It’s been a rollercoaster of a month. As the Covid-19 pandemic has swept across the world, Government responses to the developments have come thick and fast. And, in tandem, the economy has taken a significant downfall. The situation has not unravelled as quickly in the world of residential property though.

In fact, the periodic release of the latest housing market data throughout the month stood in stark contrast to the dire situation elsewhere. That’s because it shows the national market was rebounding, with exuberance, from the quieter times seen last year. Even Auckland’s market, long in the doldrums, was on the rise.

The data was a bright spot in the economic gloom. But Covid-19 means the game has changed, and the future of the market is a little more uncertain now. Most commentators are not expecting a crash, but they do say quieter times lie ahead.

Sales Resurgence Before Covid-19 Crisis

Given the current economic state of play, it’s easy to overlook just how strong February’s market data was. Of that data perhaps the most notable was a widespread resurgence in sales activity.

According to REINZ, the number of properties sold nationally in February was up by 9.2% year-on-year, from 6,132 to 6,694. This was the highest number of properties sold in the month of February in four years.

The re-energised Auckland market was a major driver in this. It saw sales volumes lift from 1,390 to 1,968 in February. That was a 41.6% year-on-year increase in sales and also represented the highest number of sales in the month of February for five years. Gisborne, Tasman, Hawke’s Bay, and Bay of Plenty all saw double-digit increases in sales volumes. Although, in contrast, Nelson, Taranaki, Southland and the West Coast all saw double-digit declines in sales.

Barfoot & Thompson’s latest data also shows that Auckland sales activity soared back to life in February, with the agency recording its highest number of sales in five years. The real estate agency saw 804 sales, which was a 69.6% increase on the number of sales at the same time last year and an 18.6% increase on January.

Additionally, QV general manager, David Nagel, says their data confirms sales activity picked up significantly in Auckland, and most parts of the country, as more buyers committed to property decisions in a busy market.

However, the amount of housing stock available for sale remained low. Realestate.co.nz’s February data had 22.3% less houses available for sale, as compared to February 2019. In Auckland, there were 22.5% fewer homes available as compared to the same time last year.

This decrease was mirrored in other regions. Marlborough reached an all-time low since records began 13 years ago with 35.9% fewer homes available when compared to February 2019. In Taranaki and Wairarapa, total stock was down by 42.6% and 36.3% respectively.

REINZ chief executive Bindi Norwell says that with new listings remaining critically low it wasn’t surprising there was such a mixed sales result around the country in February.

“This is only the second time since records began that we’ve seen fewer than 11,000 new listings come to the market during February. Some years have seen as many as 18,000 new listings come to the market at this time of the year. This outlines just how low listings are.”

Solid Price Growth – For A While

The combination of demand pushing up sales activity and limited stock means that all the different data recorded prices were up substantially in markets round the country.

Realestate.co.nz had the national average asking price up by 4.0% yearon- year to $702,510 in February. Asking prices were also up to all-time highs in five regions. They were Northland,

Hawke’s Bay, Canterbury, Wairarapa and Manawatu/Whanganui. Likewise, in QV’s data the average national value rose by 5.3% year-onyear and by 2.6% over the past quarter, leaving it at $722,475 in February. For the third month in a row, all 16 of the major cities they monitor saw quarterly value growth, which indicated strength across
the country.

And, while Wellington and Dunedin were the stars of the main centre markets, it had Auckland’s market firmly on the rise again. The region’s average value was up by 1.2% year-on-year and by 1.8% over the past quarter to $1,057,556 in February.

The story was the same in REINZ’s data, with the national median price up by 14.3% year-on-year to a new record median price of $640,000 in February. Seven regions (Northland, Gisborne, Manawatu/Whanganui, Wellington, Tasman, Marlborough and Canterbury) saw new record median prices, while Auckland house prices rose by 4.3% to $888,000 in February, as compared to $851,000 at the same time last year.

There can be no doubt the market was buoyant prior to the intensification of the Covid-19 crisis, both in New Zealand and globally.

Market Expectations Diminish

But apprehension about the virus and the impact it might have on the economy is rising rapidly. Not long after the Government introduced strict travel bans, commentators started to revise their outlook for the market.

ASB senior economist Mike Jones says the backdrop of generalised economic uncertainty, plunging business and consumer confidence, doubts about employment prospects, and wealth and income declines will have implications for the property market. “Both demand and supply are likely to take a knock. Demand is likely to tail off first and listings to follow as sellers pull back and await better conditions.”

‘Assuming the outbreak can be brought to heel and economic activity recovers, we expect house price inflation to turn higher from around the last quarter of this year’ MIKE JONES

For this reason, ASB has slashed their house price inflation forecasts. They are expecting small declines in house prices for the June and September quarters (of 0.5% and then 1.0%) and they are clipping a full five percentage points off their annual house price forecasts.

This means they now expect annual house price growth to slow to zero by March 2021, as compared to the 5.3% growth predicted previously. Jones says that assuming the outbreak can be brought to heel and economic activity recovers, they expect house price inflation to turn higher from around the last quarter of this year.

“However, given we’re in the eye of the storm, longer-term forecasts should be taken with a grain of salt. We have more confidence in our short-term, more negative, view.”

It’s worth bearing in mind that the last four times New Zealand experienced or skirted economic recession, annual house price inflation in New Zealand went negative, he adds.

“There are some cushioning effects this time around from current recordlow mortgage rates (which could go even lower), a sturdy labour market, and a starting point of strong excess demand. But risks are nevertheless to the downside.”

ANZ economists also believe the housing market will be weighed down by the downturn. They now expect house prices to fall 3.5% this year as the impact of the global downturn weighs on business conditions, sentiment, incomes and household wealth.

Quiet, Moderate Times Ahead

For CoreLogic senior property economist Kelvin Davidson, the ongoing drivers of limited supply and strong demand remain at play so while an economic downturn might rein in the current exuberance of the housing market, it’s unlikely to cause it to crash.

“We’ll see a bit of a hit to market activity, with auctions and open homes likely to see reduced numbers. Sales volumes might drop and sellers might also hold back, which could mean fewer listings. But, even so, I doubt that house prices will fall very far.”

The Reserve Bank’s record 75 basis point OCR cut will help keep interest rates low, with the big five banks all committing to passing on the rate cuts, so the cost of borrowing remains attractive, Davidson says.

“Banks are likely to stick to tough servicing criteria for mortgages so borrowers will have to jump through hoops to get the lending. But if you can satisfy their requirements, there is money there to borrow and at a lower cost.”

Given the recent volatility of the share market, for investors on the search for yield property could well represent a safe asset haven, he says.

“The upshot is that many market participants will sit tight for a while, but the market will keep ticking over at a more modest pace.”

Norwell agrees that in times of economic uncertainty people can tend to take a wait and see approach to the housing market, which is what could happen with Covid-19.

As a general rule, house prices tend to either hold or have a slight dip and volumes tend to fall as people take that wait and see approach, she says.

“Looking at a past recession period with a global reach, the GFC provides for some comparatives.

“One year after the GFC started, median house prices across New Zealand
fell 5.9% year-on-year. But prices started rising again after January 2009. In the year ending January 2010, median prices increased 9.4% and were sitting $10,000 above where they were in January 2008 when prices started falling.”

This highlights that the market did recover reasonably quickly, she says. “The reality is that people always need to buy and sell houses, so we don’t expect the market to come to a complete stop.”