Home Inspection News – Issue 54

Real Estate Market Update

3 weeks of lockdown in level 4 mean no real estate activity until the last week of September when level 3 allowed some reduced activity.

The remainder of NZ was in level 3 and level 2 for all of the month and activity was strong. Seven out of the 16 regions recorded new record median prices. They were:

Region New Record Price % Increase in 12 months
Bay of Plenty $878,000.00 24.2
Hawkes Bay $770,000.00 31.6
Manawatu/Wanganui $626,000.00 35.4
Nelson $802,000.00 24.5
Tasman $860,000.00 27.4
Canterbury $660,000.00 31
Southland $437,580.00 29.1

Not surprisingly the level of sales was down for the month, nationally 5385, -9.7% since last month. The time taken to sell was 5 days longer nationally than September last year.

Despite the various levels of lockdown across NZ the trend was for a continued strong market, interest, price growth and shortage of properties for sale.

House Prices 

They are too high. They are unaffordable. The bubble is going to burst. We have been hearing this for years now. So what really will happen with house prices in the next few years? Looking at the predictions by experts:

  • 17.04.2020 – Newshub – Coronavirus: House prices tipped to plummet as potential buyers go broke.
  • 15.12.2020 – TVNZ – Unemployment forecast to hit 7%, house prices could increase by 8.5% in 2021.

Unemployment is now only 4.0%, lower than at the start of the Covid19 pandemic and house prices have risen 29.9% in the past 9 months (Jan-Sep 2021) in NZ.

So what will actually happen to house prices now? Lets look at the factors which lead to both increasing and falling prices and then make a forecast.

Reasons For

Price Increasing Price Decreasing
Shortage of houses “Bubble” may burst
Historically low mortgage rates LVR (minimum deposit high = 20%)
So far about $10 billion normally spent on foreign travel diverted into the
housing market
Investor loan interest deduction being removed (claiming interest as an
expense)
Higher construction costs; up 5-15% in 12 months. Supply chain
disruptions. Shortage of trades people.
Bright line = capital gains tax
Higher building standards e.g.
insulation, earthquake strengthening etc
Rising interest rates
Council charges increase e.g. 660% increase in Drury, Auckland
development– levy was $11,000 now $72,600 per property
Switch to shares by would be
property investors
Low interest rates on bank savings Negative net migration
Taxpayer borrowing (via Govt)
borrowing like crazy to soften the Covid-19 blow
More rental regulations to deter
investors
General economy inflation Stricter bank lending criteria
FOMO = fear of missing out on great property price increases  

Looking at all of the above I still go back to Adam Smith’s “invisible hand that naturally guides the economy – supply and demand relationship.” Strong demand, shortage of supply = prices increase.

I have little doubt that prices will continue to increase in the next year or more. The major factors that would prevent this would be a big net negative migration (fall in demand) or a seriously damaged NZ economy (fall in demand).

Neither of these events looks likely in the next year or 2 at least.