- The buying frenzy has persevered in the housing market despite skyrocketing prices.
- According to REINZ data, the country observed an increase in home sales last month.
- Despite soaring housing prices, annual property price inflation has not risen as considerably.
The recent uplift in home sales across New Zealand hints that the slow and gradual property market recovery could be on the horizon. In fact, the rebound in sales is being hailed as a potential gateway to increased housing market activity and a possible reduction in prices. However, at present, prices reflect a burning hot property market, which seems to be in strict need of a correction.
Interestingly, the buying frenzy continues to rule the property market despite skyrocketing housing prices. This has majorly been fuelled by the record low mortgage rates and the stimulating measures taken by the central bank during the initial stages of the economic recovery. However, a stark contrast is visible in the housing sector as many first-time buyers face difficulty participating in this boom amid sky-high prices.
Most of the people who are unable to afford a house belong to the young generation, who have possibly made peace with the possibility of never owning a house. This concerning reality points to the severity with which the housing problem has plagued New Zealand. However, improving housing sales could bring forth a much-awaited turnaround and bring the market slowly back to the previous levels.
Entering the spring season with increased sales
Following a dip in sales during September, housing market activity has spurred again amid the easing of lockdown restrictions. The recent October data released by the Real Estate Institute of New Zealand (REINZ) shows a monthly rise of 30.3 per cent in home sales from September.
The number of properties sold during October in the entire country except Auckland decreased year-on-year to 4,614. However, the month-on-month figure reflected an 11.7 per cent increase in volume sold across New Zealand except for Auckland, where 85.5 per cent more properties were sold over the previous month. Auckland has greatly benefitted from the growing prevalence of the work-from-home culture. Meanwhile, eased restrictions have enabled buyers to go on inspections, bringing the rhythm back into the market.
Overall, increasing business and consumer confidence has played a vital role in bolstering home sales. With houses becoming open for viewing, buyers are becoming firmer about their decisions. Moreover, the fear of missing out or FOMO on the property boom with low-interest rates seems to be ruling on the minds of most buyers.
Persistent demand driving prices
Even as the economy remained majorly closed due to lockdown restrictions, buying pressures never cooled off in the property market. This has resulted in housing prices staying on a perpetual incline, with median prices rising significantly across New Zealand.
The latest data from REINZ suggests that median prices increased to NZ$895,000 in October. It represents a year-on-year surge of 23.4 per cent. Ten out of the 16 regions in the report reached a record median price during October. Further, the REINZ Housing Price Index (HPI), which measures the changing value of property in the market, increased year on year by 29.9 per cent to 4,206. This marked a 15th consecutive monthly increase in HPI, representing a new high for the index.
Rising demand has contributed to the observed increase in prices. However, the total available properties in New Zealand decreased considerably year on year by 16.1 per cent in October. But buyers can still rejoice as inventory levels saw an increase of 13.5 per cent last month relative to September.
What to expect ahead?
Experts believe housing prices are close to their peak and could soon pass it, moving towards a gradual slowdown. According to the latest NZ Property Focus report from ANZ economists, the annual housing price inflation is easing despite the observed increase in property prices during October.
The bank suggests that annual housing price inflation has slowed down by 0.2 percentage points. Furthermore, the report suggests that an overall slowdown in housing prices would shape the current year.
Policy tightening could further obstruct the upward trajectory taken by housing prices, potentially making it difficult for buyers to secure mortgage loans and repay them. Thus, with the combination of slower demand and rising supply fuelled by the booming construction sector, prices could take a soft landing.