Steady upwards trajectory
Miriam Bell looks at the state of play in the housing market after frantic activity last year, and what it all means for 2021.
New Zealand’s housing market is supercharged as it heads into this year, but it all comes down to the supply and demand equation and that’s not changing anytime soon.
It’s running red-hot, going gangbusters, sky-rocketing upwards – there’s no end to the superlatives being used to describe the current market. But they serve to express the astonishment people continue to feel about its trajectory.
In March last year, when the country headed into lockdown, the market’s outlook was grim. There were dire predictions of huge double-digit price drops and that a flood of houses would swamp the market.
The reality has turned out to be very different, with historically low interest rates and the Reserve Bank’s removal of the loan-to-value ratios (LVRs) prompting a surge of buyers. That’s resulted in frantic market activity and house prices hitting new records.
It’s the sum of different moving parts though. So, as the summer break winds down and 2021 kicks into gear, we take a deep dive into the latest market data to assess the state of the market and what the outlook for it might be.
Demand at five year-high
One of the major market drivers is demand. This was, in fact, building before Covid hit. While real estate activity stalled over the course of the first lockdown, once it was over the floodgates opened and demand soared.
Evidence of this can be seen in Realestate.co.nz’s market review of 2020. It reveals that nearly 25 per cent more people were on the search for property in 2020 than there were in 2019.
Not only did the property listings website record 23 per cent more property seekers nationally last year than it did the year before, but the number searching marked a five-year high.
The surge in demand was evident in every region in 2020, with the biggest increases seen in the South Island.
This was reflected in a significant rise in sales activity.
According to the latest Real Estate Institute (REINZ) data, the number of properties sold nationwide in December was the highest in a December month ever. There were 8935 sales in December, which was a 36.6 per cent increase from the 6543 sold in December 2019.
It was Auckland that saw the biggest year-on-year rise: it recorded 3219 sales, which was growth of 66 per cent, and the highest figure for a December since records began. But the West Coast, Canterbury, Waikato, and Gisborne all turned in annual increases in
sales of over 30 per cent while Taranaki was close behind on 29.2 per cent.
REINZ chief executive Bindi Norwell says the 8935 properties sold made for 2392 more sales than the same time last year and that equated to an additional 77 properties sold every single day in December.
‘‘It was a pretty remarkable result and showed what a strong position the property market finished 2020 in.’’
Supply at record lows
However, the increase in demand wasn’t matched by the number of properties that came onto the market, with housing stock at record lows nationally.
There were 109,128 properties listed for sale nationally in 2020, which was a decrease of 2.6 per cent on the 112,007 properties listed in 2019, according to Realestate.co.nz.
That decline culminated in the number of houses available for sale nationwide falling to a 13-year low in December. There were just 12,932 homes available for purchase in New Zealand at the end of December, which is 29.1 per cent less than at the same time last year.
Housing stock was also down year-on-year in most regions during December, with 16 hitting all-time lows since records began 13 years ago. Only Auckland, Gisborne and Central Otago and Lakes avoided record stock lows, but all three regions had their stock down year-on-year.
While stock remains in short supply, new listings were up by 19.2 per cent year-on-year in December. More than half of these were in Auckland, Wellington and Canterbury though, which means there is still limited choice for regional buyers.
Following the Christmas hiatus, there has been an influx of new listings on to the market with a marked increase in the number seen in the first weeks of January, as compared to the same period last year.
Realestate.co.nz spokeswoman Vanessa Taylor says while the increase in new listings is good news, the ongoing shortage of housing stock and the high level of demand means those new listings are just getting swallowed up.
‘‘The lack of stock has created a significant mismatch in supply and demand and will continue to
prove challenging for buyers at the beginning of 2021. It’s a longterm factor impacting the market and the number of Kiwis returning from overseas, combined with low mortgage rates and lack of international travel, are only adding to the demand for property.’’
Norwell agrees. Inventory levels half of what they were in December 2018, and at record lows everywhere except Auckland and Gisborne, mean there isn’t enough choice for prospective buyers, and this is putting significant pressure on prices nationwide.
Prices on the rise
It is the steady upwards trajectory of house prices that is attracting the most attention and consternation. That’s because every passing month turns in record-breaking price growth and, in turn, some eye-watering prices.
The latest REINZ data has the country’s average median house price up by 19.3 per cent to $749,000 in December, from $628,000 in December 2019. It also shows that 11 regions and 27 districts saw record median prices in December, thanks to double-digit annual growth.
Gisborne led the way with a 43.9 per cent year-on-year increase, which lifted its median price to $590,000 in December 2020. The other 10 regions were West Coast, Manawatu¯ / Whanganui, Hawke’s Bay, Northland, Taranaki, Wellington, Waikato, Auckland, Canterbury, and Nelson.
Notably, Auckland’s market continued its strong rebound with a 17.4 per cent annual increase, which saw its median price hit a record $1.04 million in December.
The most recent instalment of CoreLogic’s House Price Index provides further evidence of this. It shows near-record monthly growth nationwide in December, with values up 2.6 per cent to a nationwide average value of $788,967.
This took growth in the final quarter of the year to 6.1 per cent, which is a rate not seen since the three months ended in February 2004 when it hit 6.6 per cent. There was also strong quarterly and annual growth in many markets around New Zealand, including all the main centres.
What lies ahead
CoreLogic head of research Nick Goodall says that without any major policy change regarding property in the works, the longterm affordability of the property market is reliant on a significant increase in supply, which is a slow-moving factor.
‘‘Later in 2021 the potential flow-on impact of such strong growth will eventually be outright unaffordability reducing the pool of buyers able to borrow enough to participate in the market.
‘‘There will need to be an adjustment of expectations from both vendors and buyers then, but with a full pipeline of buyers right now, and a lack of attractive wealth generating alternatives out there, this point looks some way off.’’
The situation has become a political football, and is leading to ongoing calls for action. There are hopes that when the Reserve Bank reinstates the LVR restrictions in March, as many believe it will do, it will slow the market down.
Yet economists are still forecasting double-digit price growth over 2021. Westpac senior economist Michael Gordon says their models point to ongoing rapid house price increases and they expect a further 12 per cent rise in house prices over 2021.
ANZ economists say while there has been a perfect storm for house price rises, eventually this dynamic will run its course and affordability and credit constraints will weigh on the market. ‘‘This is expected to take some heat out of the market at some point.’’