In early July Barfoot & Thompson broke the unexpected news that rather than retreating, in June Auckland residential house prices had increased – not only on those for the previous month, but also over those for the same month a year earlier.
It was a result that went against all the common wisdom of economists and commentators who could see only a decline in prices post the Covid-19 lockdown.
In mid July the Real Estate Institute released data covering house sales nationally, and this confirmed what had shown up in our Auckland sales numbers.
The Real Estate Institute figures showed that nationally median prices were up 3.1% on the previous month and up 9.2% year-on-year.
Why had the economists and commentators got it so wrong? Or have they?
Part of the answer to that question has to be that when it comes to economic downturns, homeowners do not overreact. Certainly, that has been the case in previous economic downturns over the past 20 years.
Those that feel they are not going to receive what they consider fair value for their property tend to put off the process, sit tight and wait for better times to return.
The other part of the answer lies in the combination of the measures that have been put in place to ease the financial implications of the lockdown such as wage subsidies and mortgage ‘holidays’, combined with the current low interest rate environment, the shortage of homes to house the existing population and the greater population’s belief that in the medium term home ownership is both a good median term family and financial investment.
There were (and remain) buyers in the market with a keenness and ability to buy at prevailing prices.
However, the question still remains as to whether the market will resist the second Covid-19 shock as wage subsidies and mortgage free payment periods start to disappear.
If their removal does see the start of a downturn, then in my view the least likely scenario is it will lead to a major collapse in prices.
Many economists and commentators are holding on to their early ‘decline predictions’ but they are now curbing its extent. Instead of talking 10% plus there is now a feeling it could be 10% or less.
While the housing market has weathered the first aftershocks of Covid-19 I think it will take us till October before we can start to look for a reliable indication as to where the market will head through the coming summer.
In addition to getting through the removal of subsidies and mortgage holidays, we also have a General Election ahead of us. Elections tend not to cause prices to fall, but they do affect the number of sales made.
Another negative forecast made about the housing market while the country was in lockdown was that investors would abandon the market in ‘droves’ – pushing down house sales prices, and also leading to a major decline in weekly rental costs.
Neither of these two forecasts have eventuated.
Based on our portfolio of 17,000 plus rental management agreements, we have seen no signs of investors retreating from the market.
Our data for rentals in June, has the average rent for a newly rented 3-bedroom Auckland property at $586 a week. This is $2 a week more than the average weekly rent for a three-bedroom home across the previous three months.
Interest.co.nz keeps track of rental prices nationwide based on new tenancies registered with Tenancy Bond Services, and this shows the median new rental across all types and sizes of property in June was $460 a week. While this is $10 below the peak price in April, it is the same as May’s median.
At present the rental market remains partly controlled by emergency Covid-19 regulations. Restrictions on tenancy terminations expired last month and the current rent freeze on existing tenancies will not expire until September 25.
Managing Director, Barfoot & Thompson