It’s been a full year since Covid-19 made its unwelcome appearance on our shores. The doom and gloom merchants who predicted the pandemic would see a plunge in property values have been proved wrong, as data around property continues to paint a picture of a booming market.

However, with LVRs of 30% back in place for investors from March 1, and a leap to 40% in May, it’s predicted that the market may start to cool.

“This is especially likely following the Minister of Finance’s direction to the Reserve Bank to ‘have regard to the impact of its actions on the Government’s policy of supporting more sustainable house prices’,”says CoreLogic’s head of research Nick Goodall.

”While, previously the RBNZGovernor, Adrian Orr, has expressed that the Bank has always done so, the latest communication is more explicit with regard to actively contributing to the Government’s housing policy objectives, namely reducing investor activity and improving affordability for first home buyers.”

This being said, the stats from February reveal that buying fever ahead of the LVR reinstatement was still raging, with CoreLogic figures putting the value increase at 14.5% year-on-year.

Summer Sizzle Continues

The record month-on-month house price trend continued in February, with records broken left, right and centre. Median prices for residential property across New Zealand increased by 22.8% from $635,000 in February 2020 to $780,000 in February 2021 a new record high for the country, according to REINZ data.

Out of the 16 national regions, 12 reached record median prices. Median house prices for New Zealand excluding Auckland increased by 19.1% from $550,000 in February last year to $655,000.

Auckland’s median house price increased by 24.3% from $885,000 at the same time last year to $1,100,000 –a new record for Auckland. Additionally, Auckland City, Franklin District, Manukau City, North Shore City, Papakura District and Waitākere City all reached new record median highs.

“It’s highly likely that some of this uplift can be attributed to both investors and owner-occupiers looking to purchase ahead of the LVR restrictions coming back into effect in March and the slight uplift in listings we’ve seen over the last couple of months,” says Bindi Norwell, chief executive at REINZ.

CoreLogic data for February also revealed value and volume surges. In their latest report, CoreLogic stats show the average value of a house in Auckland up to $1,198,564, a rise in value of $13.3%. Wellington was up 16.6% to $903,864; Dunedin up 15.3% to $611,336 and Tauranga up 14% to $875,675.

Spotlight On Sales

February’s figures reveal that buyers’ appetite for property extended until the end of summer. REINZ data reveals that February 2021 had the highest number of property sales for 14 years: a 14.6% increase year-on-year. Auckland was the main driver, with a jaw-dropping 34.6% year-on-year increase from 2,061 to 2,775. The country excluding Aucklandrose by 6.1% year-on-year, with 4,890 selling up from 5,189.

“Auckland market has seen one of the largest percentage increases in sales volumes across the country
when compared to the same time last year, with a 34.6% uplift in the number of residential properties sold. This is remarkable when you consider Auckland had four days of level three lockdown in February and shows how adaptable both agents and members of the public are at moving to technology solutions to buy and sell houses when physical viewings are extremely limited,” says Norwell.

“Even with LVRs coming back intoeffect in March, we would expect to see sales volumes continue at a solid pace over the next couple of months; but this will in part rely on a steady stream of new listings coming onto the market,” she continues.

Inventory Issues

But the record highs New Zealand is seeing in values are underpinned by record low inventory levels. According to REINZ data that total number of properties for sale in New Zealand decreased by 24.4% in February, from 20,875 in February 2020 to 15,829 in February 2021.

Gisborne was the only region to buck the trend, with an increase in properties for sale of 19.8% from last February.

This is also reflected by data from realestate.co.nz, which records an inventory drop of 24.2% nationally.

“The housing market remains very tight, with low inventory continuing to be a challenge. Only Gisborne and Otago avoided recording year-on-year stock decreases in February,” says spokesperson Vanessa Taylor.

SlowDown Ahead

Kelvin Davidson from CoreLogic says that while the value and sales growth continued to rise in February, he expects a slowdown.

“It’s pretty clear that investors were getting in before the LVR changes in March,” he says. He adds that as well as the introduction of a 40% LVR on May 1, he anticipates more changes coming from the Reserve Bank in an attempt to cool house prices.

“I think we are likely to see a debtto- income cap or interest-only caps introduced later in the year. I suspect that either of these caps will make an impact and be a game changer for the property market.”

He says that he also sees mortgage rates moving upwards, reflecting the upward pressure currently being seen in wholesale rates.

“These rises can’t go on forever without affecting the mortgage rates: I think we are likely to see some upwards pressure in mortgage rates as we move into the second half of 2020.”

Davidson says that he expects investors’ momentum to start slowing, with the slack picked up by first home buyers.

“We will still see price growth, but there will be a change in the mix when it comes to who is buying.”

Market Predictions

Michael Gordon is a senior economist at Westpac. He says that the bank is predicting a 17% increase in house prices for the rest of 2021; representing just under 2% growth per month.

This relative slowdown will be due to the increased LVRs and any other tools that the Reserve Bank uses to dampen property growth. However, he feels that the impact will be mild.

“Many of the major banks already reinstated LVRs for investors, but there is still a lot of investor demand. The real reason for any lending restrictions is= avoiding excessive property debt, so we still will continue to see house price growth.”

Gordon agrees that the growing pressure from rising wholesale rate will see mortgage rates rise in theforeseeable future.

“This is likely to affect the five year rates in the first instance, but the one and two years rates are more anchored to the official cash rate, and this is likely to remain low.”