Housing Commentary: Defying predictions

Covid-19 be damned: the housing market is proving remarkably resilient in the face of the pandemic and no-one is expecting that to change anytime soon, discovers Miriam Bell.

BY MIRIAM BELL

Back when Covid-19 first broke out in New Zealand and the country went into lockdown, economic fears were high and many thought a housing market crash was likely. Commentators predicted significant price declines and, during the first lockdown, activity stalled.

Yet – fast forward a few months – and the market reality has turned out to be somewhat different. Not only did the market bounce back strongly following the first lockdown in March-April, but it now seems that lockdown 2.0 has not dented its resurgence.

The most recent round of housing market data marked the fourth consecutive month to turn in booming prices and sales. And that’s left economists revising their forecasts.

Prices firmly ascendant

To start with, price decline forecasts be damned. Values have largely held firm around most of the country in the face of the Covid-19 storm and, right now, prices are even booming in some markets.

The CoreLogic House Price Index* shows that while values nationwide have BY MIRIAM BELL fluctuated slightly in recent months, they were up by 0.8% in the three months to September. This left the average national value at $743,678 in September.

Of the main urban centres, Tauranga (up 0.1% to $795,182) and Dunedin (flat on $547,429) saw the least value growth. However, Tauranga’s market has been flat for a while, while in Dunedin’s case it follows exceptionally strong value growth over the last year.

Values in the other four main centres (Auckland, Hamilton, Wellington and Christchurch) all increased over the quarter. While Queenstown values are down by 4.2% year-on-year (to an average value of $1,141,643), overall, value growth was the order of the month for provinces.

However, the September price data from REINZ presented an even healthier picture. In fact, REINZ chief executive Bindi Norwell described the market’s recovery as “astonishing”, saying it has “certainly surpassed many predictions”.

Not only did the data show the national median house price up by 14.7% year-on-year, and by 1.5% on August, to $685,000 in September, but every region saw an annual increase in median prices.

We expected to see a 7% [house price] decline but the collective predictions of house price decline have been proven wrong.

_ Dominick Stephens

Further, nine regions and 19 districts/ cities turned in record median prices.

The regions that hit record medians, on the back of double-digit year-on-year increases, were Gisborne, Taranaki, Otago, Bay of Plenty, Manawatu/ Whanganui, Wellington, Waikato, Canterbury and Auckland. Auckland’s median price increased by 12.6% to $955,000 from $848,000 in September 2019. It was also up by 0.6% from $949,500 in August.

Both Realestate.co.nz and Barfoot & Thompson’s September data provided additional evidence of the ongoing strength of prices around much of New Zealand (including the longstatic Auckland), even in the face of lockdown 2.0.

During the first, more restrictive lockdown, the market was stopped in its tracks but in August the market simply sailed through the restrictions.

_ Peter Thompson

Skyrocketing sales activity

But it’s not just prices that are booming of late. According to the REINZ data sales volumes have skyrocketed too. It has the number of properties sold nationwide in September up by 37.1% from the same time last year (from 6,112 to 8,377). That’s the highest number of sales in a September month for 14 years.

In Auckland, the number of sales in August increased by a hefty 53.2% year-on-year (from 1,867 to 2,861). And that’s the highest annual increase in sales numbers for 11 years. Nine other regions also saw increases of over 30% in annual sales volumes during September. They were Nelson, West Coast, Tasman, Canterbury, Waikato, Manawatu/ Whanganui, Marlborough, Bay of Plenty and Southland.

Norwell says the overall volume of sales nationwide over this time was “pretty incredible” and that the level three lockdown imposed on Auckland from August 12 to 30 has had little impact on sales volumes.

“It will be interesting to see what happens now that we’re heading into spring, as traditionally sales volumes start to lift as the weather warms up. As we’ve already seen, 2020 seems to be defying all predictions and going against all norms at this point in time.”

Sales activity may have been solid nationwide, but it was the strength seen in the Auckland market – despite lockdown 2.0 that’s most noteworthy. As with the REINZ data, Barfoot & Thompson’s data reveals the level three lockdown restrictions had a negligible impact on market activity.

For the second consecutive month, sales numbers for the time of year were at a level last seen at the height of the last property cycle. There were 1,099 sales in September – which was the highest number of sales in a month since 2017. That sales figure was also a solid 42.5% increase on the 771 sales seen in September last year. Further, sales were strong across all price segments and across all suburbs and districts.

Barfoot & Thompson managing director Peter Thompson says that during the first, more restrictive lockdown, property sales were stopped in their tracks, but in August the market simply sailed through the restrictions.

“But the key to the high sales numbers achieved in September was the number of new listings that came on to the market which, at 1,947, was the highest number in a month since October 2018, and 43.8% higher than in August.”

Record housing stock lows

Meanwhile, the amount of available housing stock for sale has plummeted to record lows, which is helping to keep a floor under prices. Realestate.co.nz’s latest data shows that 10 of the 19 regions have hit record total stock lows. Nationally, the total number of homes available for sale was down by 17.0% on September 2019 to just 17,576 listings.

In Auckland and Wellington housing stock was down by 7.5% and by 19.9% respectively. While Taranaki saw the biggest year-on-year decrease (of 50.8%), Marlborough (37.5%), Wairarapa (down 33.0%) and Northland (down 32.8%) all saw big declines.

The only region to see an increase in housing stock for sale was, not surprisingly, Central Otago/Lakes, which was up by 9.1%.

While new property listings were up by 12.9% nationwide compared to September last year, high buyer demand means those new listings aren’t making much difference to the stock shortage.

Realestate.co.nz spokesperson Vanessa Taylor says the increase in New Zealanders returning home, along with the fact that many more people don’t want to relocate overseas right now, is likely increasing demand.

“As we have seen in the cramped rental market, everyone needs somewhere to live. Given our country’s long-term housing shortage, I expect demand will remain high with both owner-occupiers and investors looking to achieve their property goals.”

Norwell adds that unless more listings come on to the market before Christmas, there’s likely to be additional pressure on house prices and affordability. ✚

[*formerly the QV House Price Index]

What’s driving house prices?

UP

REINZ HOUSE SALES

September sales nationwide were the highest for a September in 14 years, while Auckland saw the highest annual increase in sales in 11 years. Year-on-year, sales were up by 37.1% nationwide and by 53.2% in Auckland.

BUILDING CONSENTS

Consents issuance nationwide remains at historically high levels – but August consents were only up by 0.3% on July. Economists are surprised at their resilience but still think construction activity will fall.

MORTGAGE APPROVALS

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

RENTS

Stats NZ’s stock measure shows September’s rents were up by 0.2% on August and by 3.3% year-onyear. Trade Me Property’s August data had the national median rent up by 2.0% year-on-year.

DOWN

INTEREST RATES

March’s record OCR cut continues to be passed on by the banks. There’s now an ongoing mortgage rates war with unprecedented lows and the situation unlikely to change in the near future.

OCR

The Reserve Bank held the OCR at its Covid-19-prompted record low of 0.25% in September – and hinted that its programme to lend directly to retail banks could be ready by year’s end.

IMMIGRATION

Net migration from April to August 2020 was very low due to border restrictions. Despite this, Stats NZ’s provisional estimates for the year ended August 2020 show annual net migration at 71,500.