Over the past few months, there has been an ongoing discussion on how COVID-19 may affect the market and wider economy. Every week new data is released that starts to tell the story and although we still think there are many chapters left, there is some interesting reading so far.
One metric that jumps out, is the current shortage of houses listed for sale. Economist Tony Alexander recently reported that as a country, we already had historically low residential listings. When we went into the COVID-19 lockdown in late March, our listings across NZ were 27% down from March last year and down an incredible 64% from 10 years ago in March 2010. So even before we went into the current COVID-19 event we had a growing shortage of listings. Recently released post lockdown data shows listings continue to be down.
This shortage of supply on the market coupled with low-interest rates, pent up demand buying houses, and record net migration has contributed to residential market values holding strong. In fact, post lockdown, some parts of New Zealand have hit all-time heights in residential sale prices.
We believe that current indicators and factors influencing supply and demand suggest that the residential market will unlikely experience a significant downturn. These fundamentals give us confidence in the robustness of the housing market in the near term, with particular strength and depth at the affordable end.
In particular, house and land packages priced between $499,000 – $699,000 in Bay of Plenty, Waikato, the lower North Island have significant demand. The demand is coming from both first home buyers and investors with the low-interest-rate environment supporting both buyers. We foresee an issue in the medium term as low returns from bank deposits will push more investors into the property market and likely crowd out first home buyers.
Property valued over $800,000 is typically not accessible for first home buyers or investors. This market segment has however been highly sought after by returning NZ expats and “upsizers”. While the numbers of listings stays low, along with other key market drivers remaining stable, we will continue to see pressure and growth in demand of residential property.