17 Sep 2020

Experts, home buyers not convinced house prices will fall

5:41 am on 17 September 2020

Economists, real estate agents and property buyers are shrugging off a forecast of falling house prices.

No caption - taken June 2020

Photo: RNZ / Nate McKinnon

In its pre-election update, Treasury predicted the average cost of a New Zealand home will dip 5 percent by June next year, before rebounding as immigration picks up and economic confidence recovers.

Reserve Bank bond buying has driven borrowing costs to record low levels and in Wellington, first home buyer Grace says the market feels ultra-competitive.

"I've seen little two-bedroom cottages with south-facing living rooms going for over $800,000, so it feels pretty crazy. There's tons of people out there with babies on their front-packs and with their Mums and Dads, so it's definitely a pretty saturated first home buyer market, I think," she said.

Grace wasn't sure Treasury's predicted house-price plunge would pan out, and she was happy to put in an offer on a house now anyway.

"One you're in this realm of spending, five [percent]... it ends up not making much difference, I would think, especially when it's so cheap to borrow money," she said.

"I don't know if I would like, wait around to see if that happens, or not."

Michael Franks recently signed the dotted line on a house in Christchurch with his partner, and he said a short term drop in prices wasn't likely to stir up any buyers regret.

"We're very happy we've bought now. It seemed really competitive when we were going through. It seemed like house prices were going up 15 percent above what they normally should have," he said.

"It wasn't really our intent to get into the market for personal gain - we were doing it for a step forward in our life. So any money we could have made I don't think would be worth it."

Since Covid-19 took its grip, house prices have repeatedly defied bank economist predictions of price drops.

ASB chief economist Nick Tuffley said the market had ridden an "adrenaline rush" of eased lending restrictions, falling mortgage rates, and fiscal stimulus.

While that could change as wage subsidy support fades away, he was dubious if it would be enough for a 5 percent drop.

"We're a bit mindful that unemployment is likely to rise as we're heading through into next year, and that could take the edge off it. But having said that, we think the market's going to hold up and be quite resilient, and it could be quite possible that we don't see a dip," he said.

The Real Estate Institute has just recorded its busiest August for sales volumes in five years, with record house prices seen across half the country.

Bindi Norwell, CEO of REINZ

Bindi Norwell Photo: supplied

Chief executive Bindi Norwell said Treasury's prediction of a 5 percent fall came with a get-out clause.

"We've seen price growth for I think 107 months in a row, which has really put pressure on affordability. So if you're looking at five percent I think that's not a significant amount. But they did caveat, the Treasury, by saying that if the continued resilience and current sentiment continues, they will revise those forecasts as well."

In July, the country experienced negative migration for the first time in seven years.

Treasury said border restrictions were likely to continue, constraining migration in the short term, and in turn this would affect demand for housing.

But the chief executive of Realestate.co.nz Sarah Wood said there could be another group of buyers waiting in the wings.

"We've had big increases in international traffic, when we look at our traffic now compared to the start of the year. We've surveyed that traffic ... half of it is expat Kiwis looking to relocate to New Zealand."

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