From unprecedented price increases and government intervention to a credit crunch, 2021 has been a momentous year for the New Zealand real estate market.
It was the relentless rise in prices that made the headlines.
Prices started the year at a high level, with figures from the Real Estate Institute showing they rose nearly 20% nationwide last year to a record median of $ 749,000 in December.
Demand for real estate has skyrocketed in all regions in 2020, Realestate.co.nz reported. Trade Me Property spokesperson Logan Mudge said the market had never been so hot after prices ended the year on a high.
But while that was initially supposed to be the peak of activity, 2021 has taken things to another level.
With a limited number of homes available for sale, mortgage rates at historic lows, and readily available credit, FOMO (fear of missing out) took hold and the market continued to explode.
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By mid-year, prices had risen 32.3% from the same period in 2020, according to the Real Estate Institute. This was the fastest annual price increase since the records began, and the national median was $ 820,000.
Auckland’s median price rose nearly 27 percent to $ 1.148 million, while Wellington and Christchurch’s medians rose 30.3 and 26.6 percent to reach $ 885,000 and $ 600,000, respectively.
But CoreLogic’s Best of the Best mid-year report showed that the cheapest areas saw the biggest year-to-June increases, with prices in some small towns rising more. by 40%.
As prices continued to rise and affordability fell further, concerns about the number of people being excluded from the housing market grew. This prompted a series of official interventions at the start of the year.
First, the Reserve Bank restored loan-to-value ratios (LVRs) for investors from March 1. Soon after, the government announced a series of new housing policies designed to make the market fairer for first-time home buyers.
These included the creation of a $ 3.8 billion housing acceleration fund for infrastructure to boost supply, the extension of the light line test to 10 years and the phasing out of the interest deductibility for rental properties.
Although these policies led investors to withdraw from the market, they did little to curb price increases. Pent-up demand from buyers continued to drive the market, as first-time homebuyers rushed to fill the investor void.
When Delta led to the return of alert level restrictions in August, the market was forced to slow. But not by many: The real estate industry had learned from last year’s foreclosure and easily turned to online business.
Despite this, analysis from real estate research companies, such as CoreLogic and Quotable Value, began to suggest that the rate of price increase was slowing down. Affordability was getting too strained and more ads were finally hitting the market, experts said.
The credit environment was also changing. In October, the Reserve Bank raised the official spot rate for the first time in seven years, from 0.25% to 0.5%, which accelerated the rise in mortgage rates.
In November, LVRs were reinstated for all homeowners, which meant that only 10 percent of bank loans could go to borrowers with a deposit of less than 20 percent.
And in December, changes to the Law on Credit Agreements and Consumer Credit (CCCFA) came into effect. They mean that the process of getting a mortgage has become much more onerous.
Economist Tony Alexander said the lending environment has become very strained and a credit crunch is now underway. “It’s accelerated over the past six to eight weeks, and it’s starting to suppress the market.”
At the same time, new listings hit their highest level in seven years and the total number of homes for sale grew 5.1% per year.
The supply of new homes was also pouring in, with housing approvals at record levels and a construction boom underway. In October, to further boost supply, Labor and National announced new bipartisan housing density rules that allow more housing to be built in urban areas.
Also at the end of the year, figures from the Real Estate Institute showed prices nationwide had yet reached new highs, although the rate of increase had slowed and sales volumes declined.
The national median price was $ 925,000 in November, while Auckland’s was $ 1.3 million, Wellington’s was $ 962,500 and Christchurch’s was $ 700,500. Wellington finished the year as world number two in a list of the cities with the fastest rising house prices.
But experts said headwinds were gathering and the market had passed its peak, while many economists revised their price forecasts to moderate declines by around 4-5% next year.
Looking back, Alexander said the price hikes this year have defied expectations and surprised on the high side. “No one expected the pace of the increases that have occurred.”
It wasn’t a huge price hike, or a jaw-dropping sale, or the long-awaited increase in supply, that pundits picked as the highlight of the year.
They all chose the government’s March announcement of removing interest deductibility like this time. New rules meant investors could no longer use the interest charges on their home loans to lower their tax bill.
Auckland investor David Whitburn said it was a landmark event as the policy came out completely out of the blue.
“Market pressures meant price hikes were predictable, and most official interventions were expected, but this policy took everyone by surprise. Although the initial shock has faded, it will have a big impact in the future. “