How the latest lockdown is expected to impact our housing market

Guest post from Tony Alexander

Now that we are experiencing lockdown again, can we expect the same things to happen in the residential real estate market and economy as last time? No. There are some key differences between this situation and that of March 2020.

Back then we had no idea what would happen from a global pandemic and a lockdown.

Now we do. We cut spending for the lockdown duration then catch-up once we are free, using savings made over a few weeks and determined to try and live as much as we did before as possible.

That means that this time around, with knowledge of the very rapid and strong rebounds in our economy, jobs market, and housing market last year, we are far less fearful for our futures than 17 months ago. For that reason it is very unlikely that house prices will fall as they did last time by 3%.

In fact we have ample evidence from my monthly survey of real estate agents undertaken with REINZ to show this. With the survey sent out after we had been in lockdown for a week, the responses show this. Last year in lockdown a net 17% of agents said that prices were falling in their location. Now, a net 59% say they are rising.

Back then a gross 35% of agents said that buyers were displaying FOMO – fear of missing out. Now, 71% say that. Back then 48% of agents said that the biggest worry buyers had was losing their job. Now, only 12% say that.

But there are also some measures going the other way

In lockdown 2020 a net 8% of agents said that they were seeing more enquiries coming in from people offshore. Now, a net 39% say that such enquiries are falling.

Last year a net 16% of agents said that they were seeing more investors buying. Now, a net 41% say that investors are selling.

Last time the Reserve Bank removed LVRs and cut interest rates 0.75%. Now, LVRs are back and at more stringent levels, and the Reserve Bank is set to raise interest rates from October 6 in the face of inflation at 3.3% and set to soon exceed 4%.

Another difference is that in 2020 the borders were newly closed and people shifted their spending money from offshore travel to domestic purchases including housing and investment property. Now, people are thinking about the borders reopening early next year and they will be starting to divert spending plans back the other way.

But we have to keep in mind that the number of properties listed for sale is running 30% down from February 2020. Yet annual dwelling consent numbers are now over 45,000 from 37,000 back then.

The picture is somewhat messy

But it adds up to the housing market likely receiving an extra boost once lockdown ends. The Reserve Bank will eventually react to that with some extra application of lending restrictions possibly before Christmas. And if average prices are rising at a pace above 10% come early next year, the government is likely to start thinking about some new ways to restrict buying by investors a tad further, and maybe encourage some selling.

There is a lot of water still to go under the bridge for this housing cycle

For those highly geared there are some challenges coming with interest rates set to rise up to 2.5% and likely new rules. But for those with a strong focus on the long-term who have seen many ups and downs over the decades, and for whom debt levels are kept low, housing as an investment asset is going to remain relatively attractive.

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