What this Lockdown means for the Housing Market

New Zealand coronavirus lockdown to stop coronavirus - 3D illustration

If there is one key similarity between New Zealand’s 2020 lockdown and the one we are experiencing now in 2021, is that there is an accelerating growth in house prices.

Within the March quarter last year, Auckland’s house prices rose from 0.5% to 3.5%. While the rest of the country saw an increase from 2% to 3.2%.

Fast forward to July 2021, Auckland’s house prices had an increase of 3.3% compared to last year and the rest of the country increased by 2.4%. These figures indicate that we can only expect this trend to continue and house prices continue to rise. 

2020 Lockdown vs 2021 Lockdown

However, there are some key differences between this lockdown and the one last year. In March 2020, the Reserve Bank cut interest rates by 0.75% and removed LVR restrictions. This increased buyer’s ability to purchase more properties and ignited the market.

This year the Reserve Bank has announced plans to reduce the amount of low deposit lending as well as limit lending to investors including debt to income restrictions. Once this has been implemented, we may see a slight decline in the spend of sales. However, with how much demand there currently is for property all over New Zealand, we may not even notice any change at all. 

The finance minister has instructed the Reserve Bank to work towards dissuading investors from buying existing properties while making the process more sustainable for younger buyers.

Differences in Lockdowns for the Housing Market
Differences in Lockdowns for the Housing Market

What can we expect after the lockdown?

Market commentators were predicting house values to decrease between 5%-15% due to Covid-19 and after our first lockdown in 2020. However, quite the opposite occurred, and 2020 was the most dramatic year for house price inflation in New Zealand’s history. House prices increased by 30% over the course of just 12 months. 

There are three post-lockdown stimuli which drove the rush of activity:

  1. Official cash rate 0.75 in March 2020. This had a big impact on mortgage interest rates as it gave banks the opportunity to drop their interest rates to historically low levels.

You might ask: “Why did this occur?”

  1. A month after the drop in the OCR, the Reserve Bank removed the loan to value ratio (LVR) restrictions in their entirety. These restrictions were not reducing house prices or stabilising the market and were major obstacles to first home buyers. So, the temporary removal opened the doors for many people.
  1. The third stimulus was in December 2020 when the Reserve Bank flagged that it was going to reintroduce the LVR restriction in March 2021. This heavily encouraged many first home buyers and investors to buy.

These are the three clear reasons for the exponential growth in property prices caused by the Reserve Bank.

The impact caused by the Reserve Bank
The impact caused by the Reserve Bank

Can this happen again?

Although the Reserve Bank is unlikely to drop the OCR or remove LVR’s again, they did delay their expected increase in the OCR by 6 weeks and reaffirmed that it is expected to increase at the next announcement.

We saw what happened last year when the Reserve Bank flagged its intention to reintroduce the LVR roles and the way people rushed to ‘get in’ before the door was closed so they didn’t have ‘FOMO’.

Could the same thing happen with interest rates this time round?

All we can say is if a home captures your eye maybe now is the time to act! Check out our latest listings and enquire today

Thanks for reading! Want to see more of news for the Housing Market? Then check out more on the DDL Homes Blog.

Contact Us Mortgage Calculator