Back when Covid-19 first broke out in New Zealand and the country went into lockdown, economic fears were riding high and many thought a housing market crash was likely. Commentators predicted significant price declines and, during the first lockdown, activity did indeed stall.

Yet – fast forward a few months – and the market reality has turned out to be somewhat different. Not only did the market bounce back strongly following the first lockdown in March-April, but it now seems that lockdown 2.0 has not dented its resurgence.

The most recent round of housing market data marked the third consecutive month to turn in booming prices and sales. And that’s left economists revising their forecasts.

Prices Firmly Ascendant

To start with, price decline forecasts be damned. Values have largely held firm around most of the country in the face of the Covid-19 storm and, right now, prices are actually booming in some markets.

The CoreLogic House Price Index* shows that while values nationwide have fluctuated slightly in recent months, they were down by just 0.2% in the three months to August. This left the average national value at $737,854 in August.

Of the main urban centres, Auckland and Dunedin did see some drop in values, with declines of 1.2% (to an average value of $1,073,047) and 1.3% (to $545,474) over the quarter respectively.

However, in Auckland’s case this needs to be put in the context of its high existing values, while in Dunedin’s case it follows exceptionally strong value growth over the last year. Values in the other four main centres (Hamilton, Tauranga, Wellington, Christchurch) either flattened out or slightly increased over the quarter. While

Queenstown saw values fall by 7.4% (to an average value of $1,128,265), overall, values in the smaller provincial cities remained flat on 0.0% and rural centres saw value growth of 1.3%. However, the August price data from

REINZ presented an even healthier picture. In fact, REINZ chief executive Bindi Norwell describes the market’s recovery as “astonishing”, saying it has “certainly surpassed many predictions”.

Not only did the data show the national median house price up by 16.4% year-on-year, and by 2.4% on July, to $675,000 in August, but every region saw an annual increase in median prices. Further, eight regions and 17 districts/cities turned in record median prices.

The regions that hit record medians, on the back of double-digit year-onyear increases, were Northland, Waikato, Manawatu/Whanganui, Taranaki, Canterbury, Otago, Southland – and, surprisingly, Auckland. Auckland’s median price increased by 16.0% to $950,000 from $819,000 in August 2019. It was also up by 3.5% from $918,097 in July.

Both Realestate.co.nz and Barfoot & Thompson’s August data provided additional evidence of the ongoing strength of prices around much of New Zealand (including the long static Auckland), even in the face of lockdown 2.0. [*formerly the QV House Price Index]

Skyrocketing Sales Activity

But it’s not just prices that are booming of late, according to the REINZ data sales volumes have skyrocketed too. It has the number of properties sold nationwide in August up by 24.8% from the same time last year (from 6,132 to 7,652). That’s the highest number of sales in an August month for five years.

In Auckland, the number of sales in August increased by a hefty 44.2% year-on-year (from 1,812 to 2,612). Again, that’s the highest number for the month of August in five years.

While Auckland saw the largest annual rise in sales volumes, six other regions also saw double-digit increases. They were Nelson, Southland, Hawke’s Bay, Wellington, Tasman and Northland. Norwell says the overall volume of sales nationwide over August was “pretty incredible” and that the level three lockdown imposed on Auckland from August 12 to August 30 had little impact on sales volumes.

“It will be interesting to see what happens now that we’re heading into spring, as traditionally sales volumes start to lift as the weather warms up. As we’ve already seen, 2020 seems to be defying all predictions and going against all norms at this point in time.”

Sales activity may have been solid nationwide, but it was the strength seen in the Auckland market — despite lockdown 2.0 — that’s most noteworthy. As with the REINZ data, Barfoot & Thompson’s data reveals the level three lockdown restrictions had a negligible impact on market activity.

For the second consecutive month, sales numbers for the time of year were at a level last seen at the height of the last property cycle. There were 1,055 sales in August which – despite the restrictions - was a decline of just 3.7% on July. That sales figure was also a solid 41.4% increase on the 746 sales seen in August last year. Further, sales were strong across all price segments and across all suburbs and districts.

Barfoot & Thompson managing director Peter Thompson says that during the first, more restrictive lockdown, the market was stopped in its tracks but in August the market simply sailed through the restrictions.

“August trading was exceptional and, from a price perspective, even better than July’s trading, with buyer demand strong and consistent. The majority of vendors were prepared to move to the alternative sales methods we were able to offer and were largely unaffected.”

Record Housing Stock Lows

Meanwhile, the amount of available housing stock for sale nationwide has plummeted to record lows, which is helping to keep a floor under prices. Realestate.co.nz’s latest data shows that nine of the 19 regions hit 13-year record total lows in August. Nationally, the total number of homes available for sale was down by 13.2% on August 2019 to just 17,974 listings.

‘During the first, more restrictive lockdown, the market was stopped in its tracks but in August the market simply sailed through the restrictions’ PETER THOMPSON

In Auckland and Wellington housing stock was down by 7.0% and by 18.0% respectively. While Taranaki saw the biggest year-on-year decrease (of 48%), Marlborough (36.3%), Wairarapa (down 32.3%) and Northland (down 30.3%) all saw big declines.

The only regions to see increases in housing stock for sale were Hawke’s Bay (up 3.1%), Southland (up 3.2%) and Central Otago/Lakes (up 18.0%). While new property listings were actually up by 16.0% nationwide as compared to August last year, high buyer demand (up 21.0% on August last year), means those new listings aren’t making much difference to the stock shortage. Realestate.co.nz spokesperson Vanessa Taylor says the increase in New Zealanders returning home, along with the fact that many more people don’t want to relocate overseas right now, is likely increasing demand.

“As we have seen in the cramped rental market, everyone needs somewhere to live. Given our country’s long-term housing shortage, I expect demand will remain high with both owner-occupiers and investors looking to achieve their property goals.”

Norwell adds that unless more listings come on to the market before Christmas, there’s likely to be additional pressure on house prices and affordability.

MARKET STRENGTH REVISES OUTLOOK

The ongoing resilience of the market has taken many commentators by surprise. While they are still warning of ongoing uncertainties and an economic downturn, of late many have revised their earlier, more dire predictions, particularly in the area of house prices. Earlier this year, ASB was forecasting a 6% decline in house prices going forward, but it is now picking a fall of about 3%. Westpac has gone further and completely reversed its earlier predictions of price declines.

Westpac chief economist Dominick Stephens says they expected to see a 7% decline but that the “collective predictions of house price decline have been proven wrong”. He now picks price growth of 3.5% between March and December 2020 (which makes for 6.3% annual price growth in 2020).

The housing market has thoroughly defied the global pandemic – and the economic expectations associated with it, Stephens says. One reason is that Covid-19 and the associated lockdowns have proved less economically damaging than originally anticipated. The second reason is record low interest rates which push people into more active investment classes, like housing and make mortgages more affordable.

“Original expectation for a fall in prices was based on the fact that interest rates fell during the recessions of the early 1990s, 1998 and 2009. But all of those past recessions were preceded by a rapid increase in interest rates, whereas the current recession was not.”

Unemployment is set to continue rising (to 7%, Westpac expects) and the economy is weak, so this will hold back price increases to some extent, Stephens says.

“But next year we are actually expecting another decline in mortgage rates, as the Reserve Bank drops the OCR into negative territory in response to low inflation. Therefore, we are forecasting an 8% increase in house prices for 2021.”

House price growth cannot go on forever and Stephens says that when interest rates eventually do rise, the forces that have driven prices ever higher over the past decade will go into reverse. For Kiwibank senior economist Jeremy Couchman, the latest data shows Auckland’s level three lockdown did little to disrupt the housing market in August.

He says sales held up and house price growth hit a double-digit rate in the City of Sails. “But a housing shortage, record low mortgage rates, and the absence of LVR restrictions have hardened market resistance to Covid-19 across much of New Zealand.”

Strength in the market suggests a correction won’t be as severe as expected, Couchman adds. “But demand is still expected to cool towards the end of the year. The wage subsidy is waning, and net migration is virtually nonexistent while our borders are closed.”