How Are Housing Prices Expected To Take Shape Post Lockdown?

Friday, 10 September 2021, 5:54 am
Press Release: Kalkine

Summary

• With the New Zealand economy re-opening for commercial activity, property sector players are dubious about how the prices would pan out.
• In the coming months, potential changes in government stimulus and monetary support could change the demand-supply dynamics of the property sector.
• Experts expect a soft landing for housing prices in the days ahead amid the gradual withdrawal of the fiscal stimulus.

After Prime Minister Jacinda Ardern’s recent decision about lockdowns being lifted, many are speculating over the potential trend of housing prices that have been going haywire. At a time when property prices are going uphill, the pace of recovery driving the policy framework is expected to determine the performance of the housing market in the coming months.

The past year has been significantly intense for the housing sector, with property prices exhibiting a record annual growth over the last 12 months. The latest data from Quotable Value (QV) demonstrated an annual housing price growth rate of 26.6 per cent over the year to August 2021. This points to a substantial change for the property sector over a short period.

The recent data from QV also suggests that the gap between supply and demand is closing in the property sector. This potentially explains why the rate of increase of property prices has fallen, even as prices continue to rise.

Though New Zealand’s housing price surge story is no different than that seen in some other advanced countries, its timing with the recent lockdowns has created an uncertain scenario. Meanwhile, as the economy gears up to move out of recovery, factors like interest rates, unemployment rate and wage growth are expected to greatly alter the trajectory of housing prices. Thus, the coming weeks would be extremely crucial in figuring out how these factors pan out.

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The challenges to the housing sector

New Zealand’s housing sector is facing headwinds in the form of lack of immigrants, slow wage growth and supply constraints. Meanwhile, speculations of interest rate hike have also been prevalent in the country prior to the new virus outbreak. These factors have put the housing sector in a slightly different position than last year, when there was little to no possibility of an interest rate rise.

Additionally, the pent-up demand for properties developed among consumers is another key factor that was absent during the previous lockdown. This demand might quickly outstrip the supply as soon as restrictions ease, and buyers get a chance to conduct their purchasing process and examination once again.

In case the central bank embraces an interest rate hike, it might threaten the rising demand resulting from eased restrictions. A surge in interest rates may also put buyers in a critical position, forcing them to manage mortgage payments out of their incomes that have exhibited small growth in the COVID-19 era.

Another factor that can counteract the rising demand for property is the potential reduction in credit availability. The Reserve Bank of New Zealand (RBNZ) is set to pull the breaks on its quantitative easing program, especially given the ease of restrictions after the second lockdown. This may, once again, put buyers in a position seen last year when constrained demand halted the economic activity, and consumers went into the “savings only” mode.

Can a soft landing be expected?

Considering the current economic scenario, experts remain hopeful that housing prices would not plummet and instead would see a soft landing. The expectation seems to have been built on the back of increased government effort to shift market control away from investors to the first home buyers. On the same note, gradual tightening can be expected in the coming months to ensure that the prices reduce with time and not instantaneously.

However, the market could also be met with a perilous scenario where the supply of housing exceeds its demand. For instance, Auckland has seen significant growth in total residential housing consents and could soon see a rise in the supply of housing. Moreover, as soon as government stimulus is pulled away, buyers may find it increasingly difficult to match the rising supply.

It will not be wrong to say that the housing prices are caught in a tight spot where different factors are pulling strings in opposing directions. Moving away from fiscal stimulus seems necessary for the long run but could potentially see some interference from the economic impact of the recent lockdowns. Only time will tell whether policy tightening makes consumers independent of stimulus or if it lands them in turmoil.

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