OPINION: If my view of the Kiwi property market could be summed up in one phrase it would be this: “if you want to understand the future of the market you must first understand the history of the market”.
The essence of this philosophy is that what our property prices have done in the past – the last 40 years in particular – is a very reliable guide to what they might be expected to do going forward. This position is backed up by four decades of property cycles, each roughly ten years in duration, in which property prices have more or less doubled over a six- or seven-year-period and sat flat for the next three or four years before starting to rise again. There are obviously regional variations to this as New Zealand is made up of more than one property market – but the overall trend is remarkably consistent.
But do these cyclic trends still apply to the market in the wake of Covid 19? Coronavirus wasn’t a housing market correction, it was a pandemic, and you have to go back to 1918 to find a comparable event – so surely the traditional wisdom is out the window?
Not so fast.
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In fact, only one of the three previous economic events which we associate with previous flattening’s of the property market were housing related. The 1987 Share market crash and the Asian Financial crisis in the late 90s were both linked to the share market – and even the 2007 Global Financial crisis was only indirectly housing related in that it was partly triggered by the collapse of the housing mortgage market in the US, but for reasons that weren’t relevant here in New Zealand.
So could the most recent of these events – the GFC – provide a guide as to what we might expect to happen to the post Covid housing market?
Perhaps – and the numbers are certainly interesting. In percentage terms we know that the kiwi property market only took a relatively small hit in the wake of the GFC – with 2008 house prices bottoming out 8.6% below the previous market peak, then quickly recovering.
Recent research from OneRoof's data partner Valocity means we can drill down into these sales in more detail – and the results are surprising.
For instance, we now know that between July 2009 and March 2011 – the years following the GFC during which the economy was clearly in recovery – there were 292,113 residential house sales throughout the country. The number of properties bought at market peak - between 2005 and 2007 - and then sold during this period for a loss was low – just 6043 – and the median value of those losses was just $22,000. At the same time, 65 percent of home sellers who bought at market peak and sold over the same period made a median profit of $45,000 on the sale of their property.
But here’s where it gets really interesting. During the GFC itself – generally accepted as the 22 months between July 2007 and March 2009 – there were actually more sales than during the period following the GFC. In fact, 306,631 houses were sold in New Zealand over this time. Of the properties bought at market peak, just 3461 properties sold during July 2007 and March 2009 for a loss – with a median average loss, across these properties, of $24,000. And get this – 78 percent of properties bought during market peak and resold over this time made a median profit of $52,000!
So what should we make of all this? In my view it simply means that the GFC had very little effect on the market overall and that things continued more or less as normal. Losses made on property sales from 2007 through till 2011 were low in both percentage and dollar terms and the great bulk of property sellers made money right through this period.
So will this experience be repeated in the post Covid housing market? Will the market continue largely unscathed? It’s still too early to know – but the numbers which are emerging should certainly give us cause to be optimistic. While sales volumes are understandably well down – prices are holding up and even appear to be retaining their pre-Covid momentum in most parts of the country, just as they did during and after the GFC.
This is obviously good news for those planning to sell and, if you’ve been holding off from listing so as to get a feel for where the market will land – it’s probably a good time to review that decision.
- Ashley Church is a property commentator for OneRoof.co.nz. Email him at [email protected]
