Westpac chief economist Dominick Stephens says that while the market is currently frozen amid the lockdown, when house sales resume prices are likely to decline.
“There is little reason to suppose that the long-run fundamental value of property has changed, but short-term market realities certainly have.
“Job losses and business failures will put fewer people in a position to buy property, and other erstwhile buyers will be too nervous to act.”
The plan to grant repayment holidays to mortgage borrowers affected by Covid-19 will limit forced selling, but there will still be some people whose circumstances require them to sell later this year, he says.
“How far prices fall depends mainly on sentiment, which is hard to predict. For now we are pencilling in a 7% decline over the second half of 2020, based on the house price declines seen in past New Zealand recessions.”
But beyond 2020 Westpac expects ultra-low interest rates and a recovering economy to slowly return house prices to their pre-Covid-19 trajectory.
“So we are forecasting house price inflation of 8% in 2021 and 12% 2022.”
What a difference a couple of months have made... At the start of the year ASB chief economist Nick Tuffley was expecting 2020 to be a very good one for the domestic housing market.
This view has now changed and, by the end of the year, they expect nationwide house prices to be around 5-6% below their likely March 2020 peak.
Tuffley says the fall could have been much larger in the absence of government policies to reduce job losses and offer mortgage relief.
But the Government and the Reserve Bank have stepped up and their actions should help to mitigate the economic hit, with likely job losses and falls to house prices less severe than they could have been.
“The outlook is for house prices to basically flat-line over 2021 given the uncertain economic backdrop, reduced job security, and low wage growth. Investors will remain wary given controls on rental increases.
“We anticipate some tentative green shoots will start to appear from 2022, and some regions will perform stronger than others as the economy strengthens.”
Independent economist Tony Alexander points out that no-one has a model telling us what usually happens when we have a global pandemic, let alone a lockdown of four to eight weeks.
Picking what will happen in asset markets including housing is hard, he says.
“And a lot comes down to how much people focus on the short-term pain, and how much they focus on the long-term fundamentals.”
To that end, Alexander comprehensively lists the negative and the positive factors which are set to impact on New Zealand’s housing market going forward.
The negative factors include job losses and loss of job security; temporary stalling of net migration; downsizing; loss of retirement wealth; the hit to the Airbnb market; lending pullback from banks and non-bank lenders; falling rent and a pullback from regions.
The positive factors include low interest rates; higher long-term net migration; building/construction declines which means slower supply growth; the economic downturn will be sharp but temporary; the support measures are huge; mortgage holidays; shortages and an enhanced preference for property as an investment.
Alexander says everyone can form their own personal view on how strong each factor is and when it kicks in or drops out.
“My focus can best be summed up as this - the worse the short-term impact once the lockdown ends, the greater the purchasing opportunities for those able to do so and with an eye toward the long-term fundamentals.”
CoreLogic senior property economist Kelvin Davidson says advice from the NZ Law Society makes it “clear that any property settlements that require physical movement of people is now for all practical purposes unlawful”.
That means there will be essentially no property sales throughout the lockdown period.
Davidson says that, interestingly, there was a spike in new listings just over a week ago, before anyone knew about the inability to transact property for four weeks.
“This could be a sign that people were already worried about their jobs/income/security, so were looking to rush in and deleverage.
“The question then, given they essentially can’t sell, is going to be what happens during the lockdown – ie: how well can they hold on – and once it’s over, how desperate will they be to sell? Because that will influence the price they accept (assuming there’s still enough demand to want to buy).”
There’ll be some extra help provided via the mortgage repayment holiday option, and the business finance support package, and both initiatives should help to mitigate forced property sales, he says.
“Our simple forecasting model for overall sales volumes indicates that there might be a 15-20% decline in activity this year (relative to 2019), whereas we were previously projecting a 2-3% increase.
“We have to hope the effects of the virus will be relatively short-lived, with any impending transactions simply deferred, leading to a catch-up in the following months.
“But clearly there is going to be a significant slowdown in property market activity to get through until an eventual recovery begins.”
For Squirrel Mortgage Brokers chief executive John Bolton, it feels like a mug’s game to put an estimate on how much house prices could fall as a result of the Covid-19 crisis.
But his view is that they will only soften in Auckland and Wellington. In Auckland, it could feel like much of 2019.
“Areas more impacted by tourism will be harder hit, along with holiday locations. There will likely be more sellers than buyers in these areas over the next 18 months (and beyond the six-month mortgage deferments offered by banks),” he says.
“That will put more downward pressure on prices in these areas, so expect a bigger fall. I can’t see many people rushing out to buy a holiday house, and there will possibly be some business owners that will need to sell.”
Underpinning prices will be the very low interest rates on offer, and the fact that we don’t have an oversupply of housing, Bolton adds.