Home Inspection News – Issue 38

Property Market News

Because of the Alert Level 3 restrictions open homes were not allowed and only 2 viewings per day was permitted for would be buyers. The result was a 46% drop in sales numbers
nationally in May 2020 compared to May 2019. A shortage of listings also contributed to the low level of sales.

The average number of days to sell increased 17 days compared to last May. That increased the median days to sell to 58 days in May 2020. Prices remained strong. Compared to May last year, May 2020 saw prices up nationally by 6.9%. In Auckland the increase for the last 12 months was 7.1% up from $850,000 to $910,000 which was the third highest price on record.

The only region in the country to see a 12 month price fall was Gisborne which was down 5.4%.

The three regions with the highest median price gains from May 2019 to May 2020 was:

Southland up 22.8% to $345,000
Tasman up 19.9% to $701,000
Manawatu / Wanganui up 18.9% to $415,000

Next month – June, should give a better indication of the market as Covid19 level 1 restrictions which came into effect on 8th June make real estate
activity more normal. Assuming we remain at alert level 1 the real estate statistics in July will be the first actual month where market activity would be normal.

Mortgage Rates and Lending Restrictions

Thirty Year Fixed Mortgage Rate – Historical Chart

New Zealand now has record low mortgage rates. With 1 year fixed interest rates being offered at 2.69%, it has never been cheaper to have a mortgage. Just 12 months ago when 1 year fixed rate was 3.89% we all thought that rates must be close to the bottom of the cycle.

And then along came Covid19. The effect on interest rates and lending restrictions has been massive.  A $500,000 mortgage fixed for 12 months at 3.89% can now be re-fixed at 2.69%. That is a saving of 1.2% on $500,000 = $6,000 per year.

For those with secure employment the $6,000 could be paid off the mortgage and will greatly reduce the length of the mortgage and the overall interest paid over the life of the mortgage.

Because the likelihood of mortgage rates falling even further perhaps to as low as 2.0% and the possibility of increased rates in the next year or two, it would be advisable to fix for 12 month or if a little more certainly is required for a maximum of two years.

The reserve bank has stated the official cash rate (OCR) will remain at 0.25% for at least 12 months. Furthermore they are pressuring trading banks to make loans and drop mortgage rates further.

Because of Covid19 the reserve bank removed the LVR (loan to value ratio) which limited banks to largely providing no more than 80% mortgages to first home buyers and 70% to investor buyers.

Under the current market conditions however I don’t expect banks to lend 95% or even 100% of the purchase price as actually happened in the past. 90% mortgages however are likely to become more common again to suitably qualifying applicants. These two factors alone – very low mortgage rates and no LVR borrowing restrictions will strongly support market prices.

Don’t wait for a bargain, believing prices will fall. Unless you are in very tourist and hospitality dependent locations that is unlikely to happen.