OPINION: If you’ve been watching the housing market over the past few months you’ll know that, despite the expectations of the major trading banks – and in spite of the inconvenience of the most serious global pandemic in a generation - house prices have been increasing.
If you’ve been watching the housing market over the past few months you’ll know that, despite the expectations of the major trading banks – and in spite of the inconvenience of the most serious global pandemic in a generation - house prices have been increasing. Back between March and May when we were in still in lockdown there were sombre warnings of drops in house prices with the Banks uniformly predicting falls ranging from 5 percent to 15 percent.
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The logic of their argument was reasonable. The economy had taken a massive hit with suggestions that it could take years to recover from the impact of Covid. People were losing their jobs – and those who still had them were nervous that the worst might be yet to come. Against this backdrop there was a natural fear that housing market sentiment would reflect these things and that house prices would fall away in the wake of the hit on confidence.
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But it didn’t happen. Instead, house prices not only held up, but we’re now in the middle of one the strongest housing markets in years in most parts of the country with regular media stories about houses selling for record prices. In fact, so pronounced is this phenomenon that I recently put my neck and reputation on the line and suggested that, for Auckland at least, this isn’t just a blip – it’s the beginning of the next housing market boom, about a year earlier than might have been expected.
There are many theories about why this has happened and I don’t pretend to have any greater insight than others – except to say that there appear to be two significant factors in play that are, at least, partially responsible.
The first of these is the ongoing reduction in mortgage interest rates, and the expectation of further drops. The message seems to be getting through that rates have further to fall and this is fuelling confidence in the market. The second driver is the gap between the number of people who want to buy and the number who are prepared to list their property to sell which has effectively created a shortage of stock at a time when there’s a huge demand from buyers. Naturally, this puts pressure on house prices.
Which begs the question – why are some people hesitant to sell? Given the prices that are being achieved you’d think vendors would be lining up to list their homes – but they’re not. Here are some possible reasons why:
1. They’re still nervous that house prices might drop
While I don’t think this is a major cause of hesitation to sell – there will still be pockets where people are so fearful of the impacts of Covid that they simply won’t believe that they’re not somehow going to lose money if they sell their home.
2. They’re nervous about job security
In the midst of significant economic uncertainty and no clear plan, from the Government, to get us out of this mess, it should come as no surprise that some people would be hesitant to sell their homes until they’re sure that they would definitely be in a position to buy another. Add to this the number of people who’ve already lost their jobs and therefore couldn’t raise a new mortgage for the portion of their home they’d need to refinance in order to buy another one and you can understand the hesitation.
3. They’re waiting for the cost of money to drop further
Those who understand the relationship between house prices and dropping mortgage rates may simply be waiting for those rates to drop further in the expectation that they will get even more for their home when money is even cheaper than it is now.
4. They’re worried that they may not find a replacement property
While vendors can achieve fantastic returns right now – many of them would also need to buy another property to replace the one they’ve sold. Unless they’re undergoing a significant lifestyle change (moving to another town or city, upsizing, downsizing or looking for something with different features) then the benefits of a chieving a great price could be offset by the challenge of having to find a new property in a market where stock is tight.
Despite all of these factors, it would be my expectation that listings will increase over the next few months and that, by Christmas, there will be a lot more choice available to potential buyers.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
