Fears of price crash fade — for now
While prices will fall, experts don’t expect them to collapse
Housing market experts have revised their price forecasts on the back of stronger than expected sales activity after lockdown, saying it’s unlikely New Zealand is headed for a property crash.
But all are agreed that any further Covid-19 outbreaks in the community would change that view.
NZME is launching a new nationwide campaign, Know the Landscape, aimed at keeping Kiwis informed about buying and selling property in the wake of Covid-19. OneRoof polled leading economists and other real estate experts about the future of the housing market.
The prevailing sentiment was that the country is not in as bad a position as it could be. While prices will fall, the experts do not expect them to collapse.
While views differed as to whether there would be much in the way of mortgagee sales coming, all were in agreement about just how damaging significant new clusters would be, especially if the country had to move back into restrictive alert levels.
Gareth Kiernan, Infometrics’ chief forecaster, said the biggest worry about another outbreak and a move back to Level 3 or worse was the economic impacts for businesses and their ability to keep employing people. “That starts to become almost cataclysmic in terms of the potential impact on the economy.” It would mean people’s ability to keep paying their mortgage would be affected and house prices would head down.
“There would be a whole lot of people forced to sell and not many people in the market looking to buy.”
Former BNZ chief economist Tony Alexander said any return to restrictive alert levels could bring a new wave of redundancies.
“That’s why the Government’s poor border control so far has been the biggest threat to our economic recovery and into the housing market. Businesses are going to face a decision in about eight weeks’ time, ‘do I keep on these workers I’ve carried through or do I let them go?’”
Even without a new outbreak, Dominick Stephens, Westpac’s chief economist, says house prices will fall by 7 per cent between April and December because in recessions, house prices drop. “You basically get fire sales, so some people lose their jobs and get themselves into a financial position where unfortunately they can’t sustain the house they’re in. Others, because it’s a recessionary environment, are less keen to take the house on and house prices fall.”
Alexander believes the fall will be between 5 and 10 per cent this calendar year but “as each week or month goes by I’m pulling back to the 5 per cent area and away from 10 per cent average price decline”.
The experts believed the record low interest rates were a positive buffer for the housing market and would help people get through.
Said Stephens: “That’s the reason I expect that once you get into the post-recession environment, whenever that is, to see quite a rapid recovery in house prices.”
Financial adviser Hannah McQueen, from EnableMe, however, raised questions around how tough bank criteria for lending might become. “They’re unlikely to simply lend to anyone and everyone as the economy deteriorates so while you might want to wait it out to see if prices fall, by then the banks may be less keen on lending to you.”
Some of the expats flocking home will likely buy houses. Alexander said the $10 billion New Zealanders would have spent on overseas travel this year will be spent in other areas, including housing.
Supply and demand is another issue. John Bolton, chief executive of Squirrel, said first-home buyers were now driving the market. His mortgage company had seen a more than 200 per cent increase in applications from first-home buyers, which would mean entry level house prices should not fall.
There would be a whole lot of people forced to sell and not many people looking to buy.
Gareth Kiernan, Infometrics