COVID-19 Flattening the Property Curve
New Zealand’s quicker than expected transition down the lockdown levels has provided a timely reprieve for the residential property market. The real estate sector is reporting strong interest from vendors with listings back close to normal winter levels, while banks are reporting strong enquiry levels from potential buyers. But is the resurgence sustainable?
QV General Manager David Nagel said “The QV House Price Data continues to reflect a gradual decline in quarterly growth in June, with 13 of the 16 major cities we monitor showing a reduction in the rate of growth since May. This indicates the heat we saw in the market pre-lockdown gradually dissipating as the market begins to settle”.
The average value nationally increased 1.3% over the past three month period, down from 2.4% in May, with the average value now sitting at $738,018. This represents an increase of 7.4% year on year, slightly down on annual growth of 7.7% last month. The average value in the Auckland Region sits at $1,082,541, up 1.5% over the last quarter, and remains 5.4% up year on year.
“A combination of pent up demand following lockdown, plus vast numbers of returning expats over the past few months has contributed to strong attendance at open homes, auctions and tenders in most locations throughout New Zealand. Record low interest rates have also helped to ensure prices have held up well so far with an active buyer pool dominated by investors and first home buyers”, says Mr Nagel.
“The resilience of the New Zealand economy as well as the property market has surprised many commentators, no doubt assisted by the country’s rapid return to a new normal. But with government wage subsidies ending in September and many homeowners that sought relief from banks with mortgage holidays likely to feel some financial pressure heading into summer, the worst is still ahead of us”, he says.
“We’re seeing some early signs of value stress with the QV House Price Index in Queenstown declining by 1.5% for the three month period to June. This is the first fall in quarterly values for a major urban area that we’ve seen this year. This is not unexpected given the heavy reliance on tourism and short stay rental accommodation in this location”, he says.
“Market resilience over the coming months will be reliant on a continuation of returning Kiwis feeding demand as both buyers and tenants. Grounded Kiwi’s unable to embark on their OE will also help to fill the void of migrants coming into the country. It goes without saying that a return to lockdown protocols would be catastrophic to market confidence”, says Mr Nagel.
“Our earlier projections that the market will experience a correction of 5-10% by Christmas time from the pre-COVID high of January to March 2020 is still looking likely. While some parts of the country will be harder hit than others, any fall in value should be put into context. Most parts of New Zealand have experienced value growth in excess of 5-10% in just the past 12 months, so for those that can weather the storm, this is simply a passing aberration”, he says.