House prices rise again but economists expect correction

Michael Gordon
Michael Gordon
House prices in Otago are up more than 20% on this time last year as sales continue to rise in the region.

But economists are warning the market is still likely to change when the Government economic stimulus mechanisms, such as the wage subsidy, start to fade.

The latest Real Estate Institute of New Zealand (REINZ) data says that while Gisborne had the largest annual median price rise, up 29.4%, Otago and Southland prices were the next biggest growers, up 21.7 % and 19.8% respectively.

The median price in Otago is now $550,000 and in Southland it is $340,000.

For Otago there was a slight increase on the number of houses sold compared to June last year, up from 350 to 366.

The region’s most expensive sale in the month was for $6.75million, in the Queenstown-Lakes district.

REINZ said June marked 105 months in a row of national price increases. Excluding Auckland, the national median rose 11.3%.

Auckland’s median also shot up 9.2% to $928,000.

"Earlier this year, there were a number of predictions that house prices would fall post-Covid," REINZ chief executive Bindi Norwell said.

"However, we are yet to see any evidence of that happening, with every region in the country seeing an uplift from the same time last year, and 10 out of 16 regions seeing an uplift from May.

"With wage subsidies and mortgage holidays still in place and demand for good property exceeding supply, we wouldn’t be so bold as to say there won’t be an easing of pricing in the coming months, when these support mechanisms come to an end. But right now, Kiwis’ love affair with property continues unabated, especially with the low interest rates we have in the market," she said.

Economists say the housing market’s resurgence will not last, after prices defied pandemic effect predictions and rose nationally.

Westpac senior economist Michael Gordon said the market continued to play catch-up after the Alert Level 4 lockdown in March and April but he is forecasting that will change.

"We’re not convinced that either sales or prices will be sustained at these levels.

"The jump in sales is likely to reflect pent-up interest by both buyers and sellers following the lockdown period. Meanwhile, prices are caught between much lower borrowing rates in the near term and a severe hit to economic activity that may become more apparent later in the year as the wage subsidy expires, unemployment rises and the international tourism market remains out of action," Mr Gordon said

yesterday.

Mike Jones, ASB senior economist, said: "We don’t think we’re out of the woods yet.

"There’s every chance that June housing data has been inflated by the same release of pent-up demand that is running through a bunch of other New Zealand economic statistics at present.

"We expect small monthly falls in house prices to resume. We remain at the less-downbeat end of the forecasting spectrum though, calling just a 6% peak to trough fall in prices," Mr Jones said

yesterday.

ANZ economists, headed by Sharon Zollner, also questioned the sustainability of the rally: "We expect that the impacts of the downturn will be more apparent later in [the second half of this year], with the housing market not immune." 

Additional reporting NZ Herald.

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