ANZ economists expect a significant housing market downturn ahead, which would most likely push investors out of the market.
ANZ's latest Property Focus report pointed out that the COVID-19 lockdown resulted in fewer property listings and market activity across the country. Despite New Zealand making a gradual exit from the lockdown, ANZ economists still expect house prices to drop by 10% to 15% this year.
“With the virus in retreat in New Zealand, downside risks have receded slightly, particularly if the Reserve Bank [could] provide more stimulus than previously assumed,” the economists wrote on the report.
“We don't think the Reserve Bank can prevent house prices from falling double-digit, but they may be able to support a faster recovery. Nonetheless, downside risks remain, particularly if financial market jitters were to lead to a tightening in funding markets and credit supply.”
Read more: Property investors expect difficult road ahead
The economists explained that the impacts of the pandemic would be more apparent in the coming months, with many factors leading to a significant downturn in prices.
Despite the removal of loan-to-value ratio (LVR) restrictions, the economists explained that additional issues of finding tenants, higher risk of rent arrears, and the prospect of lower rents could reduce the number of investors in the market.
“For those who purchased a property just before the crisis hit, conditions may be particularly difficult or uncertain at present, particularly if sales are still in limbo or if purchases were made with low deposits,” the economists said.
“As prices fall, those people could find their equity eroded: They might suddenly owe a similar amount or potentially more than what their property is worth. As long as they can hold on through it, it's just a paper loss, but it's a highly unsettling situation to be in.”