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Bayleys April Market Round-Up

Tags: Residential Residential Views

A summary of some of the recent developments shaping New Zealand’s housing market over the last month.


The data is in for the quarter one 2021 and it shows fervent sales activity against record-low listings and an economy that continues to stabilise despite ongoing global disruption.

While we take encouragement from this data, it is already historical and Bayleys knows to keep looking forward as the effects of major housing announcements are likely to be felt over the coming months.

In the last year market fundamentals have come together in the perfect storm to create what appears to many an unsustainable housing bubble.

But with record-low interest rates, fiscal stimulus, which is known to prop up asset prices, and a community of captive Kiwis eager to invest savings into something more rewarding than a term deposit, rising prices are the result of a wave of change.

And now we’re looking down the barrel of the next phase of change, where government intervention and a sustained upswing in construction activity could be poised to satiate the soaring property market in time.

Year-on-year sales data presently offers a skewed picture of property performance with astronomical gains coming off a low base, given Kiwis were in the fourth level lockdown until virtually the end of April.

With this in mind, month-on-month and year-on-year sales data over the coming few months will continue to be contentious, especially as the effects of government policy reforms come to the surface.

Next month will be significant for our national housing market, with the Reserve Bank of New Zealand’s (RBNZ’s) Financial Policy Statement (FSP), cabinet consultation on recently announced housing policy and the Government’s Budget 2021 all anticipated to make waves.

Where the FSP may contain further announcements relating to housing policy, cabinet consultation could see announcements made on March 23 adjusted, repealed or amended completely.

Kiwis can also expect more information about government consultation with the RBNZ on debt-to-income limits and the restriction of interest-only mortgages.

While we do not expect great changes to come of debt-to-income or interest-only mortgage analysis, given the radical recent changes to housing control, the FSP will be interesting and Bayleys will be paying close attention to the economic information which is expected to shape policy implementation to year-end.

Despite a new wave of change, market fundamentals remain in play, with ultra-low interest rates expected through to year-end 2022 and the effects of improving economic confidence flowing through to household wealth.

In-depth reports:

In its latest Quarterly Property Market and Economic Update CoreLogic finds rapidly rising house prices in the first three months of 2021 to be buoyed by market conditions that have been expectantly tempered by the latest housing announcements. While value growth and sale volumes may slow over the second half of the year, the firm does not anticipate a value regression for residential property, emphasising the importance of a shortage of supply across the country.

ANZ’s latest Property Focus report explains that while construction and a hot housing market have been integral to New Zealand’s pandemic recovery, neither can rise any higher than they already have, largely owing to capacity constraints and shifting policy. Tightly intertwined into the broader economy, the performance of the housing market over the next few months is expected to continue without concern, despite projections that momentum will slow from astronomical highs.

The latest Reserve Bank Mortgage Lending data shows total monthly lending in March reached a new high, up 38 per cent on February’s information. While lending to investors, first home buyers and owner-occupiers all increased, the share of high loan-to-value (LVR) lending decreased for another consecutive month, demonstrating the effect of the reintroduction of LVR restrictions at the beginning of March. Bayleys expects that the record level of lending in March may be the peak of the year’s activity with sale volumes tapering off over the coming months as policy changes take effect and seasonal changes limit market activity.

Topical articles:

In its latest monetary policy review, the RBNZ kept the Official Cash Rate (OCR) unchanged at 0.25 per cent, as its promise to hold the OCR for 12-months expired a month ago. Economic data in the review suggested New Zealand is in a phase of stagnating inflation, meaning it will take continued time and patience (read, sustained low interest rates) for the RBNZ to meet its targets for inflation and employment.

Economists see the most significant recent housing announcement to be the removal of interest deductibility for property investors, likely exacerbating the issue of supply for the residential market. In answer to the changes, rental prices may rise, or properties may be listed for sale. While the former will be constrained by wage growth, the latter is likely to be picked up by owner-occupiers, reducing the total pool of rental properties available in an already stretched market place.

In its latest Housing Insights report, ASB Bank expects residential property value gains to peak at 10 per cent as we close the year, with inflation of five per cent expected in 2022. While the forecast reflects slowing momentum from the 24 per cent recorded in March, the average capital gain for the median New Zealand house in the last 12-months is noted as $143,000 – putting many New Zealanders in a preferable position to cash in and trade-up on existing properties.

The latest statistics from the Real Estate Institute of New Zealand (REINZ) show the median value of properties across the country rose 24 per cent, showing no noticeable impact of the reintroduction of LVR restrictions. This, perhaps owing to lenders adopting revised limits in advance of the RBNZ’s announcement.

New Zealand’s mortgage market has just seen its first 95 per cent mortgage offered for first home buyers, targeting those on good incomes, that have struggled to raise a deposit in light of rapidly rising house prices. The new offering is an exciting development for the mortgage market and acknowledges a growing number of middle and upper wage earners that are struggling to buy their first home in current market conditions.

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