Will post-Covid house prices mirror what happened after the GFC?

If my view of the Kiwi property market could be summed up in one phrase it would be this: “If you want to understand the future of the market, you must first understand the history of the market.”

The essence of this philosophy is that what our property prices have done in the past is a reliable guide to what they might be expected to do going forward. This position is backed up by four decades of property cycles, each roughly 10 years in duration, in which property prices have more or less doubled over a six- or seven-year period and sat flat for the next three or four years, before starting to rise again. There are obviously regional variations to this, but the overall trend is remarkably consistent.

But do these cyclic trends still apply to the market in the wake of Covid-19? Coronavirus wasn’t a housing market correction, it was a pandemic. So surely the traditional wisdom is out the window? Not so fast.

In fact, only one of the three previous economic events which we associate with previous flattenings of the property market was housingrelated. The 1987 share market crash and the Asian financial crisis in the late-90s were both linked to the share market. Even the 2007 Global Financial Crisis (GFC) was only indirectly housing-related, in that it was partly triggered by the collapse of the housing mortgage market in the US.

So could the most recent of these events — the GFC — provide a guide as to what might happen to the post-Covid housing market? Perhaps, and the numbers are certainly interesting. In percentage terms we know that the Kiwi property market only took a relatively small hit in the wake of the GFC, with 2008 house prices bottoming out 8.6 per cent below the previous market peak, then quickly recovering.

And now, thanks to new research from property data company Valocity, we can drill down into these sales in more detail. We now know that in the

22 months between July 2007 and March 2009 there were

37,607 houses sold. Of these, just 3461 properties, or 7.21 per cent of the total number sold, sold for a loss on what the same property would have been worth two years previously. The median average loss, across these properties was $24,000.

But it’s what happened to house prices in the two years following the GFC that is particularly interesting. In the period between July 2009 and March 2011, during which the economy was in recovery, there were just 24,902 residential house sales throughout the country. What’s more, the number of properties sold on which the seller made a loss over this time actually increased to 6043 (16.7 per cent of sales), although this is somewhat tempered by the fact that the median value of those losses had dropped to $22,000 and that more than 65 per cent of home sellers, over the same period, made a median profit of $45,000 on the sale of their property.

In my view this simply means the GFC had very little effect on the market overall and that things continued more or less as normal. Losses made on property sales from 2007 to 2011 were low in both percentage and dollar terms, and the bulk of property sellers made money right through this period.

It’s still too early to know if this experience will be repeated post-Covid, but the numbers that are emerging should give us cause to be optimistic.

While sales volumes are understandably well down, prices are holding up and even appear to be retaining their preCovid momentum in most parts of the country, just as they did during and after the GFC.

This is good news for those planning to sell. If you’ve been holding off from listing so as to get a feel for where the market will land, it’s probably a good time to review that decision.

In my view ... the GFC had very little effect on the market overall and that things continued more or less as normal.