The country is nearly at the other side of the Covid-19 pandemic, heading now into our second week of Level 2 restrictions, which has seen a return to almost normal across the country, including in the property market. The first weekend under Level 2 saw a huge amount of activity at open homes, with lines outside some open homes displaying that there was a lot of pent-up demand for property.
But as we come out the other side, the effects are still yet to be seen, and the changes as it is still early days in the recovery process.
House Prices Decline – But It’s Not As Bad as Expected
The Real Estate Institute released figures revealed that under the restrictions of Level 4, National house sales dropped 78.5 per cent in April, with only 1,305 sold last month compared to 6,082 sales in April last year.
But the news isn’t all bleak – as the Institute’s House Price Index, which is considered a more reliable measure of price movements shows that across the entire country prices declined 1.8% in April compared to March – but remained up 8.5% compared to April last year.
Bindi Norwell, REINZ said the figures were unsurprising because for 27 days in April, New Zealand was in alert Level 4, and was hopeful for the future as sales slowly begin to pick up as restrictions have eased, “Talking to our members around the country, there are good levels of activity starting to occur with first-time buyers and investors active in the market which is a positive sign. We expect this to pick up.”
Looking at the future, Reserve Bank Governor Adrian Orr stated that the expected lower population & household income growth will cause house prices to fall, despite lower construction activity, lower interest rates, and the easing of loan-to-value ratio restrictions.
“Our baseline scenario assumes house prices will fall by around 9% over the remainder of 2020.”
Reserve Bank Places Incentives to Revive the Market Post-Lockdown
The Reserve bank announced that the Official Cash rate will remain at 0.25 per cent last week, and although no mention of negative interest rates was made, the bank’s Monetary Policy Committee said it was prepared to use additional monetary policy tools “if and when needed”, including reducing the OCR further. Earlier on in the lockdown, the bank had also announced the decision to remove its mortgage loan-to-value ratio (LVR) restrictions, for at least a year, with hopes that young Kiwis can buy their first homes sooner and entice investors back into the residential property market.
Those that work in the industry have indicated that the next thing needed is for the Government to review any legislation that may hinder real estate’s revival, including softening its foreign buyer ban – even temporarily.