According to the CoreLogic QV March 2020 House Price Index results out today, the average value of property across New Zealand rose by 0.8% over the month, taking the three-month change to 2.6%. The level of property values hit $728,276 last month – up by 6.1% from a year ago; the fastest rate of annual growth since August 2017 (6.9%). In other words, the results for March showed a continuation of the market upturn that had been underway for the previous 6-9 months.

NZ average property values
NZ average property values

Although COVID-19 became more prominent last month, the real impact didn’t begin to bite until the first day of level 4 lockdown on March 26th. We’re now in a completely different world, with no property settlements that involve the physical movement of people possible until at least the end of the current lockdown. This will have a major impact on the property market and relevant statistics, but the hope has to be that most sales activity is deferred rather than lost altogether.

Index results as at 30 March 2020
Index results as at 30 March 2020

Some of those implications are covered in more depth below, but to provide more detail around March’s results, the continued strengthening was evident pretty much right across the country. Property values rose steadily in each of the main centres, with quarterly increases of 4.5% in both Wellington and Dunedin (still listings-constrained markets) and a solid increase of 3.2% in Hamilton too. Auckland showed a rise of 1.8% in average property values in the three months to March, with the annual growth rate perking up to 2.5% – the fastest increase in our largest city since the figure of 3.2% in August 2017.

Average Property Values, Main Centres
Average Property Values, Main Centres

There were also some stellar results around other parts of the country. Whanganui saw average property values rise by 31.1% in the year to March, and Gisborne by 28.6%. Invercargill (19.4%), Palmerston North (15.7%), Hastings (12.5%) and Kapiti Coast (12.5%) were also in double digits.

Annual change in dwelling values**, Provincial Centres
Annual change in dwelling values**, Provincial Centres

“There were few surprises in March’s results. The areas of the country with lower property values continued to have the most attractive affordability and active buyer demand, hence the strongest growth. However, the upturn also rolled on in the main centres, with buyer confidence better and low mortgage rates also helping them to enter the market.” 

“The truth is that unfortunately recent statistics of most kinds are now less relevant. April will effectively see no property change hands, and over the coming weeks and months NZ will be in a deep recession, with unemployment rising to perhaps 8-9%, higher than the GFC-related peak of 7%.”

The reassuring aspect for the market is that NZ has considerable financial resources to help cushion the blow, and the Reserve Bank, Government, and retail banks have all been emphatic in their responses – including slashing the official cash rate, delaying extra bank capital requirements, introducing the asset purchase programme, putting in place mortgage repayment holidays, increased fiscal spending, and setting up the business finance support package.

In terms of the property market, itself, many of these measures will help to insulate activity and property values, albeit nothing is immune in these conditions. Indeed, it wouldn’t be a surprise to see sales activity drop by 15-20% this year, as buyers stay on the sidelines (either by choice or because they can’t secure finance due to losing their job or credit criteria remaining stringent) and sellers also try to ride out the uncertainty.

The key question is where the balance of demand and supply lies after the lockdown has eventually ended and when we will see the property market start up again. This will determine by how much prices may be affected. Our data shows that listings had already begun to spike in advance of the level four lockdown (perhaps due to some owners wanting to free up cash in advance of any employment or business problems) and it doesn’t seem too much of a stretch to suggest that we’ll be in a “buyer’s market” once the current hiatus in activity eventually comes to an end. Naturally, this would tend to put some downwards pressure on values.

Longer term, the broad appeal of property is likely to continue. Other investment options have taken a significant hit already, and if anything, the support provided by the Government, Reserve Bank and retail banks could actually provide reassurance to the market that the future of property remains less risky. 

Plus, you can’t change the fact that many people like the ‘physical nature’ of property – the bricks and mortar remains. No doubt, people will be more wary, especially in the short term, but provided we don’t see wholesale mortgage default following on to mortgagee sales, the fundamentals of low interest rates, continued population growth and general undersupply should support an eventual recovery.

“It would be all too easy to go into a downwards spiral of negativity at a time like this. However, it’s worth noting that a lot of economic and property market activity won’t be lost altogether, just delayed for a period of time. We’ve seen on many occasions before that recoveries from significant shocks can be sharp as “catch-up” growth takes hold. This is not to say that everything’s rosy – it’s clearly not. But it’s also worth looking ahead to better times too.”

** Average value at 30 March 2020