Turnaround in house prices, supply unlikely

House prices look set to continue to rise in the new year, property data company CoreLogic says.

But investors wanting to buy homes may face having to stump up 40 per cent deposits, said Kelvin Davidson, senior property economist at CoreLogic.

Mortgage rates would remain low in the coming year, and so would the low supply of homes for sale, combining to push values higher, Davidson predicted.

‘‘It’s hard to see much of this turning around any time soon,’’ he said.

One of the factors behind the low number of homes for sale was that first-home buyers continued to make up a large share of buyers.

‘‘With first-home buyers by definition not selling anything before they enter the market, and few investors selling any properties at the moment either, the pressure on the supply/demand balance could well remain strong into 2021,’’ Davidson said.

But if the Reserve Bank continued to be nervous that rising house prices posed a significant threat to financial stability, it might lift the deposits required for investors getting loans through banks.

Currently, investors need 30 per cent deposits at the main banks, though ANZ had already lifted the deposit it demanded of investors to 40 per cent.

The Reserve Bank had not yet forced banks to require 30 per cent deposits, but was expected to do so from March, Davidson said.

‘‘But, if there’s no let-up in the RBNZ’s financial stability concerns, a 40 per cent deposit requirement next year couldn’t be ruled out.’’

This last happened in 2016, he said.

Some of the ‘‘headwinds’’ pushing back against rising

house prices were also easing, Davidson said.

Unemployment was now forecast to peak much lower than was previously expected, and the number of households in financial dire straits was not as high as expected.

‘‘More than 80 per of mortgage payment deferrals have already ended well ahead of the March 31 deadline,’’ he said.

The mortgage deferral scheme allowed banks to let borrowers reduce, or suspend, home loan repayments, if their incomes had been reduced as a result of the economic fallout from the Covid19 pandemic.

The continued hot property market would remain a political issue in 2021, Davidson said.

Questions about both Labour and National governments’ failure to ensure young New Zealanders have a fair chance at buying homes at a fair price continue to be asked.

National leader Judith Collins has sought to reposition her party as one that could oversee sufficient house-building, and said ‘‘stable prices’’ were important for families to plan their futures.

Davidson said: ‘‘Given that property listings are likely to remain tight into 2021, and that low interest rates are both encouraging borrowing and reducing the incentive to hold cash in the bank, the direction of travel for the housing market will probably remain upwards for at least the first half of next year, assuming no Covid shocks.’’

‘‘The pressure on the supply/demand balance could well remain strong into 2021.’’

CoreLogic’s Kelvin Davidson