Record low listings are translating into record sale prices and there’s no sign of it abating, writes Daniel Smith.
1 February 2021
The new year brought with it the end-of-year data for 2020, and what a picture it paints. Record lows, record highs, and the continuation of a post-Covid housing boom that shows no of sign abating.
But while there’s a general consensus that 2021 will continue to see strong growth, for property investors lack of stock, the changed regulatory environment, and restrictions on lending may act as handbrakes.
Summer is traditionally a great time for the market, but as the tide of housing stock ebbed over Christmas and early January, many were left waiting for it to come back in. Data revealed stock at record lows and prices rising dramatically, with records broken up and down the country. There is much interest in the year ahead and it’s a fascinating time to be in the property game.
As the total pool of properties available for sale in New Zealand fell to record lows over summer, the upward pressure on house prices continued. The country is seeing a new record median house price for the fourth month in a row according to the latest data from the Real Estate Institute of New Zealand (REINZ).
The median house prices nationwide increased by 19.3% from $628,000 in December 2019 to a new record of $749,000 in December 2020. It’s not just a case of Auckland pushing the numbers up; median prices (excluding Auckland) increased by 17.8%, from $535,000 in December 2019 to $630,000 in December 2020.
Bindi Norwell, Chief Executive at REINZ says: “For the fourth month in a row, New Zealand has seen house prices reach a new record – a continuation of the pattern we’ve seen in the housing market for the last few months – highlighting how strong the residential housing market is in all parts of the country.”
Data from Realestate.co.nz shows that the regions have dramatically caught up with the month-on-month price increases we have seen occurring in the main centres. The largest price increase during 2020 was in Gisborne, where average asking prices were up 21.8% on 2019 to $526,948. This was followed by Wairarapa and Manawatu/Whanganui, both up 16.8% to $591,600 and $494,468 respectively. Southland prices increased 14.4% to $406,872 and Otago was up 13.7% to $526,609. Nick Goodall from CoreLogic says the data shows investors should not expect a slowing down in prices any time soon.
“Without any major policy change regarding property in the works, the long-term affordability of the property market is reliant on significantly increasing supply, which is a slow-moving factor. So, for now, all indications are that the fervent growth in property values will continue throughout the summer at least.”
Crunching The Data
With low sales stock across the country, buyers have had to move fast. That speed is reflected in sales numbers that have broken monthly records (yet again). The number of residential properties sold in December 2020 across the country increased by 36.6% from December 2019 (from 6,543 to 8,935) – the highest number of properties ever sold in this month.
Vanessa Taylor, spokesperson for Realestate.co.nz says, “Properties in New Zealand, on average, cost $75,056 more in 2020 than they did in 2019. Coupled with the record demand, this tells us that people didn’t shy away from buying and selling last year.”
But despite demand for property, decreasing stocks put the pressure on sales numbers. Nationally, 109,128 properties were listed for sale in 2020 – a 2.6% decrease on the 112,007 properties that hit the market in 2019. Marlborough property seekers were most squeezed for choice last year, with 16.2% fewer homes coming on to the market in the region compared to 2019. In Northland, new listings were down 15.9% on 2019 and in Nelson & Bays they dropped 14.0%. Taylor says “what we’ve seen quite clearly throughout 2020 is demand for property outweighing supply, which could have contributed to price increases.”
Only Auckland bucked the trend, with a 10.5% increase in listings in 2020, “In Auckland we’ve started to see a change,” says Taylor, “the large number of new homes being built exceeding demand caused by population growth. But supply is still tight because of the shortfall in previous years.”
REINZ data shows the pressure on sales and housing stocks has led the market to achieve the lowest days to sell in 204 months. In December, the median number of days to sell a property nationally decreased to 27, the lowest since December 2003.
Across the country, 14 out of 16 regions had a median number of days to sell of less than 30 days which is the highest on record. Only Northland and the West Coast were exceptions.
For New Zealand excluding Auckland, the median days to sell decreased by four days from 30 to 26. Auckland saw the median number of days to sell a property decrease by five days from 34 to 29, the lowest for the month of December in 17 years. Taranaki had the lowest days to sell of all regions at 20 days. This was the lowest number of days to sell for Taranaki since records began.
Listings On The Rise
As investors face up to some of the lowest stocks in years, we are seeing house listings rising to meet the surge in demand. New annual data from Realestate.co.nz shows that as prices soared, so too did demand, with 23.0% more users searching for property nationally when compared to 2019. Also, the number of people searching for property in 2020 more than tripled (up by 227.8%) when compared to 2016.
Taylor says all property listed on Realestate.co.nz in 2020 totaled an asking price sum of $94 billion, up 5.4% on $90 billion in 2019. But this rise reflects the rising value of property rather than an increase in listings - which have remained low.
Demand from users searching for property at Realestate.co.nz rose in every region in 2020, with the most significant increases seen in the South Island. Searches were up 46.1% for Nelson and Bays, 38.9% for West Coast and 37.6% for Marlborough. The drop in listings has not been
‘From an investor’s perspective the light is now green. But if inflation rose, the Reserve Bank’s behaviour changed, then that light could turn amber and then red’ DOMINICK STEPHENS
balanced across all regions, as certain regions face far lower housing stocks than others. REINZ data shows that regions with the largest percentage decrease in total inventory levels were:
Nelson which dropped -49.1% from 352 to 179 – 173 fewer properties, Marlborough which dropped -49.0% from 245 to 125 – 120 fewer properties, and Manawatu/ Whanganui which dropped -48.3% from 609 to 315 – 294 fewer properties. Wellington had the lowest number of weeks’ inventory with only four weeks’ inventory available to prospective purchasers. This is a record low level of inventory for any region since records began and highlights how desperately we need new listings to come onto the market in some parts of the country.
Low Rates Driving Boom
For Dominick Stephens, chief economist at Westpac, the current boom in housing can be summed up in three words: low interest rates.
“The data we have seen over summer has reinforced what we have been saying for a long time. When interest rates drop, house prices rise. And because I expect interest rates to stay low for 2021, I expect house prices to continue to rise.” Stephens predicted a price rise, but even he is surprised by how dramatic this has been.
“The vigour of the price increase is numerically higher than what we were expecting, even though we were expecting something pretty strong.” Stephens believes that what’s grabbing headlines at the moment is a symptom of low interest rates. “You see low stocks and rapid turnover, and these are signs of price increases to come. I believe that what we are seeing at the moment is going to continue at least for the next few months.”
For 2021, Stephens is predicting 12% house price inflation based on interest rates remaining where they are, but says he’s no fortune teller. “If interest rates rose in the future you will likely see a decline in house prices. That is what I am watching for – a change in the inflation\ backdrop, which would change the Reserve Bank’s behaviour, which could affect mortgage rates and house prices.”
“From an investor’s perspective the light is now green. But if inflation rose, the Reserve Bank’s behaviour changed, then that light could turn amber and then red.”
Lessons For The Year Ahead
Goodall says there are a few key lessons that investors can take from 2020 into the new year. “I think the main lesson has to be the solidity of the residential property market. Also, the announcement of focus from the Government on the housing market. We had announcements from Jacinda Ardern saying things like ‘people expect house prices to go up, they don’t want to see house prices going down.’ I think investors can take a bit of confidence from that sentiment.”
But with stock levels so low, Goodall isn’t predicting plain sailing for everyone. “There’s just not that much available for sale. If you are trying to buy a property it is going to be tough as there is strong competition out there. But if you have a property then there is pretty strong demand which is probably going to drive up prices. If you are an investor trying to extend your portfolio it could be a frustration, but for those with their portfolios already set it is a good sign for them.”
Goodall says that 2021 is going to be “a year of regulatory impacts” and that investors will need to be keeping a close eye on what is happening in the regulatory bodies.
“We know that tenancy law changes are coming next month; there is an expectation for changes to the LVR limitations; the potential introduction of debt-to-income ratios later in the year; what influence will the Government have on new build supply?”
“With all of this going on investors will need to pay attention to what is going on with the key policymakers whether that be the Government or the Reserve Bank. All the other fundamentals of the market are likely to continue, so this is the contingency that investors will need to be aware of.”