Positive property market conditions continue in 2021

Despite the economic slowdown Covid-19 restrictions caused around the globe in 2020, New Zealand avoided getting stuck in an economic rut, and swiftly got out of a recession.

  • 15 January, 2021
  • real estate, Housing, property, Market, sales, predictions

Despite the economic slowdown Covid-19 restrictions caused around the globe in 2020, New Zealand avoided getting stuck in an economic rut, and swiftly got out of a recession.

The property market went from strength to strength, home values reached new records and listings were sold in record times.

As experts turn to their crystal ball to predict what 2021 will deliver, conditions remain good for continued market growth.

Low mortgage rates and a tight supply of listings could keep an upward trend of property values throughout the year.

CoreLogic’s Senior Property Economist Kelvin Davidson has noted how the property market has become political to try and cool the heat of rising prices. He said Finance Minister Grant Robertson’s public letter to the Reserve Bank Governor demonstrates it might not be “plain sailing for the property market in terms of regulatory measures in 2021”.

“There’s already speculation emerging about an extension to the Brightline Test (a capital gains tax that currently applies if an investor sells a property within five years), while debt-to-income ratios for new mortgage lendings is are also rearing its head too,” Mr Davidson said.

LVRs are set to be officially reinstated by the RBNZ on March 1, this will not affect owner-occupiers, but investors will need to have at least a 30 percent deposit instead of 20 percent.

“With general demand still so strong, it seems unlikely that the return of the LVR rules will be a game-changer. Of course, as we saw back in 2016, pushing investor deposit requirements back up to 40 percent could be more significant – and while it doesn’t seem to be on the table at present, that couldn’t be ruled out if market momentum remains strong,” he said.

Quotable Value’s General Manager David Nagel also expects property prices to continue to rise, albeit at  slower rate than during the back half of 2020.

“I’m predicting we’ll see something more akin to 2019 levels of growth again, when prices increased by an average of 4-5 percent nationally, as opposed to the rampant double-figure growth that we’ve witnessed,” Mr Nagel said.

Although our economic trajectory seems positive, with no guarantee the country won’t be forced back into further lockdowns to squash any Covid-19 community transmissions, more economic strife could come. However, 2020 showed us how resilient our residential property market is, he said.

“While interest rates remain so low, it’s difficult – but certainly not impossible – to fathom a scenario in which prices would fall dramatically.

“Until we address this country’s chronic shortage of housing … we’re likely to have more buyers than we do houses, which is only going to keep prices up.”

Portfolio managers will monitor the market closely this year as the strength of the housing market will flow-on to the economy, Milford Asset Management Portfolio Manager Sam Trethewey said.

“There is a risk that the RBNZ may decide to try and take the steam out of the market with renewed lending restrictions or via other macro prudential measures,” he said.

“On the issue of limited supply, any material changes to land availably and possible changes to the Resource Management Act should be watched; however we would not anticipate a quick fix solution to supply issues.”

ANZ Research’s latest NZ Forecast Update expects a cooling in the pace of house price inflation during the first half of this year due to affordability and LVR restrictions.

“The market has momentum on its side, and a history of defying gravity for longer than one would think reasonable,” the report reads.

“A longer boom is entirely feasible, though that would bring with it greater chances of a bust down the track, given affordability metrics and already highly strained and household debt at record highs. If the housing market is still going strong in May, the RBNZ won’t be cutting the OCR.”

CoreLogic predicts that property sales volumes this year will be in the range of 85,000 to 90,000, similar to 2020 figures.

LJ Hooker NZ

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