There was no rest from the quest for the perfect housing investment in January, with national median property prices rising by 19.3% from $612,000 in 2020 to $730,000 in January 2021, according to Real Estate Institute of New Zealand data released yesterday (February 16).

Last month also saw the highest volume of sales for the month of January in the last five years.

Southland was sucked up in the summer spiral of house buying enthusiasm, with the median price now at $390,000 (up 11.4% on 2020) and 135 house sales in January, up 18.4% (21 houses) from 114 sold last January.

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On February 9, the Reserve Bank of New Zealand announced it would reintroduce loan-to-value ratios (LVR) from March 1 in a bid to cool the speculative housing market.

The Reserve Bank had lifted LVRs in 2020 because it didn’t want to interfere with COVID-19 policy responses aimed at promoting cash flow and confidence. 

Real Estate Institute chief executive Bindi Norwell said the residential property market was “busier and more buoyant than we would usually see at this time of the year”, which she attributed to listings and the looming LVRs.

“This highlights how those regions with solid levels of new listings back in November and December are now benefiting from an uplift in sales volumes, whereas those with chronic low listings and total inventory shortages – such as Taranaki, Manawatu/Wanganui and Wellington – are now starting to see this impacting the market.

“However, with more than 1,400 new listings coming onto the market nationally in January 2021 when compared to December 2020, and anecdotal reports that open homes and auctions are starting to look busy for February, we wouldn’t expect this pattern to continue for much longer particularly as a number of people are likely to try and purchase before the LVR restrictions come back into play,” Ms Norwell said.

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In Southland, the median house price has increased by $40,000 since January 2020 to reach $390,000, she said.

“Investor activity has been on the rise again as the future of the Tiwai Point smelter has been confirmed for another few years, removing some doubt for purchasers. 

“The reintroduction of LVRs may slow this investor activity again, however, this may be countered by the increasing number of Kiwi expats moving south upon their return.

“Inventory is getting tighter for the region as stock decreases to 8 weeks available to potential purchasers, down from 12 weeks at the same time last year,” Ms Norwell said.

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Reserve Bank General Manager of Financial Stability Geoff Bascand said on February 9 that the LVRs were needed to reduce the risks of high-risk mortgage lending.

First-home buyers must have a 20% deposit for a house, while investors must have a 30% deposit. From May 1, the restrictions on investors increase to 40%.

"We have witnessed a rapid acceleration in the housing market, with new records being set for the national median price, and new mortgage lending continuing at a strong pace," Mr Bascand said.

"We are now concerned about the risk a sharp correction in the housing market poses for financial stability. There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged.

"A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt. Highly leveraged property owners, in particular investors, are more prone to rapid 'fire sales' that potentially amplify any downturn.

"These financial stability risks exceed the situation at the time of the Bank's December LVR consultation, resulting in more restrictive policy settings being decided on."