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Uncertain Outlook

Strong sales and rising prices characterise the latest market data, but lockdown 2.0 has thrown a curveball for the outlook going foward, writes Miriam Bell.

By: Miriam Bell

1 September 2020

It’s groundshog day for New Zealand and the housing market – right now. That’s not just because of the re-emergence of Covid-19 community transmission and the resulting return of Auckland to alert level three and the rest of the country to level two.

Rather it’s because, just as in March when New Zealand entered lockdown for the first time, most of the country’s housing markets were performing strongly prior to lockdown 2.0. And, just as in March, that solid market activity has been thrown a curveball.

The difference is that real estate activity can continue to take place at levels three and two (with restrictions). So while the market will, inevitably, be quieter, it has not been forced into a hiatus as it was earlier in the year.

Despite this, it creates another layer of uncertainty for the market and commentators are not sure what to make of it all. So, in a bid to make sense of the situation, we take a close look at the latest data and hear what the experts have to say.

July Sales At Five Year High

There can be little doubt of the strength of most of the country’s housing market heading into lockdown 2.0. Across the board, the data for July shows a market that was starting to go gangbusters. Sales activity, which had been recovering steadily, soared back up in July. According to REINZ, sale volumes around New Zealand were up by 24.6% year-on-year to 7,854 in July, from 6,303 this time last year.

That’s the highest number of properties sold in a July month for five years. All regions, apart from Gisborne and Marlborough, saw year-on-year double-digit percentage increases in sales volumes. In Auckland, sales volumes increased by 30.3% year-onyear to 2,596 in July, from 1,992 in July last year. Again, this was the highest number of sales for the month of July in five years.

REINZ chief executive Bindi Norwell says the fact there was the largest annual percentage increase in sales volumes since September 2015, highlights just how confident the market was during July.

“Part of the sales volumes can be attributed to post-Covid pent up demand. But underpinning this activity during July was strong levels of interest and engagement from all buyer levels including first home buyers, investors and families looking to upgrade their property.”

REINZ’s Auckland sales figures were supported by Barfoot & Thompson’s July data, which also recorded the region’s strongest housing sales performance in a July for five years last month. The agency saw 1,095 sales in July. That was an increase of 33.5% on June’s 820 sales and of 24.6% on the 879 sales seen in July last year.

Barfoot & Thompson managing director Peter Thompson says this is a level of sales normally only seen at the height of the summer sales season and suggests buyers are not letting uncertainty around future values put them off.

“Anecdotal market information suggested that July trading was going to be strong, but the extent of activity will have caught most forecasters by surprise. Demand was so strong that you have to go back to the height of the last property sales cycle to see turnover and values of equivalent levels.”

Limited Stock On Market

While sales activity was strong, the July data from REINZ, Realestate.co.nz and Barfoot & Thompson all put the amount of housing stock available for sale at a low level.

REINZ had the total number of properties available for sale nationally decreasing by -11.0% in July to 19,441, from 21,843 in July 2019. That was a decrease of 2,402 properties compared to 12 months ago and makes for the lowest level of inventory for the month of July since records began.

There was actually a 20.7% yearon- year increase in new listings, according to Realestate.co.nz. The biggest increases were in the West Coast (81.0%), Coromandel (52.4%), and Auckland (39.7%). Despite this, their data shows that stock remains low around the country, with the total number of homes available for sale nationally in July down by 11.0% on the same month in 2019. Northland, Gisborne, Taranaki, West Coast, Canterbury, Coromandel, Marlborough, Wairarapa, Central North Island, and Manawatu/Whanganui all saw 13-year record stock lows in July.

Alongside the limited supply, both Realestate.co.nz and Trade Me Property reported that demand is soaring. The total number of users to Realestate.co.nz increased by 16.1% in July as compared to July 2019, while the average session duration increased by more than 12.6%. Trade Me Property had buyer demand up by 20% in July as compared to July 2019. Realestate.co.nz spokesperson Vanessa Taylor says the increase in new listings is promising, but the flood of Kiwis returning home is likely increasing demand and putting pressure on an already cramped market.

“The combination of high demand and low stock signals means that buyers were snapping up new listings at pace during July. But it is also contributing to rising prices around the country. It’s a case of demand and supply; when housing stock is low, prices increase because demand is outstripping supply.”

Solid Price Rises

This was indeed true in July. The REINZ data had median house prices across New Zealand increasing by 14.8% to $660,000 in July. That’s up from $575,000 in July 2019 and from $638,000 in June (a 3.4% lift). Every region saw an increase in median house prices and four regions – Waikato, Gisborne, Manawatu/ Whanganui and Taranaki – saw record median prices. Auckland’s median prices increased by 11.5% to $920,000, which was up from $825,000 in July last year, but a decline of 0.1% from June this year.

‘If the same pattern occurs as did during the last lockdown, we would expect to see prices hold again post lockdown – although time will tell’ BINDI NORWELL

Realestate.co.nz had the national average asking price up by 3.9% year-on-year to $756,250 in July. It also recorded average asking prices up in nearly all regions with 13-year alltime asking price highs in Northland, Auckland, Hawke’s Bay, Coromandel, and Manawatu/Whanganui.

The ongoing improvement in Auckland’s price growth was also on display in Barfoot & Thompson’s July data. It put the average sales price in July at $979,189, which was a 6.5% yearon- year increase, and the median sales price at $890,000, which was an 11.2% increase on last July. However, the July instalment of the QV House Price Index suggested a somewhat different story.

It has the average national value increasing by just 0.4% over the past three months, leaving it at $739,151. That’s down from the quarterly growth of 1.3% seen in June and from the 2.4% seen in May. But annual value growth was up slightly to 7.5%, as compared to 7.4% last month.

Likewise, the average value in the Auckland region dipped by 0.2% to $1,077,237 over the quarter, as compared to the 1.3% growth in June and 2.4% in May. The region turned in year-on-year value growth of 5.1%, but that was down from the 5.4% growth seen in June. QV general manager David Nagel says the data reflects a gradual decline in quarterly growth, with the vast majority of the big towns monitored
showing a reduction in the rate of growth since June.

“Further, three of the locations show a decline in value levels since the end of April. Values in Auckland, Queenstown and Dunedin all fell back over the past three months with Queenstown Lakes hit by the biggest fall losing 4.2% over the past quarter.”

In his view, while there’s plenty of hype around demand, the market resurgence appears to be coming to an end. He says the steady declines in value growth even before the economic stimulus initiatives come to an end creates some concerns.

Uncertainty Clouds Market

Nagel’s thoughts came before the advent of lockdown, but the return of Covid-19 to New Zealand threw a further spanner into the works. And it left property commentators asking what it might mean for the market going forward.

Norwell says that even though anecdotally the market had made a great start to August, the real question now is how long this can be sustained for. “If the same pattern occurs as did during the last lockdown, we would expect to see prices hold again post lockdown – although time will tell.”

Since lockdown 2.0 commenced, the Government has extended its wage subsidy programme and the mortgage deferral scheme has been extended until March next year. For CoreLogic senior property economist Kelvin Davidson, uncertainty around what all of this means for the property market is high. But provided that the current move up the alert levels is short-lived, it probably doesn’t spell disaster, he says.

“The end of the wage subsidy will be a test for the demand side of the market as unemployment faces more upwards pressure. But we’ve already seen how quick the bounce-back was for property sales after the first round of alert levels, and prices have also held up relatively well.”

It’s important to note that the number of appraisals generated by estate agents has fallen sharply again recently which suggests the listings situation will remain pretty tight and help to underpin property values, he says.

“Of course, a tightening in supply conditions may not necessarily insulate prices if demand also weakens. Another recent change to hit the property market has been the amendments to tenancy law. “Investor groups are not happy about it, but we doubt that this will cause them to actually start to sell or stop buying. After all, there have been plenty of changes like this in the past and investors have simply carried on as before.” ■


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