elevation-typical-house-new-zealand-landscape

The start of 2020 held much promise for the property market, but what can New Zealanders expect to see for the rest of the year?

What lies ahead for the property market in 2020?

 

Between the impact of the global pandemic and subsequent economic crisis, so far 2020 has delivered a unique set of challenges for the property market. As the nation stayed in during lockdown, year-on-year, sales volumes were down by 80 per cent in April and about 50 per cent in May.

Now the question on everyone's mind is 'what's ahead for our property markets for the rest of 2020'?

Despite the tough conditions, there are reasons to be optimistic about the New Zealand property market; provided you're prepared to act when opportunities arise, are financially ready and have done your homework on the current property market landscape.

Speaking to Resimac, Senior Property Economist at CoreLogic, Kelvin Davidson says the outlook for the real estate sector is stronger than anticipated.

How has the property market performed so far this year?

 

It's reassuring that the number of appraisals generated by real estate agents, for-sale and for-rent listings, valuations ordered by banks, mortgage lending flows and agreed sales activity have all rebounded since we left alert-level four lockdown in late April.

What's more, is that prices have held up relatively well over the past few months through the cause and effect of having a low supply of total listings available on the market followed by the release of pent-up demand for property which couldn't be acted upon during April.

Low mortgage rates have also been a key support here, along with the Government's wage subsidies and the option for borrowers to go interest-only or take a payment deferral.

September marks the end of wage subsidies, mortgage payment deferrals and an election. What will this mean for the property market?

 

General elections typically create uncertainty for households and property. In addition, this election will coincide with end of wage subsidies and mortgage payment deferrals, so we can expect the property market to be tested further.

As we hit Spring, we'll see the usual seasonal rise for listings, which will be a good indicator for the true strength of demand. If it falters, then available supply on the market will rise steadily, and reduce the support for prices.

How will the impact of COVID-19 and subsequent recession impact the property market?

 

Year-on-year, sales volumes were down by 80 per cent in April and about 50 per cent in May. Although the results for the rest of the year won't be as weak, we still expect activity for 2020 as a whole to be about 25 per cent lower compared to 2019. In terms of property prices, the effects are likely to be smaller.

With mortgage rates much lower and affordability looking better than the GFC in 2007-08, lenders are in a stronger position to continue lending and for households generally with more equity in their homes (due to the previous loan to value ratio speed limits), the risks of negative equity are reduced.

What does the rest of the year look like?

 

We can't ignore the fact that we're in a recession and the unemployment rate has further to rise. These factors will restrain the property market in the coming months. But although the rest of 2020 'could be better', the silver lining is that it won't be as bad as some of the property downturns that we've seen in the past.

Over the longer term, the appeal of property will remain. And with many of the fundamental drivers likely to return to normality, upwards pressure on prices will start to return.

 

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.