Prices Keep Smashing Records
REINZ data shows record year-on-year increases, CoreLogic month-on-month numbers indicate a slowing down, writes Sally Lindsay.
1 July 2021
Median prices for residential property across New Zealand increased by a whopping 32.3% from $620,000 in May 2020 to $820,000 in May 2021, REINZ’s latest data shows.
It is the highest annual percentage increase in house prices since records began; and five out of 16 regions reached record median prices as did 18 districts.
The median house price for New Zealand, excluding Auckland, increased by 28.0% from $530,000 in May last year to $678,500 in May 2021.
Auckland’s median house price increased by 26.9% from $905,000 in May 2020 to $1.148 million in May 2021 – another new record for Auckland. Additionally, Papakura District and Waitākere City reached new record median prices of $900,000 and $1.050 million respectively.
Three other regions also reached record median prices and one region a record equal. They were:
• Taranaki: with a 29.1% increase from $426,000 in May 2020 to $550,000 in May 2021. Additionally, South Taranaki District set a new record median of $405,000
• Tasman: with a 21.2% increase from $701,500 in May 2020 to $850,000 in May 2021
• Canterbury: with a 26.5% increase from $460,000 in May 2020 to $582,000 in May 2021. In addition,Mackenzie District ($705,000), Selwyn District ($677,500) and Waimate District ($385,000) all had record median highs
• Waikato: with a 21.7% increase from $600,000 in May 2020 to a record equal $730,000 in May 2021. Also, Ōtorohanga District ($535,000), Taupō District ($710,000), Waikato District ($726,000) and Waitomo District ($360,000) all reached record median highs.
REINZ acting chief executive Wendy Alexander says while there haven’t been as many record median prices in May as in the past few months, there is no denying the country’s residential property market is still holding strong. “Median prices haven’t significantly eased yet as many had hoped would be the case.
“This is underpinned by some strong results in the House Price Index (HPI), which reached a new high and represented the highest annual percentage increase seen since records began,” continues Alexander.
An increase of 29.8% year-on-year to 3,810 was seen in the HPI. This is the twelfth consecutive month a new high has been reached.
The HPI for New Zealand, excluding Auckland, showed house price values increase 32.7% from May 2020 to 3,857 in May this year, a new high on the index and the highest percentage increase since records began.
Auckland’s house price values increased 26.3% year-on-year to 3,754, a new record high and the highest annual percentage increase since September 2015.
House price growth is starting to cool, dropping to 2.2% over May and down from 3.1% in April.
CoreLogic’s House Price Index (HPI) shows the annual rate of growth rose to 20.5%, up from 18.4% last month. However the annual measure is impacted by base effects, where a year ago economic activity, including the housing market, had stalled as the nation moved through the Covid-related lockdowns.
Research head, Nick Goodall, says “in the past few weeks both the Government and Reserve Bank have released house price forecasts with expectations of a significant reduction in growth over the coming months.”
The HPI, which analyses a rolling three months of sales data, provides some evidence of this, while analysis of CoreLogic's preliminary sales data goes a step further, illustrating the most recent sales are not performing at the same level as those earlier in the year.
“This reflects the impact of both the tightened loan-to-value ratio (LVR) restrictions, imposed by the Reserve Bank, as well as the Government’s phasing out the ability for property investors to deduct their interest expenses from their end-of-year tax returns.
“While these changes have caused some investors to sit back and take stock of their portfolio, it appears this pullback in demand has been mostly made up for by other investors, likely with less debt, and owner occupiers who had previously missed out while competing in a very heated market,” says Goodall.
For the first time since July last year the Quotable Value House Price Index has fallen in quarterly value growth.
The average value increased 8.8% over the past three month period to the end of May, down slightly from the 8.9% quarterly growth value at the end of April. The national average value now sits at $931,928.
QV says even though the drop is small it is significant as it is a rolling three month average, which includes some big increases during earlier months.
Tararua had the most value growth in the latest quarter, up 23.3%; followed by Carterton up 18.1%; and Waitomo up 17.9%.
Of the 16 cities where value growth is measured by QV, growth in May was up compared to April in Whangārei, Auckland, Tauranga and Hamilton; down in Rotorua, New Plymouth, Napier, Hastings, Palmerston North, Wellington, Marlborough, Christchurch, Queenstown- Lakes, Dunedin and Invercargill; and unchanged in Nelson.
QV expects value growth to decline further as the scrapping of tax deductibility, requirement for 40% deposits and tightening credit starts to bite.
Even if house prices fell 20% as some people would like, it would only take them back to where they were a year ago. BNZ economists believe the country is entering a multi-year period when the marginal supply exceeds the marginal demand putting downward pressure on house prices.
They are not predicting a price slump, but would not rule one out either.
“A 20% nosedive for buyers who have just bought would be problematic, but for prospective new entrants a boon and for everyone else, it shouldn’t really matter.”
The economists also say weaker price growth, weaker growth in demand and the supply boom will lead to a softening in residential construction over the next two years.
However, Westpac economists say the strength in homebuilding is likely to continue over the next year, given the size of the existing pipeline of work.
Building consents rose another 4.8% in April, taking the total over the past year to nearly 43,000, another all-time high. More than 18,000 of those consents were in Auckland alone, reflecting the easing in building restrictions resulting from the city’s Unitary Plan in 2016.
“On a per capita basis, this is now surpassing the 2004 building boom and there is no sign of this coming to an end anytime soon,” Westpac economists say.
The strong pace of homebuilding, combined with the sharp drop-off in population growth as a result of the border closure, means the country is now making significant progress in addressing the housing shortage and it is estimated in Auckland supply could meet demand in the next three years, with the rest of the country taking longer.
BNZ economists say the longer inflation remains at current elevated levels the greater the chance that the housing market will be forced into a major correction.
A price correction is not being forecast by the BNZ. Head of research Stephen Toplis says as it turns out, the Reserve Bank’s latest house price forecasts are similar to the bank’s own.
“Our view is a tad more inflationary but only at the margin. We are forecasting a 17.0% increase in house prices in the year ended December, but the vast majority of this has already happened. “Only modest growth is expected from here on in with annual inflation dropping to about 2.0% per annum over 2022 and 2023.”