out the national median was up just 1.4% year-on-year.

The national Stratified Index, meanwhile, was up 9.5% year-on-year to a record high, and March's 8,803 sales was the highest monthly sales in a March since 2007, and the highest since 9,285 in May 2007. There were 10,989 sales in March 2007.

At $8.8 billion, the value of residential properties sold in March was a new record, smashing the previous high by $590 million, REINZ said.

What's in, what's out

The Reserve Bank defines a mortgage approval as a firm commitment to provide credit for the purchase of housing, which has been accepted by the borrower.

Excluded from the series is own customer refinance, or the rolling over of a fixed rate loan, and its subsequent refinancing; business borrowing where the security is the owner’s home; and where the underlying value of a loan is topped up only the topped up portion is included.

Included is the refinance of other banks customers, IE when a loan is refinanced using a different bank; any loan where the security changes; and any loan where the liability holder changes.

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The average mortgage is 220K? That is low.

only in Auckland, Wgtn that is low. Most of the rest of the country that will get you a house at 95-150% LVR. my 4bd, only cost 225k. the 5bd I'm in was valued at 80k (not including land).

That is the average of each individual home loan document, not the average of what people are borrowing. Many people have 'split' home loan arrangements - that is their total borrowing is made up of more than one component. The 'average' the RBNZ reports is of each component.

The number of weekly loans always exceeds the number of monthly property sales - by a long shot

Which suggests the majority are resets and roll-overs while a lesser number are originating loans

In the week to 16 March 2007 the volume of mortgages approved was 11,116
Last week just 6,922 mortgages were approved

REINZ said 8,803 dwellings were sold in March 2015 for the entire month avge = 2200 per week

As the story above says;

The Reserve Bank defines a mortgage approval as a firm commitment to provide credit for the purchase of housing, which has been accepted by the borrower.

Excluded from the series is own customer refinance, or the rolling over of a fixed rate loan, and its subsequent refinancing; business borrowing where the security is the owner’s home; and where the underlying value of a loan is topped up only the topped up portion is included.

Included is the refinance of other banks customers, IE when a loan is refinanced using a different bank; any loan where the security changes; and any loan where the liability holder changes.

There is a splurge of putting a new car "on the house", major renovations, etc underway in Auckland as people put their massive equity increase to use. Using the house as an ATM is in vogue once again and the banks are flush with cheap cash.

Most borrowers now split their mortgages into several loans therefore it appears there are more mortgages being approved ie a home owner in Auckland may have just had a fixed term expire on a $600,000 mortgage but decided to split it and put $300,000 for 2 years at 5.29% and $300,000 at 5 years at 5.65% and that will show up as two new mortgages approved. At least I think that is how it works.

With prices considerably higher than 10 years ago the average total mortgage size per household will obviously be higher. 10 years ago very few people broke their total mortgage debt up into separate components with varying fixed rates whereas now it is very common.

If Paul Glass is to be believed , the actual GDP growth of NZ is closer to 0.5 % , not the 3.5 % claimed by the government ....

... which makes one ponder how Awkland house prices can continue their stellar upwards trajectory ...

And yet they do ... gaining further distance from reality with each passing day ...

... which leads me to conjecture that we all ought to sell up everything , our farms and businesses , our houses and bachs from the length and breadth of this fair country ( girt-by-sea ) , and join the Awklanders on their money creating machine ...give up the jobs and salaried positions , working is so passé , a relic from the past ..

.....it is time to let the free money flow , we'll drink & dance and be happy forever .... weeeeeeeeeeeeeeeeeeeeeeeeeee !!!!!

Hopefully they haven't bitten off more then they can chu. Luckily the Chinese are swarming in, so they will never have to worry about repaying any of this. They can just sell when they retire and use the proceeds to live out the rest of their lives in a tropical paradise.

At lest I think that is how the logic goes.

To be honest I don't think the Chinese will sell whatever, or retire to the tropical paradise.
They are just finding a place to park their money (a.k.a loot), as uncertainties of the Chinese economic (slowdown) and political (anti-corruption) environment mount. And boy have they got cash... So not a care of credit, return, NZD ups or downs, certainly never heard of GDT auction results - as long as it's safe from confiscation.
Doubt they will go to the tropics as Kiwis do - NZ is tough enough for them even with its sizable Chinese community and possibly their kids already living here.
However I suppose if somehow the anti-corruption campaign subsides, or the Chinese economy picks up so opportunities surface again, capital will flow back.

My surprises me is, we have the RB who is supposedly concerned with financial stability (I assume our Govn is also) yet no one seems willing to quantify how many houses are held by non-residents. So if its say 5% I'd assume no biggee if many "left" if its 20% then that's looking like an issue.

I think you can assume that non-residents financing arrangements, if any, do not touch the sides of the local banking system and thus probably do not concern the RB and stability of the local banks

When the money (houses sold) is withdrawn if its a big enough amount, that will depress the market and ppl might panic...

What you could take into account is the high probability that a percentage of nz property owned by non-residents can be flipped to other non-residents without any money ever entering the nz banking system .. via the chinese real-estate web-sites juawai.com and juawai.cn and hougarden.com

There will always be Tigers and Foxes and Boltholers looking for a bolthole even under adverse conditions

I suspect RB can do little about overseas buyers. Ironically overseas cash buyers are probably the least concern from a financial stability perspective. Think about it, they buy with cash (no threat to the banks if the market crashes), they are not big consumers in NZ (again if market crashes consumption and the economy wouldn't suffer) - they will and can only lick their wounds and go home, or stick thru (that's then a stabilising force in the market).
Any policy based on ECONOMIC reasoning will only benefit those RICH and with CASH. The poor are inherently risky. Any policy to counter the economic forces must come from the Government, not the RB which is by design an economics institution. RB cannot fix the overseas buyer problem, or AKL house shortage problem, or the malfunctioning local council problem. They can only try and stop Kiwis over-leveraging and exposing themselves - which will just hand over the property market to overseas buyers.

Depends on the %s. f its low then yes no issue, if its big then a "mass exit" could pop an overheated market and that is an issue. Like I said we really dont know if its an issue or not.

Here is some feedback on the recent sale of an Auckland property, as I promised. House located in a periphery Auckland suburb. The sort of suburb that when I visited once last year I ended up performing a citizens arrest when I saw a young neighbourhood man drag a woman out of a car and throw her on the road (it was his mother). The house was bought in July 2012 for $380K. Within the first year they were burgled, had shoes stolen off the porch, and a car stolen from outside the house. Sold at auction for $671K. Buyers were two girls in their 20's where mum and dad stumped up the deposit.

The prior auction was a house in the same street of much inferior quality but attracted the bids from someone assumed to be Chinese. Feedback was that this gentleman wasn't even looking up, he was clearly willing to win at any cost and would raise the bid immediately anyone out bid him. In the personal opinion of the observed this man's ego was at work, he simply wasn't going to lose.

Good luck to both buyers. My contact won't be putting the money back into Auckland, perhaps not even NZ.

Did Mum and dad give the girls $150k or did they use their equity as a guarantee?

... the car was actually stopped before he dragged his mother out and dumped her in the road ?

Heck , in some of those suburbs they reckon it's the height of gentlemanly conduct if you bother to slow the car down before you throw Momma from it while you're driving along ...

was it a standard issued Lexus?

.. the Gummy mummy wouldn't be seen dead being throw out of anything but a fast moving Lexus ...

Anything less would be unacceptable in her neighbourhood ...

Well Momma obviously taught him well, he did have regard for correct etiquette.

But, ya can't lose with houses!