Will house prices lift post-lockdown?

With Aucklanders facing the familiar road to economic recovery following an extended period of lockdown restrictions, homeowners across the region are asking, will property values now take off again?

“Property prices shot up following last year’s lockdown, largely owing to a complex cocktail of market conditions,” says Hayden Stanaway, Bayleys director – Auckland & Wellington Residential.

“A sustained programme of supportive fiscal policy, coupled with record-low interest rates and a historic supply-demand imbalance only served to fan the flames of an already hot housing market in 2020.”

According to data from the Real Estate Institute of New Zealand (REINZ), the national median sale value lifted some 20 percent between March 2020, when lockdown began, and the close of the year.

While in 2021 we have the benefit of experience and a better understanding that bleak forecasts for employment, consumer spending and overall economic recovery have been overstated, Stanaway says the landscape looks a little different this time around.

“Last year’s pandemic response saw the Reserve Bank of New Zealand (RBNZ) wisely deploy its ‘least regrets’ strategy, using all the tools in its fiscal arsenal to facilitate the flow of money through our economy, ultimately keeping it afloat,” he says.

“This included unprecedented use of a comprehensive money printing programme dubbed the Large-Scale Asset Purchase (LSAP) programme, the temporary removal of Loan-to-Value Restrictions (LVRs), and historically-low mortgage lending rates encouraged by the Official Cash Rate (OCR), which was slashed 0.75 percentage points to a new record low of 0.25 percent.”

Today, the RBNZ has wrapped up its cash printing programme, reinstated LVRs; even raising deposit requirements for investors, following heightened activity which had a punitive effect on first home buyers.

“In the wake of last year’s lockdown, housing activity has been so persistent, the RBNZ recently signalled the potential for tightening deposit requirements for owner-occupiers starting October 1,” Stanaway says.

“This will likely only impact first home buyers that are entering the market at elevated levels and borrowing at high LVRs,” he says.

Of tightening lending conditions, Stanaway expects long-time homeowners will be mostly unaffected as the equity created by sustained historic value gains offers protection against rising property prices.

“Those looking to sell and trade-up have had the benefit of huge windfalls over the last decade, putting them in a pretty preferable position to buy again,” he adds.

In line with the housing market’s incredible performance during this global pandemic, New Zealand’s economy has made swift inroads toward recovery, with high employment and inflationary pressures offering the RBNZ plenty of reasons to raise the OCR sooner, rather than later.

“The RBNZ has said almost explicitly it will raise the OCR, for the first time in six years, as soon as it is practical to do so,” Stanaway says.

“While we have an eye on how rapidly the OCR rises once the tightening cycle begins, banks have been anticipating rising rates for some time, meaning these are almost fully priced into current mortgage lending rates,” he adds.

“Record-low interest rates have provided one of the biggest drivers of housing demand in recent years, and while we’re expecting these to rise, they will still be at low benchmark levels.”

In its August Monetary Policy Statement (MPS), the RBNZ’s predictions show the OCR rising to 2.1 percent by late 2024.

“Despite the absence today of some huge stimulatory factors which gave rise to runaway house prices, underlying market fundamentals including a severe supply-demand imbalance continue to motivate buyers,” Stanaway says.

“Record building consents are being issued, but we are still amid a historical deficit and catch-up is proving slow given challenges facing the construction sector.”

“Record building consents are being issued, but we are still amid a historical deficit and catch-up is proving slow given challenges facing the construction sector.”

Supply chain disruptions causing material shortages, a lack of skilled labour and capacity constraints are well-documented issues affecting New Zealand’s residential construction sector.

“While we’re doing our best to meet demand and build the houses our country needs, the obstacles persist and so long as there is a fundamental shortage, we will continue to see upward pressure on house prices – especially in desirable suburbs,” he adds.

Where last year, lifting lockdown restrictions saw pent-up demand come to life as high open home attendance, and even higher prices paid in the auction room, Stanaway expects the seasonal advantage of spring will have a larger impact this time around.

“Kiwis emerged from the first lockdown smack bang into winter – typically the quieter time on the real estate calendar,” he says.

“This year, we’re looking at warmer spring weather which usually encourages sellers to present their homes in a preferable light, while further encouraging buyers sitting on the fence to spring into action,” he adds.

“Backed by the benefit of familiar territory, we expect the economy will resume its quick and comprehensive recovery as we scale down the alert level system, extending to an uptick in sales activity for the residential real estate market.”

“Backed by the benefit of familiar territory, we expect the economy will resume its quick and comprehensive recovery as we scale down the alert level system, extending to an uptick in sales activity for the residential real estate market.”

While regulators are keeping a close eye on housing inflation, property prices are on track to close the year with some 30-percent value growth.

“We are anticipating heightened levels of pent-up demand, which will pair up with the added bounce of spring to see prices reach elevated levels.”

“The impending deadline of tighter LVRs, rising mortgage lending rates and greater controls on investors could also see buyers act quickly and decisively to get into the market before the goalposts shift again,” Stanaway says.

Seeking the advice of a legal professional is imperative when purchasing off-the-plans as there can be several items in a development contract the average buyer wouldn’t see in a standard sale and purchase agreement. These might include clauses relating to additional costs, liabilities and provisions in the event of changes and delays. Given recent high-profile supply shortages and capacity constraints facing the building and construction industry, your solicitor may look to include a ‘sunset clause’ offering you as the buyer an opportunity to renegotiate or renege on the agreement should the development run past the agreed date of delivery.

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