Source: MIL-OSI Submissions
According to the June 2020 QV House Price Index (HPI) results out today, the impact of the COVID-19 pandemic and ensuing economic shutdown on the property market is starting to show.
Nationwide property values dropped -0.2% according to the latest monthly reading, and were down in four of the six main centres. Tauranga and Christchurch were the two main centres to so-far see values hold up, although the increases were a mere 0.2% each.
In the provincial centres there was a 50/50 split between value growth and value reduction over the June reading. Unsurprisingly, given its significant reliance on the heavily hit tourism industry, Queenstown saw the greatest drop in values in June of -2.1%.
Improving customer sentiment and low interest rates are also factors weighing towards the positive outlook. The possibility of a negative official cash rate only entrenches the ‘lower-for-longer’ mind-set for mortgage interest rates, though it must be noted any move into negative territory is unlikely until 2021 at the earliest, and even then only if economic conditions weaken. But mortgage interest rates around the 2% mark are a very real possibility within the next year.
Rental listings have also been a measure of great interest, with some expectation that there could be an increase, as rentals are vacated (due to tenants’ loss of income) and those listed on short-term accommodation sites switch to long term rentals (with the reduction in tourists). However rental listings remain below levels witnessed in previous years, suggesting perhaps a willingness and ability for property investors to hold a property vacant through the period of greatest disruption, confident things will improve soon. The earlier than expected move to alert level one will have assisted this position.
Recent employment data, released by Stats NZ, showing a lift in filled jobs of 0.8% on April illustrates a bounce-back from the prior monthly drop of 1.7%, however we know the full impact of the recession on the labour market is yet to come.
So while the cushioning impact of Government and bank support appears to have so far been successful, with downward (improved) revisions to unemployment projections now common place, the focus of attention remains on the next few months, as home owners roll off adjusted loan payment plans and the wage subsidies end (just announced to be 1st September).
According to the NZ Bankers Association, a total of 66,870 customers (totalling $21.3bn) have reduced their loan payments since March 26 (the start of lock-down) with a further 55,406 customers (totalling $19.5bn) deferring all their loan payments. The initial 3 month period for these plans will have now ended for some owners, which could mean a tougher decision approaches as they assess their financial situation and whether they need to raise capital by selling assets.
So while the lift in market activity and subsequently data to analyse is providing more clarity on where the market stands, we remain cautious about what the rest of the year could bring for the property market, with many forks in the road to come.