Expert warns on impacts of COVID-19 lockdowns on market
The residential property market in New Zealand continued to slow down in August 2021, with the latest CoreLogic House Price Index (HPI) showing a drop in nationwide values.
The latest CoreLogic HPI revealed that nationwide values increased by 1.6% in August, a slight reduction on July's monthly growth rate of 1.8%, well below the recent monthly peak of 3.1% in April, and a continuation of the recent slowing trend.
In the short term, CoreLogic warned that the number of property listings would be impacted by the COVID-19 lockdowns, which could flow through to increased values.
CoreLogic NZ head of research Nick Goodall said lockdowns make it more difficult for agents to source leads and vendors to prepare their property for sale.
“Tracking of early market indicators, like appraisals generated by agents using Property Guru and RPNZ, shows real estate agent activity has dropped by -52% compared to the week before lockdown,” Goodall continued. “This further tightening of supply could lead to some temporary renewed upwards price pressure as pent up demand competes for limited listings.”
Read more: CoreLogic delivers the latest on NZ property investment market
However, Goodall explained any reacceleration of house price growth rates, if it eventuates, is likely to be short-lived.
“Apart from the prospect of rising mortgage rates and the impact of tighter credit policies, it's important to factor in the weight of worsening housing affordability,” he added.
However, as property values rise faster than incomes, the cost of purchasing a home would most likely become out of reach for a growing number of would-be buyers, especially as increasing interest rates start to impact the amount of money people can borrow.
“With property difficult to transact under alert level four restrictions, it's too soon to note any immediate impact on prices from the lockdown to date. However, we do have the last lockdown (April 2020) and subsequent price boom to compare to. The factors leading to that boom were many, and they're not all present this time around. While the reaction from the government has so far been supportive, it is unlikely to be stimulatory,” Goodall said.
Goodall noted the re-introduction of the wage subsidy scheme and the resurgence of support payments for other business costs. However, these leave other measures so far out of the toolkit, which not only protected the property market from a downturn of prices but also helped stimulate the market last year.
“Many of these related to mortgage lending with the official cash rate (OCR) being cut from 1% to 0.25%, alongside quantitative easing (government bond-buying) from the Reserve Bank, which reduced mortgage interest rates and ensured liquidity. The Reserve Bank also temporarily removed the loan-to-value ratio (LVR) restrictions, partly to assist the distressed mortgage deferral programme introduced by each of the banks,” Goodall said.
In the absence of the additional stimulatory measures, Goodall said he does not expect and covid-induced surge in prices to linger.
“In fact, the current LVR settings are tighter than prior to the initial lockdown (40% deposit requirement for investors), and the Reserve Bank has been very clear that the next move for the OCR is up. In a recent release, they went as far as saying that had we not been plunged into the snap lockdown on the day of their last monetary policy review, then they would have lifted the OCR,” he added.
“Guidance then, for their next decision on October 06 is almost certainly an OCR increase of at least 25 basis points even if parts of the country remain at alert level three or four. This will maintain a degree of upwards pressure on mortgage rates, which historically have worked as a headwind against value growth.”
