In mid September, the Real Estate Institute reported that in August residential property sales reached record prices in half the regions around the country.
It confirmed the information we released in the first week of the month that Auckland prices were setting new records.
Earlier in the year there was not an economist in the country that forecast this would occur post the Covid-19 lockdown. Most were forecasting falls in prices of between 5% and 10%, and some even saw prices falling beyond 10%.
Based on our sales data, prices and sales numbers started rising in March. In April and May sales numbers fell away but prices held steady. Both sales numbers and prices resumed their upward rise in June through August, and early indications are that sales in September will remain buoyant.
Economist and commentators are now forming viewpoints as to why those in the market ignored all the predictions, and instead followed through with their plans in terms of getting on the property ladder, acting on their personal housing intentions and moving ahead with investment decisions.
While they do that, of more interest to vendors and buyers is the question: Where to from here?
Naturally, it is the question those in the real estate profession are asked constantly. It is a question on which the profession should not have a strong viewpoint.
First, the profession does not hold itself out to be economists and hence, forecasters. Of more relevance is that the real estate profession is the agent of vendors, and our professional responsibility is to obtain the best price possible for vendors.
However, to fulfill our role for vendors it’s important the profession is as informed about the potential marker direction as possible and that is why I’m currently encouraging people to review the economic overview Treasury has released as a prelude to the General Election.
This document, which has been prepared by some of the finest economic minds in the country, is up to date, is a synopsis of data rather than a lengthy dissertation and pulls all the relevant data together in one place.
The document is specific in terms of where it believes house prices will head over the next 12 months, and then through to 2024.
Treasury sums up the economy as heading into a period of “profound uncertainty”.
It sees house prices over the next 12 months being “weaker” with prices “falling by 5.1% on those established in March 2020 levels”.
Then prices are likely to rise above current levels “recovering through to mid 2014”.
The paper even adds the rider around the next 12 months that “given recent resilience in the housing market there are upside risks to our forecasts”. Which, in layperson terms, means they could go higher than they are forecasting.
Four key factors that affect house prices are the Reserve Bank’s policy around trading bank lending, demand (influenced by population growth), employment prospects (how the economy is performing) and mortgage interest rates. These are the factors that build or undermine public confidence in the housing market.
The Treasury’s forecasts cover three of these key factors.
In terms of the Reserve Bank’s loan to value ratios restrictions. They do not see these being made tougher in the near term. What we have at present is likely to remain.
Unemployment is forecast to peak at 7.8% by March 2022, and then trend down to 5.3% by mid 2024 while net migration is forecast to fall from the current year’s 86,000 to 5000 by June next year, before increasing and being at 35,000 by mid 2024.
My interpretation of the Reserve Bank’s latest commentary on mortgage interest rates is that if they are going to move, it will downwards rather than upwards.
Combined, it suggests to me Treasury is saying that if there is a decline in prices it will be temporary and minor, but that out to 2024, prices will continue to rise.
In real estate language we class that as a ‘seller’s market’.