As I write this, Covid-19 or Coronavirus is in full force. First of all, my family is weighing up the pro’s and cons of going on a cruise next week – it’s hard to turn down 3 weeks away for the price of 1…… More importantly, Countries have shut their borders, sports games are being cancelled left right and center, the Olympics look certain to be postponed, Coachella already has been, Corona have lost in excess of $450million and economies and stock markets are crashing all over the world. Not to mention, people are too scared to leave their homes or socialize which is no good at all for the population of singles. All I can say is thank heck for Tinder and alike!
The skeptical view in us are inclined to think this is a deliberate act or ‘act of war’, or perhaps population control. The reality is though, that 250,000 is China's annual road toll – that’s 700 per day! And given that the virus has largely taken everyone off the roads, my guess is that population is far from decreasing as a result.
So what does this all mean for us in the residential space?
My view is that we are in for some short term pain but that the worst of it will largely be over by the second half of the year. China is already seeing the number of cases decrease so as the rest of the world gets it under control, things will start to improve, and the social hysteria will dissipate.
2020 started with a hiss and a roar. The property market has been busy, and buyers have come into the new decade ready to take action. We’ve seen bank turnaround times push out as a result of that workload, real estate agents excited about new stock and new property developments quickly meeting their pre-sale requirements to activate funding. That last one I might add is a big improvement on last year. I don’t see this changing too much however, I would expect a bit of a slowdown in the next quarter particularly in the second hand market as people resist going to open homes and avoid getting too close to people.
I think one of the hardest hit parts of the market in the short term will unfortunately be first home buyers who are looking to leverage their Kiwi Saver as their deposit. From what I can see, if you’ve been in a growth fund then your balance would have taken a hit and in some cases I’m seeing, that’s proving the difference between buying now or having to wait.
The OCR will drop this month and it’s likely that will be a decent cut of 0.5% followed by a further cut by May. We won’t see that full drop flow through to mortgage rates but we are likely to see rates fall a bit. We’ve already seen 2.89% - albeit very hard to actually get. That drop will keep the housing market busy enough while we see out the worst of this Pandemic. Supply and demand will always be a factor and the simple reality is we don’t have enough houses. The virus isn’t going to change that.
Don’t get me wrong, I am genuinely concerned about the economic result of social hysteria and the impact that we could all feel as a result of that – there will undoubtedly be blood on the floor following this. However, my hope is we get things under control quickly and get back to the highs that January and February gave us.