Property market continues to outperform expectations

Spring has sprung, and typically, this is the time of year when more houses are put up for sale. But 2020 has been anything but ‘typical’ so far, and the New Zealand property market continues to catch experts and economists off-guard… Here’s a summary of the latest updates on prices, sales volumes and interest rates.

Annual median price increases across New Zealand

According to the latest Real Estate Institute’s residential property data, despite negative predictions, August has been a remarkably busy month in the property market. Median house prices increased year-on-year in all regions, pushing the national media price up by 16.4 per cent.

Eight regions even hit record median prices: Auckland ($950,000), Northland ($590,000), Waikato ($628,000), Manawatu/Whanganui ($450,000), Taranaki ($451,000), Canterbury ($497,000), Otago ($580,000), and Southland ($373,000).

Low interest rates, the removal of Reserve Bank-enforced LVRs, low supply, and Kiwis’ homeownership aspiration are all factors at play, according to REINZ CEO Bindi Norwell, who hinted at an ‘additional pressure on house prices and affordability’ in the coming months.

Little impact from higher alert levels

Despite higher Covid-19 alert levels across New Zealand, sales volumes have been the strongest for the month of August in five years.

In Auckland alone, the only region where Alert Level 3 was enforced, the number of properties sold increased by 44.2 per cent year-on-year. Other regions saw large increases in sales volumes, including Hawke’s Bay, Wellington, Nelson, and Southland.

Norwell explained that the adoption of digital tools by real estate agents may have played a key role in underpinning activity. However, she cautioned that clouds remain on the horizon, particularly in relation to unemployment and the economy.

House price drops may no longer be on the cards

As we’ve seen, the property market continues to show an uncanny resilience, prompting some economists to reverse their predictions.

Westpac analysts were the first to take a step back. Only a few weeks ago, they were expecting property prices to fall by 2.5 per cent between March and December 2020, but in a recent ‘Home Truths’ report, they actually predicted an increase of 3.5 per cent in the same period. Also, they’re still expecting national median prices to increase by 8 per cent in 2021.

So, why the change in sentiment? Westpac’s chief economist Dominick Stephens explained that their original forecasts were modelled on past economic crises. However, unlike the economic downturns seen in the early 1990s, 1998 and 2008, this time interest rates declined rather than rapidly increased.

“This unusual feature of the current recession may be teaching us that interest rates play an even more important role in determining house prices than previously appreciated,” Stephens said.

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Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.