Barfoot & Thompson managing director Peter Thompson says New Zealanders still back property as a long-term investment despite the challenges created by Covid.
Q: How would you sum up 2021? What were the high points and low points?
The highlight of the year has been that the property market, despite multiple challenges, significant regulatory change and trading restrictions, has retained the public’s backing as a stable, long-term investment.
Rather than seeing price increases in a negative light, an alternative interpretation is that they underline people’s belief in the country’s medium-term economic prospects and the strength of housing as a long-term holder of value.
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People have been prepared to invest their future in home-ownership and have retained faith that the market, at current prices, is built on a sound foundation.
The low point is undoubtedly the impact of Covid restrictions on individuals and businesses. In many ways, 2021 has turned out to be a repeat of 2020, with the major difference that the real estate, banking and legal professions were better prepared to deal with restricted face-to-face trading.
Q: At the start of the year, did you expect house prices to strengthen as much as they have?
The strength of house prices going into the end of 2020, combined with continued low interest rates and a shortage of supply, suggested that prices would continue to increase in 2021 but the rate would slow. That started to occur before lockdowns brought uncertainty and restricted trading.
In Auckland, this has led to unprecedented low levels of choice for buyers, creating even greater competition for available properties. Such scarcity invariably leads to an increase in prices and we will need to wait until the market returns to something like normal trading patterns before we get a true picture of where Auckland prices are at.
Q: Do you think sales for 2021 will catch up with 2020 sales?
The number of sales Barfoot & Thompson completed in 2021 is likely to be similar to those in 2020, which was also restricted by lockdowns.
In 2020, the effects were mainly felt in the first half of the year, while this year it has been in the middle and second half of the year and we were more prepared for the potential disruption.
The reality is that neither have been typical years and there isn’t much relevance to making comparisons between them.
Q: What would your advice be to first home buyers entering the market now?
First-time buyers should put greater emphasis on the level of their regular mortgage repayments than on the price they may have to pay. The price can be daunting, but time will take care of it.
Of far more consequence are the fortnightly or monthly mortgage repayment and the ability to meet that over the next three to five years, especially given inevitable interest rate rises.
No previous generation has found home ownership easy, but few regret making the sacrifices and taking the tough journey it often requires. Today, there are far greater options for first-time buyers such as townhouses, apartments and terraced homes, and all can represent an excellent, lower-cost starting point than a stand-alone property.
Few people live in the same home all their adult life, and being in the market will eventually open up other options as equity in your first home increases.
Q: What do you think the challenges and opportunities will be in 2022?
Covid is likely to be with us for some time and real estate activity, along with all economic activity, will be influenced by the social and health responses the country goes through. Potentially, there will be periods when sales activity will operate relatively freely, and times when it will be restricted.
As a profession, we are geared up to operating face-to-face or online. However, Covid restrictions could constrict the level of property reaching the market for sale – either in the form of new builds or vendors being unable to prepare their property. And despite the pace at which new homes are being built, the number reaching the market in 2022 will not be sufficient to ease supply constraints.
Given the staggered term of home mortgage contracts, the effect of mortgage interest rate increases will be gradual rather than a major hit.
The most likely scenario in 2022 will be a repeat of 2020 and 2021, with stop/go selling, a similar number of properties sold, modest price increases and the rate of price rises declining.
The biggest opportunities will fall to those who have a long-term, positive view of where the economy and housing market is heading, and who are prepared act on their plans.
