Should you buy or sell a home in 2022?
2021 was a challenging year for New Zealand’s property market, with rising house prices and differing regional lockdown levels and restrictions creating numerous difficulties for transactions. In Auckland, property transactions were restricted for more than three months. Rapid advances in online transactions across the real estate, banking and legal sectors enabled the property market to keep operating.
The property market in 2022 will be much like that of 2021: unpredictable and subject to strict operating requirements. Under the traffic light system, Auckland is now set for a gradual easing of operating conditions, bringing hope for economic activity in 2022. However, the continually mutating virus means we are unlikely to have the final say over the direction economic activity takes.
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The highs and lows of 2021
Towards the end of 2020, New Zealand house prices began to strengthen. Together with continuing falls in interest rates and a shortage of supply, this suggested prices would keep rising in 2021, but more slowly. That was before lockdown brought uncertainty and restrictions on transactions.
Barfoot & Thompson’s home sales in 2021 are likely to be similar to those in 2020, with both years constrained by lockdowns. In 2020, the effects were mainly felt in the first half of the year; in 2021, they were concentrated in the middle and latter parts of the year, but we were better prepared for their potential impact. Neither year was typical for housing transactions, so comparing them is of limited relevance.
In Auckland, lockdown reduced buyers’ choices to unprecedented lows, intensifying competition for properties on the market. Such scarcity invariably drives prices up. We will need to wait until normal trading patterns resume to gain a true understanding of Auckland house prices.
A highlight of 2021 was that, despite numerous challenges, major regulatory changes and transaction restrictions, the public continued to support property as a stable, long-term investment. Rather than viewing rising prices negatively, the strength of the housing market can be seen as an expression of confidence in New Zealand’s medium-term economic prospects and in housing as a long-term investment. People are investing in their future through home ownership, trusting that current market prices rest on sound foundations.
The low point of 2021 was undoubtedly the impact of pandemic restrictions on individuals and businesses. In many ways, 2021 was a repeat of 2020, with the biggest difference being that property, banking and legal professionals were better prepared to deal with the restrictions.
The word for auction rooms in 2021: “crazy”
When property auctioneers look back on 2021, they may never forget this “crazy year”. Even during Alert Level Four lockdown, clearance rates at many auction sessions exceeded 90%:
In January 2021, a Barfoot & Thompson auction achieved NZ$5,280,000 for a luxury home in Devonport on the North Shore；
In February 2021, the Reserve Bank announced that the OCR would remain unchanged at 0.25%, and auction rooms responded to the positive news, with development sites and mid-to-high-end properties gaining momentum；
A luxury Greenlane home sold under the hammer in March for NZ$9,900,000
In 2021, from month 4 through May, auctions of development sites remained hotly contested, with South Auckland and the North Shore attracting attention from investors and developers;
In June 2021, driven by a shortage of listings and excessive demand working in tandem, auction rooms repeatedly set records for clearance rates and sale prices；
In July 2021, competition in auction rooms intensified further and price premiums rose sharply, with a luxury home in Epsom selling for NZ$7,660,000 and another in Takapuna fetching NZ$5,970,000；
In 2021, from month 8 through September, the pandemic sent Auckland into Alert Level 4 lockdown, and the Reserve Bank again announced that the OCR would remain unchanged, setting the tone for a buoyant housing market during lockdown;
In October 2021, Labour and National unexpectedly announced a joint housing policy, easing the rules for medium-density housing development under the MDRS to address New Zealand’s housing shortage. The announcement was like water hitting hot oil, sparking an immediate reaction. With fear of missing out also dominating market sentiment, auction rooms responded enthusiastically, with a brand-new North Shore home fetching NZ$3,760,000, setting a neighbourhood price record;
In 2021, from month 11 through December, a surge of Auckland listings gave buyers more choice. The Reserve Bank raised the OCR twice to 0.75%, bank lending rates continued to rise and borrowing restrictions tightened, while house price growth began to slow, but this did not prevent a large development site in South Auckland from selling for nearly NZ$7,000,000，and central Auckland properties in the Double Grammar Zone continued to sell steadily for NZ$4,000,000–5,000,000；
On 23 December 2021, the final day of Barfoot & Thompson’s 2021 property auctions, 3 groups of buyers competed for a brand-new contemporary luxury home at 76 O’Neill Street, Ponsonby. It ultimately sold for NZ$4,850,000. The property had last changed hands in 2019 for just NZ$1,265,000.
According to CoreLogic’s recently released annual property report, New Zealand’s five suburbs with the highest median house prices were Herne Bay (NZ$3,150,000), Saint Marys Bay (NZ$2,780,000), Remuera (NZ$2,530,000), Westmere (NZ$2,440,000) and Ponsonby (NZ$2,340,000).
Across 2021, Barfoot & Thompson’s highest auction sale was a luxury home on Maungakiekie Ave, Greenlane, which sold under the hammer in March for NZ$9,900,000. Properties this expensive would usually be sold by tender, but when listing agent Linda Galbraith called auctioneer Murray Smith to ask whether it should go to auction, he said: “Auction it! There are plenty of buyers with that budget.”
One of Auckland’s leading auctioneers, Murray used words such as “astonishing”, “extraordinary” and “crazy” to describe New Zealand’s property market as he reflected on the year. In a career spanning nearly 30 years, he has handled thousands of auctions, but the number over the past 12 months was the highest of his career.
Rising house prices are a global challenge
There is no magic solution to New Zealand’s twin housing problems of property shortages and rising prices.
All the factors behind the current gap between supply and demand remain: scarce residential land, shortages of builders and building materials, population growth that continues through natural increase, relatively low mortgage rates, strong demand for rental properties, a culture of aspiring to home ownership, and more.
Globally, New Zealand is not alone in facing rising house prices and rents that consume an ever-larger share of people’s incomes.
The International Monetary Fund’s (IMF) latest global house price index, released in October and covering 2020, found that only 6 of the 60 countries surveyed had not recorded house price increases over the previous year.
Image source: International Monetary Fund
New Zealand ranked third for house price growth in the survey, behind only Luxembourg and Türkiye, with Canada fourth and Denmark fifth.
By comparison, in the 2019 survey, New Zealand ranked 33 for growth, between Sweden and Israel.
According to the IMF research report: “Low interest rates, government policy support and employees’ increased demand for working from home have all contributed to rising house prices. Online searches for homes reached record levels in many countries, including the United States. Alongside these demand factors, supply chain disruptions increased the cost of several construction inputs, pushing house prices higher.”
“Although supply and demand fundamentals can explain much of the buoyancy in housing markets during the pandemic, policymakers continue to monitor developments closely. As the IMF’s recent research into housing affordability in Europe highlights, rising house prices relative to incomes have put housing beyond the reach of many people. Surging house prices have also affected headline inflation in some countries, potentially creating more persistent inflationary pressure.”
“Rising interest rates, economic recovery and the withdrawal of policy support, together with the restoration of timely supplies of building materials, could lead to a gradual normalisation of house prices.”
On rents, the IMF found that in more than half of the 17 European countries surveyed, the lowest-income 20% of people spent more than 40% of their income on rent. In the United Kingdom, this group spent half its income on rent.
No country has all the answers to its housing problems. Challenges around housing supply and prices will continue over the coming year.
First-home buyers: is now the time to enter the market?
Looking ahead to 2022, house price growth will continue to slow, but prices will keep rising rather than falling. For those entering the market for the first time, and those looking to make a major move, the key is overcoming the fear of committing to prices much higher than those of a few years ago.
Over the past 50 years, house prices have fallen at times, with the longest downturn lasting three years. When prices fall, they recover within 12 to 18 months. So, although the threat of negative equity always exists, it is insignificant when viewed over the long term. In other words, if prices fall and you are not forced to sell, market forces will turn things around over time.
More relevant to buyers than prices is their ability to service a loan in the short term, especially when mortgage rates may rise. First-home buyers should therefore focus more on understanding their fortnightly or monthly mortgage repayments and their ability to meet them over the next three to five years. If they can manage repayments over that period without financial difficulty, time will ultimately resolve the price issue.
A modern approach to managing mortgage rates is to split a mortgage into several portions with different rates and expiry dates, enabling homeowners to ease the burden of rising interest rates.
Looking back over New Zealand’s past 100 years, no generation has found home ownership easy. Most people have had to work hard and make sacrifices to buy their first home, but few have regretted it. Today, townhouses, apartments and terraced homes offer first-home buyers more choice and provide excellent, less expensive starting points than standalone properties. Few people stay in their first home for life, either. As equity in that first home grows, entering the property market will ultimately open up other options.
What will 2022 bring?
The pandemic is likely to remain with us for some time, and property, like all economic activity, will be affected by New Zealand’s social and public health responses. Sales may proceed relatively freely at some times and be restricted at others. We are fully prepared to operate both in person and online.
However, the pandemic may limit the number of properties coming onto the market. Although new homes are being built rapidly, the number of homes listed in 2022 will still be insufficient to ease supply constraints.
With mortgage terms expiring at different times, the effect of higher lending rates will also be gradual rather than a sudden blow.
The most likely outcome for 2022, therefore, is a repeat of 2020 and 2021: stop-start sales activity, a similar number of properties sold, and modest price increases at a slowing rate.
The greatest opportunities will come to those who take a positive, long-term view of the economy and property market and act according to their plans.