New Zealand has finally started reopening its economy from COVID-19 constraints. However, many investors still see a bleak future for the property market – with the housing market outlook dropping to a nearly eight-year low.
The ASB Housing Confidence Survey predicted that housing market confidence would continue to drop further in the coming months, with 14% of the respondents expecting higher house prices over the next year compared to 52% last quarter.
South Island, excluding Canterbury, saw the most significant decline in expectations – with a 45% point drop. In contrast, North Island experienced the smallest decline, with a net 20% of the respondents still expecting house prices to rise in 2021.
Nick Tuffley, a chief economist at ASB, commented that recessionary economic conditions triggering job cuts have resulted in weak market confidence.
“The housing market was literally stopped in its tracks during the lockdown. And respondents will be increasingly aware that there are tough times ahead. Some people are likely to have added concerns about their job security and take a more cautious attitude towards jumping into the housing market,” Tuffley said.
“The jump in the number of people receiving income support and mortgage holidays highlights that homeownership conditions are more challenging and that recent price momentum is likely to stall.”
Read more: Coronavirus: ASB releases economic forecast
Interest rates also took a hit from COVID-19 this quarter, with net 19% of the respondents expecting interest rates to plummet. Aucklanders were the most pessimistic regarding interest rates with a net 26% predicting a fall compared to only 5% last quarter.
“The fact that interest rate expectations didn't fall further likely reflects the unprecedented situation facing the New Zealand economy and the Reserve Bank,” Tuffley said.
“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.”