Melanie Carroll 10:06, Oct 13 2020

The runaway New Zealand property market may force the Reserve Bank to put the brakes back on early next year, say Kiwibank economists.

The number of residential properties sold in September jumped by 37.1 per cent from a year earlier to 8377, the most sold in New Zealand for over three years, the Real Estate Institute of New Zealand (Reinz) said on Tuesday.

Three quarters of homes sold in September went for more than $500,000 for the first time on record, and the country’s median house price rose 14.7 per cent from a year earlier to a new record of $685,000.

The Reserve Bank removed loan-to-value ratio (LVR) restrictions in April during the level 4 coronavirus lockdown. The restrictions, imposed in October 2013 in a bid to slow down inflating house prices, meant not more than 10 per cent of banks' new mortgages by value could be to people with deposits of less than 20 per cent.

The housing market has defied predictions of a post-lockdown slowdown, and economists have been revising their forecasts of a correction in house prices next year.

Kiwibank economist Jeremy Couchman said the Reinz data suggested a return of New Zealand’s gravity-defying housing market, unshackled from LVR restrictions and buoyed by record low mortgage rates.

“Moreover, annual housing price growth (measured by Reinz’s house price index) is back running at almost uncomfortably high double-digit rates,” Couchman said.

“The acute lack of listed property is also playing a role, with anecdotes in parts of the country describing queues of people snaking out of open homes.”

Wellington in particular had a shortage of listed property, reflected in the median number of days top sell falling to 29 days. Nationally, the median number of days to sell a property nationally fell four days from 36 to 32.

House prices rose 4 per cent in Wellington to be 14.5 per cent up on September 2019.

Rapid and persistent house price growth was usually followed by household debt accumulation and financial stability risks, Couchman said.

“The rapid pace of the rebound in the housing market, if it was to continue into next year, would certainly raise concerns around financial stability risks.

“However, the RBNZ has made it clear that for now the biggest risk to financial stability is the fragility of the economy,” he said.

“Reinstating macro-prudential policy such as LVR restrictions would put “grit in the wheels” of the economic recovery. So, don’t expect to see LVR restrictions return anytime soon.

“Next year might be a different story if the housing market continues to outperform and debt accumulates among higher risk investors and first home buyers.

“We think that the RBNZ will bring most likely bring back LVR restrictions next year. Give with the one hand (lower mortgage rates), and take a little back with the other (tighter lending standards),” Couchman said.

ANZ senior economist Liz Kendall said the September data pointed to continued buoyancy in the housing market, but significant challenges lay ahead with the border still closed and unemployment set to worsen.

“We remain wary that the current strength of demand is unlikely to be sustained, but recent developments nonetheless pose upside risk to our economic forecasts.”

Reinz chief executive Bindi Norwell said house sales would normally start to ease one month out from an election.

“However, 2020 appears to continue in its trend of being an anomaly, with the number of properties sold the highest in 42 months, since March 2017, when the country was last experiencing such growth.

“Highlighting just how much sales volumes around the country continue to defy expectations, 13 regions had annual sales volumes increases in excess of 20 per cent, and 10 regions had increases in excess of 30 per cent - the highest number of regions with this level of sales volume increase since April 2015,” Norwell said.

High levels of confidence in the housing market, the removal of LVRs, and people’s fear that prices were going to keep rising explained why buyers were going to such lengths to secure a property, she said.

Auckland’s median house price rose 12.6 per cent on a year ago to a new high of $955,000.

Taranaki and Manawatu/Wanganui have had three consecutive months of record median prices, while Rotorua District, Tauranga City, Lower Hutt City and Upper Hutt City have had two months in a row of record median prices.

“With interest rates at such low levels, investors are starting to head back into the market in high numbers and they’re competing with first time buyers for properties which is also contributing to the price rises we’re seeing in this bracket.

“This is making it harder for first time buyers to get on the property ladder – even with the removal of LVRs,” Norwell said.

The total number of properties available for sale nationally fell by 17.0 per cent on a year earlier, to 17,576 for the month. That was the lowest level of total inventory since records began.

Infometrics economist Paul Barkle said skyrocketing house prices, along with the economic impact of Covid-19, was worsening the inequalities that already existed.

“Indicators to date suggest the job losses from the Covid-19 pandemic are being felt disproportionately by Māori and Pacific peoples, who are already under-represented in home-ownership statistics and are therefore the least likely to benefit from rising house prices,” Barkle said.