According to the May 2020 QV House Price Index (HPI) results released by Corelogic this week, the momentum in the property market prior to the pandemic has since been lost. However, with the number of residential property sales extremely low through April and May, a clear and timely understanding of the housing market performance will take a bit more time to become clear.

“The signs of the expected loss of momentum come from the monthly change in average values, which rose by only 0.5% in May, the smallest monthly gain in eight months. Given the HPI methodology includes sales over a rolling three month period, and considering housing market activity went into hibernation through April and most of May, the latest HPI results are heavily skewed towards housing market conditions in March,” noted Nick Goodall from Corelogic on Wednesday, adding, “Over the next few months, property values look set for further weakness, as GDP falls and unemployment continues to rise.”

“NZ sales volumes were down by almost 80% in April and while activity has increased in May, the market is still a long way from historic average levels of transactions. If low sales volumes persist, we could see additional volatility creeping into pricing measures. A key constraint on transactions remains a lack of ‘for sale’ listings. Low inventory levels are also likely to be a factor helping to insulate housing values during a period of less buyer activity. Longer term the market remains vulnerable to downside risk, as the effects of the pandemic and resulting lock-down continue to impact the economy and employment,” Goodall further added.

Housing confidence to a 8-year-low, and expect to fall further: ASB Housing Confidence Survey

The ASB Bank in its Housing Confidence Survey from three months to April, which was released on May 27, noted, “Housing confidence was knocked backed substantially in the three months to April. It seems the economic fallout from COVID-19 has dashed expectations of the housing upswing carrying on through the remainder of 2020. Confidence is now closing in on 8-year lows and we’d expect further falls next quarter.”

“House buying sentiment also continued to stutter in the three months to April. Perceptions of whether it’s a good time to buy are generally closely linked to housing affordability. And with recessionary economic conditions resulting in job cuts and a big hit to household income growth, it’s no surprise households are hunkering down.”

“As with house price expectations, household interest rate expectations were whipsawed in Q2. A net 19% of respondents now expect interest rates to fall. That expectations didn’t fall further likely reflects the unprecedented situation facing the NZ economy and Reserve Bank. The Bank’s key policy rate has been lowered as far as it can go and government bond purchases are now the Bank’s weapon of choice. We expect the Reserve Bank’s policy rate to remain at 0.25% for many years, but there may be some scope for mortgage and business interest rates to fall further,” the ASB Bank’s Senior Economist Mike Jones noted.

-TIN Bureau