I’m currently sitting in my local cafe supporting local and like most people after riding the couch for 6 weeks during which we, banked subsidies, we watched Tiger King and we enjoyed old school Micheal Jordan.
We made a huge list of things that need to be done around the house then didn’t do any of them. We did what we were told and got the result we were promised, the country is awash with proud kiwis who flattened the curve.
So where’s this recession then?
I bought some Air New Zealand and it’s up 40%, I signed in to retail stores because I was told to and accepted the logic of that.
I looked at trademe for the flood of cheap houses, but nothing. Am I too early?
Please accept my deepest apologies if my rhetoric makes you uncomfortable as I know well that there are people having a really hard time, and I’m doing my part to get the country going again to help with that.
Most bank economists said we could expect between 10% and 15% decline in values, the GFC had us down 10% but Sars, Bird Flu, the world trade center booming, Asian economic crisis and terror attacks barely caused a dent in New Zealander’s appetites for owning some of New Zealand.
A recession is defined as a drop in Gross Domestic product for two successive quarters, and that could happen.
But if you look at “Why” recessions happen a drop in property values just doesn’t seem to make as much logical sense.
Most recessions tend to come about from a credit crunch, or bank’s inability to lend rather than banks lack of appetite to lend.
Currently, New Zealand banks are in a mortgage war over rates to attract customers and to retain their market share, all while having the support of the reserve bank and Government to lend virtually at will.
Banks only current restriction is the responsible lending code and their own ability to access credit.
We didn’t have a downward trajectory until the pandemic occurred by all indicators New Zealand’s property market was booming along very nicely.
The market wasn’t “Turning” it hadn’t “Peeked” and it wasn’t in my opinion at risk of boiling over.
Additionally there was more stock on the market pre COVID than now, it’s almost as if market conditions are actually prime to own property and so people are not selling.
So why should Covid affect property values?
Well, only one thing only comes to mind, “Job loses” peoples ability to feel as though they can afford to support lending on a house.
Other than that banks have money and they have the governments blessing to lend it, not with a relaxing of the Loan to Value ratio restrictions but after their removal entirely.
Additionally, the Reserve bank has set a “Shot Clock” at 12 months then they will review this effectively giving all home buyers a count down of when they should purchase.
Add to that the fact that borrowers can obtain $500,000 of lending from a main street bank and make interest-only payments at the moment of only $250 per week.
New Zealand had a shortage of housing pre-Covid, we stopped building anything for 6 weeks putting us at least 3 months behind in fixing the housing crisis (and let’s be fair, we were putting band-aids on it not fixing it).
Therefor New Zealand has an even worse housing crisis today and I’m just going to come right out and say it, We may not have a recession in house prices at all.
I run one of the countries most active Facebook pages for property investors at “Steve Goodey – Property Coach” and I polled my audience to see how they felt about confidence in the property market.
- 92.6% of respondents expected interest rates to be lower by Christmas than they are now.
- 80.4% of respondents think property is a solid investment and won’t be affected by Covid to any noticeable extent.
- 89.1% of respondents said they would buy a rental house in the next 6 months.
Shane Carruthers of Herne Bay’s Nexus Property says “Pent up demand, low listing rates, low interest rates and removal of LVR restrictions along with the prediction of these conditions continuing in the medium to long term has created a very buoyant property market.”
So where are all the good deals at the moment?
Well, there isn’t many, its a seller’s market due to these very market conditions.
Record high average asking and selling prices around the country has brought out kiwi sellers Fomo, Fear of missing out on future gains.
Low-interest rates mean that if your rental is tenanted and you’re not in dire financial trouble why would you sell?
The resulting super low numbers of listings will create a statistical lag in sales numbers being reported and often a burst in property values as competition over the limited stock push’s prices even higher.
The “Winners” from this superstorm in the property market will be first home buyers and to a degree investors who can access funds as banks pick and choose from the borrowers who can prove a resilient income stream post-Covid.
My advice is the same as always do your numbers, don’t be blinded by anything but the goal and “Carry on”.