Economist Gareth Kiernan isn’t too worried about the housing market right now.
The chief forecaster at Infometrics spoke to OneRoof after Auckland went into a level three lockdown and the rest of country was put on alert level two.
His team has been surprised by how resilient the market has been since the country came out of its first lockdown in May.
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The mortgage deferral schemes implemented by the banks in late March prevented homeowners from having to sell under pressure to sell while returning New Zealanders, some of whom are in a position to buy, have kept the market afloat.
“I think New Zealand’s position as a Covid-free area, or an area that’s relatively low risk, is still going to be there in people’s minds, and it’s probably reiterated by the Government’s quick and decisive action [earlier this week]. People will look at that and go, ‘OK, cases are inevitable, but in terms of where I’d rather be, parts of Europe and the US or New Zealand, at least there’s clear leadership there’.”
Kiernan still has concerns, though. There will be more job losses when the wage subsidies end, and if the lockdown is extended or further restrictions are implemented, then there could be problems for the market, even though for now he’s hesitant to talk the market down.
“But if you think of the extreme scenario, like in Melbourne, where it’s six weeks, that potentially becomes more problematic for the market.”
In and out of lockdown
Kiernan says that while there wouldn’t be rapid change in fortunes if the country went in and out of lockdown, there would be more uncertainty – and with that people would begin to hold off on bigger decisions.
“That kind of situation could become more problematic over the medium term, both from a labour market perspective and a housing market perspective.
“Having said that, if it does become ‘normal’ for us to be in and out of lockdown, I think people would become more used to that over time, and if even if that continued for, God forbid, some years we would get more used to it and the fact that life goes on.”
Economist Tony Alexander says the market will factor the latest restrictions in “reasonably seamlessly”.
Aucklanders line up for tests as the city fights to control a new outbreak of Covid-19. Photo / Getty Images
There’s no new hit to international tourism or the export education sector and the banks have already tightened lending criteria, he says, adding that the Government has already set aside $14 billion to be used if necessary in the case of a fresh outbreak so there is a buffer already there.
“And we know what happens when a lockdown ends – we catch up on spending that we didn’t do and we dive into the housing market hoping to catch a bargain or at least some listings,” he says.
While real estate agencies have learnt a lot from the last lockdown, and are now using virtual open homes and online auctions to overcome physical restrictions and accommodate buyers and sellers, Alexander says some Kiwis will back off in case the situation lasts another seven weeks.
But if people do back off, the impact won’t last long, he says. “I don’t think it has a sustained impact and the lessons so far from the post-lockdown period are that you’ve got to be quick to secure a property because there’s a big queue of frustrated buyers who want to get in.”
Finance is the key
While the story may be a bit different if there is a long lockdown, for now Alexander is sticking to his outlook for prices to ease a bit over the remainder of the year and then rise again next year.
He does think the optimism of businesses which may have been holding onto staff will be eroded and they may let go of people, but he says most of the unemployment is being felt by lower income people with variable incomes in hospitality, tourism and retail, many of whom are not homeowners and not looking to buy a house.
Economist Tony Alexander sticks by his prediction that house prices will ease and then rise again next year. Photo / Supplied
Mortgage adviser Rupert Gough, owner of The Mortgage Lab, believes finance is key to what happens next in the market.
“If people can’t get finance, they won’t be able to buy and the market won’t be able to shrug that off, because all the buyers will leave. So it will come down to how difficult the banks make finance to get,” he says.
The banks will base those decisions on whether their economists think the market will drop.
“It’s kind of circular. If the economists think the market will drop and the banks make finance harder, then the market will drop because the banks have made finance harder, so it’s a self-fulfilling prophecy really,” Gough says.
“If lending gets significantly harder, then I think the property market will drop price-wise because a significant amount of buyers get taken out of the market.”
But the market was resilient after the first lockdown and a lot of businesses have already adjusted to how they get income in lockdowns, such as by moving online, and banks also made strides in their ability to settle a house remotely without people having to go into branches with their passports.
“It may not hurt as much because we’ve had that test lockdown in March,” he says.
Swamped with applications
Martin Cooper, owner of Harcourts Cooper and Co on Auckland’s North Shore, thinks lockdown will be easier second time around.
The market went down quickly but went back up quickly and there’s good momentum.
“The banks are taking up to ten days to approve finance because they’re swamped with applications,” Cooper says.
“The desire for people to get their housing sorted, to upgrade or to move, is still very strong. Our auction clearance rate straight out of lockdown was up to 70 per cent sold under the hammer and we are operating in Alert Level 3 so that does mean we can still do up to two physical inspections a day of a property.
“It also means we can still conclude our auctions because we’ve got now the technology to do that virtually so for those people that maintain a positive mindset, if we end up knocking the virus on the head again and we’re in lockdown for a couple of weeks, it won’t be too bad for the real estate industry.
Harcourts Cooper and Co owner Martin Cooper says the fundamentals of the market remain strong. Photo / Ted Baghurst
“The fact that we smashed it last time I think has maintained faith in the property market and it’s held its position better than the share market and better than people’s KiwiSavers.”
Barfoot and Thompson managing director Peter Thompson says at alert level three agents can take two people at any one time to a property, which is more than in the previous lockdown. He thinks there will be a little more turnover of property than before, unless the country moves into full lockdown mode again.
His company is in contact with leading real estate companies around the world and Thompson says those which have gone into second or third lockdowns, be they full or partial, have bounced back each time they have come out.
Only a few, China, Spain and Italy, have come out a bit flatter but he points out these countries have had longer lockdowns.
“I think we do have certain things going in our favour in terms of the shortage (of listings), the low interest rates and there’s plenty of buyers out in the market at the moment,” he says.
