Expectations of house price rises increase as festive season approaches.


Expectations of an increase in house prices bring early Christmas cheer as festive season approaches.

Positivity returning to the property market will be a welcome stocking stuffer for homeowners and retailers alike, however this news won’t be as well received by aspiring first owners yet to get a foot onto the housing ladder.

Retailers will be feeling a little more optimistic heading into the shopping season with households showing more confidence that the value of their property will increase.

Respondents to the latest RBNZ household inflation expectations survey picked house price inflation to nudge 4% over the next year. Not a shockingly high number compared to just a few years ago, but it's still a decent jump from three months ago where respondents were picking only a 2.8% increase. 

Westpac economists are more optimistic, picking 7% house price inflation over the next 12 months, while ANZ is picking 5.5%. The common trend appears to be upwards on previous numbers.  

Supporting predictions of a continued housing market rebound, the October median house price  pushed past $600,000 for the first time according to the Real Estate Institute of New Zealand (REINZ). 

Continued record low interest rates, a re-emergence of strong investor demand in response to factors such as low returns on other assets (e.g. term deposits), easing serviceability testing by the banks, and low inventory levels will keep pressure on the throttle going into the Christmas period.

Values


As mentioned above, REINZ figures for October show median house prices across New Zealand were up by 8.2% in October to a new high of $607,500. 

Auckland was flatter than the rest of the country again this month, with an increase of only 0.8% compared to an 8.6% rise outside of our largest city. 

Notable increases

  • Manawatu/Wanganui had a strong 24.1% increase to $397,000 - up from $320,000 in September last year; 
  • Southland might have been slow volume wise, but values jumped 22.1% from September last year; 
  • Taranaki was up 15.9%; 
  • Hawke’s Bay was up 13.4%; 

Notable decreases 

  • The West Coast continues its downward trend with prices falling 7.5% to $185,000;
  • Northland was down 5.5% after a strong showing in August; 
  • Nelson dropped 5.4% to $560,000 down from $592,000.

Volumes


Volumes went the opposite way to values, down 4.0% on this time last year, but they were up on September by 12.1%.

The drop from last year can be explained in part by the foreign buyer restrictions. These have knocked the share of properties sold to overseas buyers down from around 3% to 0.5% since they were enacted in October 2018. 

Looking at the winners and losers volume-wise when compared to past year we see; 

Selling more 

  • Bay of Plenty up 20.2% on October 2018
  • Tasman up 19.4% on October 2018
  • Nelson up 16.7% on October 2018

Selling less 

  • Marlborough down 28.7% on October 2018;
  • Gisborne down 22.8 % on October 2018 to their lowest October in 5 years (after their lowest September in 7 years last month), but seeing very strong price increases;
  • Taranaki down 22.8% on October 2018 to their lowest October level in 8 years.

Another factor possibly contributing to lower sales volumes are low inventory levels which decreased by 13.1% in October 2019. All regions recorded a decrease with some regions such as Wellington down to only 6 weeks of inventory, according to the REINZ.

Rents


Despite the government laying down a few speed bumps for landlords, a period of solid rental price increases has improved yields in many areas which coupled with lower returns on other investments, such as term deposits has seen stronger demand for investment properties. 

Investors have increased their share of new properties purchased, particularly mum and dad investors with less than 4 properties, according to data from CoreLogic. Rents continue to rise which should further support this trend, up 2.1% year on year in October according to Stats NZ.

Where to now?


Stronger price growth in many areas looks set to be on the menu for this festive season and into 2020. 

This is always a double edged sword and for those still working hard to get a deposit together for their first house , it will be a bit like a lump of coal in their Christmas stocking.  

Until recently however first home buyers have been resurgent with lower interest rates, steady prices and loosened LVR restrictions boosting their fortunes. Their market share has increased to its highest since 2014 and new lending in this sector was up by 20% year on year in October. 

Be careful though, as there is evidence that the benefits of lower rates are beginning to be wiped out by rising prices at the lower end of the housing market. REINZ data shows the national lower quartile selling price (the price at which 25% of sales are below) has risen from $401,900 in July, to $437,500 in October.

For investors, there is optimism, with some market commentators picking 2020 could be their year. They have increased their market share of property and this trend has a good chance of continuing into the new year.    

Despite this, there are still headwinds to keep an eye on, including the pending decision by RBNZ around capital adequacy, and very weak business confidence, currently  at a 10 year low. 

As always, I will continue to keep a finger on the pulse of the current and future economic climate, to keep you up to date with the things that are impacting the lending landscape so you can make better decisions.  If you’d like more information, on anything I’ve covered, please don’t hesitate to get in touch.