Where does the housing market go from here?
The latest QV House Price Index data for March provides us with a view of the housing market as New Zealand headed into lockdown on 25th March.
But what it doesn’t tell us is what happens beyond the proverbial brick wall that the COVID-19 lockdown created.
The data shows the property market was continuing to perform strongly throughout early-mid March, with all 16 of the major cities monitored showing quarterly value growth for the fourth consecutive month, indicating strength right across the country.
The average value nationally increased 6.1 percent year on year and the average value is currently sitting at $728,276. This represents an increase of 2.6 percent over the past three months, the same quarterly growth as last month.
QV general manager David Nagel says, “The housing market was ticking along nicely leading up to lockdown, although in the final week we could see the impacts of uncertainty starting to have an effect.
“Real estate agents and developers were rushing to get homes listed in anticipation of a change in the playing field. But purchasers were less bullish and less willing to commit as the market was heading into unchartered territory. Then everything changed on 25th March.
“Nobody knows what post-lockdown market conditions will look like. We’ve never been through anything remotely like this.
“We also do not know how long this will last. What we do know is there will still be a property market. There will still be sellers, although likely only a fraction of what we’re used to. And there will still be buyers that have the means and confidence to purchase property,” he says.
“What happens to house prices beyond this point will be determined by market forces and the changes in supply and demand.”
David says up to this point we were seeing multiple buyers often with plentiful funds available, competing for tightly held stock.
Going forward the supply of houses for sale will likely be reduced. The pipeline for new builds has been impacted as has almost every other industry during lockdown.
Most New Zealanders will look to consolidate their position in their current home as the country works its way out of a forecast recession.
Selling an existing property and upgrading to a different home will likely be furthest from their mind. Although some may be forced to downsize or even relocate to a new city in order to gain employment.
But banks will be patient, particularly in the short term with a multitude of other, softer options available like mortgage holidays, to avoid a flood or forced sales.
Demand for buying a house will also likely be down significantly. First home buyers that were active prior to lockdown may have lost some buying power with both their investment savings and Kiwisaver accounts taking a hit.
Their house deposit and employment status may look quite different after lockdown ends, delaying their entry into the market.
Others that have fared better under lockdown may see this as an opportunity, while interest rates are low, to dominate what’s left of the market.
With many first home buyers no longer competing, plus a likely post-lockdown slashing of net migration numbers no longer feeding housing demand, we could see a buyers’ market develop.
“Multi-unit developments currently under construction will be completed after the lockdown ends, but contract settlements could be impacted by sunset clauses within some purchase contracts,” David says.
“That effectively puts a time limit on the contract’s validity, which could come into play depending on the length of the lockdown. Developers will take a cautious approach to new projects and will be revisiting the viability of each development based on new selling levels.
“What’s most likely is we will see transaction volumes drop significantly from pre-lockdown levels. House listings will dry up with only those having to sell, for work or financial reasons, wanting to enter an uncertain market.
“Buyers that have the means will likely dominate the market, but with limited stock available buyers will probably exercise patience and this could force prices down for vendors that simply have to sell. But by how much? Nobody knows.
“The market will take considerable time to settle to a new normal after the lockdown ends.
“There will be pre-lockdown transaction settlements that will occur, plus a very limited number of transactions that occurred during lockdown. But with limited transactions after lockdown ends, we can expect a market filled with uncertainty at least through to the end of 2020 as the economy finds its feet again.”