Housing Market starts strongly but coronavirus clouds forecasts.


The housing market has continued its strong momentum from 2019, with Auckland finally arriving at the party to join the rest of the country. 

However despite The Reserve Bank’s recent confidence that the economic effects of the coronavirus will be short-lived, there is a danger some NZ property markets could suffer ill health. 

There have been jitters on the share market while exports and tourism have already been adversely affected. How long property markets in impacted urban centres and tourist hot-spots can avoid the fallout remains to be seen.

A sustained dip in tourist numbers could well see a drop in employment in tourist towns and a consequent dip in demand for housing. Similarly, fewer opportunities to make money from Airbnb renting could see more properties returning to the rental pool.

Some commentators are predicting that if the country remains virus-free, we could see a small net increase in migration as New Zealand becomes an attractive place to live.

A lot depends on how long the crisis continues, so let’s hope the Reserve Bank’s prediction is correct.  I’ll keep you updated on the latest trends each month in the market update.

Turning back to the overall property market, the latest statistics show that surprisingly, January has been one of the busiest months across the whole country. Usually, January tends to be a quiet month and that has still been the case in many regions. Overall, however, according to REINZ, the number of properties sold was up 3.2% which is the biggest jump in four years.

Volumes

Around the country, 10 out of the 16 regions saw increases in the volume of sales, driven by low-interest rates, a solid economy and good employment rates. The net outcome is increasing confidence in the housing market which is demonstrated by this strong start to the year.

The Reserve Bank’s commentary around the OCR has some commentators suggesting it will remain at 1%  until 2022, although inflation pressures are running counter to that. 

Performance in house sales across the regions is, however, more varied with some big winners and losers.

Selling more

·         Nelson – up 42.6% on January 2019

·         Manawatu/Wanganui – recorded its highest total for three years at plus 15.3%

·         Bay of Plenty – up 11.5%

Selling less

·         Tasman – down 29.3%, its lowest January figure in three years

·         Southland – down 27.2%, its lowest January return in six years

·         Otago – down 17.1%, again a record low not seen for nine years

Inventory levels are continuing to decrease nationally hitting their lowest return for January since records started. Nationally, the number of properties for sale decreased by 21.7% last month compared to January 2019.

Properties selling under the hammer accounted for 6.8% of sales nationwide. This was an increase of 2.3% over the same period last year.

And when it comes to sales, according to property analysts CoreLogic, the trend for mortgaged investors’ market share of property purchases remains buoyant across the country. However, CoreLogic caution that there are signs of fatigue creeping in amongst first homebuyers in areas such as Wellington City, Palmerston North and Invercargill. Investors may not necessarily have pushed out first home buyers in those areas, but strong price pressures have certainly reduced affordability for would-be buyers.

Values

Median house prices have continued to increase nationally. According to REINZ, the national median in January was up 11.8% to $615,000, up from $550,000 in January 2019. 

This trend of increasing median prices has become very well established and some of the regions have seen record results. All up, seven regions saw record median prices and the big achievers included the following:

·         Southland – up 28.7% on January 2019

·         Manawatu/Wanganui – up 24.5% from the same time last year

·         Hawke’s Bay – up 22.2% on January 2019

·         Otago – up 19.9% from last year’s return.

It’s a similar story with the latest REINZ House Price Index (HPI) which looks at the changing value of property in the market. Seven out of the 12 regions reached record HPI levels. Auckland’s HPI increased by 4.4% on the previous year which is the highest percentage increase in nearly three years.

Days to sell

The latest REINZ data confirms the continuing downward trend. In January the average number of days to sell decreased from 48 to 42 days. This return is the lowest it’s been for the month of January in three years.

Gisborne recorded the lowest number of days to sell across the country at just 27 days. Hawke’s Bay, Manawatu/Wanganui, Taranaki and Gisborne had the lowest number of days in New Zealand.

On the other hand, Northland had the highest number of days at 55, which was up 10 days on December 2019’s figure. Waikato was second with 49 days, up 19 days on the figure for December 2019.

Rents

The cost of renting nationwide has never been higher according to Trade Me’s recently published Rental Price Index. The national median rent at $515 per week is a record high and an increase of 4%.

It’s a similar story across the regions; however, Wellington continues to have the highest rents in the country. Median rents in the capital rose $25 per week on last year to reach $575 per week. 

Rents in Auckland have also hit a record high increasing by $15 to a new median of $570.

Trade Me put these increases down to the ‘summer rental rush’. January sees many leases coming to end, students returning to university and lots of tenants with new year resolutions to find somewhere new to live.

Supply has not kept pace with demand. According to Trade Me, in Auckland alone, there was a 19% increase in the number of enquiries in January when compared to the previous year while the number of properties available to rent was up just 3%. And it’s the same story throughout the country.

Housing costs

In the context of rising house prices and rents, the latest household income and housing costs statistics from Stats NZ is something of a surprise. According to the data, on average Kiwi households paid no more for housing costs in 2019 than they did in 2018.

Stats NZ confirmed that in the year ended June 2019, households spent on average $17,227 on housing costs. This was up just 0.6% from 2018. This was despite property and ground rents increasing by 10.5%, while mortgage interest payments decreased by 9.6% over the same period.

Where to next?

The announcement of the election will undoubtedly have an impact on the NZ property market as we see what policies are announced. Traditionally buyers and sellers become more cautious in the face of political uncertainty. 

Similarly, a question mark remains over the coronavirus. Whether the economic fallout can be contained, and the crisis resolved sooner rather than later remains to be seen.

However outside of those headwinds the background conditions are well set for a strong year. 

One thing for certain is that I will keep you updated with all the latest trends and data you need to know about. Get in touch if you have any questions or you would like to discuss the issues in more detail.