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Summary
- Historic low interest rates and increased demand for property has led to sky-rocketing house prices.
- Strong growth in house prices could result in an absolute unaffordability, reducing buyers who can borrow enough to be a part of the market.
- As per ANZ report, Kiwis are more willing to accept stabilisation in property prices and a lack of capital gains.
NZ posted record housing prices for December 2020, showing no signs of any moderation in the last month of 2020.
CoreLogic’s House price index (HPI) revealed that property values rose by 2.6% in December alone, reporting a 6.1% growth in the last quarter of 2020. Most regions witnessed a 2-digit percentage rise with Gisborne leading the way (+30.4%), trailed by Whanganui (+24.9%) and Palmerston North (+20.3%).
Image Source: ©Kalkine Group 2020
Within the main centres, values were up by 15.4% in Wellington, 13.1% in Dunedin, and 9.1% in Auckland. Ultra-low mortgage rates, solid consumer sentiment, and demand offsetting supply, were the main contributors to the rising house prices.
The Property Market Leader’s head of Research, Nick Goodall, is projecting that a fanatical growth in the property values would persist in summers of 2021 as well.
Strong growth could lead to unaffordability
As per Mr Goodall, the effect of soaring house prices would result in an absolute unaffordability of houses in the future. This may cut down on the number of buyers, who were earlier able to borrow enough to play a role in the market.
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Analysts expect 2021 would be a zero hour for the market. Some markets like Auckland are already more unaffordable in NZ than others. However, there are offsetting forces like historic low interest rates implying Kiwis can afford to take high debts.
Sharon Zollner, ANZ Chief Economist, has stated that if NZ wanted to avert housing crisis, Kiwis must have accepted a drop in house prices.
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ANZ’s latest Property report stated that a change in expectations was equally essential than the solutions to tackle the housing supply. Politicians as well as Kiwis must be willing to agree to house price stabilisation and a lack of capital gains to ensure a fall in the house prices.
The economists at ANZ stated that a controlled supply-induced fall in the house prices would be a much better result than correction in prices and would also improve affordability.
ALSO READ: Why private house approvals rose for fifth straight month in November
One of the cutouts for the present bubble could be if getting a collective deposit becomes difficult for many people and the one more likely to cause a drastic change would be a rise in interest rates.
