There are higher prices, greater sales volumes and continuing low borrowing costs – all contributing to a very positive outlook for the housing market in 2020.
There are higher prices, greater sales volumes and continuing low borrowing costs – all contributing to a very positive outlook for the housing market in 2020. REINZ data shows that the number of homes sold in New Zealand in December was up 12.3% on the previous year, with Auckland sales numbers up a surprising 31.7%. The total number of sales, 6,285, was the strongest December in three years, while Auckland’s 1,860 house sold was the highest December since 2015.
The official cash rate cut to 1%, along with more sympathetic servicing criteria, has made a big difference for marginal buyers. There was talk of a further cut this year, but considering the boost in property values and sales, it seems unlikely that will happen. CoreLogic’s Nick Goodall puts it like this:
“The resurgence in property value growth in the second half of the year, in conjunction with a lift in investor activity and lending, was enough to see the RBNZ take a ‘wait and see’ approach … it appears that was a wise decision. The solid, if the unspectacular, economy, persistently low unemployment and low-interest rates, both actual and serviceability rates, alongside a historically low advertised stock levels continues to contribute to a demand/supply imbalance”.
Goodall’s CoreLogic data also points to a recovery in Auckland values, with quarterly growth of 1.9% the best rate since November 2016, and the average value of $1.047m is back to where it was in 2018, erasing the early 2019 dip. Westpac is forecasting growth of 7% in the housing market this year: “We think solid continued gains are on the cards.”
On the downside, rising regional prices are making it very tough on first-home buyers and rental shortages are being reported across the country. The lack of rentals is an indicator of our short rental supply, caused in part by the drop in investor activity that we saw between about 2016 and mid-2019. For buyers, all New Zealand’s major markets are now rated ‘severely unaffordable’ by the annual Demographia Housing Survey, with Auckland houses priced at 8.6 times annual incomes, on par with Toronto, Canada. Tauranga is now the least affordable market, at a price-to-income ratio of 9.3.
With affordability so low, first-time buyers will need to be creative; expect to see stronger sales of owner-occupier-quality apartments and more joint ventures this year. For the past two years, we’ve been saying it’s a great time to buy – the sweet spot may now have passed but this should be the point where the gains really show.