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Uncertain Times Ahead

No-one is sure of what’s to come for the housing market as we enter the post-lockdown unknown but commentators agree the market is resilient and may not be down for long, writes Miriam Bell.

By: Miriam Bell

1 May 2020

New Zealand may be heading out of its extreme Covid-19 prompted lockdown, but uncertainty is set to plague the housing market throughout 2020. There’s some grim predictions of what might come economically and, as you’d expect, there’s also speculation that the housing market will follow a similar path.

As with the economic forecasts, there’s a broad range of opinions on how badly the market will be affected by the recession the country has moved into. These are unusual times so no-one can be too conclusive. And that makes for uncertainty. But there’s also some common themes that have emerged from all the talk. And they provide some hope.

Market Snapshot At Lockdown

Given the lockdown began towards the end of March, the latest data releases serve to provide a picture of the market in March. That means it essentially establishes a baseline for the way the market was on entering lockdown.

As such, it shows the market was performing strongly prior to the lockdown. In fact, it was heading guns blazing into recovery, characterised by healthy price growth and solid demand.

QV’s latest data had the average national value at $728,276 in March, which was an increase of 6.1% year-on-year and of 2.6% over the quarter. All 16 of the cities it monitors showed quarterly value growth for the fourth consecutive month, indicating market strength across the country.

Likewise, in Realestate.co.nz’s data average asking prices around the country were buoyant in March. The national average asking price was up by 5.0% year-on-year to a record high of $711,696 and eight regions reached all-time highs.

And, according to REINZ, New Zealand’s median house price was up by 13.7% year-on-year to a record high of $665,000 in March. Additionally, eight regions – including a resurgent Auckland – also hit record median prices, after double digit annual growth.

Of particular note was the data on Auckland’s market. Across the board, the data showed the former powerhouse was roaring back into contention.

QV had its average value coming in at $1,066,035 in March, which was up 2.5% year-on-year and 1.8% over the quarter, while the REINZ data showed Auckland’s median house price had increased by 11.1% year-on-year to a new record of $950,000.

The data from Auckland’s biggest agency, Barfoot & Thompson told a similar story: the Super City was booming before lockdown.

Both the average sale price ($993,528) and the median sale price ($925,000) were at new highs, up by 6.6% and 10.6% year-on-year respectively. Barfoot & Thompson also had new listings, with sales volumes in Auckland at their highest for some time. It had 1,763 new listings in March, which was the highest in 17 months ,and its sales hit 1,096, which was the first time they were above 1,000 in a month for two years.

REINZ also recorded strong sales activity in Auckland, with sales up by 10.8% year-on-year from 2,083 to 2,307,which was the highest number of sales in four months. But here Auckland bucked the trend.

According to REINZ, sales activity nationwide dropped by 4.8% year-on- year in March, with 6,886 sales as compared to 7,213 in March last year. That was the lowest number of properties sold in the month of March in nine years.

At the same time, Realestate.co.nz’s data highlighted the ongoing shortage of housing stock, with the total number of homes available for sale nationwide down by 26.7% on March last year. New listings nationally were down by 16.5% year-on-year.

Property Market Will Go On

REINZ chief executive Bindi Norwell says that, despite the drop in sales, the March data shows that before Covid-19 hit New Zealand’s shores, the property market was doing well.

In her view, the scale of the impact of Covid-19 will depend on a huge number of factors. These include the level of unemployment, consumer and business confidence levels, people’s ability to access finance (and finance their own mortgages) and how long the wider economy takes to recover.

“Property is a long-term investment and the market will recover. However, the question is, how long it takes to recover. We expect people to take a bit of a ‘wait and see’ approach when it comes to listing their property.“

But for those who have decided after four weeks of being locked in their ‘bubble’ that they don’t like their house anymore, they will be desperate for the chance to move, so there may be some great opportunities for those wanting to buy and sell in the coming months.

”However, QV general manager David Nagel is somewhat less optimistic. He says that everything changed on March 25 and nobody knows what post-lockdown market conditions will look like or how long they will last.“

What we do know is there will still be a property market. There will still be sellers, although likely only a fraction of what we’re used to. And there will still be buyers that have the means and confidence to purchase property.

”But he says that what happens to house prices will be determined by market forces and the changes in supply and demand. “The supply of houses for sale is likely to be reduced, while demand for buying a house is also likely to be down significantly”

Transaction volumes will drop significantly from pre-lockdown levels and listings will dry up with only those having to sell, for work or financial reasons, wanting to enter an uncertain market, he says.

“Buyers that have the means will likely dominate the market but, with limited stock available, buyers will probably exercise patience and this could force prices down for vendors that have to sell. But by how much? Nobody knows.”

‘Property is a long-term investment and the market will recover. However, the question is, how long it takes to recover’ BINDI NORWELL

The market will take considerable time to settle to a new normal after the lockdown ends, Nagel adds. “With limited transactions after lockdown ends, we can expect a market filled with uncertainty at least through to the end of 2020 as the economy finds its feet again.”

Meanwhile, Barfoot & Thompson managing director Peter Thompson points out that market activity did continue through the lockdown, with buyers, sellers and agents utilizing technology to progress sales.

It’s not possible to predict where the market will go in the short term, but people might want to look to the past and take a medium-term view of market prices, he says. “During the major economic downturns that occurred in 1987, 1997 and 2007 house prices did not decline beyond 5% at most. And following the declines, prices recovered within 12 to 18 months.”

Into The Post Lockdown Unknown

Most commentators acknowledge there are too many unknowns at play to make concrete predictions, yet many people are still focusing on what the trajectory
of house prices might be going forward. But independent economist Tony Alexander warns it will be some time before data that provides good insight into underlying trends in the market is available. “Those underlying movements are what we economists look for – not the monthly ups and downs which can be all over the place.”

Based on his experiences of past cycles, he expects that media – mainstream or social will highlight the biggest price declines. “Over the next six months there will be reports of some big price declines, in Auckland and elsewhere. They will not represent the true picture for the relevant markets overall.”

Alexander says that, in reality, periods of house price decline are rare and “short-lived”. Previous recessions indicate house prices fall at the same time GDP declines, and start rising again as the economy starts growing, he points out.

For example, New Zealand came out of the 1998 recession in the second quarter, and prices began to increase in the final three months of the year. In the GFC, the economy started growing again in Q3 2008, with house prices rising in Q1 2009.His advice? “Keep your head while the doomsayers are predicting extended price declines and you may make some canny purchases this year.”

ANZ’s economists take a more negative view. They believe that the “truly enormous” economic hit from Covid-19 will cause house prices to drop significantly. House prices usually fall further than GDP and GDP is forecast to drop between 8-10% this year, they say.

“At this stage, we expect to see house prices drop 10-15%, with demand under considerable pressure. There is downside risk to this, particularly if credit becomes squeezed. Also, reduced income prospects and a fundamental shift in the supply-demand balance will see rents under downward pressure.”

However, ASB senior economist Mike Jones’ view is somewhere in the middle. There are various headwinds to consider, including a deteriorating labour market, falling net migration, and likely modest declines in residential rents, he says. But support from Government and the Reserve Bank will help limit the downside to some extent and there will be regional differences too. “Overall, we’re left broadly comfortable with our headline forecast for a 6% fall in nationwide house prices in the year to March 2021. But it’s important not to give any false sense of precision here. Uncertainty abounds.

“What we’re really talking about is a fall in nominal house prices of 5-10%. Over 2021, we expect house prices to stabilise, before gradually recovering as the unemployment rate begins to decline,” he adds. “Our forecasts are for a fairly gradual recovery, but if mortgage rates continue to fall and LVR restrictions are not restored the risk is probably for a brisker upturn.” ■

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