Housing remains steady when underpinned by core catalysts
The housing market was expected to collapse when the COVID-19 crisis hit the country, especially during the lockdown. However, government intervention and other factors helped the market to recover.
The latest report by Mark Rais, the creator of think tank Trend Analysis Network, revealed four major underpinning catalysts upholding housing demand in the near term:
- Low-interest rates remain as one of the most potent housing catalysts
Rais said the housing market would continue to see solid momentum as long as interest rates remain at “ultra-low levels” and the Reserve Bank of New Zealand (RBNZ) indicates stability.
“Historically, interest rates are a leading indicator for the residential housing market. Keeping them low is a remarkably potent tool for retaining housing demand, especially among investors and first home buyers,” Rais said.
Read more: Barfoot auction activity recovers post lockdown
- Minimal housing stock upholds price stability
The influx of Kiwi returnees and the decline in available homes over the past few months intensified the competition in the market, said Rais.
“Existing homeowners and investors also remain undeterred, tightly holding their current properties since few better alternatives exist,” he continued.
“Unless there is a dramatic near term expansion of new housing or new incentives arise for existing owners to sell, housing inventories will remain low for the foreseeable future.”
- Investors have limited alternative yield options
Rais noted the growing trend for departure out of bank term investments, with many investors playing a “wait and see” game with volatile markets.
“As many Kiwi term deposits now arrive at their maturity dates, the new interest rate yields fail to encourage long-term reinvestment,” Rais said.
“It is valuable to understand that these numerous capital flights are the result of incredibly poor yields and significant market instability and now combine with high house prices and low inventory.”
Read more: Property demand skyrockets post lockdown
- Kiwis have learned from history that housing is a safer investment
“Investors traditionally have solid memories of economic upheavals. Many Kiwi investors still recall the stark economic upheavals in the 1980s, the end of credit rationing and labour market reforms in the 1990s, and fears of Bank failures stemming from the 2008 GFC,” Rais said.
“Investors are all too familiar with historical events and have a deeply enculturated ideal regarding the safety of housing investment during market turmoil. Unfortunately, this does go against the recommended value found in more diversified portfolios.”
