Delta variant in New Zealand: Housing market "resistant"

The housing market appears “resistant to the worst Delta can throw at it” according to commentators, who saw some “surprisingly strong” gains in October with the REINZ house price index (HPI) lifting by over 3%.

Auckland has been slowly lifting its restrictions in response to high vaccination rates over the past month, with retail businesses officially allowed to open from yesterday, and permitted numbers at outdoor gatherings increasing to 25. Kiwibank senior economist Jeremy Couchman said that easing restrictions have played a part in the resilience of the housing market, with seasonally adjusted sales rising to almost 70% in October.

Nonetheless, Couchman noted that the housing market “appears to be softening” outside of Auckland, with sales activity down by 22.5% on the last year. He said that “a list of factors is queueing up to weigh on the market,” and price growth is likely to fall quickly over the next year.

“The market is not necessarily as strong as headline price data suggests,” Couchman said.

“Delta distortions were evident, and sales activity in general is softening. Moreover, the list of factors queuing up to weigh on the market is getting longer by the month.”

“Much of the strength of house prices can be explained by Auckland and the relaxation of COVID restrictions from late September, as Level 3 made it easier for sales to progress,” he explained.

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“As a result, activity in Tāmaki Makaurau fired up in October and seasonally adjusted sales jumped by almost 70% - though still down 20% on last year.”

“The headwinds acting against the housing market are gaining strength,” he added.

“The cost of and access to credit is worsening, mortgage rates have lifted dramatically over the last month and are expected to continue rising over the next year, and lending restrictions have been tightened. Looking ahead, supply and demand imbalances in the market are expected to moderate.”

As temperatures rise and we start heading towards summer, the traditional lift in housing market activity is expected to occur. However, figures have been far from consistent over the past two months, with some regions experiencing price growth dips, followed by sharp rises in the following month.

CoreLogic head of research Nick Goodall said the ongoing restrictions in Auckland were still impacting figures, and despite the surface level picture of resilience, a growing list of factors is stacking up against any further rapid growth.

He said we are likely to see a more marked deceleration of the market over the coming year, with tighter lending standards, higher mortgage rates and supply issues all playing a part.

“As COVID restrictions linger around the country, particularly in Tāmaki Makaurau and surrounds, the property market has continued to show resilience,” Goodall said.

“However, the slowdown which was evident prior to the Delta outbreak has continued.”

“The rate of value growth slowed for the fifth month in a row, with the average property increasing by 1.4% in September,” he explained.

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“This is still a relatively high rate of growth, but as affordability continues to worsen and credit restrictions tighten, the market is clearly decelerating.

“Beneath the surface of the nationwide House Price Index, we’re seeing more volatility around the country. This is likely reflective of an uncertain market, where credit restrictions and unaffordability has led to reduced demand, and subsequently less competition - however, ‘quality stock’ is still fetching strong prices.”

Goodall highlighted Hamilton as one the strongest indicators of this volatility, with price growth increasing by 5% in September after having fallen by 2.8% in August.

Rotorua also saw values rise in September after falling in August, though, notably, values have still dropped by 2.4% overall in the last three months.

Nonetheless, Goodall noted that it is still difficult to get a ‘true reading’ on the property market while restrictions and domestic borders are still in place.

“The varying alert levels have had a clear impact on the ability to buy and sell property,” he said. “The national volumes chart shows a continued decline in sales volumes, despite eased restrictions outside our largest city. A return to some kind of ‘normal’ Level 1 life is probably required to get a true read on the current market.”