The Mortgage Supply Co | 1 Jul 2019 | Mortgage Tips,Median House Prices,House Prices

10 Factors That Affect The Housing Market

The Mortgage Supply Co | July 1 2019 | Mortgage Tips, Median House Prices, House Prices

10 Factors That Affect The Housing Market

housing prices factors

Ever wondered what the reason behind rising house prices in New Zealand is? And who decides how much you pay for your dream house?

House prices are on the front page of the newspaper quite often and there's a reason behind that. Buyers are always keen to know the current state of the market so they can get a good deal on their next house.

ANZ recently released a white paper in which they have mentioned ten factors that affect the state of the housing market.

Let's discuss each of them one by one.

1. Affordability

The House Affordability Measure is the ratio of house prices to income. Remember to exclude the mortgage costs, insurance costs, and rate costs from the income before you calculate affordability.

For example, a couple with no children might earn $3000 a week. Assuming they pay $700/week in mortgage costs, $20/week for house insurance and $50/week in rates costs, their income after these expenses would be $2230 - this is the income that should be used while measuring affordability.

2. Interest rates

Unless you have a million dollars in cash, chances are, you'll need to secure a mortgage to buy a house. And with mortgage comes interest rates. But here's the thing - even a small change in interest rates can weed out thousands of potential buyers from the market. Good news is, the OCR is expected to fall even more in the second half of 2019 . If you're a first home buyer, this maybe your opportunity to enter the housing market.


3. Migration

Whether it's migrants moving into New Zealand or Kiwis moving to a different city, more people means the need for more houses. This increase in demand can affect the housing market substantially.

4. Supply-demand balance

When supply and demand are in balance, the house prices are highly likely to be normalised. But this is hardly the case in New Zealand, especially in Auckland and Wellington. According to Jenny Salesa, Minister for Building and Construction, New Zealand is short of 71,000 houses. This imbalance is one of the reasons behind the rising house prices.

5. Consents and house sales

You can't build a house without consent from the local government. As of now, the construction sector may have reached its peak, so expect a shortage in the issuance of new consents.

6. Liquidity

Liquidity refers to the availability of liquid assets in banks. Simply put, it's cash - or assets that can be easily converted into cash. Before banks can lend you money for a mortgage, they need to make sure they have enough in the first place. Even though the banks in New Zealand have enough cash, there's a need for more capital.

7. Globalisation

The world is a smaller place these days. Foreign investors have shown a significant interest in the New Zealand housing market in the past decade which contributed to rising prices. However, the "Foreign-Buyer Ban" has played a role in the declining interest from non-resident buyers.

8. Housing supply

Housing supply refers to the number of houses listed on the market, which at this stage is too few in New Zealand. However, the government is expected to roll up its sleeves and take control of the situation. 

9. House prices to rents

Generally, when renting is significantly cheaper than buying, people gravitate towards renting. Current state of play - rents are moving up, but buying a house can still prove to be expensive for most people.

On that note, you might also want to read: Rent or Buy? (pros and cons of both)

10. Policy changes

Whether its easing the LVR restrictions or ruling out Capital Gains Tax, the government has the power to step in and make policy changes that can turn the tables.

Now that you're aware of these factors, keep an eye on them just so can navigate the housing market more efficiently. 

If this is your first time going through the house-buying process or if you simply want some help and guidance regarding home loans, download our free Your Home, Your Mortgage guide now.


(PS: Please note that all the information provided in this article is for educational purposes only and should not be used as legal advice.)