Christchurch Market Update December 2021
With just 10 days or so until Christmas, the release of what is the last meaningful data on our housing market will be a relief to many people. REINZ has just released the housing data for the month of November and the upcoming holiday break will now allow a lot of people to stop, take a breath and reassess what it is they want or need in the coming year.
There is no doubt that this has been a fast-paced year in our property sector, and month on month we have seen record price levels achieved due to the unrelenting pressure in the market. The release of the November sales data has shown that this pressure has not eased across New Zealand or the region. So, it’s probably opportune that we can all slow down over the next few weeks and reassess where each of us are at.
If you are reading this comment, you are obviously interested in the market and I’m sure you are aware that the Government and the Reserve Bank now have factors in play that are specifically designed to slow this market down. Recently pressure was applied in the banking sector that is specifically designed to restrict lending, and there is no doubt that the rhetoric and commentary has now turned to from where will the market go next to will the market reverse. Talking with people involved in the finance and lending industry, there seem to be three main measures that have been recently introduced to curb buyer enthusiasm and restrict the banking sector’s lending.
1. High LVR lending (loan to value ratio) is restricted. Borrowers with less than 20% equity in a transaction are finding it increasingly difficult in the current environment. Pressure is on to ensure that people in the high LVR risk area, which is 80% or more, are scrutinised much more closely. This aspect has hit the first home buyer market in particular over the last month. We are seeing potential buyers who previously had loan pre-approvals with their lender suddenly finding that their approval has now expired, and they need to reapply with these new rules and levels of scrutiny in place.
2. The banks are also having an in depth look at what is classed as Prudent Lending. All lenders are required by law to ensure their lending is prudent and in the best interests of all parties. Further scrutiny is now being placed on everything a borrower has, does and spends their money on in the months preceding a loan application. Consequently, there are stories of the banks going line by line through applicants’ bank transactions to ensure that everything about them and their spending habits is known. This has had the effect of dramatically slowing down the processing time it takes to agree to a new loan.
3. There is also now a focus on an applicant’s debt to income ratio, in other words, more of a check that an applicant has a strong income stream available to them when applying for a loan.
These three measures while all seemingly prudent in their application, will ultimately have unintended consequences (as most Government intervention in the market tends to do) when applied at the same time and not only to first home buyers but also the general population.
The effects of these measures are already starting to show in the real world as we run through December, and there is definitely a feeling that they could well have an effect in the new year, especially for the first home buyer, which will no doubt mean the Bank of Mum and Dad will become even more important, where it can.
In the meantime, the November figures show us that the market has continued its yearlong trend. For our city, the median sale price has now climbed again to a new record high of $700,500. The data recorded 767 property sales by the industry, and the median days on market dropped to a new low of 24 days, a reflection of how fast paced this market has been. Additionally, the HPI (House Price Index) has continued its upward trend to also reach a new record for Christchurch of 3861. The HPI is an algorithm that REINZ has produced which provides a predicted indication of what the market will likely do based on all the data each month. What it is indicating is that the machines are also predicting the strong market to continue.
When we look specifically at what has happened within Harcourts across the city this last month, it’s pleasing to see that we collectively had the strongest listing month in the last two years. This bodes well for buyers in the market as it provides choice. Additionally, when we look at the stock on hand, we have seen the numbers increase slightly as well, a good indication that that our supply is meeting current demand.
Sales volume-wise, November was the second-best month in the past year, with the frightening part being the ever-increasing sale prices achieved. With Harcourts selling over half the sales volume across the city, you just have to look at our results to appreciate why we believe that Harcourts provides an advantage when looking to sell.
The industry reported median for Christchurch City was $700,500.
Harcourts Christchurch City Median for November was $792,500.
The average Christchurch city sale price for the whole industry was $817,062.
Harcourts Christchurch city average for November was $919,703.
We believe we provide numerous benefits when it comes to selling and a large part of this is due to our auction business. While the national average for volume of listings for sale by auction is around 33%, Harcourts in Christchurch listed over 63% of new property as an auction in November. As we have said so many times before, it is a fair, transparent and public way of achieving a great result for both buyers and sellers. That’s why Harcourts should be your first choice when considering selling and it’s the reason we achieve our results.
What can we expect in the new year? After reading this commentary, you will appreciate that there are now some forces in play that weren’t around during the November sales period. Already it is apparent that there is a mood change happening within the market and the much talked about ‘fear of missing out’ (FOMO) is not as strong as it once was. No doubt the measures put in place by the Government are starting to have an effect, I know this from a personal family situation.
In the run up to the Christmas holiday period, we traditionally see things start to slow in the market over December, and this year I think buyer fatigue will also be a big factor in the eventual December statistics. So, I am predicting that we will see a more subdued market result when December is finally released, and I expect this will travel through into the January statistics as well. At some point we can expect the current meteoric price rises to flatten out and I think we are heading into a period where this is about to start happening. The sentiment for the next few months is best summarised by the words of Jen Baird, CEO of the Real Estate Institute of New Zealand:
“Despite steady growth, headwinds are gathering. Government measures to moderate the New Zealand property market, the Reserve Bank’s OCR increases and growing challenges around financing as banks tighten their lending criteria are aligning. While the longer-term impacts of these changes will play out over the coming months, the strength of the market suggests that the growth trend will continue — albeit with a more moderate trajectory.”