The Market

The latest price figures from REINZ’s May Report tell a mixed story. Prices are falling. And at a modest rate, national prices fell around 5.6% in the last 3 months. But that sounds less troubling when you consider average prices are still up 3.7% on May 2021. The median house price rose nearly 24% in 2021, and that was coming off the back of years of similar gains. For many homeowners, it is worth keeping this context in mind when reading any headlines about falling house prices.

This still leaves the question, why now? Why after years of consistent growth are we only now seeing the market blowing off some steam? Well, as is often the case with economics it is hard to know exactly why.

Independent Economist Tony Alexander points to the “credit crunch” in his weekly newsletter, Tony’s View. He highlights tightening LVR regulations, new legislation shaking up the lending sector and a rapid rise in interest rates. Essentially, a double-whammy where banks are hesitant to lend and borrowers are faced with higher costs (interest rates). This makes it harder for buyers to get funds, putting a handbrake on the housing market.

ANZ Chief Economist Sharon Zollner recently pointed out a shift in priorities at the Reserve Bank of New Zealand. Essentially they are tasked with managing money markets to stabilise the economy and inflation. With inflation on the rise, Zollner reckons the Reserve Bank would be willing to let house prices take a tumble to stabilise the cost of living. We explained more about the Reserve Bank and inflation in our cost of living article here! 

What about the future?

Will prices continue to fall? While there is no magic ball we can look into to see the future, as you’d expect there are many differing opinions on what the housing market will look like going forward. ANZ has house prices set to begin recovering heading into 2023 whilst ASB has this poised for the latter half of 2023. Investment Bank Jarden takes a more negative view, seeing prices fall by 18% by the end of 2023.

Always keep in mind when reading forecasts the experts can get it wrong! Forecasts are great because they are the result of experts weighing up key factors, but the unexpected happens so don’t take them as gospel.

What this means for your insurance

If you own a home, you (hopefully) have an insurance policy for it. You probably did this so that if your home burnt down or some other disastrous event left it uninhabitable you can afford to rebuild it, right? Right?

This is where it is probably worth taking a second look at your policy. The cost of building has skyrocketed over the last 12 months (building a house in one of NZ’s main cities has risen over 20% in the last year!). As you would expect, with higher insured house values, the cost of insurance would also go up so it’s a great time to shop and see if you’re still getting the best deal. Quashed’s Market Scan feature makes this quick and easy, presenting you with several options all in one place in just a few clicks. I

A rebuild that might have cost $500k a few years ago could now be upwards of $750k! Because of this, it is important to review your level of cover regularly. A great tool to use is CoreLogic’s Cordell Calculator. Simply enter your address, answer a few questions about your house and CoreLogic’s tool will spit out an approximate cost of rebuilding your home! Obviously, this is only an estimate, a far more reliable option is to engage a professional valuer who knows the market inside out.

And as climate-related risks continue to pose a greater threat to coastal properties, insurance will be more important than ever. Research by Victoria University of Wellington suggests that in 18 years once-in-a-century storms will become an . Not only is the cost of recovering from extreme events on the up, but so is the occurrence of these events!

If you’re keen to find out more about insuring your home, check out our guide for homeowners here.

What about investors?

One of the hottest topics in the political chat around the property market is property investors. To try and ease demand for property the government has introduced measures to make property investment less profitable. For landlords, this has come in the form of tax changes (interest is no longer fully deductible) and tightened legislation to tip power towards tenants. If you’re an investor, you’ll have noticed changes to the “bright-line test” and lending restrictions. You can read more about these here.

For landlords, these changes mean it is worth checking out your insurance. Remember that any changes such as those to meet updated Healthy Homes Standards will impact the value of your property and your insurance cover may need adjusting. Amendments to the Residential Tenancies Act also now allows tenants to carry out “low risk” changes to the property, so it's worth checking you’re insured should anything go wrong! Unlike interest, insurance is still a deductible expense! You can read more about that here, or get in touch with a tax expert.

But nowadays, most Kiwi’s primary investment is their home whether they purchased it as an investment or not. In June 2021, property accounted for 43% of household wealth in New Zealand. For many people, this will be what funds their retirement or forms their legacy to be left behind for the next generation. This was great for households when property values were growing at a rate north of 20% a year. But recent events will have undoubtedly shaken some nerves, a great reminder that diversification is an important investment strategy. If you’re worried about this, talk to a qualified advisor!

Conclusion

Kiwis are property obsessed and house prices have been a hot topic in recent years. Whether it's in the Chambers of Parliament or the dinner table with your extended family everyone has their own gripes and solutions. But as the economic tides of uncertainty shake the property market, many Kiwis will be feeling jittery. It's a good idea to contextualise any headlines by looking at previous housing market performance.

Unfortunately for many, the cost of building has been on a different trajectory than house prices. From an insurance standpoint, this could leave many Kiwis vulnerable to being underinsured. If you haven’t reviewed your house insurance in a while it could be worth checking over your level of cover. 

And while you’re at it, why not check to see if you’re still getting a competitive rate? Like house prices, insurance premiums have been on the rise. Simply hop onto Quashed where you can manage all your insurance policies, and use the Market Scan tool to quickly and easily compare insurance prices and benefits. Give it a go, it’s free!