What can New Zealanders expect to see post COVID-19?
Property pulse check
The start of 2020 held much promise for the property market, but what can New Zealanders expect to see post COVID-19? Resimac spoke to CoreLogic’s Senior Property Economist, Kelvin Davidson, for a pulse check on the property market.
Prior to the pandemic, what shape was the New Zealand property market in?
The first two months of the year revealed a strengthening market, with sales volumes rising and value growth accelerating. In particular, Auckland and Christchurch were turning a corner and showing great promise.
In the months prior to lockdown, the CoreLogic Buyer Classification data had showed that investors had been providing a lot of the momentum for sales volumes. Property was looking especially attractive to investors as a result of low returns on other assets such as term deposits, along with the flexibility property offers (e.g. rent or renovate and sell).
What is currently happening with the property market?
When the nation went into level four lockdown on the 25th of March it effectively placed the property market into a holding pattern.
Uncertainty is very high at present, but we estimate that property sales for 2020 could end up 15-20 per cent lower than last year (70,000 homes sold compared to 85,000 the previous year).
Will the property market bounce bank as soon as the lockdown restrictions are lifted?
By the middle of the year we should have seen deals that were deferred during lockdown be finalised (or abandoned) and the ‘true’ market will become clearer. The level of activity is likely to be subdued as would-be sellers sit tight and wait to see what happens in terms of demand from buyers (potentially affected by rising unemployment).
What sectors of the property market have been most impacted by the virus?
Investors who rely on holiday rental income have, and will continue to, feel the impact of travel bans and rising unemployment. Queenstown investors could be more vulnerable than others.
Prior to the arrival of COVID-19, first home buyers were clear and present in the market, but with KiwiSaver balances reduced and property deposits dwindling they may struggle to access the market as readily as before.
What factors will influence the recovery of the property market?
In terms of the economic backdrop, the outlook is tough. GDP is expected to fall by about six to seven per cent this year and the unemployment rate to more than double from four per cent to as much as 10 per cent.
However, the size of the government support package (more than $20 billion across wage subsidies, wider fiscal package such as extra health spending and business tax changes, and business finance guarantees), the measures taken by the Reserve Bank (official cash rate of 0.25 per cent for the next year at least, delaying of extra capital requirements for banks, and quantitative easing), and support from the retail lenders (such as mortgage payment deferrals) are all reassuring factors.
Will the impact on the property market be the same as the Global Financial Crisis?
The lending environment is very different to what was seen in the Global Financial Crisis. When that crisis hit in 2008, lenders had to tighten their criteria for borrowers and were highly risk averse. Credit conditions are expected to remain relatively supportive this time for people with income and a willingness to borrow, and this is good news for the property sector. The Reserve Bank’s move to suspend the loan to value ratio speed limits is a nice little bonus for the property market, although it probably won’t be a game-changer.
Is there a silver lining to be seen in the current situation?
Overall, it’s hard to draw clear conclusions about the current state of the property market, because there isn’t a lot of data available to analyse yet. The data will start to be available from early May, but especially when it comes to sales/activity indicators, the volume of data will be low. In other words, we’ll have to ‘wait and see’.
One positive point is that listings levels were quite low as we headed into lockdown, so the supply/demand balance could still provide some support for prices over the next few months.
It’s also comforting to know the property market went into lockdown in a strong position and that real estate is slower-moving than other investment choices (e.g. the share market), so tends to react less to every bump to the economy or financial markets.
The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Resimac. The above is general commentary only and is not advice tailored to any individual’s financial situation. We recommend seeking advice from an insurance or finance professional before implementing changes relating to your finances.