Property values in New Zealand are losing momentum on the back of the pandemic, but according to the just-released May 2020 QV House Price Index it’s still too early to get a full picture of housing market performance.
The HPI showed the number of residential property sales across New Zealand was extremely low through April and May, and the monthly change in average values rose by only 0.5 per cent in May – the smallest monthly gain in eight months.
CoreLogic Head of Research New Zealand Nick Goodall said given the HPI methodology includes sales over a rolling three-month period, and considering housing market activity went into hibernation through April and most of May, the latest HPI results are heavily skewed towards housing market conditions in March.
“Today’s HPI release confirms that the market has lost some momentum, however it’s likely we won’t have a firm view on the trajectory of property values until sales volumes have picked up further over the coming months,” Mr Goodall said.
“Over the next few months, property values look set for further weakness, as GDP falls and unemployment continues to rise.”
Mr Goodall said New Zealand was looking to Australia for what to expect, where businesses over the last two months have been operating at the equivalent of about a lock-down level 2.5.
According to the CoreLogic Home Value Index results for May, Australian dwelling values posted their first month-on-month decline since June last year.
Australia’s national index was down 0.4 per cent over the month, however the fall of less than half a per cent in housing values over the month shows the market has remained resilient to a material correction.
As New Zealand has transitioned down through the lockdown levels over the last month, Mr Goodall reported early signs of relatively strong demand for property, with would-be buyers from prior to and during lock-down out in force.
But with lingering uncertainty continuing to dent short-term confidence, it’s unlikely demand will bounce back to pre-COVID levels, especially as winter sets in and the country heads into election season.
“New Zealand sales volumes were down by almost 80 per cent in April and while activity has increased in May, the market is still a long way from historic average levels of transactions,” Mr Goodall said.
“If low sales volumes persist, we could see additional volatility creeping into pricing measures.
“A key constraint on transactions remains a lack of ‘for sale’ listings. Low inventory levels are also likely to be a factor helping to insulate housing
values during a period of less buyer activity.”
As expected, long-term the market remains vulnerable to the effects of the pandemic on the economy and employment, although the recently released Financial Stability Report from the Reserve Bank (RBNZ) hints at resilience in the financial system.
The RBNZ estimates that even if house prices fell by 15 per cent, which is at the more downbeat end of most forecasts, less than 5 per cent of people would be at risk of negative equity, which along with forced or urgent sales, could be the cause of greater eventual falls.
And as restrictions have eased over the past month, early indicators of real estate agent activity have seen an upswing.
Pre-listing activity across CoreLogic’s PropertyGuru and RPNZ platforms remained strong up to the long weekend, however property appraisals generated by agents took a seasonal dip as many people took the opportunity to escape their home town for a mini-break.
“The first few weeks of winter could prove crucial in whether we get the lift in listings which has been so absent over the last few years,” Mr Goodall said.
“We will await the Real Estate Institute’s HPI release at the end of next week to get a better feel for how values have performed recently, however we would again stress caution at using median sales prices to assess any market movement, as it can be influenced by a change in the composition of what happens to be selling.”
According to Mr Goodall, while the immediate indicators provide a hazy view of the market, the longer-term view is also highly uncertain. As government stimulus and lender leniency policies expire or taper, there is a risk that mortgage arrears could push higher, which could exert downwards pressure on home values.
On a more positive note, he said the likelihood of the country moving to Level 1 increases with every day of no new cases (the count is currently 11 days in a row). And level 1 should bring with it further stability for the economy as well as a further reduction in the rate of newly unemployed.
“Borrowers who are potentially feeling a little financially strained at present will also be supported by the fresh round of ‘rate wars’ amongst the banks, and there is likely still room for mortgage interest rates to drop further, as the RBNZ continues to put pressure on the retail banks to pass through the lower wholesale rates and support the market,” Mr Goodall explained.
“All in all, the property market is in a holding pattern to some degree at present. As sales volumes continue to increase we’ll start to get a clearer picture of recent value movements.
“The trajectory of home values and housing market activity will be largely reliant on how well the New Zealand economy responds to eased restrictions and navigates a path to recovery.”