NEW ZEALAND ECONOMICS ANZ PROPERTY FOCUS

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1 ANZ RESEARCH NEW ZEALAND ECONOMICS ANZ PROPERTY FOCUS DECEMBER 13 INSIDE The Month in Review 2 Property Gauges 3 Economic Backdrop Mortgage Borrowing Strategy Feature Article: The Property Market in Pictures 7 Key Forecasts 11 CONTRIBUTORS Cameron Bagrie Chief Economist Telephone: Cameron.Bagrie@anz.com Mark Smith Senior Economist Telephone: Mark.Smith2@anz.com Carrick Lucas Strategist Telephone: Carrick.Lucas@anz.com Steve Edwards Economist Telephone: Steve.Edwards@anz.com THE WAITING IS THE HARDEST PART SUMMARY Our monthly Property Focus publication provides an independent appraisal of recent developments in the property market. THE MONTH IN REVIEW The high-lvr lending restrictions are starting to impact on housing turnover, particularly in the lower tier of the market. Prices have yet to be affected on the face of it, but when you remove the lower tier the median sale price is biased up. Anecdotally, the market has slowed markedly, with mortgage approvals well down on the prior year. The trend in consents remains up, net migration is strong, and building construction is ramping up. PROPERTY GAUGES The NZ property market is in a hiatus, caught between strong migration and price expectations on the one hand and the introduction of high-lvr lending restrictions a couple of months ago and an impending hike in the Official Cash Rate at some point in the new year on the other. Average house prices continue to lift, while the volume of sales and dwelling consents are treading water. Affordability is being stretched via rising prices and will be strained still further once mortgage rates rises are fully priced in. An improving labour market and increasing inward migration flows will keep prices stimulated until housing supply cranks up. ECONOMIC BACKDROP The NZ economy is in a full-blown economic expansion, growing at an above-trend rate. This picture will continue into 1, underpinned by strong commodity prices, supportive financial conditions, and a huge construction work pipeline. The economy does not have the anaerobic capacity to grow strongly for an extended period beyond that, with increasing pressures on capacity set to lead to rising inflation and associated lifts in interest rates. MORTGAGE BORROWING STRATEGY ANZ has withdrawn its month and 1 year fixed-rate specials as wholesale interest rates lift in anticipation of RBNZ rate hikes from March 1. ANZ s carded mortgage rates are up by as much as half a percent from November. Markets are now priced for floating rates to rise towards 7 percent in 1, something we think borrowers need to take into consideration when making borrowing decisions. We remain of the view that the RBNZ will deliver fewer rate hikes than are currently priced into markets, and while there s no hiding from further increases in mortgage rates, breakeven tables show that it still makes sense to stick to shorter-dated fixed rates, which remain the lowest on the curve. From a certainty perspective, it also makes sense to consider fixing a small portion of your mortgage for longer terms. FEATURE ARTICLE: THE PROPERTY MARKET IN PICTURES As in previous years, in our final assessment of the real estate market for the year we provide a graphical summary of recent property market trends. The volume of house sales has see-sawed its way up over the past three years. However, the introduction of speed limits on high-lvr housing lending has dented November s statistics. Any impact on prices is likely to be a few months away. Not taking any chances, the RBNZ introduced exemptions for high-lvr construction lending in December, given the importance of the supply side stepping up and meeting the housing needs dictated by a growing population and shortages arising from a lengthy period of under-building. A lift in the Official Cash Rate and ultimately mortgage lending rates next year will counter the positive push that is emanating from a positive immigration inflow and improving household incomes.

2 ANZ Property Focus / December 13/ 2 of 13 THE MONTH IN REVIEW The high-lvr lending restrictions are starting to impact on housing turnover, particularly in the lower tier of the market. Prices have yet to be affected on the face of it, but when you remove the lower tier the median sale price is biased up. Anecdotally, the market has slowed markedly, with mortgage approvals well down on the prior year. The trend in consents remains up, net migration is strong, and building construction is ramping up. Changing tack With a knick knack paddy whack Funding for the new shack Ex-pats coming back Rebuild is well and truly on track Gaining some slack REINZ, HOUSE SALES NOVEMBER Sales volumes fell 7.7 percent in seasonally adjusted terms in November, causing the trend in nationwide sales volumes to slow, with volumes about.9 percent higher in the three months to November. The REINZ noted that restrictions on high-lvr lending are likely to have been a driver of the softer sales figures, with sales below $, falling almost percent compared to November last year. All regions recorded decreases in sales volume compared to November last year. The median days to sell edged down to 3 sa, from 3 in October. Tight inventory is underpinning prices, with house prices rising. percent sa in November, with annual house price inflation easing to 9. percent. STATISTICS NZ, BUILDING CONSENTS OCTOBER Residential consent numbers fell. percent sa in October, with less volatile ex-apartment consent issuance down 2.3 percent sa. October residential consent numbers are still 17 percent below historical averages as a proportion of the housing stock but the shortfall was 28 percent a year ago. There were just over, consents issued in the 12 months to October, the highest annual figure in five years, so the trend is up. However, the pace of expansion is mixed across the regions, with only eight of the 1 regions consenting more dwellings in the October 13 year than the year previous. RBNZ, HOUSEHOLD CREDIT GROWTH OCTOBER For a third month in a row household mortgage lending increased. percent, lifting the annual rate of increase to a five-year high of. percent. That s above income growth and doesn t look sustainable hence it looks like LVR restrictions will be around for a while. STATISTICS NZ, EXTERNAL MIGRATION NOVEMBER There was a permanent and long-term (PLT) net migration inflow of 2,77 persons (seasonally adjusted) in November, a touch down on the 3, October inflow. Net PLT inflows over the last three months accelerated to 8, persons, with annual net PLT immigration rising to 19,78 persons in the November year, its highest since April 1. On its current trajectory the net PLT inflow is on track to approach, persons by the middle of next year, equivalent to.7 percent of resident population. The relative strength of the NZ economy appears a major draw-card. PLT arrivals eased 1.3 percent sa in November but are still 12 percent higher than a year ago. PLT departures rose 2.3 percent sa and are percent lower than November 12. STATISTICS NZ, WORK PUT IN PLACE SEPTEMBER There was a 1. percent rise in Work Put in Place volumes, led by an 8.1 percent rebound in residential work. The rise was underpinned by a lift in Canterbury, where building values rose 21 percent, with the region now accounting for a quarter of the national total. Solid quarterly rises were evident in both residential and non-residential work values in Canterbury (up and 22 percent sa respectively). A 1 percent rise in Auckland residential values was partly offset by a 13 percent fall in non-residential values. However, there is a very long way to go to assuage concerns over dwelling shortages in the region, with increased supply ultimately needed to help cap the Auckland residential market. RBNZ, MORTGAGE APPROVALS MID-DECEMBER The latest approval numbers were the highest weekly total since mid June, although they are still around 11 percent below historical averages for this time of year. Approval values eased slightly and are well below where they were in the same week last year.

3 ANZ Property Focus / December 13 / 3 of 13 PROPERTY GAUGES The NZ property market is in a hiatus, caught between strong migration and price expectations on the one hand and the introduction of high-lvr lending restrictions a couple of months ago and an impending hike in the Official Cash Rate at some point in the new year on the other. Average house prices continue to lift, while the volume of sales and dwelling consents are treading water. Affordability is being stretched via rising prices and will be strained still further once mortgage rates rises are fully priced in. An improving labour market and increasing inward migration flows will keep prices stimulated until housing supply cranks up. We use ten gauges to assess the state of the property market and look for signs that changes are in the wind. AFFORDABILITY. For new entrants into the housing market, we measure affordability using the ratio of house prices to income (adjusted for interest rates) and mortgage payments as a proportion of income. SERVICEABILITY / INDEBTEDNESS. For existing homeowners, serviceability relates interest payments to income, while indebtedness is measured as the level of debt relative to income. INTEREST RATES. Interest rates affect both the affordability of new houses and the serviceability of existing mortgage payments. MIGRATION. A key source of demand for housing. SUPPLY-DEMAND BALANCE. We use dwelling consents issuance to proxy growth in supply. Demand is derived via the natural growth rate in the population, net migration, and the average household size. CONSENTS AND HOUSE SALES. These are key gauges of activity in the property market. LIQUIDITY. We look at growth in private sector credit relative to GDP to assess the availability of credit in supporting the property market. GLOBALISATION. We look at relative property price movements between New Zealand, the US, the UK, and Australia, in recognition of the important role that globalisation plays in NZ s property cycle. HOUSING SUPPLY. We look at the supply of housing listed on the market, recorded as the number of months needed to clear the housing stock. A high figure indicates that buyers have the upper hand. RENTAL GROWTH. We look at growth in the median market rent as an indication of whether it is a better time to buy versus rent, and how rental yields are shaping up for the property investor. Indicator Level Direction for prices Comment Affordability Straining / Negligible LVR restrictions impact to date, with rising house prices still the norm. Serviceability/ indebtedness Stretching Mortgage repayments are lifting faster than incomes, with the ratio of the two at a 1-month high. Interest rates / RBNZ Poised The floating end of the mortgage borrowing curve is seeing the most action. Migration Swelling Net migration lifted to a 3½-year high. Supply-demand balance Consents and house sales Opening / Jump in demand to a -year high has further outstripped supply. Paused / Up on a year ago but little changed over the past three months. Liquidity Squirt of CRC Credit growth relative to size of economy is at a ½-year high. Globalisation Conductive / Tentative recovery paves the way for more robust growth. Housing supply Avon calling / Turning point reached? Median rent Thin / Rents remain in a narrow band On balance Meaty / All revved up with no place to go.

4 ANZ Property Focus / December 13/ of 13 PROPERTY GAUGES Housing affordability Percent Index (1992Q1=1) 7 Proportion of average weekly household earnings required to 1 service a 2 year mortgage based on 2-year fixed 1 rate and % deposit on a median house (LHS) House price-to-income adjusted for interest rates (RHS) Sources: ANZ,Statistics NZ, REINZ, RBNZ % of disposable income Serviceability and indebtedness Interest servicing as % of disposable income (LHS) Household debt to disposable income (RHS) % of disposable income Sources: ANZ, RBNZ Percent New customer average residential mortgage rate (<8% LVR) Basis points Change in the month (RHS) A month ago (LHS) Latest rates (LHS). - Floating mths 1 year 2 years 3 years years years Sources: ANZ, Net migration Net annual inflow () 8 Net all arrivals (3 month average) - Net permanent and long-term migration Sources: ANZ, Statistics NZ Housing supply-demand balance Number of houses 1 Supply (advanced 2 qtrs) Demand 8 - Excess demand (supply) Sources: ANZ, Statistics NZ Building consents and house sales Consents issued, 3 mth. avg. House sales, 3 mth. avg Building Consents (LHS) House sales (adv. 3 months, RHS) Sources: ANZ, Statistics NZ, REINZ Liquidity and house prices 2 House prices (LHS) Annual change in PSC to GDP ratio (RHS) Sources: ANZ, QVNZ, RBNZ Percent 1 1 House price inflation comparison Australia 1-1 New Zealand US United Kingdom Sources: ANZ, QVNZ, Nationwide, Bloomberg Number of months to sell all listings Auckland Housing Supply Nationwide Sources: ANZ, Barfoot & Thompson, Percent Median rental, annual growth 3 month rolling average Sources: ANZ, Department of Building and Housing

5 ANZ Property Focus / December 13 / of 13 ECONOMIC BACKDROP SUMMARY The NZ economy is in a full-blown economic expansion, growing at an above-trend rate. This picture will continue into 1, underpinned by strong commodity prices, supportive financial conditions, and a huge construction work pipeline. The economy does not have the anaerobic capacity to grow strongly for an extended period beyond that, with increasing pressures on capacity set to lead to rising inflation and associated lifts in interest rates. OVERVIEW The demand side of the ledger for NZ.Inc looks assured. The goods terms of trade a proxy for the economy s purchasing power has hit a -year high. Closer linkages with the faster growing regions in the world. China is now our number one merchandise export destination. Financial conditions (the combination of asset prices, interest rates, the NZD and lending standards) are still incredibly accommodative. There are significant localised sources of impetus, namely a city rebuild and housing shortages. Net immigration is strong. Business and consumer confidence are elevated and consistent with mini boom periods in NZ s economic history. Profitability is rising; that s a precursor to firms re-investing and employing. The labour market is picking up and with that so too eventually will wages and household incomes. Agriculture production is currently a strong growth driver. Dairy is booming; kiwifruit is recovering from structural challenges; viticulture is exiting a lull; red meat is bouncing back post-drought. Throw this lot together and 3 percent plus real GDP growth looks easily within reach. That s demure by historical standards but reflective of some real economic headwinds. Obvious challenges remain. The NZD is still elevated some exporters are benefiting from strong commodity prices, but others are not. The global scene will remain prone to the odd setback. Fiscal policy is contractionary, but that s the sacrifice that comes with turning fiscal deficits into surpluses. The national balance sheet is still weak, necessitating consumer restraint and contained rates of borrowing. High debt levels across the household sector mean credit growth must grow at a slower rate than incomes. We ve seen the reverse of late. Loan-to-value ratio restrictions were a reminder to show restraint. They re working. These dynamics will hamper but not derail the economic expansion, such are the tailwinds we are experiencing. Nevertheless, there will be frictions and tensions across the economy that will need to be managed over the coming years. A prevalent issue is whether the NZ economy has the capacity to meet rising demand without blowing a gasket and seeing the inevitable rise in inflation the precursor to interest rates moving up. We can already see resources pressure emerging in the likes of the construction sector, and this will only intensify over coming years. The historical experience has been that growing resource pressures are followed by price rises. We re expecting growth to remain above trend until early 1, at which time the availability of surfeit resources diminishes and a tightening in financial conditions (largely via lifts in the OCR over 1) slow the economy down. We re not talking a crash, merely a moderation in growth towards a more sustainable trajectory: that means solid as opposed to frothy growth. Some key assumptions we re making for an old-style boom-bust pattern to be averted include: The RBNZ being more proactive in lifting interest rates earlier, which all else equal should imply a less exaggerated tightening cycle. In short, not repeating mistakes of old, of going too late and needing to do more. An uplift in productivity growth. That s critical if inflation is going to be semi-contained in an environment of reasonable growth. Rising capital investment is a positive sign. Microeconomic initiatives that help dampen (but not eliminate) inflation hot spots. This means the supply-side response to Auckland s housing woes.

6 ANZ Property Focus / December 13 / of 13 MORTGAGE BORROWING STRATEGY SUMMARY ANZ has withdrawn its month and 1 year fixed-rate specials as wholesale interest rates lift in anticipation of RBNZ rate hikes from March 1. ANZ s carded mortgage rates are up by as much as half a percent from November. Markets are now priced for floating rates to rise towards 7 percent in 1, something we think borrowers need to take into consideration when making borrowing decisions. We remain of the view that the RBNZ will deliver fewer rate hikes than are currently priced into markets, and while there s no hiding from further increases in mortgage rates, breakeven tables show that it still makes sense to stick to shorter-dated fixed rates, which remain the lowest on the curve. From a certainty perspective, it also makes sense to consider fixing a small portion of your mortgage for longer terms. OUR VIEW In recent days ANZ has removed its.9 percent month and 1 year specials, and lifted carded mortgage rates for high-equity borrowers by up to bps from November. Low-equity borrowers face similar increases in fixed mortgage rates, of up to 3bps from a month ago. Wholesale swap rates have continued to climb in the past month as markets firm up expectations that the RBNZ will start lifting the Official Cash Rate from March 1 in response to a strong economic backdrop and emerging inflation pressures. % pa 7.2%.7%.2%.7%.2% ANZ Carded Mortgage Rates (<8% LVR) Current Carded Rates Last Month With higher mortgage rates now upon us, there s nowhere for borrowers to hide. Indeed, pricing in wholesale markets implies floating mortgage rates will lift towards 7 percent by the end of 1 and to 8 percent by the end of 1 this is something borrowers need to take into consideration when making borrowing decisions. However, we remain of the view that the RBNZ is unlikely to fully deliver on markets current rate hike expectations, implying it still makes sense to stick to shorter-dated fixed rates. Despite the lift in mortgage rates in recent days, the mth and 1 year fixed rates continue to offer the lowest point on the mortgage rate curve. Breakeven tables tell a similar story, and we believe borrowers will still come out on top by fixing for a series of 1 year terms i.e..9 percent now, 7.9 percent in one year s time, 7.37 percent in two years time, and so on versus fixing for longer terms, with significant RBNZ rate hikes already priced into the curve. We see little merit in selecting floating unless one is able to negotiate a significant discount and that is only likely to apply to borrowers with a very high level of equity..7% Term (years) Sources: ANZ Carded Mortgage Rates Breakevens for %+ equity borrowers From a certainty perspective, it also makes sense 18 months.3%.78% 7.2% 7.91% 8.% to consider fixing a small portion of your mortgage 2 years.79% 7.% 7.% 8.3% 8.3% for longer terms. Around 7 percent of mortgage 3 years 7.1% 7.9% 7.97% 8.21% 8.37% borrowing is for terms of 1 year or less, suggesting RBNZ rate hikes will quickly gain traction in the mortgage market when they arrive. Borrowers need to adjust their budgets accordingly. Thus, locking in a portion of years years 7.9% 7.7% 7.7% 8.8% your mortgage for 3- years at.-7. percent may work out slightly more expensive in the long run if the RBNZ fails to deliver on current rate hike expectations, but the certainty associated with locking in fixed rates for longer terms will help support household budgeting in an environment of rising mortgage rates. Term Current in mths in 1yr in 18mths in 2 yrs Floating.7% months.2%.7%.7% 7.1%.97% 1 year.9%.1% 7.9%.79% 7.37% 18 months.8%.%.72% 7.% 7.2% 2 years.29%.7% 7.23% 7.3% 7.9% 3 years.%.9% 7.9% 7.8% 7.871% years.99% 7.22% 7.3% years 7.% Term Low-Equity Rates Current Breakevens for Low equity borrowers in mths in 1yr in 18mths in 2 yrs Floating.7% months.7%.93%.89% 7.3% 7.83% 1 year.99%.1% 7.21% 7.8% 8.1%

7 ANZ Property Focus / December 13 / 7 of 13 FEATURE ARTICLE THE PROPERTY MARKET IN PICTURES SUMMARY As in previous years, in our final assessment of the real estate market for the year we provide a graphical summary of recent property market trends. The volume of house sales has see-sawed its way up over the past three years. However, the introduction of speed limits on high-lvr housing lending has dented November s statistics. Any impact on prices is likely to be a few months away. Not taking any chances, the RBNZ introduced exemptions for high-lvr construction lending in December, given the importance of the supply side stepping up and meeting the housing needs dictated by a growing population and shortages arising from a lengthy period of under-building. A lift in the Official Cash Rate and ultimately mortgage lending rates next year will counter the positive push that is emanating from a positive immigration inflow and improving household incomes. Percent 1 House Prices vs Mortgage Rates House price inflation (LHS) Effective mortgage rate (adv 3 mths, RHS) Percent (inverse) The volume of house sales has been on an upward trajectory since the end of 1. In the three months to November sales increased percent from a year earlier to be percent above the same span in 1. The trend over recent months has flattened as the introduction of the high-lvr lending restrictions came into force, particularly impacting the first home buyer segment of the market. Regionally, double-digit annual increases in sales have been recorded in Northland and Canterbury (18 and 1 percent, respectively). The strongest quarterly growth in the past three months has been measured in Southland and Wellington (9 and percent, respectively). Sources: ANZ, REINZ, RBNZ Housing loan approvals Value of approvals Weekly housing loan approval figures are published by the Reserve Bank. Annual growth in this series peaked in July 12 and has since slowed dramatically to end 13 in negative territory. There was a small blip up in September this year in anticipation of the introduction of stricter LVR lending requirements in October Sources: ANZ, RBNZ Number of approvals Approval numbers to mid December lifted to their highest weekly volume since mid June, although they are still around 11 percent below historical averages for this time of year. Approval values increased to levels that prevailed in June but were 8 percent below where they were in the same week last year.

8 ANZ Property Focus / December 13 / 8 of 13 FEATURE ARTICLE THE PROPERTY MARKET IN PICTURES Sales 12, 11, 1, 9, 8, 7,,, House Sales vs Net Migration, Net migration (adv mths, RHS) 3, Sources: ANZ, REINZ, Statistics NZ House sales (LHS) ' (sa) Migration flows to and from New Zealand are one of the major drivers of housing market cycles. The mid-199s and 3-7 booms coincided with large net migration inflows. The Reserve Bank recently acknowledged the positive impact that migration inflows will have on house prices. By their reckoning, an additional inflow of migrants equal to 1 percent of the population over five years causes a 7 percent increase in house prices. Doing the math on recent strengthening migration flows reveals a migration inflow of 1.1 percent of the population over the past five years. The migration inflows have been the strongest in Auckland and Canterbury, adding further fuel to the fire in our two housing hotspots. ' (sa) House Sales vs Days to Sell Days (sa, inverse) Sources: ANZ, REINZ House sales (adv 3 mths, LHS) Days to sell (RHS) 2 3 The length of time it takes to sell a house is an indicator of the strength of the real estate market. It encompasses both demand and supply-side considerations. Nationwide, the median time to sell a house was 3 days over the three months to November, two days quicker than the same period a year ago and three weeks faster than the slowest pace recorded in mid 8. Canterbury has consistently recorded the quickest time to sell since January this year, ranging between 2 and 28 days. Auckland has been second ranked, with the median time to sell ranging between 28 and 31 days. Months Housing Supply (seasonally adjusted) Auckland Nationwide Canterbury A lower number of available property listings is a factor keeping sales volumes lower than they would otherwise be. The time to sell the nationwide stock of real estate listings is currently 27 weeks (or.2 months), the shortest period since July 7. At the current rate, it would take around 11 weeks (2. months) to sell the entire inventory of Auckland s real estate listings. Canterbury is the runner-up in the regional stakes, with an extrapolated 1 weeks (3. months) to clear the market a fresh record low for the region Sources: ANZ, realestate.co.nz, Barfoot & Thompson

9 ANZ Property Focus / December 13 / 9 of 13 FEATURE ARTICLE THE PROPERTY MARKET IN PICTURES REINZ and QV House Prices REINZ median house prices (3mth avg) Sources: ANZ, REINZ, QVNZ REINZ House Price Index Quotable Value house prices There are three key measures of house prices in New Zealand. They differ slightly but the broad trends are similar. The most frequently referenced measure is the median house price measure published by the REINZ. They also produce a stratified house price index, which attempts to adjust for changes in the quality of houses sold. The third measure is the QVNZ house price index, which is calculated from the average sale price based on all residential sales. The median sale price of houses sold by REINZ rose 8. percent in the three months to November versus the same span a year earlier. The stratified House Price Index rose 9.7 percent and the QV series increased 8.8 percent by the same measure. House Price Growth by Region 3 Month Moving Average Other South Island 3 Auckland Other North Island 2 Wellington Christchurch Sources: ANZ, REINZ On the regional house price movement front, Taranaki has been the quiet achiever, recording the strongest annual lift in house prices in November (1.2 percent). More news has been written about the second and third ranked regions. Canterbury has recorded the second strongest annual increase in the REINZ median house price series, lifting 1. percent from a year ago. Auckland s house prices have risen 1.7 percent over the past year. However, as reported in our regularly published table on page 11, it hasn t been one way traffic for house prices across the regions. Compared to a year ago house prices have decreased in Otago (-. percent). Southland (-.2), Manawatu- Whanganui (-.2), and Hawke s Bay (-3.). House Prices vs Employment. 2 House prices (LHS) HLFS employment (RHS) Sources: ANZ, REINZ, RBNZ A consequence of the strong lift in employment is that incomes are on the up. This should continue into 1 as the economy cranks up another gear. As was the case in the mid-s we should see strong labour income growth providing support to the housing market. To date incomes have failed to keep pace with house price growth, pushing the nationwide ratio of house prices to incomes to a new high of 8:1. Auckland leads the nation in this metric (prices are 11.1 times the region s average income). The Bay of Plenty has the second highest ratio, at 1. times income, followed by Northland at 8.2.

10 ANZ Property Focus / December 13 / 1 of 13 FEATURE ARTICLE THE PROPERTY MARKET IN PICTURES $b/mth (sa) Value of house sales and mortgage growth Sources: ANZ, REINZ, RBNZ Value of house sales (LHS) Mortgage growth (RHS) $b/mth (sa) With a deleveraging undercurrent evident following the global financial crisis, mortgage lending had a later turning point than the rebound in house prices. But with mortgage rates at generational lows it was only a matter of time before New Zealanders appetite for home ownership returned. The introduction of the high-lvr lending restrictions has proved to be the speed bump that it was intended to be, but the full impact on the property market has yet to be revealed. Consents (sa) New Dwelling Consents and House Sales Consents (LHS) Sources: ANZ, REINZ, Statistics NZ House sales (adv mths, RHS) House sales (sa) 11 House vs Section Price Growth 3 Month Moving Average Sections Houses Sources: ANZ, REINZ In seasonally adjusted terms, the volume of house sales hit a six year high in July, but has flattened off since then. The volume of dwelling consents hit a five year high in the May month, with more than, dwellings consented in the October year, the highest in five years. The level of residential issuance, while climbing, is still low: more than 1 percent below historical averages as a proportion of the dwelling stock. House sales volumes are around percent below historical averages. The Canterbury rebuild is a key source of recent strength, accounting for more than one quarter of consent issuance. Consent issuance is also rising in Auckland, Wellington and Otago, while it is lower than a year ago in Southland, Manawatu- Whanganui, Hawke s Bay and Nelson. Section prices are more cyclical than prices for existing dwellings. Section prices slumped following the global financial crisis and have had a roller-coaster growth profile ever since. Growth in residential section prices has trailed prices for existing dwellings for most of the period since 8. Section sale prices in the three months to November were.1 percent higher than a year ago, while the equivalent series for house prices has rocketed up 9.8 percent. The number of sections sold has lifted 13 percent in the past year, underpinned by an 82 percent surge in Canterbury. In Auckland, where new housing is in dire need, the volume of sales has inched up only 3 percent.

11 ANZ Property Focus / December 13 / 11 of 13 KEY FORECASTS Weekly mortgage repayments table (based on 2-year term) Mortgage Rate (%) Mortgage Size ($ ) , , 1,22 1, 1,8 1, ,12 1,3 1,9 1,83 1,18 1,132 1,17 1, ,1 1, 1, 1,9 1,11 1,11 1,17 1,193 1,219 1,2 1, ,11 1,3 1,2 1,88 1,11 1,11 1,18 1,19 1,222 1,2 1,278 1, 1,33 1,3 8 1,78 1,1 1,133 1,1 1,188 1,217 1,2 1,27 1, 1,333 1,33 1,393 1,2 1, 8 1,1 1,17 1, 1,233 1,23 1,293 1,323 1,3 1,38 1,17 1,8 1,8 1,13 1, 9 1,213 1,2 1,27 1, 1,337 1,39 1,1 1,3 1,7 1, 1,3 1,7 1,2 1,3 9 1,281 1,313 1,3 1,378 1,11 1, 1,79 1,13 1,8 1,83 1,19 1, 1,91 1, ,38 1,382 1,1 1,1 1,8 1,21 1,7 1,93 1, 1,7 1,7 1,72 1,78 1,818 Housing market indicators for November 13 (based on REINZ data) House No of Avg prices 3mth % Mthly sales days to Comment (ann % chng % chng (sa) sell (sa) change) Northland % 1 Quickest time to sell a property in Northland in 3½ years Auckland ,3-7% 31 Annual growth in prices is the highest since April 7 Waikato/BOP/Gisborne % 9 th consecutive monthly lift in median price to a new high Hawke s Bay % 8 The lowest 3 month change in prices across the regions Manawatu-Whanganui % 8 Weakest 3mth change to ever be measured in the region Taranaki % Highest AAPC and strongest in region since May 7 Wellington % 3 The median sale price up to a fresh record high of $13, Nelson-Marlborough % 3 The volume of house sales slipped to an 18-month low Canterbury/Westland % 28 Continues to be the region with the quickest time to sell Central Otago Lakes % 9 Highest 3mpc and the region s strongest since February Otago % 3 Lowest annual change in prices, region s weakest in 2 years Southland % 7 Only lift in sale volumes but still below long-term avg of 182 NEW ZEALAND ,382-8% 3 LVR restrictions hit sales volumes, but not prices Key forecasts Actual Forecast Economic indicators Mar-13 Jun-13 Sep-13 Dec-13 Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 GDP (Ann Avg % Chg) CPI Inflation (Annual % Chg) Unemployment Rate (%) Actual Forecast (end month) Interest rates (carded) Oct-13 Nov-13 Latest Mar-1 Jun-1 Sep-1 Dec-1 Mar-1 Jun-1 Sep1 Official Cash Rate Day Bank Bill Rate Floating Mortgage Rate Yr Fixed Mortgage Rate Yr Fixed Mortgage Rate Yr Fixed Mortgage Rate

12 ANZ Property Focus / December 13 / 12 of 13 IMPORTANT NOTICE The distribution of this document or streaming of this video broadcast (as applicable, publication ) may be restricted by law in certain jurisdictions. Persons who receive this publication must inform themselves about and observe all relevant restrictions. 1. Disclaimer for all jurisdictions, where content is authored by ANZ Research: Except if otherwise specified in section 2 below, this publication is issued and distributed in your country/region by Australia and New Zealand Banking Group Limited (ABN ) ( ANZ ), on the basis that it is only for the information of the specified recipient or permitted user of the relevant website (collectively, recipient ). This publication may not be reproduced, distributed or published by any recipient for any purpose. It is general information and has been prepared without taking into account the objectives, financial situation or needs of any person. 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