Auctions and House Prices – Where are Kiwis heading?

  • Jul 27, 2020 NZST
  • Team Kalkine
Auctions and House Prices – Where are Kiwis heading?

Summary

  • Property prices could move towards 5-7% drop in 2021, as per a Property Market consultant.
  • REINZ data shows that median house prices across NZ rose by 9.2% in June 2020 to $639,000 from $585,000 in June 2019, with 10 of 16 regions witnessing a lift in house prices from May.
  • About 11.1% of the properties in NZ were sold via auction in June this year, with 733 properties selling under the hammer, up from 10% on pcp.
  • The property market would still be under scanner as wage subsidies and mortgage holidays are nearing their respective ends, along with soon to take place general election in September.

A large array of industries generate income from land sales, including real estate firms, insurers, mortgage lenders, and insurance agencies. However, coronavirus induced recession has weakened property market activity. 

A Property Market consultant has stated that property values could be at a turning point and going in the direction of a 5-7% drop. Its latest Market Pulse report has stated that the quarterly housing values index has fallen 1.5% nationwide in Q2 of 2020.

Biggest drops have been witnessed by Auckland and Dunedin of 2.4% and 2.5%, respectively, with smaller drops recorded in Hamilton and Christchurch of 0.4% each. Queenstown and Thames- Coromandel saw the biggest falls within regional centres of 7.2% and 5.3%, respectively.

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The drop in the values is not surprising as the housing market activity was extremely curbed for much of Q2, followed by wider economic consequences, but Q2 figures can prove to be a milestone for the market.

Property values have started to face downward pressures as the economy is in recession, and unemployment is rising. Though the predicted 5-7% fall in property prices would not be welcomed by the property owners but might prove to be a bonus for future buyers.

House prices are witnessing a rise in NZ

Median house prices across NZ experienced a rise of 9.2% in June to $639,000, up from $585,000 in June 2019. Median house prices grew by double digits with an improvement of 11.3% to $540,000 from $485,000 in June 2019 excluding Auckland that witnessed a 9.2% rise to $928,000.

REINZ CEO stated that there had been a number of projections that house prices would drop after coronavirus in early 2020, but the evidence is yet to be seen of the same as 10 out of 16 regions saw an uplift when compared to May figures. 

She also added that though government subsidies and mortgage holidays are still in place, house prices can fall in the months ahead, when the support mechanisms end. At present, kiwis’ love for the property persists.

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Sales volume rose by 7.1% on the previous corresponding period, in June across NZ from 6184 to 6625. For the first time in last 3 months, in the month June, regions began to see some rise in annual sales levels that were also the highest for a June month in the past 4 years, showing that the nation is recovering from the effects of COVID-19 induced lockdown and people are returning to their normal purchasing behaviour.

Further, REINZ HPI for New Zealand, that measures the changing value of property in the market rose 8.6% YoY to 2,991. HPI for NZ excluding Auckland increased 9.5% from June 2019 to 2,982 while Auckland’s HPI rose 7.7% YOY to 3,002.

Manawatu/Wanganui had the highest annual growth rate, with a 19.4% rise to a new record index level of 3,683 in June. Second spot was taken by Gisborne with an annual growth rate of 17.8% to a new record index level of 3,226.

To get a clear picture of how the underlying value of the market has been improving from coronavirus, there were 3 new record high index levels recorded in June with about 9 out of 12 regions posting a monthly increase.

The CEO also stated that several New Zealanders are now returning to NZ due to limited virus cases in the country and many are looking forward to buy properties for their families to live in, which has majorly strengthened the sales volumes for June. However, she cautioned that with the withdrawal of fiscal support and mortgage holidays coming to an end, along with elections in September, there could be a trough in activity rates in months ahead.

Auctions regaining after COVID-19 period

Auctions were utilised in 11.1% of all purchases throughout the country in June, with 733 properties sold at an auction compared to 10% at the same time in 2019, suggesting a move towards a more normal rate of auctions after restrictions were imposed for few months.

Gisborne had the country’s highest percentage of auctions with 46.3% sold under the hammer, up from 26.3% in June 2019. Auckland reported the second-highest number of NZ sales with 21.5% of properties going under the hammer, a rise of 17.7% at the same time in 2019. This was followed by Bay of Plenty with 12.8% (about 55 properties) sold under the hammer, up from 10.5% in June 2019 (48 properties).

The total number of properties available for sale fell by 11.7% in June countrywide to 20,772, down from 23,519 in June last year, recording lowest level of inventory for the June month since the beginning of records.

Outlook ahead

The Property Market consultant states that good times for house prices are expected to fade in the second half of 2020 as factors like recession and rise in unemployment can restrain the property market in the months ahead.

Spring season would test the demand strength, as it generally witnesses an increase in listings during the period. If the demand weakens, supply availability will rise, which will lower the support for prices.

Further, as wage subsidies and mortgage holidays come to an end, there will be further tests for the property market. General election, which is due in September can create ambiguity for households and the property market.

Property Market consultant states that results for 2020 are not expected to be as weak as sales figures in April and May, which saw sales down by 80% and 50%, respectively. While sales activity is likely to fall by about 25% compared to 2019, property prices are likely to fall by 5-7%. Hence, the appeal for the property is expected to stay in the longer term.

 


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