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Property Boom Continues

The economic drivers for further growth all look strong, and the latest round of data supports this likelihood, writes Daniel Smith.

By: Daniel Smith

1 December 2020

Well, what a year 2020 has been. When Covid-19 hit our shores, and New Zealand definitively shut up shop in late March, the doom and gloom merchants were out in force, predicting a vertiginous drop in house prices. The nation was hermetically sealed from the rest of the world, and a slide downwards, or at least an evening out of the upwards trajectory, seemed likely.

But it seems that it takes more than a pandemic to keep Kiwis down, especially when it comes to housing. With New Zealanders returning home by the thousands, a loosening up of LVRs, and people who still had jobs looking for places to spend money in lieu of overseas holidays, the housing market has been running red hot.

While some pundits predict a slight slowdown once the Reserve Bank reinstates LVR restrictions earlier than announced (March rather than May 2021), which will affect higher risk investors with equity lower than 30% in particular, economists don’t foresee a housing correction in the next few years.

Prices Still On The Up

The upward trajectory that we have been seeing over the past months has consolidated into record breaking highs up and down the country. Data from Realestate.co.nz shows all-time high average asking prices in six regions. Year-on-year, the national average asking price also increased by 12.4% to $772,288.

This price hike was not just focused in the main centres, with data showing all-time average asking price highs in six regions; Auckland, Waikato, Bay of Plenty, Hawke’s Bay, Wairarapa, and Manawatu/Whanganui. Cause for celebration for investors across the North Island.

Topping the leaderboard in October was Auckland where the average asking price was $1,015,383.

“We have seen a lot of international interest in Auckland recently and this could be pushing up prices and encouraging property owners to sell,” says Vanessa Taylor, spokesperson for Realestate.co.nz.

CoreLogic credits this rise from strength to strength to the support mechanisms put in place by the Government and banks, while the RBNZ’s intervention (temporary removal of loan-to-value ratio (LVR) restrictions) now appears to be boosting demand and therefore contributing to the uplift in value growth.

CoreLogic head of research, Nick Goodall says, “Indeed, the RBNZ has acknowledged a consequence of its monetary policy is increasing asset prices, but that this is a better outcome than the counter-scenario of a loss in confidence, resulting in decreasing property values.”

Bindi Norwell, chief executive at REINZ says: “October 2020 will go down in ‘housing history’ as being the point in time when the Auckland region’s median house price hit the million-dollar mark for the first time – something no one anticipated or expected just six months after the entire country came out of lockdown.”

“While this is a significant milestone, it raises serious questions around future affordability for Auckland residents wanting to get a foot on the property ladder. It also highlights just how important it is that legislation, such as the RMA, is re-addressed quickly by the current Government so it is fit for purpose to help support more houses being built at speed and at scale,” says Norwell.

Huge Increase In Sales Volumes

House prices weren’t the only records being broken last month, with the number of residential properties sold in October across New Zealand increasing by 25%. This is the highest number of properties sold in 53 months (May 2016) and the highest October sales count in 14 years.

In Auckland, the number of properties sold in October increased by 50.9% year-on-year, the highest October sales volume since October 2003. Only one region, Nelson, saw an annual decrease in sales volumes with the number of properties sold in October falling by just one property from 102 in October 2019 to 101 this October. Wellington’s sales volumes remained flat at 750 properties sold.

“New Zealand’s housing market is extremely buoyant at the moment, with more than 8,800 properties sold around the country,” says Norwell. “The last time we saw sales volumes of this magnitude was back in May 2016 when the market was very strong, and prices were rising across many parts of the country.”

“Again, we’ve seen more than half (nine out of 16) of the regions across the country with annual sales volume increases in excess of 20% in October this is just not what anyone expected to happen and shows just how much people’s concern around future price rises is adding to their determination to buy now before prices potentially rise even further.”

Days To Sell Down

This month the combination of excellent sales and low stock have meant for some interesting data surrounding listings. These houses are just flying off the shelves. This month the median number of days to sell a property nationally decreased 5 days to 29, the lowest we have seen for October in 17 years.

CoreLogic data shows that a lack of supply of available properties on the market is a key contributor to increasing prices. According to CoreLogic partner Trade Me, there has been no improvement in supply in the last year. Trade Me Property Spokesperson, Logan Mudge, says, “In September, the number of properties for sale nationwide remained relatively flat on the year prior.”

All 21 main urban areas analysed experienced value growth over the month, including in Queenstown, although it must be noted the 0.8% growth here only partially recovered the decrease from earlier, with values remaining 1.2% lower than at the end of July, and 5.6% below the peak before COVID hit the market.

‘I have a firm conviction that house prices are going to rise. And that is largely because of low interest rates’ DOMINICK STEPHENS

Auckland saw the median number of days to sell a property decrease by six days from 36 to 30 year-on-year, the lowest for 51 months.

The regions were not about to let Auckland have all the fun. With Taranaki recording the lowest days to sell of all regions at 21 days. This was the lowest days to sell for Taranaki in October since records began.

But the speed of sale is starting to impact the levels of housing stock we are seeing in the market. The long-term decline in stock continued in October with only 18,141 total homes available for sale in New Zealand – an 18.7% decrease on the same month last year.

Most affected were those in Northland who faced record lows (down 36.0% to 857 homes), Waikato (down 24.9% to 1,220 homes), Bay of Plenty (down 30.1% to 979 homes), Southland (down 10.7% to 292 homes), Coromandel (down 37.0% to 295 homes), and Marlborough (down 40.5% to 160 homes).

Future Rises Forecast

For Westpac chief economist Dominick Stephens, it’s encouraging to see his predictions of a housing boom come to reality. “We did predict the heat of the market. Low interest rates do have a very predictable effect on the market and the market has heated up just as we expected. In fact, it has probably gone even further.”

July’s forecast of an eight percent house price increase has now been left in the dust, with their latest forecast looking at a 13 per cent increase for 2021.

Stephens believes that any forecasting that predicts a drop in prices in the short term is mistaken. “I have a firm conviction that house prices are going to rise. And that is largely because of low interest rates.”

The other factor that Stephens thinks could contribute to a boom is the possibility that come 2021, net migration and economic confidence could be in recovery. This prediction combined with the known factor of low interest rates has contributed to this positive outlook of a positive housing market.

But foreseeing infinite smooth sailing, Stephens has a warning. “The cloud on the horizon is an eventual increase in interest rates. Now I am not expecting that to happen any time soon, but when it does you can expect house prices to fall.”

“I don’t think the low interest rates that we are experiencing today are sustainable. What I think is going to happen, and it isn’t going to happen soon, but it will happen eventually, is an increase in interest rates and therefore a decline in house prices.”

A Word Of Caution

CoreLogic head of research Nick Goodall says that while he was optimistic that property investment returns would remain strong under Covid-19 he had no idea that they would be this strong.

“We knew that things were looking much better for the economy than we had expected early on, but not to this degree.”

Goodall previously said that lowinterest rates, access to credit and renewed confidence were the key
drivers of the property boom, and while he still thinks they are key, he also believes that LVR restrictions will come into play.

“Now there is a lot more discussion about the LVR restrictions coming back, which is going to tighten up available credit. I think it’s fair to say that the upcoming removal of the LVR has had a strong influence on this upswing. This is mainly because it has brought a lot of transactions forward, people want to get in while the limits are still not in place.”

Despite property’s strong performance in post-Covid New Zealand, Goodall points out that “there are still a lot of areas of the market that investors need to be cautious of. The economy is still going to go through some cautious periods. Many areas of the economy are going to be affected particularly tourism over summer. Property investors with commercial properties in those areas need to be thinking about if they can handle a period of vacancy or reduced rent if their tenants need to leave for one reason or another.” ■

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