New Zealand house prices are likely to fall as the coronavirus pandemic continues to impact domestic and global markets. While real estate assets are large, robust, and somewhat resilient, the current situation will be a huge test. Unemployment is just one of many factors likely to affect the market, with tourism, rental prices, and wider business confidence also likely to have a negative impact. Overall, house prices are likely to fall over coming months, with the speed and extent of the decline directly linked to the state of the global pandemic.
According to the latest data from the Real Estate Institute of New Zealand (REINZ), the housing market has already been affected by coronavirus. Recent results saw a national sales volume drop of 4.8%, with 347 fewer properties sold across the country than a year ago at 6866. This is the lowest result in nine years, and one of the first obvious effects of the pandemic on the property market. During the first quarter of the year, 2000 fewer new listings came onto the market than the same time last year.
Median house prices reached record highs in March on an annual basis, however, with Auckland up 11.1% to $950,000, and national figures up 13.7% to $665,000. While these are undeniably strong results, they are a reflection of the market before the lockdown, and before the impact of coronavirus. During the GFC in 2008, which is the only comparable situation, property prices in New Zealand fell around 8%. Our banks are in much better shape this time around, however, with property prices likely to be determined by wider economic conditions such as business insolvencies and employment results.
Unlike some sectors, such as healthcare and emergency services, the real estate sector is not classified as essential. REINZ has estimated daily sales drops of around $125 million, which equates to a possible loss of trade around $3.6 billion during the lockdown period. Mortgage rates will stay low for the foreseeable future, however, which is likely to support house prices along with housing under-supply and strong long-term immigration. While fewer international visitors are entering the country, there are lots of Kiwis coming home to what is relatively safe turf.
According to Herald property editor Anne Gibson, unemployment is likely to be the single biggest factor affecting house prices in coming months: "The main banking economists say unemployment is the single biggest factor that they see affecting the market, once we come out of lockdown. It affects people's ability to secure the mortgage, then pay off the house. I think the really worrying thing is that if unemployment did rise to something like 8%, which some of the economists are talking about, that could be quite dire for the housing market."
All of these factors will impact the housing market, which is somewhat insulated but certainly not immune to wider economic forces. The speed and depth of the downturn is likely to be geographic, with places like Queenstown that rely heavily on tourism likely to experience a steeper decline. While low prices could be good news for some, "First-time buyers have found themselves in a really difficult situation during Covid-19 with the portion of their KiwiSaver fund able to be used for a first-home purchase being at a much lower value than many had expected," said REINZ chief executive Bindi Norwell.
