Forget Treasury, House Prices Will Rise, Not Fall, Despite Recession

The head of Century 21 New Zealand is joining a growing number of economists, property experts and commentators saying Treasury has got it wrong in its forecast on house prices in the Pre-election Economic and Fiscal Update (PREFU) even with the country now in recession.

“Back in March, the experts were miles off with their dire winter and spring real estate predictions, and they’re set to get this coming summer wrong as well,” says Derryn Mayne, Owner of Century 21 New Zealand.

Treasury now predicts the average cost of a home will fall 5% by June next year, before rebounding as economic confidence recovers and immigration picks up. However, major bank Westpac is among those that have reforecast house prices. It now predicts a 6.3% increase in house prices this year, followed by an 8% lift in 2021.

According to REINZ’s latest statistics, annual nationwide median house prices are up 16.4%. In Auckland they’re up 16.0% on the same time last year, with our largest city also up 3.5% on the previous month.

“There are simply more factors in real estate’s favour, than are against. Unemployment is set to be less than initially forecast, interest rates are expected to stay at record low levels if not going lower, the removal of LVRs makes it easier for people to get into the housing market, demand remains strong while supply is short, and rents are holding up,” she says.

Ms Mayne says with banks offering very low returns on term deposits, the real estate market is again seeing the ‘mum and dad’ property investors who can spy solid rental returns and know residential property is always a safe bet for capital gain in the medium to long term. Returning expats and Kiwis living overseas are now also actively investing in New Zealand property.

“There’s a lot of talk that the economic fall-out from Covid-19 will see New Zealand become a starker country of ‘haves’ and ‘have nots’. Getting into the property market sooner rather than later, and making the most of the very low borrowing costs, is one of the best things young Kiwis can do to ensure they’re participants in New Zealand’s economic recovery, not bystanders,” she says.

The Century 21 leader says with the median weekly rent in the Auckland region steady on $560, borrowing say $600,000 would prove cheaper to service for many renters, with increasing numbers waking up to that opportunity. However, she notes borrowers’ ability to service such debt will be closely scrutinised by banks.

“With LVRs gone, meaning the end of 20% deposits, young Kiwis in secure employment are doing their sums. If they can cobble together a more achievable deposit, many can see their mortgage repayments would be less than their rental commitments, plus they’re helping to secure their futures,” says Derryn Mayne.

www.century21.co.nz

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