House prices: Where to from here?
Factors influencing the property market include low migration and the sale of onetime Airbnb properties, writes Susan Edmunds.
Property owners are being warned that the coronavirus outbreak could hit close to home. There are predictions that house prices could fall as much as 10 per cent in the next year. But the extent of the drop, and how quickly we might recover, depends on a few key drivers of the market.
Unemployment
If lots of people are out of work – or worried about becoming out of work – the brakes will go on the housing market. Predictions are for unemployment to rise to anything up to 10 per cent.
Infometrics chief forecaster Gareth Kiernan said job losses were likely to be highest over the next 6-18 months.
‘‘We know from past experience that the single biggest determinant in terms of driving the property market down is unemployment.’’
People who feared for their job security would be less likely to buy, while those forced to sell had to cut their prices to meet the market.
He said mortgage holidays offered by banks should help people hold on to their homes for the next few months. It was possible the Government might work with banks to extend repayment holidays. ‘‘But there’s a question around how long you can keep kicking that can down the road.’’
But ASB chief economist Nick Tuffley said a sixmonth break would be a significant help and minimise the number of people with an urgent need to sell. ‘‘A lot can change in six months.’’
By that time, New Zealand should have started to ‘‘dig itself out of the hole’’.
Tuffley expected house prices to fall about 6 per cent as the market took a ‘‘dramatic turn’’.
He expected turnover to slow dramatically because people would not want to sell unless they really had to.
Migration
Immigration will drop significantly for some time to come. Migration has been a factor in pushing up property prices because New Zealand has struggled to supply enough houses in many parts of the country to keep up with demand.
Without that flow of new New Zealanders, the market could look quite different.
Independent economist Tony Alexander said New Zealand had a good chance of being virus-free while trouble continued elsewhere.
‘‘We know that events such as this, which turn people’s worlds upside down, can have profound impacts on long-term lifestyle choices. There is a strong possibility that many of the one million Kiwis offshore plus their partners and children will choose to live back here.’’
But Kiernan said that flow of New Zealanders coming back would probably not make up for the reduced number of migrants.
‘‘There is a strong possibility that many of the one million Kiwis offshore plus their partners and children will choose to live back here.’’ Independent economist Tony Alexander
Interest rates
Alexander said mortgage rates were at record lows heading into the upheaval and had fallen still lower.
‘‘They probably will not go up to any noticeable degree for three years,’’ he said.
‘‘This matters tremendously with regard to cashflow pressures forcing people to sell and is a key difference between the conditions which led to average house price falls during the GFC, Asian crisis, and 1987 crash, versus now.
‘‘Investors will feel encouraged to quit bank deposits and seek property yield.’’
Supply and demand
Whether the Covid-19 softness helps the New Zealand property market come back to supplydemand balance will be a factor in how prices move.
Kiernan said properties that had previously been used as Airbnbs, particularly in Queenstown, would come back into the market. Weaker population growth would also moderate demand.
In times of recession or downturn, people tended to ‘‘come together’’ more than would otherwise be the case, which would moderate the level of demand for properties.
Auckland’s existing lack of housing supply could help put a floor under price falls, he said, but not avoid them completely.
Tuffley said shortages would probably persist in Auckland and Wellington but supply should be able to catch up to demand more quickly than it otherwise would have.
Alexander said it was likely that banks would pull back on funding new property developments over at least the next year, which would limit new supply.
Recovery?
Kiernan said the recovery of the housing market would depend on the wider economy.
He said it was possible that it would be 2023 or 2024 before there was clear positive momentum in property.
Tuffley expected it earlier. ‘‘We expect prices to start lifting once more from late 2021, back to the more ‘normal’ state of affairs for the market, though for prices to stabilise from the end of this year.’’