House Prices Not A Barrier To Buying

Even though house prices nationally are at or near record prices, it is not a reason for those with the
ability to meet mortgage repayments and have stable employment to hold back from entering the

Contrary to the popular view that house price increases are racing ahead in an uncontrolled fashion,
the rate at which they are increasing through 2021 has been declining significantly.

I can make this statement with a great deal of confidence based on REINZ’s sales price index. This
database, which is freely available on the internet, is commonly regarded as the most accurate of
the measures covering house price movements. It covers prices nationally and regionally.

The index shows that house prices nationally in the three-month period March to May increased by

This is a significant fall compared to the 29.8% rise registered in the 12 months June 2020 to May

The main contributor to this fall was natural market forces as buyers responded to the prices at
which property was changing ownership.

The Government did intervene in March when it took initiatives to make changes to the brightline
test and the non deductibility of interest payments as a tax expense, but these changes would have
had minimal impact on sales recorded in April and May.

If the Government’s initiatives are to influence prices their impact is unlikely to show up until June’s
figures are released in mid-July.

At the time the Government made its March announcements, Treasury forecast that in the following
12 months the rate of house price increase would be 0.9% and that for the following few years it
would rise marginally above 2% each year through to 2025.

Leading economists, including those engaged by the trading banks, are not as optimistic as Treasury
as the speed and the level to which rate increases will fall. They support the fall in the rate of price
increases, but their expectations for the rate of increase are higher.

While the trading banks’ views appear to be more accurate than Treasury currently, the point all are
clearly agreed on is that while the rate of price rises will fall, prices themselves will not fall.
Buyers who are holding back from entering the housing market waiting for the ‘inevitable fall in
prices’ are likely to be disappointed.

Recently, out of interest, I went back into our company’s records to see just how often average
prices had fallen year-on-year.

I looked back over a 60-year span covering 1961 to 2020. In that period, prices declined on only six
occasions – in 1963, 1971, 1991, 1992,1999 and 2009.

The largest fall in prices was 8.5% in 1963 and the longest period prices remained down after falling
was 3-years, between 2009 and 2011.

This data set reinforces the point I have made regularly to owner occupiers when they have doubts
about whether prices will rise or fall at any given point. If you own a property for the average time
REINZ says people retain their homes (7 years) your selling price will be higher than the purchase

If you are waiting for prices to ‘crash’ (say fall 10% or more) based on the past 60 years you might be
waiting forever.

There are two other factors providing a defensive wall against prices declining significantly.

First, even though recent house construction has been occurring at record levels, and is likely to
continue, it is estimated that it will take a decade for supply to catch up with demand.

The second is that based on the 5-year interest rates the major trading banks are offering, they do
not see mortgage lending rates rising about 4.5% before 2026.

Buying a house is never risk free, and there are no rules which say that because something has not
happened in the past it will not happen in the future. However, those with the financial ability to
meet mortgage repayments at a little above where they are at present, and have stable
employment, are taking no greater risk buying at today’s prices than their predecessors have for
decades past.

Peter Thompson, Managing Director,
Barfoot & Thompson