COVID-19: What’s the short-term outlook for the property market?
Over the last week or so people have asked me what my view is of the property market here in New Zealand with all this Covid-19 business going down. My answers? Well, here’s my outlook short-term.
Without wanting to get too scientific about it, Covid-19 has or will result in about a third of New Zealanders being out of work, a third will remain employed but on reduced hours or with reduced income, and for the remaining third, there will be no change of income.
That’s an awful lot of people with less disposable income than they had a month ago (and maybe no income at all), and those same people will have stacks of uncertainty about their future income prospects. That there is a big hit to one’s confidence.
Wage subsidies, mortgage holidays and so on really only put us into a state of suspended animation. They are only there to get us through to a point where Covid-19 has been stamped out. The virus will be stamped out. But so will confidence. And confidence – not location – is the most important thing in real estate.
Confidence drives both the demand and supply side of the property equation. And therefore, confidence is the thing that drives value and prices.
Let me ask you this:
- Would you want to take on a mortgage if you’re uncertain about your income?
- Would the bank even let you!?
- How likely are you to list your property for sale if the number of capable buyers in the market (ie. those who are confident about their ability to get a mortgage) has dried up?
- If buying a new property depends on selling your current one, will you still try to sell, or will you just sit and wait?
The answers I’m hearing:
‘No, probably not.’ ‘I wouldn’t.’ ‘I’d wait.’ All negative to some degree, aren’t they.
Experience also tells me that those who bring their property to the market in these conditions are either in a really strong position and are capable of taking a hit, but many do so to relieve some pressure. To get their debt down to a level that is within their ‘new’ income.
This is their logic…
- Sell the flash house – move into something more modest – reduce debt.
- Sell the bach – it’s a luxury – reduce debt.
- Sell a rental property – reduce debt – no more tenant hassles.
And even if I’m wrong about those specific reasons, there’s still that lingering lack of confidence. When people are uncertain, they tend to do nothing, they just freeze.
In a market where some sellers are seeking relief and the majority of the players lack confidence, prices fall.
In this context, my view of the likely fall in prices is the same as Westpac’s.
They say 7% overall. I agree. I also reckon regions where there is a strong tourism component to the economy will be hit harder than that.
Tune in for my view of the longer-term picture for property, next. Thankfully!