Could 2022 be the start of a ‘buyers market’

More options, less fear of missing out and possibly a reduction in house prices – these are some of the top line property market predictions for 2022.

The year that was saw a drastic increase in property prices across New Zealand, with many regions setting multiple median price records. Although lockdowns slowed the market and the number of property sales, it quickly bounced back before the year ended.

As we embark on a new year, the consensus for 2022 is that the property market will be tamer than it has been in recent years.

A significant factor that led to soaring house prices was the lack of supply, and although stock is still relatively tight across New Zealand as a whole, key areas, such as Dunedin and Wellington, are loosening quickly, CoreLogic chief property economist Kelvin Davidson said.

“With unemployment still low and motivated sellers few and far between, vendors may just sit tight for a while and not budge on price or even just withdraw their listing.”

“However, more choice for purchasers can only mean reduced price pressures in due course, and a switch to a ‘buyer’s market’ later in 2022 is firmly on the cards – albeit they’ll have to work harder to get the finance in the first place,” he said.

Davidson noted that the turning point in the property market appears to have been reached and he would not be surprised to see listings continue to increase in 2022, with new sellers coming forward and sales activity tailing off.

“It may not necessarily become a ‘buyer’s market’ overnight, because of course some vendors may be stubborn in sticking to their price expectations, which if they aren’t met could just see listings sit for longer and/or be withdrawn altogether – especially since unemployment is low and few vendors are likely to be ‘motivated sellers’ at present.

“However, as mortgage rates rise and credit conditions tighten, some vendors may eventually just have to cave in and ‘meet the market’. Certainly, any official imposition of debt to income ratios may force some investors who are wanting to buy extra properties to sell more of their existing portfolio in order to stay under the cap – unless of course they look at new-builds, which may well have favourable treatment under any [debt to income] system.”

In early December, ASB Bank issued a report that forecasted house prices will experience a cumulative fall of four percent in 2022.

“We now expect small falls in house prices over the second half of 2022. Given the perils of house price forecasting, the cumulative forecast fall, of around four percent should be interpreted more as a hat-tip to the risk profile than a precise point forecast,” the report reads.

“It’s also tiny in the grand scheme of the 35-40 percent surge in house prices since March 2020.”

Property valuation company Valocity points to five key factors that could make 2022’s property market very different.

James Wilson, Valocity’s valuation director, suggests inflation, interest rates, lending restrictions, migration and new builds will play critical roles in the direction of the property market.

It is no secret the Reserve Bank is trying to contain inflation with increases to the Official Cash Rate, and banks have increased interest rates off the back of those decisions. Interest rate hikes are expected to continue into 2022 and beyond, Wilson said.

“Many Kiwis who bought property in the last seven years will be unaccustomed to rising rates, and those who bought in the last 18 months may be shocked when interest rates move beyond five per cent.”

“This will have an impact on spending habits as belts are tightened and may see some mortgage-holders who bought holiday homes or investment properties radically rethink their assets,” he said.

The curve in migration following border restrictions at the beginning of the COVID-19 pandemic played a part in house price growth. However, when the borders open Wilson says there could be a “possible exodus of younger Kiwis to countries with higher wages and better job opportunities” which could ease some pressure on the housing market.

If recent years are anything to go by, trying to predict the direction of future trends can be challenging. But what is known is that interest rates will continue to increase and are unlikely to return to those record lows.

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Could 2022 be the start of a ‘buyers market’