It’s obviously been an unprecedented year for the economy and property market so far in 2020, but it’s at least been
reassuring that the number of appraisals generated by real estate agents, for-sale and for-rent listings, valuations ordered by banks, mortgage lending
flows, and agreed sales activity have all rebounded since we left alert level four lockdown in late April.
What’s more, we entered lockdown with a low supply of total listings available on the market, so with that set alongside the release of pent-up demand
for property (which couldn’t be acted upon during April), prices have held up relatively well over the past few months. Of course, ultra-low mortgage
rates have also been a key support here, along with the Government’s wage subsidies and the option for borrowers to go interest-only or take a
But looking ahead, how might the rest of 2020 pan out? Unfortunately, the ‘good times’ that have re-emerged for property since April are more likely
to fade out in the second half of the year than to roll on. After all, although we’ve been wary of the doom-mongers out there, at the same time
we can’t ignore the fact that we’re in a recession and the unemployment rate has further to rise. These factors will restrain the property market
in the coming months.
In addition, as we hit spring we’ll see the usual seasonal rise for listings, which will be a test for the true strength of demand – if it falters,
then available supply on the market will rise steadily, and reduce the support for prices. At the same time, as wage subsidies and mortgage payment
deferrals come to an end, there’ll be further tests for the property market – not to mention the General Election in September, which always tend
to create uncertainty for households and property.
Sales volumes were down by 80% in April and about 50% in May, and although the results for the rest of the year won’t be as weak, we still expect activity
for 2020 as a whole to be down by about 25% compared to 2019. In terms of property prices, the effects are likely to be smaller – but we have still
penciled in a decline from peak to trough (potentially into 2021) of around 5-7%. That’s not great for any property owner, but would at least be
a smaller decline than when they dropped by about 10% during the GFC.
Indeed, we entered this episode with mortgage rates much lower and affordability looking better than in 2007-08, banks in a stronger position to continue
lending, and generally speaking more households with more equity in their homes (due to the previous loan to value ratio speed limits). This means
that the risks of negative equity are reduced.
All in all, the rest of 2020 ‘could be better’, but the silver lining is that it won’t be as bad as some of the property downturns that we’ve seen
in the past. And then over the longer term, the appeal of property will remain – so with many of the fundamental drivers likely to return to normality,
upwards pressure on prices will start to return.
Keep an eye on the market and check whether the potential return figures stack up with RPNZ. Find out more about CoreLogic’s special RPNZ offer for APIA members here .
This is a guest blog post. Guest submissions are a way for APIA members to share their views and experiences with each other and do not necessarily reflect the views and position of the APIA. The content of this article is general in nature and not intended as a substitute for specific professional advice on any matters and should not be relied upon for that purpose.
ABOUT THE AUTHOR
Kelvin is a Senior Economist in CoreLogic’s research team. Prior to joining CoreLogic, Kelvin spent 15 years working in private sector economic consultancies
in NZ and the UK, and he is well practised in applying macroeconomic trends and data to the property market.