A picture of the property market in lockdown

After a very busy property market in the first three weeks of March, most real estate transactions around the country were interrupted from day one of alert level four, on 26 March.

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What will happen to the property market after lockdown?

Economists and governments are predicting a worldwide recession in response to the shutdown necessitated by Covid-19 containment.

The last worldwide recession, the Global Financial Crisis (GFC) in 2008/9 saw property prices go down 7% in New Zealand but economists and investors don’t see them doing anything as dramatic as that. In particular, when many of the country’s property markets had been enjoying a period of strong demand in recent months, there seems little reason for prices to plummet. Meanwhile property prices have grown one third since 2015 so the market has a good foundation. New Zealanders’ love affair with real estate looks as though it will continue, although with care. 

After a level of onsite engagement dropping off in the early days of the COVID-19 lockdown, Trade Me Property has seen a bottoming out and a subsequent rebound in listing views of 67% and 79% in Watchlist adds as the country reaches the halfway point of lockdown, says Nigel Jeffries, Head of Trade Me Property.

“Anecdotally, we’re seeing investors and other buyers who have financial muscle, return quickly to the market looking for well-priced property to buy,” he says.

“Even if a number of forced sales come to the market, we think buyers, who are financially still able to purchase property, will help maintain price levels,” he adds.  

First home buyers are undoubtedly a group who've been hit by plunging share prices which has seen their KiwiSaver funds diminish and reduced their house deposits.

“Understandably, we think first home buyers have taken a slight step backwards as they assess their own financial strength and seek more data to assure themselves that market prices aren’t going to turn south,” says Mr Jeffries. 

CoreLogic senior property economist, Kelvin Davidson, is taking a glass half full approach. 

“Over Christmas, it goes quiet and people don’t transact and they come back as if nothing’s happened,” he says.

In this unprecedented situation, it’s quite possible that the market will have transitioned from being a sellers’ market to a buyers’ market, adds Mr Davidson.

 

“The majority of people will still want to sell for as much as they can, so the impact on prices may not be huge,” he says.

Homebuyers and sellers are in a very different situation from the GFC, Mr Davidson stresses.  Consumers and businesses are bolstered by all time low interest rates, the fact the banks and the Government have moved quickly to offer mortgage deferrals, the Reserve Bank of New Zealand offering quantitative easing, and delayed bank capital requirements.  

Real estate is still a trusted asset, he says. You don’t lose 10% on it overnight like you can with a share portfolio.

Mr Davidson says CoreLogic tracks the ordering of Comparative Market Analysis (CMA) reports and while requests for these collapsed, he’s seeing signs that these might have bottomed out. This is reassuring, he says.

If it does become a buyers’ market, those who can arrange finance and have done their due diligence, can be in a good position to snap up any opportunities as the market starts up again.

    

A property market recovery will depend on geographical location

It’s possible that the country will come out of lockdown one region at a time. Meanwhile, post-lockdown, economists predict that it will depend on where you live in the country as to how quickly your property market bounces back. Places like Queenstown, which rely heavily on tourism and have had high property prices, will take longer to come back. Napier, which has tourism but also strong horticulture and a health sector is likely to be more robust, says the CoreLogic economist. 

The bigger cities like Auckland and Wellington will continue to be driven by the fact that there are likely to be continued housing shortages so there's a limit to how much prices might fall, says Infometrics senior economist, Brad Olsen.

Mr Olsen believes New Zealand might see more people on the move to regions which have held up well in the emergency with their food production capabilities for instanceareas like Manawatu, Northern Waikato and possibly Northland.

   

The big question of consumer confidence

Mr Olsen says he expects home buyers and sellers to be more cautious after the lockdown lifts as they wait to see normality return. 

“And people will focus on the necessities rather than the ‘nice-to-haves’. They may not be in a bad financial position but will still want to tighten up the wallet in case something goes wrong,” he says. 

This approach will make people reassess what housing they need. If they were thinking about downsizing before, they might act on it now as it will free up cash, he says.

People still have to live somewhere and there will continue to be changes in living situations which might be heightened by the COVID-19 emergency, says Mr Davidson.

“People might now feel like they need a bigger house, because they want to work from home more and want a study, or they might want their mother to come live with them so they need to expand,” he says.

“This isn’t going to decimate the market,” he adds. “There will still be transactions, people have got to live somewhere.”

Investment adviser and seasoned real estate investor, Martin Hawes comments: “People will do everything they can and fight very hard to hold onto their houses. They will let their rental properties go if they have to, but they will hold onto the place they live as tightly as they can.”