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Smashing Records

The housing market has taken off and is hitting new record highs, writes Daniel Smith.

By: Daniel Smith

31 December 2020

For those of us enjoying the Kiwi summer, it seems that 2020 was nothing more than a fever dream. But despite a health crisis and market volatility making most markets resemble the ridgelines of the Southern Alps, the New Zealand property market has performed remarkably well.

It has done more than just bounce back from the brink, it has gone on to break records left right and centre. Up and down the country property investment continues to perform well. No longer are rising prices the sole domain of the main centres, many regions are beginning to see their property investments rise in equity.

Low interest rates have also seen new types of investors enter the market with the highest representation of first home buyers in years. Those who entered the market this year, whether buying their first home or strengthening their portfolio can expect to see this trend continue into 2021.

Record Breaking Prices

The year’s trend of record-breaking prices did not slow down towards the finish line. The latest REINZ data shows the median house price for New Zealand increased 18.5% year-on-year to $749,000. This is a new high for the country.

For New Zealand excluding Auckland it showed house price values increased 14.5% from November 2019 to a new high in November 2020. Auckland’s median house price increased 16.4% year-on-year to $1,030,000 also a new high and the largest annual percentage increase we’ve seen for the region in 54 months.

In November, Tasman had the highest annual growth rate of house price values with a 28% increase to a new record level of $774,400. In second place was Manawatu/Whanganui with an annual growth rate of 25.8% to a new record index level of $503,000 and in third place was Southland with a 23.6% annual increase in house price values.

For three months in a row now, the REINZ House Price Index (which measures the changing value of property in the market) has had no negative movements in any region’s house price value, showing the underlying strength of the property market in all parts of the country.

Realestate.co.nz shows a similar upward trajectory with seven regions having hit all-time average asking price highs in November. Auckland, Waikato, Hawke’s Bay, Southland, Coromandel, Wairarapa and Manawatu/Whanganui all reached peak asking prices since Realestate.co.nz records began 13 years ago.

Nationally, the average asking price for properties is $797,156 – up 3.2% on last month and up a significant 17.1% on November 2019.

Spokesperson for Realestate.co.nz Vanessa Taylor says “We know that Kiwis are still out looking for property and as long as demand keeps outweighing supply, we’ll likely continue to see prices pushed upwards.”

Days To Sell Down

Low interest rates and Kiwis’ natural proclivity for property have kept sales at a healthy level, despite the rising prices. Last month’s median days to sell has been smashed and it now sits at the lowest in 164 months.

According to REINZ data, November saw the median number of days to sell a property nationally decreased four days from 33 to 29 when compared to November 2019, the lowest in 164 months (since March 2007). Across the country, 11 regions had a median number of days to sell of less than 30 days – the last time we had at least 11 regions at less than 30 days, was in December 2003.

For New Zealand excluding Auckland, the median days to sell decreased by four days from 32 to 28, the lowest for 180 months (November 2005). 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 62 months.

But the regions aren’t letting the big smoke have all the action, with Taranaki and Southland recording the lowest days to sell of all regions at 21 days – down seven days and up three days respectively from the same time last year. This was the lowest equal days to sell for Taranaki since records began.

CoreLogic data shows that first-home buyers are still making up a large part of the action. First-home buyers have taken up a record share of sales so far
in Q4, with 32% of sales to this group, no doubt helped by the availability of credit. There has also been strong investor appeal throughout 2020 in our easternmost city, with a regular share of 30% of sales going to mortgaged investors. With forestry \ and agriculture underpinning the local economy, Gisborne’s property market is thriving, as these industries are not as impacted by the Covid-19 pandemic.

November saw 26.9% of all properties sold by auction, with 2,661 properties selling under the hammer – up from 16.8% at the same time last year, when 1,279 properties were sold via auction and up from 22.8% in October this year. This was the highest percentage of auctions the country has seen in 62 months (September 2015).

Gisborne had the highest percentage of auctions across the country with 74.6% (50 properties) sold under the hammer, up from 54.3% (38 properties) in November 2019.

What this comes down to for investors is making sure that when you are working your sums, you make sure that you have a little bit of fat in there to account for a potential vacancy or a reduction in rent’ NICK GOODALL

Listings Drop

With house sales going gangbusters you would expect to see the number of listings drop, and that is largely what we have seen according to data from Realestate.co.nz.

Despite 12,622 new listings coming onto the market nationally last month, a 14.5% year-on-year increase, the long term stock shortage continues to prove a challenge for buyers.

Nine regions fell to 13-year total stock lows in November, with only 18,319 homes available for sale across New Zealand.

“Demand is still outstripping supply with the total number of homes on the market in November down 16.9% on the same month in 2019,” says Taylor.

All-time stock lows were recorded in Northland, Waikato, Bay of Plenty, Hawke’s Bay, Nelson and Bays, West Coast, Coromandel, Marlborough, and Manawatu/Whanganui.

Nelson and Bays, Coromandel, and Marlborough had the lowest stock compared to 2019, decreasing by 44.7%, 43.4% and 42.9% respectively.

Gisborne bucked the trend with a 22.1% stock increase, while Auckland and Central Otago/Lakes maintained similar year-on-year stock levels to 2019.

“We can expect stock to remain low in December, when we typically see a drop off in new listings as the busy holiday season approaches,” says Taylor.

“It will be interesting to see how things trend in the new year and I’m sure buyers will be hoping new listings continue to increase.”

CoreLogic data appears to agree that despite the swathe of new listings we should expect to see the impact of long-term stock shortage for some time to come.

Supply will remain constrained for the rest of the year. We’ve now passed the peak of new listings coming to market as people shift their mind to holidays, saving a decision like selling their house for the new year.

Investor Outlook Positive

Nick Goodall, head of research at CoreLogic believes that most investors will continue to ride a wave of positivity and high returns into 2021.

“There’s nothing on the horizon that will slow down the excessive demand and there is nothing that could mean a lift in the listings. So there might be some changes around the edges, but don’t expect to see any dramatic changes going into 2021.”

One change that is happening is the incoming loan-to-value ratio (LVR) restrictions brought in by the Reserve Bank. Goodall says that the broader impacts on the market that we might see come from this are: “While LVRs do have a bit of an impact on the market there are still quite a few investors who can afford the 30% anyway that will mean there will be enough people buying who will be pushing up prices.”

The market trends were heading in this direction anyway, Goodall says, with many banks raising their LVRs before the Reserve Bank made their announcement.

Going into 2021, Goodall recommends that property investors don’t get swept away by the highs of the market and continue to manage their risks appropriately. “While the market is strong, there are still some vulnerabilities that exist. Particularly in the rental sector where there are some renters who work in the tourism industry who have a tough summer coming up.”

“If investors do have tenants who experience a drop in income or potentially a loss of their job, those impacts could flow through.”

To prepare for this Goodall suggests: “What this comes down to for investors is making sure that when you are working your sums, you make sure that you have a little bit of fat in there to account for a potential vacancy or a reduction in rent.”

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