Boom time: Property sales, volumes and prices beat the odds and expectations
New Zealand's property market is proving to be exceptionally resilient, despite the potential negative impact of the pandemic, job losses and the general election.
With both sales volumes and property prices continuing to defy expectations, we sat down with Nick Goodall, Head of Research at CoreLogic, to discuss the state of the property market and expectations for the economy in the coming months.
Stock shortages and low interest rates lifted the property market throughout the pandemic – has this trend continued?
Sales volumes in September were exceptional. Our projected final figure of 9,666 properties sold is the single strongest month in over four years.
We shouldn't forget we remain in a market where turnover is constrained by all-time low listings levels, so these sales stats are especially impressive.
What is a key driver to the rise in strong property values, and is this reflected in how the Reserve Bank has positioned itself?
According to the CoreLogic House Price Index, nationwide property values have now increased 0.6 per cent since COVID-19 began. The key driver here is the persistent undersupply of properties available for purchase.
However, it's the provincial centres that have shown the greatest resilience, with both Gisborne and Rotorua seeing values grow by more than five per cent. Even in Queenstown, where we know property demand has reduced, there are signs the drop away in values may have stopped, with a 1.2 per cent lift in the last month.
When we dig a little deeper and pay attention to the commentary coming out of the Reserve Bank, it's not all that surprising to see such strength. The Reserve Bank's transparent mandate has been to ensure 'cash and confidence' to the economy. Record low interest rates, access to credit and a bounce back in consumer confidence has been a recipe for stronger property market conditions.
Will this strong market continue, or should investors and home buyers be wary?
We don't want to get too carried away with this seemingly bulletproof property market. Tough economic times remain in front of us that could impact employment.
While the forecast peak of eight per cent unemployment is lower than previously expected the road to recovery will still be long and could flow through to the property market if people are unable to sustain their current living situation.
How do you think the unemployment rate will affect the property market?
Expectations are for the rise in unemployment to disproportionately impact renters, as opposed to homeowners. This is because renters are more likely to work in industries which are affected more greatly by the COVID-19 induced economic downturn, such as tourism, hospitality, arts and entertainment.
Property investors should be prepared for potential rent reductions to keep their tenants or face periods of vacancy.
What type of buyer will benefit from the current market conditions?
Investors remain a key player and they have recently taken advantage of the temporary removal of the loan-to-value ratio (LVR) restrictions. The latest lending data reported by the Reserve Bank shows that in August, 35 per cent of investor lending was advanced with less than a 30 per cent deposit. A year ago, that figure was 22 per cent.
Investors aren't the only active players in the market though; the share of sales going to first home buyers (25 per cent) was the highest figure on record in September, surpassing the previous peak of 24 per cent in 2006-07.
KiwiSaver withdrawals remain one important factor for first home buyers to stay active in the market, with more than 44,300 withdrawals for first home purchases according to the latest Financial Markets Authority annual report to the end of March 2020. This is up by 39,617 in March 2019, so we are expecting this growth to continue.
What are your predictions for the market as we move into Christmas?
Short term demand is looking very strong. According to the CoreLogic Early Market Indicators report, valuations ordered by banks for mortgages are up seven per cent week-on-week after a noticeable jump at the start of October. We'd expect this to persist through to Christmas at the very least.
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Resimac. The above is general commentary only and is not advice tailored to any individual's financial situation. We recommend seeking advice from an insurance or finance professional before implementing changes relating to your finances.