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On The Rebound – For Now

New Zealand’s housing market seems to be rebounding strongly from the Covid-19 crisis, but experts are warning against over-optimism on this front, reports Miriam Bell.

By: Miriam Bell

31 July 2020

What is going on with the housing market? Going by earlier predictions, it should have been in dire straits by now, with stalled activity and crashing prices at the fore. But, to date, that hasn’t happened. Instead we are seeing a bit of a market resurgence.

Agents and advisers alike say they are busy, with high demand driving activity. There’s plenty of tales of multi-offer situations where the property has ended up selling above expectations. And the latest round of data appears to support these anecdotes.

Yet many experts are pushing back on these trends. They continue to urge caution: tough times are ahead they say, and the market can’t help but be impacted by the uncertainty of recession

. . . So this month, we’re asking the necessary questions to try and make some sense of it all.

Is There Really A Market Rebound?

Well, going by the latest data, it certainly looks like it. Take sales activity. In May, REINZ had sales volumes nationwide down by 46.6% year-on-year as alert level three restrictions continued to restrict sales.

But REINZ says that in June sales volumes were up by 7.1% to 6,625 from the same time last year. That number was the highest number of properties sold in a June month for four years. Sales were also up by 60.1% on last month.

The data also shows that June was the first time in three months where regions have started to see increases in their annual sales volumes, with 10 out of 16 regions seeing annual increases.

Additionally, in the powerhouse Auckland market the number of properties sold in June increased by 9.4% year-on-year (to 2,054). Again, that was the highest for the month of June in four years. Sales volumes were also up by 75.3% on May.

Supporting this was the June data from Barfoot & Thompson which has sales numbers returning to normal trading levels. There were 820 sales in June, which was a 4.3% year-on-year increase and a rise of 107.1% on May. A widespread dearth of new listings has been a problem for some time. But rebound, economists don’t believe it will last the latest data reveals that is starting to change. According to REINZ, there was a 19.7% increase in new listings in June

Likewise, Realestate.co.nz has new property listings bouncing back right across the country in June. That increase in new listings occurred in nearly all regions, with Southland, Auckland, and the West Coast seeing the biggest increases, when compared to June 2019.

When it comes to prices, June’s data shows they are defying predictions and holding up well around much of the country.

REINZ has median house prices nationwide up by 9.2% to $639,000 year-on-year in June. They were also up by 3.1% from $620,000 in May 2020.

Further, every region in the country saw an uplift in prices from the same time last year, and 10 out of 16 regions saw an uplift from May.

The June data from Realestate.co.nz and Barfoot & Thompson (for Auckland) told a similar story. Realestate.co.nz had average asking prices remaining stable in June with the national average asking price sitting at $727,749. That was 10.4% higher than in June 2019. It also put the average asking prices in Auckland, Wellington and Christchurch up year-on-year.

Barfoot & Thompson’s latest data put Auckland’s average price at $953,417 in June, which was up by 1.4% on June last year, and its median price at $910,000, which was a year-on-year rise of 7.7%.

What Do Property Insiders Make Of This Data?

For property industry participants the data is promising and suggests the market has remained buoyant post-Covid-19, although most do urge caution.

REINZ chief executive Bindi Norwell says the data suggests the impact of lockdown is now well and truly behind the country, and that people have been able to get on with their sales and purchasing decisions as per usual.

“However, we’ve said it before, and it’s important to say it again, that this may well be a post-lockdown peak in activity levels. There are concerns that with the wage subsidies, mortgage holidays ending and an election in September, that there may be a potential trough in activity levels in the coming months.”

But right now, Kiwis’ love affair with property continues unabated – especially with the low interest rates we currently have in the market, she says. In Barfoot & Thompson managing director Peter Thompson’s view, June was a remarkably solid month’s trading with no signs of market fragility. Solid new listings at 1,582 (up 56.3% from June 2019), an influx of first-time buyers, and some catch-up business from the slow sales in May all contributed to that, he says.

“It is far too early to see this result as an indicator that the property market will defy forecasts and ride out the Covid-19 pandemic unaffected. But it does suggest that over a three to five-year time horizon buyers have confidence in property at today’s prevailing prices and that they are not holding back in the hope of a major decline in values.”

Are People Being Overly-Optimistic?

Over-optimism is a possibility. For example, the latest QV House Price Index shows that all but two (Queenstown and Marlborough) of the 16 major cities monitored saw some growth in their average values over the past quarter.

But it also reveals a gradual decline in quarterly growth in June, with 13 cities showing a reduction in the rate of growth since May. So while the average national value increased by 1.3% over the past quarter, that’s down from 2.4% in May (leaving the average national value at $738,018). That’s an annual increase of 7.4%, as compared to the annual growth of 7.7% recorded last month.

‘It is far too early to see this result as an indicator that the property market
will defy forecasts and ride out the Covid-19 pandemic unaffected’ PETER THOMPSON

QV general manager David Nagel thinks this indicates that the heat seen in the market pre-lockdown is gradually dissipating as the market begins to settle.

With wage subsidies and mortgage holidays ending later in the year, the worst is still ahead, he says. “Our earlier projections that the market will experience a correction of 5-10% by Christmas time from the pre-Covid high of January to March 2020 is still looking likely.

“While some parts of the country will be harder hit than others, any fall in value should be put into context. Most parts of New Zealand have experienced value growth in excess of 5-10% in just the past 12 months, so for those that can weather the storm, this is simply a passing aberration.”

And CoreLogic’s senior property economist Kelvin Davidson has actually warned about reading too much into the resilience of the market. He says they don’t think that the outlook is all doom and gloom.

“But there’s a sense that some have now become too optimistic – after all, we’re in a recession and unemployment has further to rise yet. These factors will restrain the property market for the rest of 2020 at least.”

Their quarterly index of values is now starting to show clearer signs of weakness, with the national average house value declining by 1.5% in the second quarter, with significant falls seen in Dunedin (-2.5%) and Auckland (-2.4%), Davidson says.

“While values haven’t yet turned down everywhere (Tauranga, Invercargill and Rotorua saw rises in values), the overall message is that values seem to have reached a turning point and we estimate that the national average could ultimately fall by 5-7%.”

It’s worth noting that would be a smaller fall than the figure of 10% during the GFC and that even a further 5% drop [on that 5-7%] in national values would only put them back at December 2018 levels, he adds.

What’s Likely For The Market Going Forward?

Meanwhile, bank economists are also warning that while the latest data shows the market is rebounding strongly post-Covid-19, that resurgence is unlikely to last.

Kiwibank senior economist Jeremy Couchman says the anecdotes of recent weeks appear to be true, with both sales and house prices growth jumping in June. But he is not yet convinced that the recent jump in housing market activity will be sustained.

The labour market continues to deteriorate and the end of temporary wage subsidy is likely to expose some wounds, he says. “We expect house prices to start falling and are currently forecasting they will be 9% lower yearon- year towards the end of the year - although we do acknowledge that recent data illustrates clear upside risk to our forecast.”

For ASB senior economist Mike Jones, the recent data joins the (lengthening) list of economic indicators enjoying a post-lockdown sugar rush, with housing activity bouncing back to life in June.

Smoothing through the past few months shows national sales pretty much back to where they were in January, before the Covid disruption hit, he says.

“Housing bulls would have also taken heart in a surprise increase in house prices in June.”
Jones says that, ostensibly, this runs against the grain of calls for steep house price falls. “But we’re not out of the woods yet and there’s every chance the data has been inflated by the same release of pent-up demand running other economic statistics at present.

“As housing activity finds its new normal over the next few months, and the market adjusts to the deteriorating labour market, we expect small monthly falls in house prices to resume. We remain at the less-downbeat end of the forecasting spectrum though, calling ‘just’ a 6% peak to trough fall in prices.”


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