Kiwi Mortgages


Why the Housing Market is Soaring in 2021 (A Commentary)


The New Zealand residential property market is heating up with no sign of slowing down.

In the last three-months, we have seen residential properties sore with an average property value increase of 6.27% since December 2020.

That means the same property valued at $900,000 3-months ago is now $962,700.

And the current forecast is that the market will not hit the brakes until the third or fourth quarter of 2021.

Which is why, we have put together a brief commentary covering the current marketing situation.


Residential Properties Market

The residential properties market is booming.

In fact, Interest New Zealand’s latest home loan affordability report has highlighted the ever-increasing gap between homeowners and those looking to buy.

Increasing house prices have been influenced by several factors, such as slashed interest rates, a more resilient than expected labour market, rebalancing of investment portfolios, temporary removal of LVR as well as the arrival of more permanent migrants before the border closures.

For existing homeowners, the market has never been better. The average homeowner saw an equity increase of around $500 (on average) per day between May and December 2020. This included those with fairly modest properties.

REINZ’s national median selling data has shown that the median selling price for homes increased by $129,000 in the last 7-months of 2020 (20.8% increase).

Right now, it is expected that house prices will continue to grow over the next 6-months.


Interest Rates-

Lower interest rates are continuing to support market growth.

In fact, experts have stated that the current interest rates are driving the market.

This is because the lower the interest rates go, the lower the cost of borrowing to pay for a house is, the more people can afford to borrow to buy a house.

Lower interest rates attract more buyers, meaning house prices will tend to be higher in a short supply market.

A quick look at the data, shows that the average property value had jumped 11% in December 2020, compared to the previous year.

And a quick stock of local banks, shows that most major banks are now offering one-year rates at 2.29 percent, whilst Heartland bank much lower at 1.99 percent.

The lower debt is making it easier for buyers to service debt over the loan term. This makes it ideal for buyers that can get into the market now, to make a move as the benefit of taking a loan offsets the higher market price.


Government Regulations-

The housing market has been under a watchful eye from the government.

And, while the current market has shown how several factors can be much like fuel to the flames, the government plans to help curb the crisis.

They have acknowledged that there is no ‘single’ solution to the market.

The first motion from the government will be to handle demand side measures, and after news regarding the demand side measures has been released, more information will follow as the 2021 housing budget has been finalised.

There has been discussion about further building on the current housing development program as well as a bright-line test.

A bright-line test is when buyers are taxed on the capital gain of houses bought and sold within a certain period. This is to stop purchases that are made with the intention of reselling.

The government also plans to tilt the market towards first home buyers by possibly incentivising new builds.


How Government help to Buying Your First Home


First Home Buyers

Despite rising housing prices, lower interest rates have created opportunity for first-home buyers.

First-home buyers who are picking between renting or buying, could actually save money as mortgage repayments may potentially be less than renting in the same area.

First home buyers that get into the market now are also likely to net a positive return in comparison to renting in the short-term.

The long-term outlook for first-home buyers, means that opting in with a 10% deposit now, will secure them a spot in an ever-increasing market. The same 10% deposit 6-months from now also might not be enough.

Present factors as well as long-term outlook has led to more first-home buyers actively engaging with the residential property market.

Adding to this, the RBNZ has impacted investors with the re-introduction of LVR.

By May 2021, banks will have to adhere to a 60/5 speed limit break for investor lending.

This 60/5 rule means that banks will only be allowed to lend 5% of their book to investors above a 60% LVR. Basically, investors that want to borrow, must do so with a 40% deposit.

Most major banks have already followed suit with the 60/5 rule, further opening the market to first home buyers and current property owners.

The current market situation has led to an active high-demand residential property market.

It is likely that the market will follow the rising trend as long as interest rates stay low. And with present opportunity, it is likely that buyers who can afford to do so will invest in a property.