A fair period of time has now passed since we all went back up the alert levels to different degrees in mid-August, and the incoming data shows that the property market has largely carried on unaffected. In addition, now that we’ve moved back down the alert levels, there doesn’t seem anything obvious in sight to knock the market off its current steady path either.
First things first, the wider macroeconomy doesn’t seem to have been too badly affected by the move back up the alert levels. Sure, with Auckland having faced extra restrictions and given that it accounts for 35-40% of national GDP, there was always going to be some kind of knock-on impact for the wider economy. But after August’s result showed a 1.7% annual fall, the NZ Activity Index showed a rebound in September, up by 1.0% from a year ago. You could argue that’s a pretty good result given the circumstances.
Many of the key property market indicators have also held up well in the past 6-8 weeks. The CoreLogic Early Market Indicators show that valuations activity initiated by the banks completely shrugged off the latest round of social restrictions, and although the number of appraisals generated by estate agents did fall initially, it has since bounced back strongly. In other words, these early-stage indicators suggest that both borrower demand (via valuations) and vendor supply (via appraisals) are tracking steadily.
That said, the market is still characterised by a tight supply of available listings, with any new properties that become available getting snapped up pretty quickly. Days to sell measures have been trending downwards lately, and the actual numbers of sales have bounced back. Indeed, in July, August, and September, sales volumes each month were at least 25% higher than the same month a year earlier. For the year to date, sales are now only down by 2% compared with 2019.
In other words, buyer demand is still pretty strong – on the back of super low mortgage rates – and when that hits up against a tight supply of available listings (which is being exacerbated by existing owner-occupiers generally not wanting to move house at present, thereby not listing their own home), the combined effect is to keep support under property values. Apart from Queenstown and some of the most expensive pockets of Auckland, property values across the rest of the country have generally been flat at worst since March, or in most cases have actually continued to increase.
In terms of activity in the mortgage market, it’s also remained fairly strong in the past 6-8 weeks, and there are signs that investors have benefitted most from the (temporary) removal of the loan to value ratio speed limits, which has seen more of them able to access the market with less than the previous 30% deposit. However, first home buyers are still active too, and this source of demand is being boosted by returning kiwis and would-be OE’ers who are now buying a house instead.
Overall, the latest round of social restrictions hasn’t materially changed the course of the property market. To be fair, the end of the wage subsidy and the prospect of a more significant rise in unemployment is a threat to be aware of. However, the extension of the mortgage payment deferral scheme until March next year, as well the prospect of ‘lower for longer’ mortgage interest rates, will tend to work in the other direction.