Each month I run four surveys of the 13,000 readers of my weekly publication Tony’s View, asking real estate agents, valuers, mortgage advisors, and people generally, what they are seeing in the housing market. At a time when we know virtually every economic indicator is distorted upward or downward by the effects of fighting Covid-19, I like to think the responses and especially the anecdotes can place some flesh around the bones of what we think is happening out there.
There are a number of key themes across the surveys these past four weeks.
First home buyers and investors
One is that there are a great number of first home buyers and investors actively seeking property. Investors are motivated primarily by two things – low interest rates and hopes of finding a bargain. First home buyers also appear motivated by low borrowing costs, but also the simple hope that the shortage of listings in recent years will disappear as existing owners look to sell.
Start your property search
A net 15 per cent of people aged 30 and below plan seeking an investment property over the next 3-6 months, and a net 21 per cent plan searching out a property to live in themselves. A net 7 per cent of Aucklanders plan seeking an investment property.
Listings in short supply, banks cautious
But this brings us to the second key factor in play. Very few owners are under great pressure to sell, and agents report that listings remain almost as difficult to get now as before Covid-19. Some are even starting to discount their fees to get listings. 62 per cent of real estate agents report that the main concern of buyers is insufficient listings.
Mortgage advisors note the same thing, but also give deep insights into the third aspect of our current national housing market. Banks are reluctant to lend, with a net 60 per cent of mortgage advisors reporting that banks have tightened their lending criteria.
There has been almost no pass-through to borrowers of the Reserve Bank’s scrapping of the Loan to Value Ratio (LVR) rules. Banks continue to calculate debt servicing at interest rates of 6.5 per cent - 7.5 per cent rather than current mortgage rates which are generally below 3 per cent. They are also demanding a lot more proof of post-lockdown income, even requiring letters from employers, and taking a harder line regarding monthly borrower expenses.
This means that often, first home buyers in particular, are having to walk away from potential purchases through reduced ability to get finance. Does this mean then that prices are falling away? It would seem not.
No bargains yet
The fourth key characteristic of the current market is that as yet there have been no recognised examples of properties selling for deep discounts. In fact, a net 18 per cent of property valuers feel that prices are rising, as do a net 34 per cent of licensed real estate agents.
In June 55 per cent of agents felt that buyers were worried prices might fall after they bought. This month 44 per cent feel that way. Fewer investors are also of the opinion that they will find a bargain.
Gloomy predictions not coming to bear
Why are we not seeing the extreme market weakness some other analysts predicted as we were heading into lockdown?
Many reasons. Interest rates have been cut to record lows and will likely stay low for many years. The government is throwing the fiscal kitchen sink at mitigating the worst effects of the Covid fight, and giving employees hopes of better times later this year and through 2021.
We are seeing a rise in the net flow of Kiwis back to NZ, with a structural shift away from the old brain drain normality of past decades seeming to have got underway in 2019 even before we had heard of a new virus in China. And, we went into this lockdown with nationwide property listings near 19,000 compared with 46,000 heading into the 2008-09 Global Financial Crisis. For Auckland, pre-Covid listings were 7,000 from 14,000 back then.
Bank reluctance to lend will constrain the housing market for a while longer yet, though perhaps come spring and after the general election, some increase in willingness to extend finance will emerge.
What will take longer to change is extreme caution about financing new property developments. This will set the scene for an increasing imbalance between growth in new house supply, growth in demand, and reductions in the long queue of frustrated buyers over 2021.
And it is precisely these sorts of considerations which are encouraging many property buyers and sellers to look-through this current period of greatest economic weakness attributable to fighting Covid-19. Their eyes, dreams, and wallets are focussed on the recovery and the housing fundamentals in a way we have never before seen during a recession in this country.
- Tony Alexander is an economics commentator and a former chief economist at BNZ. Subscribe to his free weekly Tony's View here
