Three emerging market factors could provide some hope for home buyers that residential house price growth could ease in 2021.
Lodge Real Estate Managing Director, Jeremy O’Rourke, says all three will need to occur together to create the perfect storm to dampen the raging market.
“The first market factor we are keeping an eye on is the number of returning New Zealanders. The country experienced an initial burst of Kiwis emigrating home earlier this year to escape Covid-ravaged countries. If this decreases in coming months, housing demand will ease somewhat.
“Another big factor that could have an impact next year is the cost of new builds escalating due to the price inflation of building materials. This could decrease investors’ appetites for new builds if rents don’t keep pace with price increases.
“And the third significant factor to watch is the vaccine rollout in Commonwealth markets which traditionally attract Kiwi talent. As the vaccine impacts population health in the UK and Canada, for example, and economies bounce back and jobs open up, we’ll start to see New Zealanders leave again for overseas career opportunities. This will serve to ease overall market demand.
“These three factors, if they conspire together in 2021, would ease the rate of house price growth. However, if they do not eventuate, we predict no change in the market - we will continue to see prices rise on a steep upward trend,” explains O’Rourke.
Nearly impossible to buy under $400,000
O’Rourke said November saw the most properties listed on the Hamilton market of any month in 2020. “There were 401 Hamilton properties listed for sale on Realestate.co.nz during November. Although the supply of homes for sale is still lower than buyer demand, there are enough coming on week by week to keep the market moving forward at a good pace,” he says.
During November, the median price of Hamilton homes achieved a new record high of $692,000 for the month according to REINZ data. That compares to a median price of $671,000 in October.
“Huge demand for Hamilton homes continues to push prices higher. It’s almost impossible to buy a house in Hamilton under $400,000 and very difficult to buy something under $500,000. There’s strong interest at the top end the market: 17% of the homes sold in Hamilton topped $1 million this month as compared to just 6% in November 2019,” says O’Rourke.
Good and bad news for first home buyers
O’Rourke says first home buyers continue to find themselves in a predicament in the current market. “If you look at interest costs on a mortgage compared to rent for a similar home, your annual interest cost is typically lower than rental costs. This is especially true for people in properties in the bottom end of the market when interest rates are around 2.5% and rental yields are sitting at 4% to 5.5%.
“However, where the big issue is for first home buyers and what is stopping them in their tracks is the ability to save for a deposit. This becomes harder as prices push up at breakneck speed. We are seeing first home buyers missing out on properties when the deposit they worked hard to save is no longer enough,” explains O’Rourke.
7 days, 800 enquiries for 45 available rentals
“The rental side of our business had over 800 enquiries last week from renters and we only have 45 properties available out of the 3400 we manage. Our vacancy rate of 1.5% is the same as last year, but we have 300 more properties under management. That proves the incredibly high demand for rentals in the Hamilton market,” says O’Rourke.