House prices forecast to drop before recovering next year
AUCKLAND: ASB Bank is forecasting a 6% drop in national house prices this year, in the face of a deteriorating labour market, falling net migration and rental declines.
However, the bank expects the property market to get back to current levels next year, on the back of cheap credit and a gradual recovery in the labour market.
Senior economist Mike Jones said March pricing data had confirmed that the New Zealand housing market had ``barrelled into lockdown'' with a full head of steam.
With annual price gains in the month of up to 9.3%, most regions had benefited and some were well into ``boom'' territory.
He noted that indicators of tightness in the market in February and March, including the number of days to sell and listing ratios, had been pointing to yet more upwards price pressure.
``We expect the unemployment rate to rise from 4% to just under 9% and wage growth to slow sharply, so servicing existing mortgage debt will become more difficult for those affected,’’ he said.
During the 2008 Global Financial Crisis, New Zealand's unemployment cycle moved from 3.3% to 6.5%, and house prices corrected by 11.9%.
``This time around, the spike in unemployment will be fairly immediate, but hopefully not as longlasting as prior cycles,'' Mr Jones said.
``In addition, record low mortgage rates and debt relief from the mortgage holiday scheme may limit distressed sales to some extent, blunting the impact from the labour market deterioration on house prices.''
ASB also expected a drop in housing supply, even as lockdown restrictions ease, and supply ``retrenched further'' as prospective sellers opt to wait for better market conditions before listing.
CoreLogic senior economist Kelvin Davidson said he was working on the assumption that sales volumes would be 15% to 20% lower in 2020, at about 70,000 sales.
Mr Davidson said ``ultralow'' mortgage rates were a key factor. In contrast with the GFC, when banks had to toughen up on lending, credit conditions should remain relatively supportive this time around for people with income and the willingness to borrow.
With KiwiSaver balances reduced and property deposits also affected, firsthome buyers could also struggle to access the market as readily as before, although any fall in house prices would be of benefit.
Proposals by the Reserve Bank to scrap the loantovalue ratio rules for at least a year might not necessarily be a ``game changer’’, as banks would still be cautious about income and expense testing and serviceability, he said. Reduced deposit requirements would benefit some buyers.
Mr Jones said that those regions most exposed to economic pressures, in particular Queenstown and the Southern Lakes region which were being devastated by the effect on tourism, would be hardest hit. — BusinessDesk