In a new report out today, S&P says they now view the economic risk trend for New Zealand’s banks as negative.
That reflects a one-in-three possibility that the economic impact for the banking sector could be significantly more severe or prolonged than their base case.
But S&P are also forecasting that the increase in economic risks due to the Covid-19 outbreak and containment measures should be substantial but temporary.
In line with this, they now expect New Zealand house prices to fall by about 10% before resuming modest growth around the middle of calendar 2021.
“The near complete lockdown in New Zealand through most of April 2020 placed restrictions on auctions and inspections, curtailing the volume of home sales,” S&P’s analysts say.
“While the government lifted restrictions from June 9, 2020, we expect any rebound in-home sales to be gradual.
“In the longer term, we expect that demand for housing will not be as buoyant as in the past several years as immigration will likely remain non-existent for some time with New Zealand's border closed until further notice.”
However, S&P also expects the large fiscal stimulus from the Government to reduce the severity in house price falls.
Likewise, they expect the six-month moratorium on house loan repayments to restrict distressed sales by property owners.
House prices should stabilise in line with their forecast rebound in economic activity and employment in calendar 2021, the S&P analysts say.
That’s because immigration driven population growth should resume slowly during this time – although it will remain lower than recent peak levels.
“Reduced construction of new homes in recent months is likely to persist in the next 12 months, which should amplify the persistent gap between demand and supply for housing across the country.
“Finally, interest rates are likely to remain low, which should also support price growth when economic conditions improve.”
S&P’s house price predictions are in a similar range to those of many New Zealand economists. ANZ economists are predicting a 12% fall in prices, while Westpac economists are forecasting a 7% drop and ASB’s are suggesting a decline of between 5-10%.
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