Post Covid 19 Housing Market

Found this info posted to FaceBook by Craig Douglas of DP Homes really enlightening:

Real estate agents, property investors and mortgage brokers are sure that buyers will keep buying and sellers will keep selling in the weeks ahead, as the economic impact of the coronavirus works its way through.

This despite economists being divided on whether the slashed Official Cash Rate to the new record low of 0.25 per cent will mean banks keep lending and borrowers keep borrowing,

“There are really low interest rates, people are not under pressure to sell, we won’t see a sudden big drop in house prices,” says Squirrel Mortgages’ head, John Bolton.

“Property investors now have cash flow positive properties, so there’s no pressure on cash flow. Most households have dual incomes, so if one person loses their job, low interest rates mean it’ll be easier servicing the loan.”

Bolton points out that many people in the at-risk sectors such as tourism, hospitality or retail were not high home owners, so a spike in unemployment rates probably won’t affect rates of home ownership.

While he doesn’t expect people with term deposits in banks to switch to investing in property, nor does he see property investors quitting the market while their yields are so good.

“There’s no urgency, so that will keep house prices up,” he says, adding that while the spread of the Covid-19 virus might be short term, economic effects will linger.

REINZ expects bounce back

The chief executive of the Real Estate Institute of New Zealand, Bindi Norwell, says that while it is too early to understand the full extent of the impact of Covid-19, she does expect people to take a wait and see approach to the housing market.

“As a general rule, house prices tend to either hold or have a slight dip and volumes tend to fall,” she says, adding that during the Global Financial Crisis, while prices at first fell nearly 6 per cent, they were rising some months before the end of the recession.

A year later, by January 2010, median prices were up 9.4 per cent, $10,000 above January 2008 when prices started falling.

“[This] highlights that the market did recover reasonably quickly,” she says.

“The reality is that people always need to buy and sell houses – people might be moving for a new job or upsizing for family reasons, so we don’t expect the market to come to a complete stop.

“This time the use of technology may have a significant part to play in how the housing market can try and continue in a ‘normal’ fashion.”

Most commentators acknowledged the rapidly changing situation, expecting that revelations from the Reserve Bank later this week on regulatory measures that can be deferred, like the bank capital requirements, will ensure credit continues to flow.

‘Housing not driven by fear mongering’

UP’s head Barry Thom is upbeat, pointing to successful auctions – 17 of the last 19 auction properties sold under the hammer, including one on Tuesday – and crowds of anything from 10 to 80 people at open homes.

“The reality is that there are plenty of people who want to buy houses because interest rates are so low. It’s better than renting, affordability has never been better,” he says.

“People have to decide whether to be intimidated by the headlines, people are attracted to the fear and rage of experts with predictions. It’s not doom and gloom, if we stand back and look at the big picture, the long term. And the big picture is that interest rates are at a record low.”

Thom remembers the “talking heads” predicting after the 2008 GFC that house prices would fall, when in fact they firmed, as indeed, he says for earlier crises, from the 1987 share market crash, the earlier SARS and bird flu scares and so on.

“Houses are on a continual climb, so take a high level view, and not be driven by fear mongering.”

Thom says that most home buyers are in for the long term, five or 10 years or longer, so owners will hold on “through good times and bad.”

Investors will pick up their buying

Sharon Cullwick, a long-time property investor and now executive officer of the New Zealand Property Investors Federation, is equally optimistic.

“Any time is a good time” to buy, she says, but if banks improve the serviceability of loans or drop loan-to-value ratios, then buyers, herself included, will be out looking.

“I can go shopping. For me, it’s about serviceability. If the LVR levels change, then people are getting into investment. Young investors, or people able to buy their second homes, they’ll be growing to a few houses and to being a professional landlord.”

Thom too predicts sales in the under-$1 million price will fire, making a great opportunity for investors to get into rentals.

Cullwick does expect that some landlords will have to be sympathetic to tenants who may have jobs under threat. She’s observed that landlords won’t be quitting properties, as those who didn’t want to work with new residential tenancy regulations such as insulation, or ring fencing, have already gotten out of the market.

She is anxious that landlords are seen as businesses too, and will qualify for the government relief subsidies. The Government package announced Wednesday means that any employer, sole trader, or anyone self-employed, who can point to at least a 30 per cent decline in revenue, will be eligible for a major wage subsidy programme, of around $585 a week, for 12 weeks.

Expat Kiwis eyeing home again

Bayleys agent David Rainbow, who says he’s seen a lot of these cycles through the 36 years he’s been in real estate, says that in Sydney the market is just carrying on, and he expects the same here.

“It’s a bit like a bump on the head – the bump might last a day or so, but then we just carry on. There will be people buying homes to hold for the long term.”

Rainbow says that the sorts of high end properties he deals in is a particular kind of stock that rarely comes to the market, so buyers are waiting to buy a particular property and will move when it comes onto the market.

He’s been fielding enquiries the past couple of weeks from Kiwi expats in Australia, London and New York who are all, for different reasons, not just Covid-19, planning to come home. He thinks that compared to the GFC of 2008 this is more cautionary, with Monday’s border changes, but says that listings are still coming in and open home attendances are keeping up.

“Good real estate will still be in demand. People are just getting on with it.”

Ray White agent Nick Lyus agrees, saying that educated sellers will spot the opportunities, particularly as they will be competing with fewer homes on the market in the traditionally quieter winter months.

He even expects that once the travel restrictions are lifted, Auckland will have “a flock of Kiwis” who are currently working overseas coming back home with people fast-forwarding their plans and coming back to the “slice of paradise” sooner.

“Previously London and Hong Kong would have been more desirable places to live where money has been everything. Manhattan is so much fun but it’s not safe in a pandemic – just too many people.”

He says expats will revaluate their priorities, accept a salary cut and come back to a safer environment.

New Zealand Sotheby’s International Realty agent Pene Milne is also noticing a high level of enquiries from expats.

“The vibe I’m getting is people would rather invest their money to New Zealand.”

She says the last few months have been awakening for Kiwis living overseas who are planning to bring money back home. The pandemic is positive for real estate so far with sellers and buyers being confident about selling, Milne says.

“Anecdotally, due to Covid-19, if people are based in Europe or the US, they’d rather be home right now.”

Epsom’s Ray White agent Ross Hawkins says its business as usual despite the pandemic, again with high interest from overseas buyers who are residents in New Zealand.

“In a short term we have a virus, in a few months it will be gone and people around the world will be thinking ‘Next time it happens, where is the best place to be? An island in the Pacific with no neighbours.’ And we are it.”

He also thinks that people forced to spend a more in their house while self-isolating, or not travelling now, might be prompted to look at bigger living environments.

He also urges against a mindset of “sit and wait”, as once the virus slows down buyers will be competing against many other waiting .

“Those who are sitting on the fence and waiting to buy will be in a catch-up mode and we will get a buying frenzy, I imagine,” Hawkins adds.

South Auckland

And it is not just agents in up-scale parts of the country who are still seeing market optimism. Ray White’s Tom Rawson, who has agencies from Manurewa to Manukau, says that people are still wanting to sell, and still wanting to buy.

“It’s still pretty good for investors, yields really work out now, and you’re not getting any money if you put it in the bank. And the rent vs purchase price all still makes sense.”

He points out that at whatever stage a market is in, there’s always a buyer – whether it’s investors who come back into the market after sitting it out, and he’s seeing five or more bidders at auctions for properties from $700,000 to $1.1 million.

Queenstown

A Harcourts agent based in Queenstown, Kirsty Sinclair, says the resort town is going through “interesting times” with one covid-19 case confirmed, two weeks after it hit Auckland.

But despite that, the owner-occupied property market is active.

“We have had some really strong sales last week from owner occupiers. I think what we will see is that investors will just sit back for the next few weeks and adopt the ‘wait and see approach’.”

However, it’s too early to tell how Queenstown market will be affected and Sinclair is hoping for a clearer picture in a few weeks.

New Zealand Sotheby’s International Realty agent Pene Milne says New Zealand property has always done well during previous global economic crisis.

“It’s been the pattern in the past and I suspect people are looking into how they might hold or invest their money, rather than the stock market. If they don’t have stability in a stock market, they’ll put money into property.”

She says 1987 and 2008 recessions were a different scenarios, but did indicate how well New Zealand deals with tough times, compared to other places.

“The number of enquiries I am receiving is significant for people who are looking to invest,” she says.

Lessons from the GFC

Auckland Ray White agent Ross Hawkins says in the last recession, sale volumes went down and picked up at faster rate afterwards.

“There were people who were waiting, and they missed out on opportunities. It’s a good time to make a change and think about how this might change the way you think about your living.

However, everyone is affected differently and might not be in a position to buy now.

“If you have tourism business your hands are tied but there are people who have sold all their shares over the last few weeks and now they are all cashed up and property is the safest place to put your money,” Hawkins says.

“Property is tangible, you own it, you can feel it and touch it – it’s yours,” he adds.

UP’s Barry Thom says: “Life goes on. This too will pass, and in the meantime, we’ve got to get on with it.”

“The reality is, we will come through this – we just need to give time, time,” says Norwell, adding that, like everyone else, REINZ will be reviewing the emerging ‘new normal’ constantly.