|House Prices Likely to Fall
New Zealand house prices are likely to fall as the coronavirus pandemic continues to impact domestic and global markets. While real estate assets are large, robust, and somewhat resilient, the current situation will be a huge test. Unemployment is just one of many factors likely to affect the market, with tourism, rental prices, and wider business confidence also likely to have a negative impact. Overall, house prices are likely to fall over coming months, with the speed and extent of the decline directly linked to the state of the global pandemic.
According to the latest data from the Real
Estate Institute of New Zealand (REINZ), the housing market has already been
affected by coronavirus. Recent results saw a national sales volume drop of
4.8%, with 347 fewer properties sold across the country than a year ago at
6866. This is the lowest result in nine years, and one of the first obvious
effects of the pandemic on the property market. During the first quarter of the
year, 2000 fewer new listings came onto the market than the same time last
Median house prices reached record highs in
March on an annual basis, however, with Auckland up 11.1% to $950,000, and
national figures up 13.7% to $665,000. While these are undeniably strong
results, they are a reflection of the market before the lockdown, and before
the impact of coronavirus. During the GFC in 2008, which is the only comparable
situation, property prices in New Zealand fell around 8%. Our banks are in much
better shape this time around, however, with property prices likely to be
determined by wider economic conditions such as business insolvencies and
Unlike some sectors, such as healthcare and
emergency services, the real estate sector is not classified as essential.
REINZ has estimated daily sales drops of around $125 million, which equates to
a possible loss of trade around $3.6 billion during the lockdown period.
Mortgage rates will stay low for the foreseeable future, however, which is
likely to support house prices along with housing under-supply and strong
long-term immigration. While fewer international visitors are entering the
country, there are lots of Kiwis coming home to what is relatively safe turf.
According to Herald property editor Anne
Gibson, unemployment is likely to be the single biggest factor affecting house
prices in coming months: "The main banking economists say unemployment is
the single biggest factor that they see affecting the market, once we come out
of lockdown. It affects people's ability to secure the mortgage, then pay off
the house. I think the really worrying thing is that if unemployment did rise
to something like 8%, which some of the economists are talking about, that
could be quite dire for the housing market."
All of these factors will impact the
housing market, which is somewhat insulated but certainly not immune to wider
economic forces. The speed and depth of the downturn is likely to be
geographic, with places like Queenstown that rely heavily on tourism likely to
experience a steeper decline. While low prices could be good news for some,
"First-time buyers have found themselves in a really difficult situation
during Covid-19 with the portion of their KiwiSaver fund able to be used for a
first-home purchase being at a much lower value than many had expected,"
said REINZ chief executive Bindi Norwell.