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Macro View - Curious COVID effects

Tags: Residential Residential Views

With New Zealand’s economy at the mercy of a second wave of COVID-19 infections, independent economist Tony Alexander discusses the macro-economic trends playing a pivotal role in residential decision-making.

Defiant in the face of a second wave of lockdown-related restrictions, New Zealand’s residential real estate market has posted some extraordinary sale results, begging further analysis of the current economic recession.

Across the country, the volume of residential transactions has increased 24 percent year-on-year, with July’s sale results showing the most activity for the month in five years, according to data from the Real Estate Institute of New Zealand (REINZ).

Despite encouraging market progress which has offered renewed confidence, Kiwis know it’s a long ride to the finish line of COVID-19-related disruption.

“There are many risks out there of course,” says Tony Alexander, independent economist and author of industry publication Tony’s View.

“Most notably the failure to contain infection at the border and the return to social distancing, but what matters most is the direction of change in the market-place, and for now that direction is headed towards the better side of things,” he says.

Fear of the unknown

In his monthly real estate survey conducted in partnership with the REINZ, Mr Alexander found strong interest across the residential real estate sector has continued unabated, buoyed in-part thanks to a decrease in concern about risks such as falling house prices, a loss of income and job security.

Survey results show, Mr Alexander says, more people have been attending auctions, open homes and fewer investors are now hopeful of finding a bargain amongst the yet-to-materialise tranche of forced sales.

“Businesses are getting less despondent with confidence around their outlook for activity levels lifting from a net 55 percent of pessimistic responses to just seven percent in July,” Mr Alexander says.

This, coupled with the extension of the wage subsidy, and the mortgage deferral scheme by the Government is offering guaranteed support for both businesses and workers affected by COVID-19.

“New Zealanders know the lay of the land when it comes to lockdown restrictions, this time around employers and households are better equipped to deal with disruption and change,” he adds.

Social studies

“The unique aspect of this recession is it’s a temporary, voluntary crushing of the economy undertaken in order to save the lives and long-term health and happiness of thousands of people.”

Because of this, Mr Alexander says, some behavioural and social considerations apply.

“In terms of rising unemployment, the majority of those losing jobs in COVID-19-related conditions are in the services sector, and on low or variable wages.”

“This group tends not to be homeowners, and so the residential real estate market is escaping largely unscathed by the prospect of lost employment opportunities,” he says.

The change in personal circumstance has also dictated positive market performance.

Young New Zealanders poised to go on their OE are now homebound and anecdotal evidence has shown an uptick in first home buyer activity.

“A generation of young people have seen how rapidly a deposit for one’s first home can grow if spending is suspended for seven-weeks and overseas trips are not taken,” says Mr Alexander.

“Net population retention which has turned the brain drain into a brain gain has the potential to lift residential sales activity across main centres and into the regions as well,” Mr Alexander says.


“The New Zealand Government, has one of the best fiscal tracks in the OECD (Organisation for Economic Co-operation and Development) and even at the pessimistic projection peak in the net debt-to-GDP ratio of 54 percent, our numbers will be better than pre-COVID starting points for many other economies,” Mr Alexander says.

Thanks to a healthy starting position, the Government and the Reserve Bank of New Zealand (RBNZ) have been able to offer a swift response by way of substantial fiscal support.

The latest comments in the RBNZ’s August Monetary Policy Statement (MPS) signalled further support for banks to stimulate lending and economic activity.

“Looking to 2021 I expect accelerating underlying economic growth - that means stripping out simple catch-up spending factors,” Mr Alexander says.

“Interest rates will remain low, even falling early in the year a little further, I also expect house prices on average to rise,” he adds.

Mr Alexander’s optimism is tempered with an awareness of the downside risks which include globally worsening conditions.

However, he says the data we’re seeing as yet points to a reasonable level of support across the economy, the labour and the housing markets.

“We’re seeing continued, firm population growth, with greater potential yet to be unlocked when borders reopen maybe in 2022, this, paired with continued low interest rates and the evidence in our face right now that the deepest (short-lived) recession in our economy in yonks has failed to discourage home buyers to any obvious degree,” Mr Alexander says.

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