Speculation on the future of the property market abounds but no-one is sure of what lies ahead. Commentators have started to produce tentative outlooks and, while none make for cheery reading, some are much bleaker than others.

To date, the data doesn’t provide conclusive signals, although the impact of the lockdown period is evident on sales. Nonetheless, it seems likely that the economic impact of the Covid-19 crisis will derail the momentum of the market this year.

Right now though, New Zealand is getting used to life at alert level two. It’s seen real estate and lending activity pick up again and it’s also ramped up discussion of how the market might be set to fare.

Lockdown Sales Fallout

It is no surprise that the standout feature of April’s market data was the massive nationwide drop in residential property sales. That drop was because the country was in lockdown which meant real estate activity was largely curtailed.

According to REINZ, the number of properties sold decreased by 78.5% from April 2019 – from 6,082 to 1,305 – and by 82.2% from March.

In Auckland, which seems to have been the region least affected, the number of properties sold in April was down by 68.8% year-on-year and by 78.9% on March. But sales in all regions were affected by the lockdown, with Southland, Nelson, Manawatu/ Whanganui and Gisborne seeing the biggest annual declines.

REINZ chief executive Bindi Norwell says the decrease in sales is not surprising as for the first 27 days of the month the country was in complete lockdown and sales could only take place via contactless methods like online/phone auctions or using digital technology.

“Of the 1,305 properties sold across New Zealand, about half were sold in the first 10 days of lockdown, followed by just 272 between 11-20 April which included Easter, and then an uplift in up again. the last 10 days of the month with 377 properties sold.”

QV also reported a big decline in sales volumes nationwide for April as compared to normal April activity, while Barfoot & Thompson’s data highlighted the impact of lockdown on sales in Auckland.

It had April’s sales in the Super City down by 50% on March. The agency saw 552 sales while the country was in Covid-19 induced lockdown. That was a 49.6% decline on the 1,096 sales seen in March and a 17.2% decline on the 667 sales seen in April 2019.

Barfoot & Thompson’s managing director Peter Thompson cautions that while some of the sales were made in April under lockdown regulations, many were sales completed in April and agreed in March.

“Therefore they do not give a complete picture of the state of the market. The tail of properties working their way through the sales system is now modest, and it will not be till May’s trading results are available in early June that a true indication of where benchmark prices are at post Covid-19.”

Prices Hold Steady

However, while the decline in sales volumes was significant, house prices have held up better. The REINZ data shows that median house prices nationwide increased in April. They were up by 1.5% on March and by 17.2% year-on-year to a new record high of $680,000.

Although median prices increased in many regions on an annual basis, when compared to March most regions saw falls in their median prices. For example, in Auckland, median house prices increased by 9.2% year-on-year to $925,000 but they were down by 2.1% on March.

Norwell says that median prices during April were less volatile than they anticipated, especially given the drop in sales volumes.

“It looks as if the continued listings shortage has helped prices hold during April, however, as many of these sales will have been negotiated during March when confidence levels were higher than they are now, it’s important to take this into consideration when looking at the figures.”

In a similar vein, Barfoot & Thompson’s April data had Auckland prices slightly down, but not by much. The average price came in at $962,136 (down by 3.2% on March but up by 3.6% year-on-year) and the median price at $900,000 (down by 2.7% on March but up by 8.4% year-on year).

Both Norwell and Thompson warn against being too optimistic, but say they are seeing good levels of activity starting to occur as the country has moved into level three and then level two. Thompson feels the Covid-19 crisis has left the Auckland market bruised, but that its underlying stability seems intact.

“The low levels of listings in April is a positive sign for market stability. It does not suggest there is a large number of people who are looking to exit the housing market quickly. Vendors appear to be taking a cautious wait-and-see approach, which is the same trend that occurred in past economic downturns.”

Market In Unknown Waters

QV’s House Price Index for April also turned in some positive results on values, with the average national value up by 3.0% over the quarter and by 7.1% yearon- year to $735,979 in April.

It also had the Auckland region’s average value up by 2.9% over the quarter and by 4.5% year-on-year to $1,079,815 in April. However, while QV’s data shows positive quarterly value growth across all 16 of the cities monitored, that’s based on a rolling three-month average. And that means the data is skewed towards the earlier stages of the three-month period where sales volumes were high.

‘We can expect a market filled with uncertainty at least through to the end of 2020 as the economy finds its feet again’ DAVID NAGEL

QV general manager David Nagel says the data doesn’t show the dramatic impact Covid-19 has had since the country went into lockdown and that everyone is guessing as to what the likely impacts on the market might be.

“This is new territory for all of us. What happens to house prices beyond this point will be determined by market forces and the changes in supply and demand. Much will depend on the depth of any subsequent recession and the speed of economic recovery.”

Transaction volumes are likely to remain just a fraction of pre-lockdown levels, he says. “We can expect a market filled with uncertainty at least through to the end of 2020 as the economy finds its feet again.”

For CoreLogic head of research Nick Goodall, early signs of pre-listing activity for the market are encouraging, with appraisals generated by agents more than doubling in the first week after level three. But he points out that demand will be reduced due to higher unemployment, lower household incomes, continued conservative bank policy and the dent to confidence.

Demand for property will also vary around the country, with some regions that are heavily reliant on tourism, like Queenstown, more vulnerable than others. “The likes of Napier/Hastings and Invercargill, with a broader base of economic activity as well as a reduced exposure to the sectors most impacted by the economic shock, may hold up better.”

Divergent Price Picks

Much economic commentary about the market has revolved around prices. It’s widely accepted they will fall, although there’s differences around how far the drop will be. Global ratings agency Standard & Poors picks a fall of 10% over the coming 12 months, while the Reserve Bank expects a 9% fall over the remainder of 2020.

Westpac chief economist Dominick Stephens is forecasting a 7% house price decline between March 2020 and the end of the year. That is based on the experience of past recessions: in the early-1990s, house prices fell 2.9%; in 1998 they fell 4.6%; and in 2008/09 they fell 10.5%.

We are bracing for something in a similar range this time, he says. “That said, the economy will come out of the Covid recession with extremely low interest rates and no LVR mortgage lending restrictions. We expect house prices to remain very subdued in 2021, but to rise 11% during 2022 in response to those low interest rates.”

Stephens adds that while that would be an earlier recovery than after previous recessions, the pace of increase would be similar to that experienced after past recessions.

ANZ’s economists take a bleaker view. They are picking a 10-15% fall in house prices over the year, compared with a fall of 8-10% in GDP. Further, they see a downside risk to their forecast and say there could be an even greater fall.

In contrast, independent economist Tony Alexander, who has been conducting regular polls of real estate agents and mortgage advisers, is more optimistic.

He says it’s long-term considerations which drive the decisions of almost all property buyers and sellers. “But for now, the weight of responses and observations volunteered by respondents [to his poll] shows weakness, but does not support a view that prices are set for substantial declines.”

A net 17% of respondents feel prices are declining, but most see them as flat or don’t know, he reports. “That tells us there is as yet no widespread evidence of price declines. The fact a net 19% of respondents said property appraisal requests were decreasing is a sign that turnover will decline and that listings will remain in short supply.”

Alexander is not picking how much house prices might fall, but notes that the Reserve Bank over-estimated how much prices would drop in the GFC by about 9%.