HOUSING COMMENTARY

BY DANIEL SMITH

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 shut off from the rest of the world, and a slide downwards 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%, economists don’t foresee a housing correction in the next few years.

Prices still on the up

The upward trajectory that we have seen over recent 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.

_ Bindi Norwell

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.

_ Dominick Stephens

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

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

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.

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 (since 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.

REINZ CEO Bindi Norwell described the housing market as, “extremely buoyant at the moment, with more than 8,800 properties sold around the country. 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.”

For Westpac chief economist Dominick Stephens, it’s encouraging to see his predictions of a housing boom become 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 8% house price increase has now been left in the dust, with their latest forecast looking at a 13% 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 for the housing market.

But for those 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.”

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 low interest 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.” ✚

• REINZ HOUSE SALES

October sales nationwide were the highest for an October in 14 years, while Auckland saw the highest annual increase in sales for 67 months. Year-on-year, sales were up by 25% nationwide and by 50.1% in Auckland.

• BUILDING CONSENTS

Consents issuance nationwide remains at historically high levels: September consents were up by 3.5% year-on-year. Economists say consent issuance has shown continued resilience.

• MORTGAGE APPROVALS

Reserve Bank data shows mortgage lending overall reached a record high for an October as the market continued its lockdown recovery. Lending to investors was up both on September and year-on-year.

• RENTS

Stats NZ’s stock measure shows October’s rents were up by 0.2% on September and by 3.2% year-onyear. Trade Me Property’s October data had the national median rent up by 4.0% year-on-year.

• INTEREST RATES

Rates continue to go down, with the Government announcement of a Funding for Lending programme likely to see short-term rates drop even further.

• OCR

The Reserve Bank held the OCR at its Covid-19 prompted record low of 0.25% in October.

• IMMIGRATION

Net migration from April to September 2020 was very low due to border restrictions. Despite this, Stats NZ’s provisional estimates for the year ended September 2020 show annual net migration at 67,700.