2020 to bring “more swings and roundabouts” for residential property

Property economist discusses the trends we can expect to see in the coming year

2020 to bring “more swings and roundabouts” for residential property

2019 has been “another intriguing year” for the residential property market according to CoreLogic, and 2020 is likely to bring “more swings and roundabouts.”

2019 saw the government introduce a raft of new legislation including the restructuring of KiwiBuild, changes to rental laws and the bolstering of Healthy Homes standards. CoreLogic also notes that although the foreign buyer ban was enacted in 2018, 2019 was the year it really took hold of the property market.

“Against the backdrop of all those policy changes, the market itself has ticked along nicely,” senior property economist Kelvin Davidson observed.

“Sales volumes are set to be around 90,000 for 2019 as a whole, a touch above the decade average of about 88,000, but well below recent cyclical peaks of about 110,000 in 2015-16.”

“Part of the reason why sales volumes have ticked along and actually shown signs of renewed growth in the past few months is to do with the gradual easing in credit conditions,” he added. “Admittedly, the Reserve Bank did not cut the official cash rate (OCR) at their latest meeting in November and nor have they eased the loan to value (LVR) speed limits since January 2019.”

Davidson says that mortgage lending has gradually improved nonetheless, and the low mortgage rate environment has fuelled an “ultra-competitive” banking environment, with banks slowly easing their internal serviceability tests since August.

The property market has been supported the whole year by low unemployment and strong population growth, and property values have started to rebound in November. Looking to 2020, Davidson says it could become “the year of the investor”, as all the factors which have tempted investors back into the market seem unlikely to fade.

“There could well be a ‘window of opportunity’ for mortgage activity across the first 6-9 months of next year, with serviceability testing more favourable for borrowers, the banks still competing strongly, and mortgage rates very low,” Davidson said. “The combination of solid underlying demand and better access to credit bodes well for the property market for at least the first half of next year.”

“However, there are some risks likely to build towards the end of 2020,” he concluded.

“In particular, the requirement for banks to start increasing (from 1st July) the amount of capital held on their balance sheets may begin to actually flow through into the market and take effect from late next year, with mortgage rates facing some upwards pressures and/or the supply of finance tightening up. On top of that, the General Election (to be held no later than 21st November) will tend to create some uncertainty in the economy and property market around that time, as always tends to be the case for elections.”

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