8 reasons why house prices are rising

No matter what your opinion on whether ‘something should be done’ to restrict the housing market, there’s no denying the unanticipated buoyancy is a hot topic.

Both the traditional property powerhouses Auckland and Queenstown and provincial centres have seen significant property value rises. Evidence points to the strong market continuing into 2021 with the prospect of continued low mortgage rates and limited property listings.

The figures speak for themselves – overall spend on residential property in the 11 months to end Nov 20, compared to the same period the previous year, was up 24.7%, according to the Real Estate Institute of New Zealand.

Reviewing the factors contributing to these strong prices has led us to conclude that these are the 8 main reasons why house prices are rising:

1. Interest rates

• Record low interest rates have led to investors seeing more value in the property market than the bank. Indications are that interest rates will remain low as the Reserve Bank and Government continue to prioritise protection of employment and economic expansion
  
  

  2. Listing supply

• While new property listings continue to come onto the market, overall stock levels remain very low – 16 of 19 regions across NZ are at all-time lows since records began 13 years ago on realestate.co.nz. Less stock means more competition for available properties, supporting higher prices
  

  
  3. Fear Of Missing Out

• Property is always of media interest and never more so than in the last 9 months. The constant reporting of high market activity has created a landscape in which buyers fear they are missing the boat, naturally driving the market
  

  
  4. High first home buyer activity

• Low interest rates have created an enticing environment for first home buyers, with lending to this sector nationally up 26.7% from October 2019-October 2020. By definition, these buyers don’t have a property to sell first, increasing the low stock issue
  

  
  5. LVR restrictions

• Eased in 2020 to assist with the post lockdown recovery, many market sectors, from first home buyers to investors, were able to secure finance for new property purchases. Loan-to-value restrictions on bank mortgage lending will take effect again from March, which may mean a period of hurrying to make purchases over the next few months
  

  
  6. Money and people staying at home

• Approx. $10 billion a year is spent on international travel by kiwis. That money has, in many cases, been re-distributed to other areas, including property
  

  
  7. More remote working

• Increasing numbers of people have seen the possibilities of working from home and not being tied to a city. Lifestyle sales and regional sales have thrived in 2020 off the back of this
  

  
  8. Strong sales volumes

• Given that for seven weeks the property market was essentially at a standstill, it’s surprising that for the 11 months ending Nov 20 there were 75,800 sales nationally – a 6.2% increase on the same period in 2019

All the evidence points to listings remaining tight into 2021; combined with the reasons for buyers to stay highly active listed above, the expectation is for a housing market that remains buoyant for the foreseeable future.