Kiwis must brace themselves for more severe or prolonged economic impact for the banking sector, including a 10% drop in house prices, according to global rating agency Standards & Poors (S&P).
S&P released a negative forecast on the economic risk trend for New Zealand banks, particularly a one-in-three possibility that the economic impact for the banking sector could be prolonged or more severe than the agency's base case.
It also expects the COVID-19 crisis and containment measures to result in substantial yet temporary economic risks, including a 10% drop in house prices across New Zealand before resuming modest growth around mid-2021.
“The near complete lockdown in New Zealand through most of April 2020 placed restrictions on auctions and inspections, curtailing the volume of home sales,” said S&P analysts, as reported by Landlords.
“In the longer term, we expect that demand for housing will not be as buoyant as in the past several years as immigration will likely remain non-existent for some time with New Zealand's border closed until further notice.”
S&P also predicts that the fiscal stimulus from the government would reduce the severity in house price falls, and the six-month moratorium on house loan repayments would restrict distressed sales by property owners.
“Reduced construction of new homes in recent months is likely to persist in the next 12 months, which should amplify the persistent gap between demand and supply for housing across the country,” the S&P analysts continued.
“Finally, interest rates are likely to remain low, which should also support price growth when economic conditions improve.”