Happy New Year! As we welcome 2020, I would like to take a moment to look back on how the property market ended the last decade.
Figures from the Real Estate Institute of New Zealand (REINZ) show that Christchurch continues to sit below the national median house sale price. In 2019, the median sale price in Christchurch City was $456,250 compared to $582,500 nation-wide.
In terms of yearly growth, 2018 – 2019 yielded a 0.8% increase in median sale price in Christchurch City. Across all regions in New Zealand, the growth percentage was comparably higher at 4% for the same period.
Looking back over the past 5 years, the national median sale price has continued to grow at a steady rate; whereas, the Christchurch market has unquestionably flattened out.
Traditionally, Christchurch closely followed the national trend of steady upwards growth. However, in 2014, a sharp increase in median sale price signalled a shift, and this has been subsequently followed by the current period of slower growth.
This can be contributed to the profound effect the 2011 earthquakes had on the housing market, with a huge spike upwards in new housing construction from 2015 onwards resulting in an increased housing supply.
So what does this really mean? Is 1% growth a ‘bad’ thing for Christchurch?
When we look at the real estate market, it’s by observing the past and the cyclical nature of the industry that we get a sense of the future. Historical figures are our best indicators of where our real estate economy is heading.
Large gains and incredible growth are neither sustainable over time, nor are they necessary for the health of the real estate industry.
A healthy real estate industry is one in which homes are appreciating at a constant and affordable rate, generally between 1% and 4%. A large growth rate over an extended period can be very dangerous. When our current inflation rate of 1.7% and average wage increase of 4% (the largest increase in the past 10 years) are compared to a high housing growth rate, house price quickly exceeds the ability for the average consumer to afford it.
One of the main reasons for the current high period of increased national growth is the historically low interest rates, which have been a good thing, as they have helped affordability for buyers, and in particular, first home buyers.
These rates have surprised most. But it does highlight that mortgage rates are not immune to drastic fluctuations, and we must expect changes and plan ahead accordingly. One cannot rule out interest rates could once again reach the 10% (or higher) mark they were a few short decades ago. However, with this said, interest rates are projected to stay steady over the next year or two.
Interest rates do affect affordability. When interest rates increase by 1%, this translates to an increase of around 10% to the monthly cost of a home. This thereby reduces affordability for buyers.
The current unemployment rate is sitting at 4.2%, which is a very positive sign. When employment rates are this low, a natural fight for talent ensues, which allows wage growth and increasing affordability for homes.
My preference is for a smooth, steady, and healthy growth over time, ideally between a 2 – 4% yearly growth. This would ensure first home buyers, second home buyers, investors, and developers all reap the reward of a reliable and trusted property market.
I wish you all the best for the year ahead, and if there is anything that we can do for you, please know that we are here to help.
Nathan